[Federal Register Volume 79, Number 16 (Friday, January 24, 2014)]
[Notices]
[Pages 4209-4213]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-01406]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71353; File Nos. SR-BSECC-2013-001; SR-BX-2013-057; SR-
NASDAQ-2013-148; SR-Phlx-2013-115; SR-SCCP-2013-01]
Self-Regulatory Organizations; Boston Stock Exchange Clearing
Corporation; NASDAQ OMX BX, Inc.; the NASDAQ Stock Market LLC; NASDAQ
OMX PHLX LLC; Stock Clearing Corporation of Philadelphia; Order
Approving Proposed Rule Changes To Amend the Restated Certificate of
Incorporation and By-Laws of the NASDAQ OMX Group, Inc.
January 17, 2014.
I. Introduction
On November 27, 2013, Boston Stock Exchange Clearing Corporation
(``BSECC''), NASDAQ OMX BX, Inc. (``BX''), the NASDAQ Stock Market LLC
(``NASDAQ''), NASDAQ OMX PHLX LLC (``Phlx''), and the Stock Clearing
Corporation of Philadelphia (``SCCP'' and, together with BSECC, BX,
NASDAQ and Phlx, the ``SROs'' or ``Self-Regulatory Subsidiaries''),
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 with
respect to amendments to the Restated Certificate of Incorporation
(``Charter'') and By-Laws (the ``By-Laws'') of the NASDAQ OMX Group,
Inc. (``NASDAQ OMX''), the parent company of the SROs.\4\ The proposed
rule changes were published for comment in the Federal Register on
December 12, 2013.\5\ The Commission received no comment letters on the
proposals.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
\4\ Certain provisions of NASDAQ OMX's Charter and By-Laws are
rules of a self-regulatory organization if they are stated policies,
practices, or interpretations, as defined in Rule 19b-4 under the
Act, of the self-regulatory organization, and must be filed with the
Commission pursuant to Section 19(b) of the Act and Rule 19b-4
thereunder. See Securities Exchange Act Release Nos. 58183 (July 17,
2008), 73 FR 42850 (July 23, 2008) (File No. SR-NASDAQ-2008-035);
58324 (August 7, 2008), 73 FR 46936 (August 12, 2008) (File Nos. SR-
BSE-2008-02; SR-BSE-2008-23; SR-BSE-2008-25; SR-BSECC-2008-01); and
58180 (July 17, 2008), 73 FR 42890 (July 23, 2008) (File No. SR-
SCCP-2008-01). Accordingly, the SROs have filed with the Commission
proposed changes to the NASDAQ OMX Charter and By-Laws.
\5\ See Securities Exchange Act Release Nos. 71019 (December 6,
2013), 78 FR 75633 (December 12, 2013) (SR-BSECC-2013-001); 71011
(December 6, 2013), 78 FR 75645 (December 12, 2013) (SR-BX-2013-
057); 71013 (December 6, 2013), 78 FR 75619 (December 12, 2013) (SR-
NASDAQ-2013-148) (``NASDAQ Notice''); 71010 (December 6, 2013), 78
FR 75661 (December 12, 2013) (SR-Phlx-2013-115); 71020 (December 6,
2013), 78 FR 75598 (December 12, 2013) (SR-SCCP-2013-01)
(collectively, ``Notices'').
---------------------------------------------------------------------------
II. Discussion
A. Proposed Amendments to the Charter
1. Removal and Replacement of Supermajority Voting Requirements
The SROs are proposing amendments to provisions of the Charter to
replace each supermajority voting requirement in the Charter with a
``majority of outstanding shares'' voting requirement. The Charter
currently includes the following three supermajority voting
requirements pertaining to the: (1) Removal of directors; \6\ (2)
adoption, alteration, amendment or repeal of any By-Law; \7\ and (3)
amendment, repeal, or adoption of provisions inconsistent with certain
charter provisions.\8\ For each of the three foregoing provisions, the
SROs are proposing to remove the requirement for an affirmative vote of
at least 66\2/3\% of the total voting power of the Voting Stock and
replace it with a voting standard requiring the affirmative vote of a
majority of the outstanding Voting Stock.
