[Federal Register Volume 78, Number 128 (Wednesday, July 3, 2013)]
[Notices]
[Pages 40255-40257]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-15936]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69884; File No. SR-BYX-2013-013]
Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Order
Granting Approval to Proposed Rule Change Amending and Restating the
Amended and Restated By-Laws of BATS Y-Exchange, Inc.
June 27, 2013.
I. Introduction
On April 29, 2013, BATS Y-Exchange, Inc. (the ``Exchange'' or
``BYX'') 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 and restate the Amended and Restated By-
Laws of BATS Y-Exchange. The proposed rule change was published for
comment in the Federal Register on May 15, 2013.\3\ The Commission
received no comments on the proposal. This order approves 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. 69541 (May 8, 2013),
78 FR 28695 (May 15, 2013) (``Notice'').
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II. Description of the Proposal
The Exchange has proposed to amend and restate its Amended and
Restated By-Laws (the ``Current By-Laws'') and adopt these changes as
its Second Amended and Restated By-Laws (the ``New By-Laws''). The
Exchange's proposed amendments to the Current By-Laws include: (i)
Providing that the Board of Directors will consist of four (4) or more
directors, with the board fixing the actual number of directors from
time to time by resolution of the Board of Directors rather than fixing
the number of directors in the by-laws; (ii) clarifying that the
existing procedures for filling vacancies on the Board of Directors
apply only for non-Member Director Representative Director positions;
(iii) clarifying separate procedures for filling vacancies on the Board
of Directors for Member Representative Director positions; and (iv)
adding a new requirement that the processes for filling any director
vacancies apply to vacancies created as a result of an increase in the
size of the board.
A. Number of Directors
Article III, Section 2(a) of the Exchange's Current By-Laws fixes
the number of directors of the Exchange at ten (10) directors. Article
III, Section 2(a) of the New By-Laws would amend Article III, Section
2(a) to state that the Board of Directors of the Exchange shall consist
of four (4) or more members, the number thereof to be determined from
time to time by resolution of the Board of Directors, subject to the
compositional requirements of the board set forth in Article III,
Section 2(b).
The Current By-Laws and the New By-Laws require that the Board of
Directors consist of the following: (i) one (1) director who is the
Chief Executive Officer of the Company; (ii) representation by Member
Representative Directors of at least twenty percent (20%) of the board;
\4\ and (iii) representation by Non-Industry Directors (including at
least one (1) Independent Director) that equals or exceeds the sum of
the number of Industry Directors and Member Representative
Directors.\5\ Under the Current By-Laws and the New By-Laws, the Chief
Executive Officer is considered to be an Industry Director.\6\
Additionally, under the Current By-Laws and New By-Laws, the Member
Representative Director requirement of twenty percent (20%) would
require the board to include at least one (1) Member Representative
Director.\7\ Thus, under the proposal, the minimum requisite sum of the
number of Industry Directors and Member Representative Directors would
equal two (2) directors. As such, under the composition requirements,
the board would also have to include at least two (2) Non-Industry
Directors, bringing the total minimum size of the board to four (4)
directors.
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\4\ The Exchange noted that because the number of Member
Representative Directors must be at least twenty percent (20%) of
the board, it is required under the Current By-Laws and the New By-
Laws that if twenty percent (20%) of the directors then serving on
the board is not a whole number, such number of Member
Representative Directors must be rounded up to the next whole
number.
\5\ See Article III, Section 2(b) of the Current By-Laws.
\6\ See id.
\7\ See id.
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B. Member Representative Director Vacancies
A Member Representative Director is defined in relevant part in
Article I of the Current By-Laws as a Director ``elected by the
stockholders after having been nominated by the Member Nominating
Committee \8\ or by an Exchange Member pursuant to these By-Laws.''
Article III, Section 4 of the Current By-Laws in turn specifies the
precise process the Member Nominating
[[Page 40256]]
Committee is required to follow with the respect to the election and
nomination of Member Representative Directors.\9\
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\8\ See Article VI, Section 3 of the Current By-Laws for a
detailed description of the Member Nominating Committee and its
responsibilities.
\9\ See Article III Section 4(c) of the Current By-Laws for
detailed provisions relating to the Member Representative Director
nomination and election process.
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As distinguished from the nomination and election of directors as
part of the Exchange's annual stockholders meeting, Article III,
Section 6 of the Current By-Laws specifies the procedures for filling
vacancies on the board when a director position becomes vacant prior to
the election of a successor at the end of such director's term, whether
because of death, disability, disqualification, removal, or
resignation. Under these circumstances, the Nominating Committee \10\
must nominate, and the stockholders must elect, a person satisfying the
classification for the directorship in compliance with the board
compositional requirements of Article III, Section 2(b) of the Current
By-Laws to fill such vacancy; provided, however, that if the remaining
term of office of a Member Representative Director at the time of such
director's termination is not more than six (6) months, during the
period of vacancy the board is not deemed to be in violation of the
board compositional requirements because of such vacancy.
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\10\ See Article VI, Section 2 of the Current By-Laws for a
detailed description of the Nominating Committee and its
responsibilities.
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The Exchange has proposed, in Article III, Section 6(a) of the New
By-Laws, to clarify that the procedures therein for filling director
vacancies would apply only to non-Member Representative Director
positions. The Exchange also has proposed in new Section 6(b) of the
New By-Laws to clarify separate procedures for filling Member
Representative Director vacancies on the board, which procedures would
require that the Member Nominating Committee shall either (i) recommend
an individual to the stockholders to be elected to fill such vacancy or
(ii) provide a list of recommended individuals to the stockholders from
which the stockholders shall elect the individual to fill such vacancy.
