[Federal Register Volume 79, Number 218 (Wednesday, November 12, 2014)]
[Notices]
[Pages 67222-67223]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-26686]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73516; File Nos. SR-BSECC-2014-001; SR-BX-2014-045; SR-
NASDAQ-2014-093; SR-Phlx-2014-61; SR-SCCP-2014-01]
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.
November 5, 2014.
I. Introduction
On September 10, 2014, 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 Amended and Restated Certificate of
Incorporation (``Charter'') and By-Laws (``By-Laws'') of the NASDAQ OMX
Group, Inc. (``NASDAQ OMX''), the parent company of the SROs.\4\ The
proposed rule changes by BSECC and SCCP were published for comment in
the Federal Register on September 25, 2014 \5\ and the proposed rule
changes by BX, NASDAQ and Phlx were published for comment in the
Federal Register on September 29, 2014.\6\ 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) (Order Approving a Proposed Rule Change, as Modified
by Amendment No. 1, To Amend the By-Laws of the NASDAQ OMX Group,
Inc. in Connection With the Acquisitions of Boston Stock Exchange,
Incorporated and Philadelphia Stock Exchange, Inc.). 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. 73144 (September
19, 2014), 79 FR 57624 (September 25, 2014) (SR-BSECC-2014-001) and
73145 (September 19, 2014), 79 FR 57648 (September 25, 2014) (SR-
SCCP-2014-01).
\6\ See Securities Exchange Act Release Nos. 73195 (September
23, 2014), 79 FR 58397 (September 29, 2014) (SR-BX-2014-045); 73193
(September 23, 2014), 79 FR 58388 (September 29, 2014) (SR-NASDAQ-
2014-093); and 73194 (September 23, 2014), 79 FR 58393 (September
29, 2014) (SR-Phlx-2014-61).
---------------------------------------------------------------------------
II. Discussion
A. Background
Article Fourth, Paragraph C of NASDAQ OMX's Charter includes a
voting limitation that generally prohibits a stockholder from voting
shares beneficially owned, directly or indirectly, by such stockholder
in excess of 5% of the then-outstanding shares of capital stock of
NASDAQ OMX entitled to vote as of the record date in respect of any
matter. Pursuant to Article Fourth, Paragraph C(6) of the Charter,
NASDAQ OMX's Board may grant exemptions to this limitation prior to the
time a stockholder beneficially owns more than 5% of the outstanding
shares of stock entitled to vote on the election of a majority of
directors at such time. Article Fourth, Paragraph C(6) of the Charter
and Section 12.5 of the By-Laws limit the Board's authority to grant
the exemption. The SROs note that these provisions, which are intended
to be substantively identical, currently contain some language
differences. Therefore, the SROs propose that NASDAQ OMX adopt the
amendments described below to the Charter and By-Laws to conform these
provisions and remove any ambiguity that may exist.
B. Proposed Amendments to the Charter
First, the SROs propose to add a statement to Article Fourth,
Paragraph C(6) of the Charter that for so long as NASDAQ OMX shall
control, directly or indirectly, any Self-Regulatory Subsidiary, a
resolution of the Board to approve an exemption for any person under
Article Fourth, Paragraph C(6) of the Charter shall not be permitted to
become effective until such resolution has been filed with and approved
by the SEC under Section 19 of the Act. In addition, the SROs propose
to define ``Self-Regulatory Subsidiary,'' which is currently not a
defined term in the Charter, as any subsidiary of NASDAQ OMX that is a
``self-regulatory organization'' as defined under Section 3(a)(26) of
the Act.\7\ These changes would conform the Charter to language
currently in the By-Laws.
---------------------------------------------------------------------------
\7\ Under Section 3(a)(26) of the Act, a ``self-regulatory
organization'' is defined as ``any national securities exchange,
registered securities association, or registered clearing agency . .
. .'' 15 U.S.C. 78c(a)(26). At present, this defined term would
include NASDAQ, BX and Phlx, which are national securities
exchanges, and BSECC and SCCP, which are registered clearing
agencies that are currently dormant.
---------------------------------------------------------------------------
Second, the SROs propose to add an additional language to the
current provision in Article Fourth, Paragraph C(6) of the Charter that
states the Board may not approve an exemption to the 5% voting
limitation for: (i) 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 Act. Specifically, the
SROs propose to add a proviso to Article Fourth, Paragraph C(6) of the
Charter stating that for these purposes, an ``affiliate'' shall not be
deemed to include an entity that either owns 10% or less of the equity
of a broker or dealer, or receives 1% or less of its consolidated gross
revenues from a broker or dealer. This change would conform the Charter
to language currently in the By-Laws.