---------------------------------------------------------------------------
\6\ Article Fifth, Paragraph D provides that, except for the
Preferred Stock Directors (as defined in Article Fifth, Paragraph
B), any director, or the entire Board of Directors (``Board''), may
be removed from office at any time, but only by the affirmative vote
of at least 66\2/3\% of the total voting power of the outstanding
shares of NASDAQ OMX's capital stock entitled to vote generally in
the election of directors (``Voting Stock''), voting together as a
single class.
\7\ Article Eighth, Paragraph A provides that the affirmative
vote of the holders of at least 66\2/3\% of the total voting power
of the outstanding Voting Stock, voting together as a single class,
shall be required in order for the stockholders to adopt, alter,
amend or repeal any By-Law.
\8\ Article Ninth, Paragraph A provides that the affirmative
vote of the holders of at least 66\2/3\% of the voting power of the
outstanding Voting Stock, voting together as a single class, shall
be required to amend, repeal or adopt any provision inconsistent
with paragraph C of Article Fourth, Article Fifth, Article Seventh,
Article Eighth, or Article Ninth of the Charter.
Article Fourth, Paragraph C sets forth the 5% voting
limitation, which provides that holders of NASDAQ OMX's voting
securities may not cast votes in excess of 5% of NASDAQ OMX's
outstanding voting securities. The SROs note that NASDAQ OMX is not
proposing any change to the 5% voting limitation itself. According
to the SROs, NASDAQ OMX only proposes that any future amendment of
the 5% voting limitation will require the approval of stockholders
holding a majority of the outstanding shares, rather than
stockholders holding 66\2/3\% of the outstanding shares.
---------------------------------------------------------------------------
The SROs state that, in developing this proposal, NASDAQ OMX
considered the relative weight of the arguments for and against
supermajority voting requirements.\9\ The SROs believe
[[Page 4210]]
that, while it is important to protect against coercive takeover
tactics, it is also critically important to obtain stockholder input
and respond to stockholder concerns about corporate governance.\10\ The
SROs believe that the proposed ``majority of outstanding shares''
voting requirement will continue to provide some protection against
proposals that are harmful to the stockholders.\11\ The SROs therefore
believe that a ``majority of outstanding shares'' standard is a
balanced outcome that responds to stockholder feedback while
appropriately maintaining NASDAQ OMX's defensive posture against
hostile takeovers.\12\
---------------------------------------------------------------------------
\9\ See, e.g., NASDAQ Notice, 78 FR at 75620. The SROs remark
that, historically, supermajority voting requirements have protected
corporations against coercive takeover tactics by requiring broad
stockholder support for certain types of transactions or governance
changes. The SROs indicate that in recent years, corporate
governance standards have evolved, and many stockholder rights
advocates have argued that supermajority voting requirements limit
stockholders' participation in corporate governance.
\10\ Id.
\11\ Id. While the SROs note that this requirement is less
difficult to satisfy than a supermajority voting requirement, they
believe that it is more difficult to satisfy than a ``majority of
votes cast'' requirement.
\12\ Id.
---------------------------------------------------------------------------
2. Non-Substantive Changes
The SROs also propose to amend and restate the Charter to make non-
substantive changes, as described in greater detail in the Notices.\13\
Generally, these changes involve the deletion of obsolete references,
the correction of typographical errors, and amendments to the
introductory and concluding language of the Charter as required by
Delaware law. The SROs believe that the amendment and restatement of
the Charter to incorporate these non-substantive changes will simplify
and streamline the document.\14\
---------------------------------------------------------------------------
\13\ See, e.g., NASDAQ Notice, 78 FR at 75620.
\14\ Id. However, the SROs note that, after the non-substantive
changes, the remaining text of Article Fourth, Paragraph C(6) of the
Charter includes an obsolete cross-reference to Section 6(b) of
Article Fourth, Paragraph C in the second sentence, which begins
``The Board, however, may not approve an exemption under Section
6(b) . . . .'' See, e.g., NASDAQ Notice, 78 FR at 75620, at note 9.
