[Federal Register Volume 77, Number 224 (Tuesday, November 20, 2012)]
[Notices]
[Pages 69677-69679]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-28192]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68233; File No. SR-NYSEArca-2012-103]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting
Approval of Proposed Rule Changes Amending NYSE Arca, Inc. Rules 3.2
and 3.3 and NYSE Arca Equities, Inc. Rules 3.2 and 3.3 To Expand the
Eligibility Requirements for Service on Certain Boards of Directors and
Committees
November 14, 2012.
I. Introduction
On September 18, 2012, NYSE Arca, Inc. (``NYSE Arca'') filed with
the Securities and Exchange Commission (``Commission''), pursuant to
Section 19(b)(1) \1\ of the Securities Exchange Act of 1934
(``Act''),\2\ and Rule 19b-4 thereunder,\3\ proposed rule changes to
amend NYSE Arca Rules 3.2 and 3.3 and NYSE Arca Equities, Inc. (``NYSE
Arca Equities'') Rules 3.2 and 3.3 to expand the eligibility
requirements for service on the Board of Directors of NYSE Arca (``NYSE
Arca Board'') and certain committees of NYSE Arca and NYSE Arca
Equities. The proposed rule changes were published for comment in the
Federal Register on October 1, 2012.\4\ The Commission received no
comment letters on the proposal.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
\4\ See Securities Exchange Act Release No. 67923 (September 25,
2012), 77 FR 59995 (SR-NYSEArca-2012-103) (the ``Notice'').
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II. Background
Amendments to NYSE Arca Rules 3.2 and 3.3
NYSE Arca Rule 3.2(a) sets forth the general provisions for Options
Committees. Specifically, NYSE Arca Rule 3.2(a)(8) states that any OTP
Holder \5\ of the Exchange in good standing, Allied Person \6\ of an
OTP Firm,\7\ or person from the public is eligible for appointment or
election to various Options Committees. NYSE Arca Rule 3.2(b) sets
forth the eligibility requirements for three specific Options
Committees: The Ethics and Business Conduct Committee (the ``EBCC
Committee''), the Nominating Committee, and the OTP Advisory
Committee.\8\ NYSE Arca Rule 3.3(a) sets forth the eligibility
requirements for the Board Appeals Committee and Appeals
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Panel.\9\ The Exchange proposes to amend its rules to expand the
eligibility requirements to serve on these various committees and
panels to include OTP Holders, Allied Persons of OTP Firms and
Associated Persons \10\ of OTP Firms.
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\5\ An ``OTP Holder'' is a natural person, in good standing, who
has been issued an Options Trading Permit (``OTP''), or has been
named as a nominee. See NYSE Arca Rule 1.1(q).
\6\ An ``Allied Person'' (for purposes of NYSE Arca Rules) is an
individual who is (1) an employee of an OTP Firm who controls such
firm, (2) an employee of an OTP Firm corporation who is a director
or a principal executive officer of such corporation, (3) an
employee of an OTP Firm limited liability company who is a manager
or a principal executive officer of such limited liability company,
or (4) a general partner in an OTP Firm partnership. Each of these
persons must be approved by the Exchange as an Allied Person. See
NYSE Arca Rule 1.1(b).
\7\ ``OTP Firm'' means a sole proprietorship, partnership,
corporation, limited liability company, or other organization in
good standing who holds an OTP or upon whom an individual OTP Holder
has conferred trading privileges on the Exchange's trading
facilities. See NYSE Arca Rule 1.1(r).
\8\ The EBCC currently consists primarily of OTP Holders and
Allied Persons of an OTP Firm. See NYSE Arca Rule 3.2(b)(1)(A). The
Nominating Committee currently consists of six OTP Holders. See NYSE
Arca Rule 3.2(b)(2)(A). The OTP Advisory Committee currently
consists of OTP Holders. See NYSE Arca Rule 3.2(b)(3)(A).
\9\ Each Appeals Panel is made up of no less than three (3) but
no more than five (5) individuals, at least one of whom is a
director that is an OTP Holder or Allied Person of an OTP Firm. See
NYSE Arca Rule 3.3(a)(1)(B).
\10\ ``Associated Person'' is person who is a partner, officer,
director, member of a limited liability company, trustee of a
business trust, employee of an OTP Firm, or any person directly or
indirectly controlling, controlled by or under common control with
an OTP Firm. See NYSE Arca Rule 1.1(d).
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The Exchange also proposes to expand the eligibility for its fair
representation directors.\11\ Currently, the Nominating Committee
publishes the name of one OTP Holder or Allied Person of an OTP Firm as
its nominee for the NYSE Arca Board.\12\ The Exchange proposes to
expand the eligibility for fair representation directors by amending
this rule to allow the Nominating Committee to publish the name of an
Associated Person of an OTP Firm as well.
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\11\ Under Section 3.02(a) of the Bylaws of NYSE Arca, the NYSE
Arca Board must have 8-12 directors, and at least 20 percent of the
directors must be individuals nominated by trading permit holders,
with at least one director nominated by the Equities Trading Permit
Holders (``ETP Holders'') of NYSE Arca Equities, and at least one
director nominated by the OTP Holders of the Exchange. In addition,
at least 50 percent of the directors must be directors who represent
the public. The exact number of the directors nominated by the ETP
Holders and OTP Holders is determined from time to time by the NYSE
Arca Board, subject to the percentage restrictions described above.
\12\ See NYSE Arca Rule 3.2(b)(2)(C)(ii).
