[Federal Register Volume 77, Number 94 (Tuesday, May 15, 2012)]
[Notices]
[Pages 28643-28646]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-11686]
[[Page 28643]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-66949; File No. SR-EDGX-2012-16]
Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating To
Amending Certain Sections of Its Current Bylaws
May 9, 2012.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on April 25, 2012, EDGX Exchange, Inc. (the ``Exchange'' or
``EDGX'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend certain sections of the Amended and
Restated Bylaws of EDGX Exchange, Inc. (the ``Current Bylaws'') to
conform with the Exchange's current corporate governance practices. The
text of the proposed rule change is attached as Exhibit 5 and is
available on the Exchange's Web site at www.directedge.com, at the
Exchange's principal office, and at the Public Reference Room of 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 Exchange 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend certain sections of the Current
Bylaws to conform with the Exchange's current corporate governance
practices. In addition, the Exchange proposes to address other non-
substantive revisions to reflect changes since the Securities and
Exchange Commission (the ``SEC'' or the ``Commission'') granted the
Exchange's registration as a national securities exchange in March
2010.\3\
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\3\ See Securities and Exchange Act Release No. 61698 (March 12,
2010), 75 FR 13151 (March 18, 2010).
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Board of Directors
Article III, Section 5 of the Current Bylaws state that the Chief
Executive Officer shall also be the Chairman of the Board of Directors
(the ``Board''). The Exchange proposes to revise this provision in the
New Bylaws to state, ``[t]he Directors shall choose among themselves
who will be the Chairman of the Board (the ``Chairman''), who may also
be the Chief Executive Officer,'' because the Exchange believes
separating the two roles is a good corporate governance practice and
provides the Board additional flexibility when determining the
Chairman. In addition, the Exchange proposes to add clarifying language
that states that if the Chief Executive Officer or other member of
management of the Exchange is the Chairman, then he or she shall not
participate in executive sessions of the Board. The Exchange believes
this amendment helps to preserve the purpose of the executive session,
which is for the Board to meet without the Exchange's management
present. Similarly, the Exchange proposes to make a conforming
amendment to Article VII, Section 6, to provide that the Chief
Executive Officer may be the Chairman of the Board.
Committees of the Board
The Exchange's Board consists of an Appeals Committee, an Audit
Committee, a Compensation Committee, an Executive Committee and a
Regulatory Oversight Committee (collectively, the ``Board
Committees''). In Article V, the Exchange proposes to amend the Current
Bylaws to more fully describe the responsibilities of the Board
Committees and to be consistent with the provisions of the Board
Committees' charters.
In Article V, Section 5(a), the Exchange proposes to amend the
Current Bylaws to state that the Compensation Committee is also
responsible for assisting the Board in fulfilling its responsibilities
to ensure the structures of compensation systems of the Exchange do not
interfere with the Exchange's ability to fulfill its responsibilities
as a Self Regulatory Organization (``SRO'').
In Article V, Section 5(b) (proposed to be re-numbered as Section
5(b)(i)-(vii)), the Exchange proposes to amend the Current Bylaws to
state that the Audit Committee is also responsible for assisting the
Board in fulfilling its responsibilities to oversee the financial
soundness and compliance resources and the effectiveness of financial
and compliance control processes related to the operation of the
Exchange; taking appropriate actions to oversee overall corporate
policy for quality activities and reporting of an SRO, sound business
risk management practices and ethical behavior; overseeing all
activities of the Exchange's internal audit function, including
management's responsiveness to internal audit recommendations and
selecting and replacing and determining the compensation of the head of
the Internal Audit Department (or if such position is outsourced,
selecting and replacing and determining the compensation of the third
party provider), in consultation with management; and overseeing
enterprise risk and technology operations, including security and
business continuity measures. The Exchange also proposes to amend the
language in Article V, Section 5(b)(iv) and (v), respectively, to
elaborate on the Audit Committee's responsibility to provide oversight
over the systems of internal controls, technology and information
integrity established by management and the Board and the Exchange's
legal and compliance process as well as to further clarify the Audit
Committee's responsibilities around independent auditors.