The SROs note that this cross-reference, which should refer to
Section 6 without further reference to a subsection (b), cannot be
corrected without NASDAQ OMX seeking further approval of its
stockholders, which would require NASDAQ OMX to call and hold a
stockholder meeting. Generally, NASDAQ OMX holds stockholder
meetings only once or twice a year. The SROs note that it is
atypical for a large public company like NASDAQ OMX to submit a
proposal to its stockholders solely to correct a cross-reference in
its Charter. The SROs state that following consultation by NASDAQ
OMX with outside counsel, it is clear, based on the drafting history
of this provision, that the intent of the cross-reference is to
refer to Section 6 of Article Fourth, Paragraph C of the Charter. In
other words, the second sentence of Article Fourth, Paragraph C(6)
should read: ``The Board, however, may not approve an exemption
under Section 6: (i) For a registered broker or dealer or an
Affiliate thereof or (ii) an individual or entity that is subject to
a statutory disqualification under Section 3(a)(39) of the Exchange
Act.'' The SROs state that, under no circumstances will the obsolete
cross-reference be read to imply that the Board could grant an
exemption to the ownership limitation in Article Fourth, Paragraph
C(6) of the Charter for a registered broker or dealer or an
Affiliate (as defined in Article Fourth, Paragraph C(3)(a)) thereof,
or an individual or entity that is subject to a statutory
disqualification under Section 3(a)(39) of the Exchange Act. The
SROs remark that the proposed amendments to Section 12.5 of the By-
Laws will eliminate cross-references to the now obsolete subsection
(b) of Article Fourth, Paragraph C(6) of the Charter. According to
the SROs, NASDAQ OMX recognizes that there are some differences in
language between the second sentence of Article Fourth, Paragraph
C(6) of the Charter and the second sentence of Section 12.5 of the
By-Laws. To the extent that these differences would cause a
difference in interpretation, the SROs state that, following
consultation by NASDAQ OMX with outside counsel, the Charter
language shall prevail. The SROs state that, as soon as feasible,
NASDAQ OMX plans to present a proposal to the stockholders to
conform this provision of the Charter to the By-Laws.
---------------------------------------------------------------------------
B. Proposed Elimination of Certificate of Designation
The SROs propose to eliminate NASDAQ OMX's Certificate of
Designation, Preferences and Rights of Series A Convertible Preferred
Stock (``Series A Convertible Preferred Stock''), and all matters set
forth therein.\15\ According to the SROs, NASDAQ OMX will file a
certificate of elimination with the Secretary of State of the State of
Delaware to eliminate the Series A Convertible Preferred Stock. The
SROs state that, under Delaware law, a certificate of elimination is
deemed to be an amendment to the Charter, but, because the amendment is
limited in scope, it does not require the approval of NASDAQ OMX's
stockholders.\16\
---------------------------------------------------------------------------
\15\ See, e.g., NASDAQ Notice, 78 FR at 75620. As described in
the Notices, the Series A Convertible Preferred Stock was created in
2009 to facilitate the conversion of certain notes into common
stock. In 2010, following stockholder approval, all issued shares of
the Series A Convertible Preferred Stock were converted into common
stock. The SROs represent that, since then, no shares of the Series
A Convertible Preferred Stock have been outstanding, and NASDAQ OMX
has no intention to issue further shares of this series.
\16\ See, e.g., NASDAQ Notice, 78 FR at 75620-21 (citing Section
151(g) of the DGCL).
---------------------------------------------------------------------------
C. Proposed Amendments to the Bylaws
1. Special Meetings of Stockholders
Current Section 3.2 of the By-Laws provides that only NASDAQ OMX
may call special meetings of its stockholders. The SROs state that, in
response to feedback from NASDAQ OMX's stockholders, this provision
will be deleted and replaced with language that will allow the
stockholders to call special meetings, subject to certain procedures.
The SROs note that, similar to the elimination of the supermajority
voting requirements, the implementation of the right of stockholders to
call a special meeting has received recent attention from investor and
corporate governance advocates.\17\ The SROs remark that these
advocates argue that such a right will enable stockholders to raise and
act on matters that arise between annual meetings.\18\ According to the
SROs, NASDAQ OMX believes that it is appropriate to allow stockholders
who meet certain procedural requirements to call a special meeting.\19\
The SROs explained that, by incorporating these procedural
requirements, NASDAQ OMX intends to ensure timely notice of a meeting
request and to gather sufficient information about the proposing
stockholder(s) and the proposal.\20\ The SROs state that, among other
things, this information will ensure that NASDAQ OMX is able to comply
with its disclosure and other requirements under applicable law and
that NASDAQ OMX, its Board and its stockholders are able to assess the
proposal adequately.\21\ The proposed procedural requirements are
described in greater detail in the Notices.\22\
---------------------------------------------------------------------------
\17\ See, e.g., NASDAQ Notice, 78 FR at 75621.