Third, the SROs propose to change a reference in Article Fourth,
Paragraph C(6) of the Charter from The NASDAQ Stock Market LLC to ``the
Self-Regulatory Subsidiaries.'' This change would conform the Charter
to language currently in the By-laws and would also include the other
Self-Regulatory Subsidiaries in addition to the NASDAQ Stock Market
LLC.
Fourth, the SROs propose to add a requirement to Article Fourth,
[[Page 67223]]
Paragraph C(6) of the Charter to state that, prior to granting an
exemption from the 5% voting limitation, the Board must also determine
that granting the exemption would promote the prompt and accurate
clearance and settlement of securities transactions (and to the extent
applicable, derivative agreements, contracts and transactions), assure
the safeguarding of securities and funds in the custody or control of
the self-regulatory subsidiaries that are clearing agencies or
securities and funds for which they are responsible, foster cooperation
and coordination with persons engaged in the clearance and settlement
of securities transactions, and remove impediments to and perfect the
mechanism of a national system for the prompt and accurate clearance
and settlement of securities transactions. This change would confirm
the Charter to language currently in the By-Laws.
Finally, the SROs propose that Article Fourth, Paragraph C(6) of
the Charter be amended to correct a cross-reference to subparagraph
6(b), which no longer exists.
C. Proposed Amendments to the By-Laws
The SROs propose to amend the definition of ``Self-Regulatory
Subsidiary'' in Article I(s) of the By-Laws to refer to any subsidiary
of NASDAQ OMX that is a self-regulatory organization as defined under
Section 3(a)(26) of the Act, rather than list specific subsidiaries
that would fall within this category. The proposed definition is the
same definition proposed for purposes of the Charter and would capture
NASDAQ OMX's current self-regulatory subsidiaries as well as any
subsidiaries that in the future would meet the definition of ``self-
regulatory organization'' under the Act.
The SROs also propose to correct a typographical error in Article I
and make minor edits to Section 12.5 of the Bylaws to conform the
language regarding the 5% voting limitation to the language in the
analogous provision of the Charter.\8\
---------------------------------------------------------------------------
\8\ See Securities Exchange Act Release No. 71353 (January 17,
2014), 79 FR 4209 (January 24, 2014) (SR-BSECC-2013-001, SR-BX-2013-
057, SR-NASDAQ-2013-148, SR-Phlx-2013-115, SR-SCCP-2013-01), at note
14.
---------------------------------------------------------------------------
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.\9\ 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,\10\
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,\11\ 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.
---------------------------------------------------------------------------
\9\ 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).
\10\ 15 U.S.C. 78f(b)(1).
\11\ 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(b)(3)(C) of the Act,\12\
because the proposals assure a fair representation of shareholders and
participants in the selection of directors and administration of their
affairs. While the proposals relate to the organizational documents of
NASDAQ OMX, rather than BSECC and SCCP, BSECC and SCCP are indirectly
owned by NASDAQ OMX, and therefore, NASDAQ OMX's stockholders have an
indirect stake in BSECC and SCCP. In addition, the participants in
BSECC and SCCP, to the extent any exist, could purchase stock in NASDAQ
OMX in the open market, just like any other stockholder. The proposals
ensure that NASDAQ OMX stockholders have clarity about the existing
voting limitation in NASDAQ OMX's Charter and By-Laws. As a result, the
proposals assure a fair representation of NASDAQ OMX's stockholders in
the selection of directors and administration of NASDAQ OMX's affairs,
as well as the affairs of BSECC and SCCP.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78q-1(b)(3)(C).
---------------------------------------------------------------------------
The SROs have proposed certain changes to conform the provisions in
the Charter and the By-Laws relating to the procedures by which NASDAQ
OMX's Board may grant an exemption to the prohibition on any NASDAQ OMX
stockholder voting shares in excess of 5% of the Company's then-
outstanding shares of capital stock. The Commission believes that these
proposed changes will eliminate confusion that may exist because of the
current language differences between the two documents. In addition,
the proposed definition of ``Self-Regulatory Subsidiary'' will ensure
that any NASDAQ OMX subsidiary that meets the definition of ``self-
regulatory organization'' under the Act will be subject to the Charter
and By-Law provisions relating to Self-Regulatory Subsidiaries.
Further, the remaining proposed non-substantive clarifying changes are
clarifying in nature, and thus should help make the Charter and By-Laws
clearer and easier to understand.
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\13\ that the proposed rule changes (SR-BSECC-2014-001; SR-BX-2014-
045; SR-NASDAQ-2014-093; SR-Phlx-2014-61; SR-SCCP-2014-01) are
approved.
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78f(b)(2).
\14\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-26686 Filed 11-10-14; 8:45 am]
BILLING CODE 8011-01-P