[Federal Register Volume 78, Number 24 (Tuesday, February 5, 2013)]
[Notices]
[Pages 8203-8205]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-02423]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68766; File No. SR-CBOE-2012-116]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Order Granting Approval to a Proposed Rule Change
Relating to Bylaw and Other Changes Concerning the Board of Directors
of the Exchange
January 30, 2013.
I. Introduction
On November 30, 2012, the Chicago Board Options Exchange,
Incorporated (``Exchange'' or ``CBOE'') 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 amend its Bylaws concerning
the nomination of Representative Directors, petition candidates, and
the size of the
[[Page 8204]]
Exchange's Board of Directors (``Board''), and to make conforming
changes to the CBOE Certificate of Incorporation. On December 19, 2012,
the proposed rule change was published for comment in the Federal
Register.\3\ The Commission received no comments on the proposed rule
change. This order grants approval to the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 68428 (December 13,
2012), 77 FR 75230 (``Notice'').
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II. Description of the Proposed Rule Change
Compositional Requirements Determined by the Board
In December of 2011, CBOE amended its Bylaws and Certificate of
Incorporation to, among other things: (i) eliminate the requirement
that its Board of Directors be composed of at least 30% Industry
Directors, and (ii) eliminate the requirement in Section 3.2 of the
Bylaws that the Representative Directors must be Industry Directors.\4\
In connection with these changes, CBOE also amended Section 3.1 of the
Bylaws to provide that: ``[T]he Board shall determine from time to time
pursuant to resolution adopted by the Board the total number of
directors, the number of Non-Industry Directors and Industry Directors
(if any), and the number of Representative Directors that are Non-
Industry Directors and Industry Directors (if any).'' \5\
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\4\ See Securities Exchange Act Release Nos. 65682 (November 3,
2011), 76 FR 69780 (November 9, 2011) (SR-CBOE-2011-099) (noticing
for comment); and 65980 (December 15, 2011), 76 FR 79252 (December
21, 2011) (approving SR-CBOE-2011-099).
\5\ See CBOE Bylaw 3.1. See also Securities Exchange Act Release
Nos. 65682 (November 3, 2011), 76 FR 69780 at (November 9, 2011)
(SR-CBOE-2011-099) (noticing for comment).
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CBOE proposed to amend the Bylaws to expressly provide that any
person nominated by the Representative Director Nominating Body \6\ and
any petition candidate nominated pursuant to the Section 3.2 of the
Bylaws must satisfy the compositional requirements determined by the
Board pursuant to a resolution adopted by the Board in accordance with
Section 3.1 designating the number of Representative Directors that are
Non-Industry Directors and Industry Directors (if any). CBOE also
proposed to amend Section 3.5 of the Bylaws relating to the filling of
vacancies on the Board to provide that the Representative Director
Nominating Body may only recommend individuals to fill a vacancy in a
Representative Director position who satisfy those same compositional
requirements.
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\6\ The Exchange noted that at all times at least 20% of the
directors serving on the Board would be Representative Directors
nominated by the Representative Director Nominating Body as provided
in Section 3.2 of the Bylaws (or otherwise selected through the
petition process). See Notice, supra note 3, at 75230.
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Board Size Range
Currently, the Bylaws provide that the Board shall consist of not
less than 11 and not more than 23 directors. CBOE proposed to change
the Board size range such that the Board would consist of not less than
12 and not more than 16 directors.
Conforming Amendments to Certificate of Incorporation
Finally, CBOE proposed to make conforming changes to its
Certificate of Incorporation and to include in its Certificate of
Incorporation that the Board and/or Nominating and Governance
Committee, as applicable, shall make determinations as to whether a
director candidate satisfies applicable qualifications for election as
a director pursuant to and in accordance with Section 3.1 of the
Exchange's Bylaws, which is nearly identical to the current provisions
in the Exchange's existing Bylaws.
III. Discussion
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange.\7\
In particular, the Commission finds that the proposed rule change is
consistent with Section 6(b)(1) of the Act,\8\ which requires a
national securities exchange to be so organized and have the capacity
to carry out the purposes of the Act and to enforce compliance by its
members and persons associated with its members with the provisions of
the Act; Section 6(b)(3) of the Act,\9\ which requires that the rules
of a national securities exchange assure the fair representation of its
members in the selection of its directors and administration of its
affairs, and provide 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 (the ``fair representation requirement'');
and Section 6(b)(5) of the Act,\10\ in that it is designed, among other
things, 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 a national
market system; and, in general, to protect investors and the public
interest.
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\7\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
\8\ 15 U.S.C. 78f(b)(1).
\9\ 15 U.S.C. 78f(b)(3).
\10\ 15 U.S.C. 78f(b)(5).
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The Commission believes that the Exchange's proposal to expressly
provide that any person nominated by the Representative Director
Nominating Body \11\ and any petition candidate nominated pursuant to
the Section 3.2 of the Bylaws must satisfy the compositional
requirements determined by the Board pursuant to a resolution adopted
by the Board in accordance with Section 3.1 of the Bylaws, as well as
the proposal to amend Section 3.5 of the Bylaws to provide that the
Representative Director Nominating Body may only recommend individuals
to fill a vacancy in a Representative Director position who satisfy
those same compositional requirements, are consistent with Section 6(b)
of the Act,\12\ including Section 6(b)(3) of the Act.\13\ The
Exchange's proposal would not impact its current process to ensure fair
representation of its Trading Permit Holders in the selection of its
directors and administration of its affairs as required by Section
6(b)(3) of the Act.\14\ Specifically, the proposed changes are
consistent with the changes to the Bylaws that CBOE made in December of
2011 and simply reflect the application of those changes. As the
Commission noted when it approved that prior proposal, the Commission
had previously approved proposals in which an exchange's board of
directors was composed of all or nearly all non-industry directors
where the process was nevertheless designed to comply with the ``fair
representation'' requirement in the selection and election of
directors.\15\
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\11\ See supra note 6.
\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(3). Section 6(b)(3) of the Act requires
that the rules of a national securities exchange assure the fair
representation of its members in the selection of its directors and
administration of its affairs, and provide 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.
\14\ See id.
\15\ See Securities Exchange Act Release No. 65980 (December 15,
2011), 76 FR 79252 at 79253 (December 21, 2011) (approving SR-CBOE-
2011-099) (citing to Securities Exchange Act Release No. 48946
(December 17, 2003), 68 FR 74678 (December 24, 2003) (approving SR-
NYSE-2003-34)).
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In addition, the Commission believes that the Exchange's proposal
to change the Board size range to consist of not less than 12 and not
more than 16 directors is consistent with Section 6(b) of the Act,\16\
including Section 6(b)(3) of
[[Page 8205]]
the Act.\17\ The Exchange's proposal would not impact in any manner its
current process to ensure fair representation of its Trading Permit
Holders in the selection of its directors and administration of its
affairs as required by Section 6(b)(3) of the Act.\18\ Further, the
proposed change is consistent with the current size of CBOE's Board and
simply narrows the possible size range from 11 to 23 to 12 to 16.
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\16\ 15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f(b)(3).
\18\ See id.
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IV. Conclusion
For the foregoing reasons, the Commission finds that the proposed
rule change is 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,\19\ that the proposed rule change (SR-CBOE-2012-116) be and hereby
is approved.
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\19\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-02423 Filed 2-4-13; 8:45 am]
BILLING CODE 8011-01-P