\18\ Id.
\19\ Id.
\20\ Id.
\21\ Id.
\22\ See, e.g., NASDAQ Notice, 78 FR at 75621-22.
---------------------------------------------------------------------------
2. Annual Meetings of Stockholders
Section 3.1 of NASDAQ OMX's By-Laws, which is the ``advance
notice'' provision,\23\ requires stockholders to notify NASDAQ OMX,
during a specified period in advance of an annual meeting, of their
intention to nominate one or more persons for election to the Board or
to present a business proposal for consideration by the stockholders at
the meeting. The SROs explain that, while designing the proposed
procedural requirements for stockholders to call a special meeting, as
noted generally above and described in greater detail in the Notices,
NASDAQ OMX evaluated the existing procedural requirements for
stockholders to bring business before an annual meeting.\24\
[[Page 4211]]
According to the SROs, the proposed changes to some of these procedures
are intended to enhance and conform them, in some cases, to the
procedures relating to special meetings.\25\ The SROs state that
generally the proposed amendments add requirements for extensive
disclosures by proposing stockholders about themselves, any proposed
nominees for director and any proposed items of business to be brought
before a meeting.\26\ The specific amendments are described in greater
detail in the Notices.\27\
---------------------------------------------------------------------------
\23\ ``Advance notice'' provisions allow stockholder(s) to bring
business before an annual meeting of stockholders, but set forth
procedural requirements to ensure that companies and boards have
sufficient information about the proposal and the proposing
stockholder(s), as well as adequate time to consider the proposal,
by requiring the proposing stockholder(s) to give advance notice of
the intention to bring the proposal before the annual meeting.
\24\ See, e.g., NASDAQ Notice, 78 FR at 75622-23.
\25\ See, e.g., NASDAQ Notice, 78 FR at 75623.
\26\ Id.
\27\ See, e.g., NASDAQ Notice, 78 FR at 75623-25.
---------------------------------------------------------------------------
3. Questionnaire, Representation and Agreement for Director-Nominees
The SROs propose to add new Section 3.5 to the By-laws to require
nominees for director to deliver to NASDAQ OMX, in accordance with the
time periods prescribed for delivery of a stockholder's notice: (i) A
written questionnaire with respect to the background and qualifications
of the nominee; and (ii) a written representation and agreement as to
certain matters. The provisions of the specific written representation
and agreement are discussed in greater detail in the Notices.\28 \ The
SROs believe that the requirements of proposed Section 3.5 of the By-
Laws, which will apply to both NASDAQ OMX's and stockholders' nominees
for director positions, will ensure that NASDAQ OMX has the necessary
information about nominees to fulfill its public disclosure
requirements.\29\ The SROs state that the requirements also will ensure
that nominees will comply with the legal obligations, policies, and
procedures applicable to all NASDAQ OMX directors.\30\
---------------------------------------------------------------------------
\28\ See, e.g., NASDAQ Notice, 78 FR at 75625.
\29\ Id.
\30\ Id.
---------------------------------------------------------------------------
4. Removal and Replacement of Supermajority Voting Provisions
The SROs propose to amend each provision of the By-Laws that
currently requires a supermajority vote of stockholders to instead
require a ``majority of votes outstanding.'' The By-Laws currently
include the following two supermajority voting requirements, each of
which conforms to an analogous provision in the Charter. The SROs
propose conforming replacements to the supermajority voting
requirements in Section 4.6 (pertaining to removal of directors) and
Section 11.1 (pertaining to adoption, alteration, amendment or repeal
of the By-Laws) with a voting standard requiring the affirmative vote
of a majority of the outstanding Voting Stock.\31\ As discussed above
with respect to the analogous Charter amendments, the SROs believe that
a ``majority of outstanding shares'' standard reflects a balanced
approach that responds to stockholder feedback while appropriately
maintaining NASDAQ OMX's defensive posture against hostile
takeovers.\32\
---------------------------------------------------------------------------
\31\ Id.
\32\ Id.