In Article V, Section 5(c), the Exchange proposes to amend the
Current Bylaws to elaborate on the Regulatory Oversight Committee's
duties to assist the Board in fulfilling its responsibilities to
oversee the adequacy and effectiveness of the Exchange's regulatory and
SRO responsibilities, including those responsibilities with regard to
each of its facilities, as defined in Section 3(a)(2) of the Securities
and Exchange Act of 1934 (the ``Act''). The Exchange also proposes to
amend the language in Article V, Section 5(c) to clarify that the
Regulatory Oversight Committee's responsibility to oversee the overall
effectiveness of the
[[Page 28644]]
Exchange's performance of its regulatory functions.
In Article V, Section 5(e), the Exchange proposes to amend the
Current Bylaws to clarify that the Executive Committee is also
responsible for facilitating coordination of the Board processes among
other things.
Committees of the Exchange
The Exchange proposes to amend the title of Article VI from
``Nominating and Governance Committees'' to ``Committees of the
Exchange'' in the New Bylaws because this section includes the
Nominating and Governance Committees and the Exchange Member Nominating
Committee.
In Article VI, Section 2, the Exchange proposes to amend the
Current Bylaws to elaborate on the Nominating and Governance
Committee's responsibilities to-develop and recommend governance
policies to the Board and to oversee an orientation for new Directors.
The Exchange also proposes to amend the language in Article VI, Section
2 to clarify that the Nominating and Governance Committee nominates
Director candidates and chairpersons to serve on the Board's Committee.
Other non-substantive grammatical and stylistic changes are also
proposed.
In Article VI, Section 3, the Exchange proposes to amend the
Current Bylaws to state that the Exchange Member Nominating Committee
is also responsible for nominating candidates for all other vacant or
new Exchange Member Director positions on the Board.
Officers, Agents and Employees
Article VII of the Current Bylaws state that the officers of the
Exchange include a President, Vice President, Assistant Secretary,
Treasurer and Assistant Treasurer, among others. However, the Exchange
has not now or ever designated a person to be a President, Vice
President, Assistant Secretary, Treasurer or Assistant Treasurer. In
addition, the duties enumerated in the Current Bylaws are currently
performed by other employees at the Exchange. Specifically, the Chief
Executive Officer has general supervision over the operations of the
Exchange. In addition, the Chief Executive Officer will delegate to
certain Exchange employees the powers and duties usually incident to
the office of President and Vice President in the event of the Chief
Executive Officer's absence. Therefore, the Exchange proposes deleting
the provisions in Article VII, Sections 7 and 8 that refer to the
responsibilities of the President and the Vice President since these
responsibilities are included within the role of the Chief Executive
Officer, which is generally described in Article VII, Section 6.
In addition, the Secretary will delegate to certain Exchange
employees the powers and duties usually incident to the office of
Secretary in the event of the Secretary's absence. Therefore, the
Exchange proposes deleting the provisions in Article VII, Section 11
that refers to the responsibilities of the Assistant Secretary.
Similarly, the Exchange proposes making a non-substantive stylistic
change to move the placement of the reference to the ``Secretary'' in
Article VII, Section 1.
Lastly, the Chief Financial Officer has general supervision over
the powers and duties usually incident to the office of the Treasurer.
The Board approves the appointment of a Chief Financial Officer in the
form of a Board resolution annually. In addition, the Chief Financial
Officer will delegate to certain Exchange employees the powers and
duties usually incident to the office of Treasurer and Assistant
Treasurer in the event of the Chief Financial Officer's absence.
Therefore, the Exchange proposes deleting the provisions in Article
VII, Sections 12 and 13 that refer to the responsibilities of the
Treasurer and Assistant Treasurer. Similarly, the Exchange proposes
making a conforming amendment to delete the reference to the Treasurer
in Article VII, Section 1.
