[Federal Register Volume 76, Number 125 (Wednesday, June 29, 2011)]
[Notices]
[Pages 38231-38232]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-16243]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64727; File No. SR-C2-2011-012]
Self-Regulatory Organizations; C2 Options Exchange, Incorporated;
Order Approving Proposed Rule Change, as Modified by Amendment No. 1,
To Reduce the Minimum Size of the Nominating and Governance Committee
June 22, 2011.
I. Introduction
On April 27, 2011, C2 Options Exchange, Incorporated (``C2'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to reduce the minimum size of the Nominating and
Governance Committee (``NGC'') from seven to five. On May 18, 2011, the
Exchange filed Amendment No. 1 to the proposed rule change.\3\ The
proposed rule change was published for comment in the Federal Register
on May 10, 2011.\4\ The Commission received no comment letters
regarding the proposal. This order approves the proposed rule change,
as modified by Amendment No. 1.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ At the time C2 submitted the original proposed rule change,
it had not yet obtained formal approval from its Board of Directors
for the specific Bylaw changes set forth in this proposed rule
change. C2 stated that once that approval was obtained, it would
file a technical amendment to its proposed rule change to reflect
that approval. In Amendment No. 1, the Exchange notes that the C2
Board of Directors approved the specific Bylaw changes set forth in
SR-C2-2011-012 on May 17, 2011 and stated that no further action was
necessary in connection with its proposal. Because Amendment No. 1
is technical in nature, the Commission is not required to publish it
for public comment.
\4\ See Securities Exchange Act Release No. 64394 (May 4, 2011),
76 FR 27112 (``Notice'').
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II. Description of the Proposal
C2 is proposing to reduce the minimum size of its NGC from seven to
five directors. Section 4.4 of the Second Amended and Restated Bylaws
of C2 (``Bylaws'') currently provides, in pertinent part, that the NGC
shall consist of at least seven directors, including both Industry and
Non-Industry Directors; that a majority of the directors on the
Committee shall be Non-Industry Directors; and that the exact number of
members on the Committee shall be determined from time to time by C2's
Board of Directors (the ``Board'' or ``C2 Board''). Pursuant to the
proposed rule change, Section 4.4 of the Bylaws would be amended to
provide that the NGC shall consist of at least five directors. The
other provisions of Section 4.4 of the Bylaws would remain
unchanged.\5\
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\5\ Additionally, the title of the Bylaws would be changed to
the Third Amended and Restated Bylaws of C2.
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In outlining the purpose behind its proposal, the Exchange noted
that the size of its Board declined from its initial size of twenty-
three to nineteen directors in 2009 and again to sixteen directors in
2011.\6\ As the size of its Board has declined, the Exchange noted that
it has become more challenging to populate larger-size Board committees
since there are fewer directors to serve on a multitude of
committees.\7\ The Exchange's proposal to reduce the minimum size of
the NGC is intended to help address this issue.
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\6\ Section 3.1 of the Bylaws provides that the C2 Board shall
consist of not less than eleven and not more than twenty-three
directors, with the exact size determined by the Board.
\7\ See Notice, supra note 4, at 27112.
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III. Discussion
After careful review of the proposal, the Commission finds that the
proposed rule change, as modified by Amendment No. 1, is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange.\8\ In
particular, the Commission finds that the proposal is consistent with
Section 6(b)(1) of the Act,\9\ which requires a national securities
exchange to be so organized and have the capacity to carry out the
purposes of the Act and to comply, and to enforce compliance by its
members and persons associated with its members, with the provisions of
the Act, as well as Section 6(b)(5) of the
[[Page 38232]]
Act,\10\ in that it is designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade,
to remove impediments to, and perfect the mechanism of a free and open
market, and, in general, to protect investors and the public interest.
While the Exchange has proposed to reduce the minimum size of the NGC,
it has not proposed any other changes to the composition of the
committee or the scope or exercise of its responsibilities. In its
filing, the Exchange affirmatively represented that the NGC ``will
continue to be able to appropriately perform its functions'' despite
the reduction in minimum required size.\11\ The Commission further
finds that the proposal, as modified by Amendment No. 1, is consistent
with the requirements of Section 6(b)(3) of the Act,\12\ which requires
that one or more directors of an exchange shall be representative of
issuers and investors and not be associated with a member of the
exchange, broker or dealer.
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\8\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\9\ 15 U.S.C. 78f(b)(1).
\10\ 15 U.S.C. 78f(b)(5).
\11\ See Notice, supra note 4, at 27112.
\12\ 15 U.S.C. 78f(b)(3).
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In particular, the Commission notes that the Exchange will continue
to provide for the fair representation of C2 Trading Permit Holders in
the selection of directors and the administration of the Exchange
consistent with Section 6(b)(3) of the Act \13\ following this rule
change. Specifically, the C2 Bylaws will continue to require that at
least thirty percent of the directors on the C2 Board be Industry
Directors and that at least twenty percent of C2's directors be
Representative Directors elected by permit holders.\14\ Further, the
NGC will continue to include both Industry and Non-Industry Directors
(including a majority of Non-Industry Directors) and have an Industry-
Director Subcommittee that is composed of all of the Industry Directors
serving on the Committee. Representative Directors will continue to be
nominated (or otherwise selected through a petition process) by the
Industry-Director Subcommittee. Additionally, C2 Trading Permit Holders
will continue to be able to nominate alternative Representative
Director candidates to those nominated by the Industry Director
Subcommittee, in which case a Run-off Election will be held in which
C2's Trading Permit Holders vote to determine which candidates will be
elected to the C2 Board to serve as Representative Directors.
Furthermore, the Commission notes that the Exchange's proposal to
reduce the minimum size of its NGC is consistent with a proposal that
the Commission previously approved for another self-regulatory
organization in which that self-regulatory organization reduced the
minimum size of its nominating and governance committee from six to
four members.\15\
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\13\ 15 U.S.C. 78f(b)(3).
\14\ See Section 3.2 of the C2 Bylaws (defining ``Representative
Director'').
\15\ See Securities Exchange Act Release No. 54494 (September
25, 2006), 71 FR 58023 (October 2, 2006) (SR-CHX-2006-23) (approving
reduction of the Chicago Stock Exchange's Nominating and Governance
Committee from six directors to four directors). See also Article
II, Section 3 of the Bylaws of the Chicago Stock Exchange, Inc.
(providing for a Nominating and Governance Committee with four
directors).
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Finally, the Exchange has represented that, although the proposed
rule change would permit the Exchange to appoint a five-person NGC and
the Exchange may elect to do so in the future, it is the current
intention of the Exchange to appoint a six-person NGC.\16\
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\16\ See Notice, supra note 4, at 27112.
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\17\ that the proposed rule change (SR-C2-2011-012), as modified by
Amendment No. 1, be, and hereby is, approved.
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\17\ 15 U.S.C. 78s(b)(2).
\18\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-16243 Filed 6-28-11; 8:45 am]
BILLING CODE 8011-01-P