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Amendments to NYSE Arca Equities Rules
The Exchange proposes to make parallel changes to the NYSE Arca
Equities Rules. NYSE Arca Equities Rule 3.2(a) sets forth general
provisions for various Equities Committees. Specifically, NYSE Arca
Equities Rule 3.2(a)(8) states that any ETP Holder \13\ of the Exchange
in good standing or Allied Person \14\ of an ETP Holder,\15\ or person
from the public is eligible for appointment or election to Equities
Committees. NYSE Arca Equities Rule 3.2(b) sets forth provisions for
two specific Equities Committees: The Business Conduct Committee (the
``BCC Committee'') and the Nominating Committee (the ``Equities
Nominating Committee'').\16\ NYSE Arca Rule 3.3(a) sets forth the
eligibility requirements for the Board Appeals Committee.\17\ The
Exchange proposes to amend the rules of NYSE Arca Equities so to expand
the eligibility requirements to serve on these various committees and
panels to include ETP Holders, Allied Persons of ETP Firms and
Associated Persons \18\ of ETP Firms.
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\13\ An ``ETP Holder'' is a sole proprietorship, partnership,
corporation, limited liability company or other organization in good
standing that has been issued an Equities Trading Permit. See NYSE
Arca Equities Rule 1.1(n).
\14\ An ``Allied Person'' (for purposes of NYSE Arca Equities
Rules) is an individual who is (1) an employee of an ETP Holder who
controls such firm, (2) an employee of an ETP Holder corporation who
is a director or a principal executive officer of such corporation,
(3) an employee of an ETP Holder limited liability company who is a
manager or a principal executive officer of such limited liability
company, or (4) a general partner in an ETP Holder partnership; each
of these persons must be approved by NYSE Arca Equities as an Allied
Person. See NYSE Arca Equities Rule 1.1(c).
\15\ ETP Firm means a sole proprietorship, partnership,
corporation, limited liability company, or other organization in
good standing who holds an OTP or upon whom an individual OTP Holder
has conferred trading privileges on the Exchange's trading
facilities. See NYSE Arca Rule 1.1(r).
\16\ The BCC currently consists of a minimum of one ETP Holder
or Allied Persons of an ETP Holder. See NYSE Arca Equities Rule
3.2(b)(1)(A). The Nominating Committee currently consists of six ETP
Holders. See NYSE Arca Equities Rule 3.2(b)(2)(A).
\17\ Each Appeals Committee currently consists of at least one
public director and at least one director that is an ETP Holder or
Allied Person of an ETP Firm. See NYSE Arca Equities Rule
3.3(a)(1)(A).
\18\ ``Associated Person'' is person who is a partner, officer,
director, member of a limited liability company, trustee of a
business trust, employee of an ETP Holder, or any person directly or
indirectly controlling, controlled by or under common control with
an ETP Holder. See NYSE Arca Equities Rule 1.1(f).
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In addition to amending the composition requirements of the
Equities Nominating Committee, the Exchange also proposes to amend NYSE
Arca Rules 3.2(b)(2)(C)(i) to expand the eligibility for fair
representation directors. Currently, the Equities Nominating Committee
may nominate ETP Holders or Allied Persons of ETP Holders to serve on
the NYSE Arca Board. The Exchange proposes to expand the eligibility
for fair representation directors by amending this rule to allow the
Equities Nominating Committee to publish the name of an Associated
Person of an ETP Firm as well.
III. Discussion and Commission Findings
The Commission has reviewed carefully the proposed rule changes and
finds that the proposed rule changes are consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\19\ In particular, the
Commission finds that the proposed rule changes are consistent with
Section 6(b)(3) of the Act,\20\ which, among other things, requires
that the rules of an exchange assure a fair representation of its
members in the selection of its directors and administration of its
affairs and provides that one or more directors shall be representative
of issuers and investors and not be associated with a member of the
exchange, broker or dealer. As the Exchange notes, the proposed rule
changes are consistent with the composition requirements set forth in
the governing documents of other self-regulatory organizations.\21\ The
Exchange is not proposing to alter the number of fair representation
candidates on the boards or any other aspect of the NYSE Arca Board's
composition or nomination process.
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\19\ In approving the proposed rule changes, the Commission has
considered their impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\20\ 15 U.S.C. 78f(b)(3).
\21\ See Notice, supra note 3 at 59995-59997.
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The proposed rule change also furthers the objectives of Section
6(b)(6) of the Act,\22\ because it provides for appropriate discipline
for violations of Exchange rules and regulations. The Commission
believes that the proposed rule change will expand the available
candidates with industry knowledge that are eligible for membership on
the Options and Equities Committees that are involved in reviewing
disciplinary actions against OTP Holders, OTP Firms, and ETP Holders
and advising on rule changes related to disciplinary matters and
trading rules.
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\22\ 15 U.S.C. 78f(b)(6).
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The Commission also believes that the proposed rule change furthers
the objectives of Section 6(b)(5) of the Act \23\ in that it is
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to 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. Specifically,
the Commission believes the proposed rule change would expand the pool
of candidates eligible for membership on the NYSE Arca Board and
committees of NYSE Arca and NYSE Arca Equities and thereby increase the
breadth of industry knowledge that would be available to these
entities, which should benefit the public interest.
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\23\ 15 U.S.C. 78f(b)(5).
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[[Page 69679]]
IV. Conclusion
For the foregoing reasons, the Commission finds that the proposed
rule changes are consistent with the Act and the rules and regulations
thereunder applicable to a national securities exchange.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\24\ that the proposed rule changes (SR-NYSEArca-2012-103), are
approved.
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\24\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
Kevin M. O'Neill,
Deputy Secretary.
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\25\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2012-28192 Filed 11-19-12; 8:45 am]
BILLING CODE 8011-01-P