In addition, the Exchange proposes to replace references to the
President with the Chief Executive Officer, where applicable, given
that the Exchange does not have a President and this is generally one
of the powers or duties that is incident to the office of the Chief
Executive Officer. The Exchange's proposed revisions include the
following specific amendments:
Article III, Section 7(b) of the Current Bylaws states, ``Any
Director may resign at any time either upon notice of resignation to
the Chairman, the President or the Secretary.'' The Exchange proposes
to replace the reference to ``the President'' with ``the Chief
Executive Officer,'' given that the Exchange does not have a President
and this is generally one of the powers or duties that is incident to
the office of the Chief Executive Officer.
Article III, Section 10(a) of the Current Bylaws states, ``Special
meetings of the Board may be called on a minimum of two (2) days notice
to each Director by the Chairman or the President, and shall be called
by the Secretary upon the written request of three (3) Directors then
in office.'' The Exchange proposes to replace the reference to ``the
President'' with ``the Chief Executive Officer,'' given that the
Exchange does not have a President and this is generally one of the
powers or duties that is incident to the office of the Chief Executive
Officer.
Article IV, Section 2 of the Current Bylaws states, ``Special
meetings of the stockholders, for any purpose or purposes, may be
called by the Chairman, the Board or the President, and shall be called
by the Secretary at the request in writing of stockholders owning not
less than a majority of the then issued and outstanding capital stock
of the Company entitled to vote.'' The Exchange proposes to replace the
reference to ``the President'' with the ``Chief Executive Officer,''
given that the Exchange does not have a President and this is generally
one of the powers or duties that is incident to the office of the Chief
Executive Officer.
Article VII, Section 1 of the Current Bylaws states, ``The officers
of the Company shall include a Chief Executive Officer, a President, a
Chief Regulatory Officer, a Secretary, a Treasurer and such other
officers as in the Board's opinion are desirable for the conduct of the
business of the Company. Any two or more offices may be held by the
same person, except that the offices of the President and Secretary may
not be held by the same person.'' The Exchange proposes to delete the
references to the Treasurer and to replace the reference to ``the
President'' with ``the Chief Executive Officer,'' given that the
Exchange does not have a President and this is generally one of the
powers or duties that is incident to the office of the Chief Executive
Officer.
Article VII, Section 3 of the Current Bylaws states, ``Any officer
may resign at any time upon notice of resignation to the Chairman, the
President or the Secretary.'' The Exchange proposes to replace the
reference to ``the President'' with ``the Chief Executive Officer,''
given that the Exchange does not have a President and this is generally
one of the powers or duties that is incident to the office of the Chief
Executive Officer. In addition, the Exchange proposes to add language
stating that an officer may also resign to a designee of the Board, if
none such officers are then-appointed, in order to improve the
Exchange's governance framework by providing for an additional option
should the Chief Executive Officer or Secretary not be appointed at the
time of the officer's resignation.
In addition, in Article VII, Section 9 (proposed to be re-numbered
as Section 7), the Exchange proposes to make conforming amendments to
delete the
[[Page 28645]]
references to ``Executive Vice President'' or ``Senior Vice President''
to describe the type of officer that may be designated as the Chief
Regulatory Officer.
Article XI: Miscellaneous Provisions
In Article XI, Section 7(a) (proposed to be re-numbered as Section
6(a)), the Exchange proposes to specifically identify the persons
authorized as signatories of all checks, drafts, bills of exchange,
notes or other obligations or orders for the payment of money that are
signed in the name of the Exchange. The New Bylaws will state, ``All
checks, drafts, bills of exchange, notes or other obligations or orders
for the payment of money shall be signed in the name of the Company by
such officer or officers or person or persons as the Board, or a duly
authorized committee thereof, may from time to time designate, or by
the Chief Executive Officer, the Chief Regulatory Officer, the
Secretary or such other officer or officers or person or persons as the
Chief Executive Officer, the Chief Regulatory Officer or the Secretary
may from time to time designate (collectively, the ``Authorized
Officers'').'' The Exchange proposes to make conforming amendments to
the provisions in Article XI, Section 7(b) (proposed to be re-numbered
as Section 6(b)) in order to permit any Authorized Officer of the
Exchange to execute all applications, written instruments and papers
required by any department of the United States government or by any
state, county, municipal or other governmental authority in the name of
the Company.
