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Under the demutualization proposal, following voting member and regulatory approvals, PCX would convert from a membership organization to a for-profit stockholder corporation. This is a critical first step that will facilitate future potential strategic initiatives essential to succeed over the long term. The PCX would be the first U.S. securities exchange to convert to for-profit status.
The demutualization proposal calls for PCX seat owners to retain an equity interest in the Exchange as well as the trading access privilege that each seat carries today. Specifically, seat owners would receive shares of voting common stock in a new company, PCX Holdings, Inc., and a trading permit allowing them to trade on the PCX options floor. The existing Pacific Exchange would become a subsidiary of PCX Holdings, and it would continue to operate the options trading floor and regulatory functions.
PCX Chairman and CEO Philip D. DeFeo said, "The PCX now has a clear, well-defined strategic plan for demutualization with strong support from our Board. Demutualization is critical to our success and a necessary step in modernizing our governance and management for achieving leadership and growth in the future."
The goal of the proposed structure is to streamline decision-making, provide a more flexible capital structure, and separate the regulatory functions from other businesses. This structure would provide the Exchange with the ability to enter into strategic transactions by using its capital stock as a new form of currency. It would also enhance PCX's ability to raise outside capital for technology innovation, product development and other initiatives critical to maintaining and enhancing PCX's position in the industry.
The screen-based trading system is in development with Computershare, an Australian company that is one of the world's leading providers of securities custody and transfer services, and which has developed electronic trading systems for exchanges in Europe, Asia, and Africa. The rules adopted by the PCX Board must be reviewed and approved by the SEC. The Exchange said it hopes to launch the first phase of the new system in the first half of 2001.
"Our objectives are to bring up a screen-based trading system, support it and the trading floor fully and completely, and let market users choose which they prefer," said DeFeo. "Time is critical. We plan to move forward on SBT quickly, so that members, customers, and management can gain vital insight and experience with what will work and what will not. Our initial foray may not prove to be the right one, but we won't know that and we won't know what to change until we've all gained additional experience."
Hans R. Stoll, Professor of Finance and the Director of the Financial Markets Research Center at the Owen Graduate School of Management at Vanderbilt University in Nashville, was appointed to the PCX Board as a public governor. Stoll has been an advisor to the PCX Board since January of this year. He replaces J. William Morris III, managing partner of KPMG LLP's San Francisco office, who resigned for personal reasons. Morris will become an advisor to the PCX Board.