---------------------------------------------------------------------------
5. Procedure for Filling Board Vacancies
Section 4.8 of the By-Laws sets forth the procedures to fill a
director position that has become vacant, whether because of death,
disability, disqualification, removal or resignation. Under the current
provisions, if such a vacancy occurs, the Nominating & Governance
Committee of the Board shall nominate, and the Board shall elect by
majority vote, a person to fill the vacancy. In light of the addition
of a right for stockholders to call a special meeting, as discussed
above, the SROs propose amendments to Section 4.8 to state explicitly
that vacancies on the Board are to be filled by a majority vote of the
Board, and not by stockholders.\33\ In addition, to prescribe
procedures in case multiple Board vacancies occur at the same time, the
proposed amendments state that a Board vacancy shall be filled by the
majority of the directors, even if there is less than a quorum, or by
the sole remaining director, if there is only one director remaining on
the Board.\34\ The SROs note that the proposed amendments do not change
any of the other procedures for filling Board vacancies.\35\
---------------------------------------------------------------------------
\33\ Id.
\34\ Id.
\35\ Id.
---------------------------------------------------------------------------
6. Use of Electronic Means for Certain Notices and Related Waivers
The SROs propose amendments to Sections 4.12(a) and (b) of the By-
Laws to provide that both notices of meetings of the Board, and waivers
of such notices, can be given by email or other means of written
electronic transmission.\36\ The SROs state that these amendments are
intended merely to expand the means through which notices of meetings
and waivers of notices may be given, and the amendments do not affect
any of the other procedural requirements of Sections 4.12(a) and
(b).\37\ In addition, the SROs state that the proposed amendments
reflect current practices, as a substantial amount of communications
between NASDAQ OMX and its directors, outside of Board meetings, occurs
through electronic means.\38\
---------------------------------------------------------------------------
\36\ See, e.g., NASDAQ Notice, 78 FR at 75626. Currently,
Section 4.12(a) of the By-Laws provides that notice of any meeting
of the Board shall be deemed duly given to a director if, among
other methods, the notice is sent to the director at the address
last made known in writing to NASDAQ OMX by telegraph, telefax,
cable, radio or wireless. Section 4.12(b) of the By-Laws provides
that such notice of a board meeting need not be given to any
director if waived by the director in writing or by electronic
transmission (or by telegram, telefax, cable, radio or wireless and
subsequently confirmed in writing or by electronic transmission).
\37\ Id.
\38\ Id.
---------------------------------------------------------------------------
7. Composition of Management Compensation Committee
The SROs propose amendments to Section 4.13(f) of the By-Laws,
which relate to the composition of the Management Compensation
Committee of NASDAQ OMX's Board, to conform to the recent amendments to
NASDAQ's listing rules. Specifically, the SROs propose to state that
NASDAQ OMX's Management Compensation Committee must consist of at least
two members and that each member shall meet the eligibility
requirements set forth in the NASDAQ Stock Market Rules (``Rules''). As
explained in the Notices, as required by the Dodd-Frank Wall Street
Reform and Consumer Protection Act and Rule 10C-1 under the Exchange
Act,\39\ NASDAQ recently amended its listing rules relating to
compensation committees.\40\ The SROs note that, because NASDAQ OMX is
listed on NASDAQ, it must comply with these listing rules just like any
other listed company.
---------------------------------------------------------------------------
\39\ See Public Law 111-203, 124 Stat. 1376 (2010) and 17 CFR
240.10C-1.
\40\ See Securities Exchange Act Release Nos. 68640 (January 11,
2013), 78 FR 4554 (January 22, 2013) (SR-NASDAQ-2012-109); 71037
(December 11, 2013), 78 FR 76179 (December 16, 2013) (SR-NASDAQ-
2013-147). Among other things, the Rules related to listing require
each NASDAQ-listed company, with certain exceptions, to have a
compensation committee of its board of directors, consisting of a
minimum of two independent directors who meet additional eligibility
requirements relating to compensatory fees and affiliation. See
NASDAQ Rule 5605(d)(2), which sets forth requirements for
compensation committee composition, and NASDAQ IM 5605-6.
---------------------------------------------------------------------------
8. No Amendment or Repeal of Certain By-Law Amendments
The SROs propose to add a proviso to Section 11.2 of the Bylaws to
state that no By-Law adopted by the stockholders shall be amended or
repealed by the Board if the By-Law so adopted so provides. The SROs
state that this is a stockholder-friendly provision that is intended to
prevent the Board from subsequently overriding stockholder
[[Page 4212]]
action to amend or repeal the By-Laws.\41\
---------------------------------------------------------------------------
\41\ See, e.g., NASDAQ Notice, 78 FR at 75626.