In addition, the Exchange has proposed, in Article III, Section
6(a) and (b) of the New By-Laws, to add the requirement that the
process for filling vacancies described therein would be followed in
the circumstance where such vacancy is created as a result of an
increase in the size of the board. Under the New By-Laws, in the case
of a director filling a vacancy not resulting from a newly-created
directorship, the new director would serve until the expiration of the
remaining term. However, in the case of a director filling a vacancy
resulting from a newly-created directorship, the new director would
serve until the expiration of such person's designated term. In all
cases, however, if the remaining term of office of a director at the
time of such director's vacancy is not more than six (6) months, during
the period of vacancy the board would not be deemed to be in violation
of Article III, Section 2(b) because of such vacancy. Under the Current
By-Laws, this six-month grace period applies only to Member
Representative Director vacancies. Under the New By-Laws, this six-
month grace period would be expanded to apply to any director vacancy,
which the Exchange notes is consistent with precedent from other
exchanges.\11\
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\11\ See Notice supra note 3, 78 FR at 28697 n. 7.
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III. Comment Letter and the Exchange's Response
The Commission received no comment letters on the proposed rule
change.
IV. Discussion and Commission Findings
After careful review of the proposal, the Commission finds that the
proposed rule change is consistent with the requirements of the Act and
the rules and regulations thereunder that are applicable to a national
securities exchange.\12\ In particular, the Commission finds that the
proposed rule change is consistent with Section 6(b)(1) of the Act,\13\
which requires, among other things, that an exchange be so organized
and have the capacity to carry out the purposes of the Act and to
comply, and 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.
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\12\ In approving the proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\13\ 15 U.S.C. 78f(b)(1).
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The Commission notes that the proposed rule change would provide a
minimum number of directors for the Board of Directors of the Exchange,
rather than a fixed number of directors. As such, the Exchange has
noted that the New By-Laws would provide the board with the flexibility
to increase or decrease the size of the board by resolution, rather
than amending the by-laws each time the board seeks to increase or
decrease the size of the board.\14\ The Commission notes that the
Exchange has represented that it is not proposing to amend any of the
compositional requirements of the board, which are set forth in in
Article III, Section 2(b) of the Current By-Laws and the New By-
Laws.\15\
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\14\ See Notice supra note 3, 78 FR at 28696.
\15\ See id.
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The proposed rule change would clarify that the Current By-Laws'
existing procedures for filling director positions on its Board of
Directors apply only to non-Member Representative Director positions
and would clarify a specific process for filling vacancies for Member
Representative Director positions. The Exchange has represented that
the lack of such a specific process in the Current By-Laws for filling
a Member Representative Director position that becomes vacant prior to
the election of a successor at the end of such director's term has led
to some confusion regarding the exact process to follow.\16\ In
particular, the Exchange has noted that the Current By-Laws would
appear to require that a Member Representative Director vacancy be
filled by the Nominating Committee; however, the Exchange has stated
that such a requirement would conflict with the Current By-Laws'
definition of a Member Representative Director, which requires in all
cases that such person be nominated by the Member Nominating Committee
or by an Exchange Member. The Exchange has represented that it intended
that its Current By-Laws would require that the Member Nominating
Committee nominate one or more candidates to fill Member Representative
Director vacancies, which is consistent with precedent from other
exchanges.\17\ The Commission notes that the proposed rule change would
make such intended process for filling vacancies for Member
Representative Director positions explicit in the New By-Laws.
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\16\ See Notice supra note 3, 78 FR at 28697.
\17\ See id.
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The proposed rule change would also clarify that the procedures for
filling any vacancies would also apply to vacancies created as a result
of an increase in the size of the board. The Exchange has represented
that generally, if the board has determined to increase the size of the
board, it is creating the new directorship seat(s) because it has
identified a qualified candidate(s) who would improve the overall
quality of the board.\18\ The Exchange has stated that, under these
circumstances, time is of the essence and waiting to elect a
director(s) to fill a newly created
[[Page 40257]]
directorship seat(s) at the next scheduled annual stockholder meeting
is not in the best interests of the Exchange or its stockholders.
Consequently, the Exchange has stated that it is necessary that the New
By-Laws provide a more streamlined process to fill a vacancy created by
increasing the size of the board.\19\ The Commission notes that
Exchange has represented that any vacancies filled pursuant to the New
By-Laws would be required to continue to comply with its existing
compositional requirements.
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\18\ Id.
\19\ Id.
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Finally, the proposed rule change would also provide that if the
remaining term of office of any director at the time of the director's
vacancy is not more than six months, during the period of such vacancy
the board will not be deemed to be in violation of the compositional
requirements of Article III, Section 2(b) because of such vacancy. The
Exchange notes that applying the six month grace period to any director
vacancy, rather than just a Member Representative Director vacancy, is
consistent with precedent from other exchanges. Further, the Exchange
notes that this would be less disruptive to the director election
process by permitting any vacancy to be filled at the next scheduled
annual stockholder meeting, rather than through an earlier-held special
stockholder meeting.
For the reasons stated above, the Commission believes that the
proposal is consistent with the requirements of the Act and is designed
to enable the Exchange to be so organized and have the capacity to
carry out the purposes of the Act and to comply with, and 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.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\20\ that the proposed rule change (SR-BYX-2013-013) be, and hereby
is, approved.
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\20\ 15 U.S.C. 78s(b)(2).
\21\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-15936 Filed 7-2-13; 8:45 am]
BILLING CODE 8011-01-P