[Federal Register Volume 78, Number 128 (Wednesday, July 3, 2013)]
[Notices]
[Pages 40252-40253]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-15916]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69869; File No. SR-NYSE-2013-32]
Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Approving a Proposed Rule Change Proposing an Amendment to the Bylaws
of Its Wholly-Owned Subsidiary, NYSE Regulation, Inc. (``NYSE
Regulation''), To Eliminate a Requirement That Not Less Than Two
Members of the Board of Directors of NYSE Regulation Must Qualify as
``Fair Representation Candidates''
June 27, 2013.
I. Introduction
On May 8, 2013, the New York Stock Exchange LLC (``NYSE'' or the
``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 amend the bylaws of its wholly-owned subsidiary
NYSE Regulation, Inc. (``NYSE Regulation'') to eliminate a requirement
that not less than two members of the board of directors of NYSE
Regulation (``NYSE Regulation Board'' or ``Board'') must qualify as
``fair representation candidates'' (as that term is defined in those
bylaws). A requirement that such directors constitute a minimum of 20%
of the NYSE Regulation Board would remain in place. The proposed rule
change was published for comment in the Federal Register on May 22,
2013.\3\ The Commission received no comments on 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. 69590 (May 16,
2013), 78 FR 30378 (``Notice'').
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II. Description of the Proposal
The Exchange proposes to amend the Fourth Amended and Restated
Bylaws of NYSE Regulation (``NYSE Regulation Bylaws'') to eliminate the
requirement that not less than two members of the NYSE Regulation Board
must be ``fair representation candidates'' (as defined in the NYSE
Regulation Bylaws). However, the current requirement that such
directors constitute a minimum of 20% of the Board would continue to
apply. Furthermore, under the proposal, if the number that is equal to
20% of the entire Board is not a whole number, such number would be
rounded up to the next whole number, and a provision so stating would
be added to the NYSE Regulation Bylaws.
As defined in the NYSE Regulation Bylaws, the fair representation
candidates are Board members who are determined by member organizations
of the Exchange through a specified petition process (``Petition
Candidates'') or, in the absence of a sufficient number of Petition
Candidates, candidates would be recommended by the Director Candidate
Recommendation Committee (``DCRC'') of NYSE Regulation. In addition,
fair representation candidates for the NYSE Regulation Board must
qualify as ``non-affiliated directors'' (as such term is defined in the
NYSE Regulation Bylaws), i.e., such persons must be U.S. Persons who
are not members of the board of directors of NYSE Euronext and qualify
as independent under the director independence policy of NYSE
Regulation.\4\ Finally, like all members of the NYSE Regulation Board
except for the Chief Executive Officer, the fair representation
candidates must qualify as independent under the director independence
policy of NYSE Regulation.\5\ The Exchange stated that it is not
proposing to change the NYSE Regulation independence requirements.\6\
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\4\ See Securities Act Release No. 67564 (August 1, 2012), 77 FR
47161 (August 7, 2012) (SR-NYSE-2012-17) (approving a new director
independence policy for NYSE, NYSE Regulation, NYSE Market, Inc.,
and NYSE MKT LLC).
\5\ The NYSE Regulation Bylaws require that a majority of the
NYSE Regulation Board must consist of non-affiliated directors. The
remaining directors are comprised of the Chief Executive Officer of
NYSE Regulation and members of the board of directors of NYSE
Euronext that qualify as independent under the NYSE Euronext
independence policy. The NYSE Regulation Bylaws do not require any
affiliated directors other than the Chief Executive Officer of NYSE
Regulation.
\6\ See Notice, 78 FR at 30379.
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The NYSE Regulation Bylaws provide that the Board shall consist of
not less than three persons and that the number of directors shall be
fixed from time to time by the Exchange, as sole equity member of NYSE
Regulation. The size of the NYSE Regulation Board is currently fixed at
five members, of which four positions are currently filled and one
position is open.\7\ The Exchange represented that both the Exchange
and NYSE Regulation believe that a board
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consisting of five members is sufficiently large to effectively perform
the NYSE Regulation Board's oversight responsibilities.\8\ In addition,
with a Board size of five directors, the Exchange stated that it
believes that retaining the requirement that at least two directors
must be ``fair representation candidates'' is now unwarranted, because
such directors would constitute 40% of the Board rather than 20% as was
the case when the number of directors was fixed at ten members.\9\
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\7\ The Exchange noted that the number of directors on the NYSE
Regulation Board was reduced from ten to five in early 2013 in
connection with the Financial Industry Regulatory Authority's
(``FINRA'') completion of specified milestones in the regulatory
services agreement by and among FINRA, NYSE Group, Inc., NYSE, NYSE
Regulation, NYSE Arca, Inc., and NYSE MKT LLC pursuant to which
FINRA assumed responsibility for performing the market surveillance
and enforcement functions previously conducted by NYSE Regulation.