---------------------------------------------------------------------------
9. Non-Substantive Changes
Finally, the SROs propose additional non-substantive changes, as
described in greater detail in the Notices,\42\ which the SROs believe
will simplify and streamline the By-Laws.
---------------------------------------------------------------------------
\42\ See, e.g., NASDAQ Notice, 78 FR at 75626.
---------------------------------------------------------------------------
III. Commission Findings
After careful review, the Commission 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, in the case of the proposals by BX, NASDAQ and Phlx, and to a
clearing agency, in the case of the proposals by BSECC and SCCP.\43\ In
particular, the Commission finds that the proposed rule changes by BX,
NASDAQ and Phlx are consistent with Section 6(b)(1) of the Act,\44\
which, among other things, requires a national securities exchange to
be so organized and have the capacity to be able 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. In addition, the Commission finds that the proposed rule
changes by BX, NASDAQ and Phlx are consistent with Section 6(b)(5) of
the Act,\45\ which, among other things, requires that the rules of the
exchange be 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.
---------------------------------------------------------------------------
\43\ In approving the proposed rule changes, the Commission
notes that it has considered the proposed rule changes' impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\44\ 15 U.S.C. 78f(b)(1).
\45\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Commission also finds that the proposed rule changes by BSECC
and SCCP are consistent with Section 17A of the Act,\46\ which, among
other things, requires that the rules of a clearing agency be designed
to facilitate the prompt and accurate clearance and settlement of
securities transactions and, to the extent applicable, derivative
agreements, contracts, and transactions, to assure the safeguarding of
securities and funds in its custody or control or for which it is
responsible, and to protect investors and the public interest. In
particular, the Commission finds that the proposed rule changes
contained in the BSECC and SCCP proposals are consistent with Section
17A(b)(3)(C) of the Act,\47\ which requires that the rules of the
clearing agency assure a fair representation of its shareholders (or
members) and participants in the selection of its directors and
administration of its affairs.
---------------------------------------------------------------------------
\46\ 15 U.S.C. 78q-1(b)(3)(F).
\47\ 15 U.S.C. 78q-1(b)(3)(C).
---------------------------------------------------------------------------
The Commission discusses below certain proposed revisions to the
Charter and the By-Laws.
Majority Shares Voting Requirement and Special Meetings
Specifically, the Commission believes that the proposed rule
changes to adopt a ``majority of outstanding shares'' standard for
changes to NASDAQ OMX's Charter and By-Laws and to implement a
stockholder right to call a special meeting are consistent with the
Act. The Commission notes that the SROs have represented that these
proposed changes are responsive to individual stockholder proposals
that were either approved or had significant support from stockholders
at the most recent annual meeting for NASDAQ OMX. The Commission notes
that the change to a ``majority of outstanding shares'' standard is
designed to allow certain corporate changes to occur in a manner that
closely reflects the desires of NASDAQ OMX's shareholders.\48\
---------------------------------------------------------------------------
\48\ See Securities Exchange Act Release No. 61947 (April 20,
2010), 75 FR 22169 (April 27, 2010) (Order Approving Proposed Rule
Change To Amend the Bylaws of NYSE Euronext To Adopt a Majority
Voting Standard in Uncontested Elections of Directors). The
Commission notes that the proposed rule changes would not affect the
5% voting limitation contained in Article Fourth, Paragraph C of the
Charter. See supra note 8.
---------------------------------------------------------------------------
The SROs also have proposed to prevent the Board from amending or
repealing By-Law amendments approved by the stockholders. The SROs have
stated that the prohibition on the NASDAQ OMX Board amending or
repealing By-Law amendments approved by the stockholders is a
stockholder-friendly provision that is intended to prevent the Board
from subsequently overriding stockholders' wishes. The Commission notes
that, pursuant to Section 11.3 of the By-laws, for so long as NASDAQ
OMX shall control, directly or indirectly, any SRO, any proposed
adoption, alteration, amendment, change or repeal of any By-Law shall
be submitted to the Board of each SRO, and if any such proposed
amendment must, under Section 19 of the Act and the rules promulgated
thereunder, be filed with, or filed with and approved by, the
Commission before such amendment may be effective, then such amendment
shall not be effective until filed with, or filed with and approved by,
the Commission, as the case may be.