The Current Bylaws do not address stock certificates and
uncertificated shares. Therefore, the Exchange proposes to add Article
XI, Section 10 in the New Bylaws to state, ``[t]he shares of the
Exchange may be represented by certificates, provided that the Board
may provide by resolution that some or all of any or all classes or
series of the Exchange's stock shall be uncertificated shares. Every
holder of stock of the Exchange represented by certificates shall
otherwise be entitled to have a certificate, in such form as may be
prescribed by law and by the Board, representing the number of shares
held by such holder registered in certificate form. Each such
certificate (if any) shall be signed in a manner that complies with
Section 158 of the DGCL.'' \4\
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\4\ The DGCL refers to Delaware General Corporation Law.
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Miscellaneous Non-Substantive Changes
In addition to the changes set forth above, the Exchange proposes
to make the following non-substantive changes to the Current Bylaws.
The Exchange proposes to include the date that the Current Bylaws
were amended on the title page to notify Members of the effective date
of the New Bylaws.
The Exchange proposes to re-number various sections of the Current
Bylaws in order to eliminate gaps in the numbering and/or lettering of
the sections resulting from the proposed revisions as described in
Exchange's rule filing.
The Exchange proposes to delete the defined terms ``broker'' in
Article I, paragraph (d), and ``dealer'' in Article I, paragraph (j)
since neither term is referenced again in the Current Bylaws.
The Exchange proposes to amend the reference to the ``Holdings
Operating Agreement'' in Article I, paragraph (u) (proposed to be re-
numbered as paragraph (s)), to notify Members that the Fifth Amended
and Restated Limited Liability Company Operating Agreement of Direct
Edge Holdings LLC, that was revised on June 12, 2010, is currently in
effect.
In Article I, paragraph (v) (proposed to be re-numbered as
paragraph (t)), the Exchange proposes to replace the reference to the
``EDGX Exchange, Inc.'' with ``EDGA Exchange, Inc.'' to correct a
typographical error.
The Exchange proposes to delete dated references to time periods
and events that have expired since the proposal of the New Bylaws.
Specifically, the Exchange proposes to delete references to the
Operational Date in Article I, paragraph (y) and Article XI, Section 1
because the Commission granted the Exchange's registration as a
national stock exchange on March 12, 2010.\5\ Therefore, these
references to the Operational Date are obsolete.
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\5\ See also, supra note 3.
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Similarly, the Exchange proposes to delete provisions regarding the
initial Board in Article III, Section 2(a), and the initial Nominating
and Governance Committee and the initial Exchange Member Nominating
Committee in Article VI, Section 1, since these appointments have
already occurred. Similarly, the Exchange proposes deleting Exhibits A
and B in the Current Bylaws as this information is obsolete. The
Exchange proposes to omit Exhibits A and B in the New Bylaws because
the Exchange updates this information through the Commission's Form 1
amendment (Exhibits C and J),\6\ which is submitted to the Commission
within 10 days of a change to the Board of Directors or Committee
members.
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\6\ The Exchange regularly updates its Form 1 application
pursuant to Rule 6a-2 of the Act.
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The Exchange proposes to correct a typographical error in Article
I, paragraph (cc) (proposed to be re-numbered as paragraph (z)), by
referencing ``an'' Exchange in the New Bylaws.
The Exchange proposes to correct a typographical error by deleting
``and Governance'' in Article III, Section 6(b) when identifying the
Exchange Member Nominating Committee.
The Exchange proposes to insert ``of'' and delete ``or'' in Article
IX, Section 3(a) to correct a typographical error. Therefore, the New
Bylaws will state, ``* * * the trading in, or operation of, the
national securities exchange operated by the Company or any other
organized securities markets that may be operated by the Company, the
operation of any automated system owned or operated by the Company, and
the participation in any such system of any or all Persons or the
trading therein of any or all securities * * *'' (emphasis added).