See Notice, 78 FR at 30379 n.6.
\8\ See Notice, 78 FR at 30379.
\9\ See id.
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The Exchange represented that the DCRC of NYSE Regulation is aware
of and is in agreement with the proposed plan of implementation. The
Exchange also represented that there is otherwise no change to the fair
representation candidate selection and petition process.\10\
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\10\ See Notice, 78 FR at 30379 n.7.
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The Exchange stated that it believes that the elimination of the
two-director minimum requirement for fair representation candidates is
consistent with the governance structures of other national securities
exchanges that have been approved by the Commission.\11\ The Exchange
pointed out that similar changes were approved subsequently to the
Commission's approval of a structure for the board of NYSE Alternext US
LLC (now NYSE MKT LLC), an affiliate of the Exchange, that included a
requirement that at least 20% of that exchange's board constitute fair
representation directors, but without the requirement that there be no
less than two such directors.\12\ The Exchange also noted that, more
recently, the Commission approved a similar change when it considered a
proposal to revise the Operating Agreement and Bylaws of the Exchange's
wholly owned subsidiary, NYSE Market, Inc.\13\
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\11\ See Notice, 78 FR at 30379. The Exchange noted that, for
example, Article III, Section 5(e) of the By-Laws of the of the
NASDAQ Stock Market LLC (``NASDAQ'') requires that the Regulatory
Oversight Committee of the NASDAQ Board of Directors (``NASDAQ
ROC''), which has an oversight role comparable to that of the NYSE
Regulation Board, must consist of three members, each of whom must
be a ``Public Director'' (i.e., ``a Director who has no material
business relationship with a broker or dealer, [NASDAQ] or its
affiliates, or FINRA'') and an ``independent director'' as defined
by NASDAQ Marketplace Rule 4200. The Exchange also noted that there
is no requirement that the NASDAQ ROC have any members who would be
the equivalent of a fair representation candidate on the NYSE
Regulation Board.
\12\ See Securities Exchange Act Release No. 58673 (September
29, 2008), 73 FR 57707, 57711-12 (October 3, 2008) (SR-Amex-2008-
62).
\13\ Securities Exchange Act Release No. 59683 (April 1, 2009),
74 FR 15799 (April 7, 2009 (SR-NYSE-2009-12).
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III. Discussion and Commission Findings
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.\14\ In particular, the Commission finds
that the proposal is consistent with the requirements of Section
6(b)(3) of the Act, which provides that the rules of an exchange must
assure a 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.\15\
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\14\ In approving this proposed rule change, the Commission
notes that it has considered the proposed rule's impact on
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
\15\ 15 U.S.C. 78f(b)(3).
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The fair representation requirement in Section 6(b)(3) of the Act
is intended to give members a voice in the selection of the exchange's
directors and the administration of its affairs. Moreover, the Section
6(b)(3) requirement helps to ensure that members are protected from
unfair, unfettered actions by an exchange and that, in general, an
exchange is administered in a way that is equitable to all those who
trade on its market or through its facilities. The Commission notes
that the requirement that at least 20% of the directors on the NYSE
Regulation Board be fair representation candidates is designed to
ensure the fair representation of NYSE members on its Board. The
Commission notes that, while the proposal eliminates the requirement
regarding a specific minimum number of fair representation candidates
on the Board, it does not alter the minimum 20% requirement for fair
representation candidates or the process by which members can directly
petition and vote for representatives on the NYSE Regulation Board.
Moreover, the Commission notes that the proposal adds to the NYSE
Regulation Bylaws a provision that whenever 20% of the Board would not
result in a whole number, such number would in all cases be rounded up
to the nearest whole number, thus ensuring that the fair representation
candidates never constitute less than 20% of the Board. Furthermore, as
the Exchange noted, the proposed change to the NYSE Regulation Bylaws
is consistent with previous proposals approved by the Commission.\16\
The Commission therefore finds that the Exchange's proposal is
consistent with Section 6(b)(3) of the Act.\17\
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\16\ See supra notes 12 and 13 and accompanying text.
\17\ 15 U.S.C. 78f(b)(3).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\18\ that the proposed rule change (SR-NYSE-2013-32) is approved.
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\18\ 15 U.S.C. 78s(b)(2).
\19\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-15916 Filed 7-2-13; 8:45 am]
BILLING CODE 8011-01-P