Enhanced Procedures for Stockholder Meetings
The SROs have also proposed to amend the NASDAQ OMX By-Laws: (i) To
enhance the ``advance notice'' procedures; (ii) to require certain
information and agreements from director-nominees; (iii) to clarify the
procedures for filling Board vacancies; and (iv) to allow the use of
electronic means for certain notices and waivers.
The Commission notes that the SROs have stated that the additional
procedural requirements relating to special and annual meetings by
NASDAQ OMX are designed protect investors by stating clearly and
explicitly the procedures stockholders must follow to propose business
at such meetings. The SROs have further stated that the requirement for
certain information and agreements from director-nominees will enhance
investor protection by ensuring that nominees provide adequate
information about themselves and comply with applicable law and certain
NASDAQ OMX policies and procedures relating to the Board. The remaining
procedural changes relating to stockholder meetings appear to be
clarifying in nature. The Commission believes that these proposed
changes should provide stockholders with adequate notice and
information for special and annual meetings of NASDAQ OMX.
Elimination of Certificate of Designation and Certain Other Changes
The SROs have proposed certain changes to: (i) Eliminate the
Certificate of Designation relating to the Series A Convertible
Preferred Stock, which is no longer outstanding; (ii) to conform the
composition requirements for the Management Compensation Committee of
the Board with the NASDAQ listing rules;\49\ and (iii) to make other
non-
[[Page 4213]]
substantive changes. The Commission believes that these proposed
changes should better conform NASDAQ OMX's Charter and By-Laws with
current practice and legal requirements. Further, the proposed non-
substantive clarifying changes should help to make the Charter and By-
Laws more current and concise.\50\
---------------------------------------------------------------------------
\49\ The Commission notes that the proposed rule changes will
not alter NASDAQ OMX's obligations under Section 10C of the Act and
Rule 10C-1 thereunder, 15 U.S.C. 78j-3 and 17 CFR 240.10C-1, which
relate to compensation committee requirements of listed issuers.
According to the SROs, the NASDAQ OMX Compensation Committee must
consist of at least two members and each member must meet the
eligibility requirements set forth in the Rules. Under NASDAQ Rule
5605(d), the NASDAQ OMX Compensation Committee is required to be
comprised of Independent Directors (as defined in NASDAQ Rule
5605(a)(2)) and meet the additional compensation committee
requirements as set forth in NASDAQ Rule 5605(d)(2). See also NASDAQ
IM 5605-6, and Section 10C of the Act and Rule 10C-1 thereunder.
\50\ As noted above, however, after the non-substantive changes,
the SROs acknowledge that remaining text of Article Fourth,
Paragraph C(6) of the Charter includes an obsolete cross-reference
to Section 6(b) of Article Fourth, Paragraph C in the second
sentence, which begins ``The Board, however, may not approve an
exemption under Section 6(b). . . .'' See, e.g., NASDAQ Notice, 78
FR at 75620, at note 9. The Commission notes that the SROs have
committed that: (i) Under no circumstances will NASDAQ OMX read the
obsolete cross-reference to imply that the Board could grant an
exemption to the ownership limitation in Article Fourth, Paragraph
C(6) of the Charter for a registered broker or dealer or an
Affiliate thereof, or an individual or entity that is subject to a
statutory disqualification under Section 3(a)(39) of the Exchange
Act; and (ii) as soon as feasible, NASDAQ OMX plans to present a
proposal to the stockholders to conform this provision of the
Charter to the correct language in Section 12.5 of the By-Laws.
---------------------------------------------------------------------------
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, in the case of
BX, NASDAQ and Phlx, and to a registered clearing agency, in the case
of BSECC and SCCP.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\51\ that the proposed rule changes (SR-BSECC-2013-001; SR-BX-2013-057;
SR-NASDAQ-2013-148; SR-Phlx-2013-115; SR-SCCP-2013-01) are approved.
---------------------------------------------------------------------------
\51\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets, pursuant
to delegated authority.\52\
---------------------------------------------------------------------------
\52\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary .
[FR Doc. 2014-01406 Filed 1-23-14; 8:45 am]
BILLING CODE 8011-01-P