In Article XI, Section 9 (proposed to be re-numbered as Section 8),
the Exchange proposes to clarify that ``PDF or similar transmission,''
where the receipt can be confirmed, will satisfy the notice
requirement.
2. Statutory Basis
The Exchange believes that its proposal is consistent with the
requirements of Section 6(b)(1) of the Act,\7\ in general, and furthers
the objectives of Section 6(b)(1) of the Act and Section 6(b)(5) \8\ of
the Act in particular, in that it enables the Exchange to be so
organized as to have the capacity to be able 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,
the rules and regulations thereunder, and the rules of the Exchange;
and to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, and to remove
impediments to, and perfect the mechanism of, a free and open market
and, in general, to protect investors and the public interest.
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\7\ 15 U.S.C. 78f(b)(1).
\8\ 15 U.S.C. 78f(b)(5).
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Specifically, the proposed amendments to certain provisions will
conform the Current Bylaws with the Exchange's current corporate
governance practices. In addition, the Exchange's proposed amendments
address other non-substantive revisions to reflect changes since the
Commission
[[Page 28646]]
granted the Exchange's registration as a national securities exchange
in March 2010.\9\
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\9\ See also, supra note 3.
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In addition, these proposed amendments will improve efficiency and
coordination among the Board and its Committee's by revising the
Current Bylaws to clearly delineate each Committee's responsibilities.
The proposed amendments will also benefit the Exchange and its Members
because the New Bylaws will reflect the current governance structure,
including the responsibilities of its officers thereby increasing the
transparency of this process.
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 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 neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) \10\ of the Act and Rule 19b-4(f)(6) \11\ thereunder. The
proposed rule change effects a change that (A) does not significantly
affect the protection of investors or the public interest; (B) does not
impose any significant burden on competition; and (C) by its terms,
does not become operative for 30 days after the date of the filing, or
such shorter time as the Commission may designate if consistent with
the protection of investors and the public interest; provided that the
self-regulatory organization has given the Commission written notice of
its intent to file the proposed rule change, along with a brief
description and text of the proposed rule change, at least five
business days prior to the date of filing of the proposed rule change,
or such shorter time as designated by the Commission.\12\
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f)(6).
\12\ 17 CFR 240.19b-4(f)(6)(iii).
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The Exchange provided the Commission with written notice of its
intent to file the proposed rule change, along with a brief description
and text of the proposed rule change, at least five business days prior
to the date of filing.
The proposed amendments to certain provisions of the Current Bylaws
are designed to conform with the Exchange's current corporate
governance practices. In addition, the Exchange's proposed amendments
address other non-substantive revisions to reflect changes since the
Commission granted the Exchange's registration as a national securities
exchange in March 2010.\13\ For the foregoing reasons, this rule
qualifies as a ``non-controversial'' rule change under Rule 19b-
4(f)(6), which renders the proposed rule change effective upon filing
with the Commission.
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\13\ See also, supra note 3.
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EDGX further requests that the Commission waive the 30-day
operative delay period after which a proposed rule change under Rule
19b-4(f)(6) becomes operative. The Commission believes that waiving the
30-day operative delay is consistent with the protection of investors
and the public interest. It will enable the Exchange to immediately
adopt the New Bylaws which should provide an enhanced, more transparent
governance structure for the Exchange and its Members. The Commission
designates the proposed rule change as operative upon filing.\14\
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\14\ For purposes only of waiving the 30-day operative delay,
the Commission has considered
the proposed rule's impact on efficiency, competition, and
capital formation. See 15 U.S.C. 78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-EDGX-2012-16 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-EDGX-2012-16. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-EDGX-2012-16 and should be
submitted on or before June 5, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-11686 Filed 5-14-12; 8:45 am]
BILLING CODE 8011-01-P