-------------------- BEGINNING OF PAGE #1 ------------------- SECURITIES AND EXCHANGE COMMISSION 17 CFR PART 200 Release No. 34-35548 Establishment of Commission Quorum Requirement. ACTION: Final rule. SUMMARY: The Securities and Exchange Commission ("Commission") is amending its rules to specify the number of Commission members that constitute a quorum. The amendments are designed to promote flexibility, finality, and collegiality of agency decisionmaking. EFFECTIVE DATE: [Thirty days after publication in the FEDERAL REGISTER]. FOR FURTHER INFORMATION CONTACT: Walter B. Stahr, Assistant General Counsel, or C. Hunter Jones, Special Counsel, Office of the General Counsel, at (202) 942-0888. SUPPLEMENTARY INFORMATION: The Commission is modifying 17 CFR 200.40 - 42 to provide that three members constitute a quorum of the Commission, with two important exceptions. First, if the number of members in office is two or one, that number is sufficient for a quorum. Second, if the number of members in office minus the number disqualified with respect to a matter is two, two constitute a quorum for purposes of that matter. The Securities Exchange Act of 1934 ("Exchange Act"), unlike many statutes that establish federal agencies, does not establish a quorum requirement for the Commission. In the past, the practice of the Commission has generally been that three members constitute a quorum. See In re International Paper & Power Co., 2 SEC 792, 793 n.1 (1937), rev'd on other grounds sub nom. Lawless v. SEC, 105 F.2d 574 (1st Cir. 1939). This practice, however, has never been formally adopted as a policy or rule. The Commission, which currently has only three members, has reconsidered its quorum practice. It has decided to adopt a general rule, with the exceptions discussed below, that three commissioners are required for a quorum. Although this rule may create difficulties when only three commissioners are in office, these difficulties are outweighed by the benefits of having all three commissioners deliberate and vote on matters. Situations arise, however, in which only two members are able to participate in a matter. When three members are in office, for example, one member may recuse himself or herself from considering a matter. See 17 CFR 200.60. Similarly, it is possible that, at some point, there would be only two commissioners in office. In the past, the Commission has resorted to the duty officer procedure to deal with urgent matters as to which only two commissioners are available. See 17 CFR 200.42. The duty officer procedure, however, because it is a form of delegation, is not available for rulemaking. See Exchange Act Section 4A(a). Moreover, although a duty officer's action is Commission action unless and until the Commission directs otherwise, see 17 CFR 200.42(c)(3), the Commission cannot affirm the duty officer's action when only one other Commission member is available to consider the matter. Finally, and perhaps most importantly, it is more consistent with the collegial nature of the Commission to allow the two qualified members to address such matters as a Commission. The Commission also believes that it would be appropriate to preserve the flexibility necessary to take effective action in the event, however unlikely, that there would be a period with only one commissioner in office. To provide adequate flexibility in this unlikely situation, the Commission is providing that one commissioner would constitute a quorum if no other commissioners are in office. The Commission does not believe it is necessary, at this time, to provide that one commissioner may constitute a -------------------- BEGINNING OF PAGE #2 ------------------- quorum when disqualifications result in only one commissioner being available to deal with a particular matter. Accordingly, the Commission is adopting a new rule, at 17 CFR 200.41, providing that three members constitute a quorum unless only two members or one member are in office, or unless, because of disqualifications, only two members are available to deal with a particular matter. The Commission is also amending 17 CFR 200.40 to clarify that it applies only to meetings that are subject to the Government in the Sunshine Act. The Commission has determined that these amendments and additions to its procedural rules relate solely to the agency's organization, procedure or practice. Therefore, the provisions of the Administrative Procedure Act ("APA") regarding notice and comment are not applicable. See 5 U.S.C. 553. Similarly, the provisions of the Regulatory Flexibility Act, which apply only when notice and comment are required by the APA or other laws, are not applicable. See 5 U.S.C. 601 - 612. Effects On Competition Section 23(a)(2) of the Exchange Act requires the Commission, in adopting rules under the Exchange Act, to consider the anti-competitive effects of such rules, if any, and to balance any impact against the regulatory benefits gained in furthering the purposes of the Exchange Act. See 15 U.S.C. 78w(a)(2). The Commission has considered the changes adopted in this release in light of the standards cited in section 23(a)(2) and believes that their adoption would not impose any burden on competition not necessary or appropriate in furtherance of the Exchange Act. Statutory Basis of Rule The amendments to the Commission's rules are adopted pursuant to the authorities set forth therein. List of Subjects 17 CFR Part 200 Administrative practice and procedure, Authority delegations (Government agencies). Text of Amendments For the reasons set out in the preamble, Title 17, Chapter II, Part 200 of the Code of Federal Regulations is amended as follows: PART 200 -- ORGANIZATION; CONDUCT AND ETHICS; AND INFORMATION AND REQUESTS 1. The authority citation for Part 200, Subpart B, is revised to read as follows: AUTHORITY: 5 U.S.C. 552b; 15 U.S.C. 78d-1 and 78w. 2. Section 200.40 is revised to read as follows: 200.40 Joint disposition of business by Commission meeting. Any meeting of the Commission that is subject to the provisions of the Government in the Sunshine Act, 5 U.S.C. 552b, shall be held in accordance with Subpart I of this part. The Commission's Secretary shall prepare and maintain a Minute Record reflecting the official action taken at such meetings. 3. Sections 200.41 and 200.42 are redesignated as 200.42 and 200.43, and 200.41 is added to read as follows: 200.41 Quorum of the Commission. A quorum of the Commission shall consist of three members; provided, however, that if the number of Commissioners in office is less than three, a quorum shall consist of the number of members in office; and provided further that on any matter of business as to which the number of members in office, minus the number of members who either have disqualified themselves from -------------------- BEGINNING OF PAGE #3 ------------------- consideration of such matter pursuant to 200.60 or are otherwise disqualified from such consideration, is two, two members shall constitute a quorum for purposes of such matter. 4. In newly redesignated 200.42, in paragraph (a) the reference to " 200.42" is revised to read " 200.43" and in paragraph (b) the reference to " 200.41(a)" is revised to read " 200.42(a)". 5. In newly redesignated 200.43(c)(1), the reference to " 200.42(a)" is revised to read " 200.43(a)" and the reference to " 200.41" is revised to read " 200.42". 6. In 200.401(a), the reference to " 200.41 or 200.42" is revised to read " 200.42 or 200.43". By the Commission. Jonathan G. Katz Secretary Dated: March 30, 1995