Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change Amending the Ninth Amended and Restated Operating Agreement of the Exchange
Federal Register, Volume 81 Issue 149 (Wednesday, August 3, 2016)
Federal Register Volume 81, Number 149 (Wednesday, August 3, 2016)
Notices
Pages 51249-51251
From the Federal Register Online via the Government Publishing Office www.gpo.gov
FR Doc No: 2016-18318
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SECURITIES AND EXCHANGE COMMISSION
Release No. 34-78436; File No. SR-NYSE-2016-51
Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change Amending the Ninth Amended and Restated Operating Agreement of the Exchange
July 28, 2016.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given that, on July 22, 2016, New York Stock Exchange LLC (``NYSE'' or the ``Exchange'') filed with the Securities and Exchange Commission (the ``Commission'') the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The Exchange proposes to amend the Ninth Amended and Restated Operating Agreement of the Exchange (``Operating Agreement'') to change the process for nominating non-affiliated directors and remove an obsolete reference. The proposed rule change is available on the Exchange's Web site at www.nyse.com, at the principal office of the Exchange, and at the Commission's Public Reference Room.
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Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
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Self-Regulatory Organization's Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change
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Purpose
The Exchange proposes to amend the Operating Agreement to change the process for nominating non-affiliated directors and replace an obsolete reference to NYSE Market (DE), Inc. (``NYSE Market (DE)'').
Process for Nominating Non-Affiliated Directors
Pursuant to the Operating Agreement, at least 20% of the Board of Directors of the Exchange (``Board'') is made up of ``Non-Affiliated Directors'' (commonly referred to as ``fair representation directors'').\4\ Pursuant to Section 2.03(a) of the Operating Agreement, the nominating and governance committee (``NGC'') of the board of directors of ICE, the indirect parent of the Exchange, nominates the candidates for Non-Affiliated Directors, who are then elected by NYSE Group, as the sole member of the Exchange. The Exchange proposes to amend Section 2.03(a) to have the Director Candidate Recommendation Committee (``DCRC'') of the Exchange assume the role currently played by the ICE NGC, and to make a conforming change to Section 2.03(h)(i).
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\4\ Pursuant to Section 2.03(a) of the Operating Agreement, Non-
Affiliated Directors are persons who are not members of the board of directors of Intercontinental Exchange, Inc. (``ICE'') but qualify as independent. A person may not be a Non-Affiliated Director unless he or she is free of any statutory disqualification, as defined in Section 3(a)(39) of the Exchange Act. The Exchange's independence requirements are set forth in the Company Director Independence Policy of the Exchange. See Securities Exchange Act Release No. 67564 (August 1, 2012), 77 FR 47161 (August 7, 2012) (SR-NYSE-2012-
17) (approving, among other things, the Exchange's Company Director Independence Policy).
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In addition, if the Member Organizations endorse a petition candidate for Non-Affiliated Director, pursuant to Section 2.03(a)(iv) the ICE NGC makes the determination of whether the person is eligible.\5\ The Exchange proposes to amend Section 2.03(a)(iv) to have the Exchange make such determination instead of the ICE NGC.
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\5\ Pursuant to Section 2.02 of the Operating Agreement, ``Member Organizations'' refers to members, allied members and member organizations of the Exchange.
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Currently, the nomination by the ICE NGC is the final step in the process for electing a Non-Affiliated Director. First, the DCRC recommends a candidate, whose name then is announced to the Exchange's Member Organizations. The Member Organizations may propose alternate candidates by petition. If there are no petition candidates, the DCRC recommends its candidate(s) to the ICE NGC. If petition candidates are proposed, the ICE NGC makes the determination of whether the candidates are eligible, and then all of the eligible candidates are submitted to the Member Organizations for a vote. The DCRC recommends to the ICE NGC the candidate receiving the highest number of votes. The ICE NGC is obligated to designate the DCRC-recommended candidate(s) as the nominee, and NYSE Group is obligated to elect such candidate(s) as a Non-Affiliated Director.
The Exchange believes obligating the ICE NGC to nominate the candidate(s) for Non-Affiliated Directors based on the DCRC's unalterable recommendation is neither necessary nor meaningful. Pursuant to Section 2.03(a)(iii), the ICE NGC is obligated to designate whomever the DCRC recommends or, if there is a petition candidate, whomever emerges from the petition process. The ICE NGC does not have any discretion. Removing this unnecessary step would make the NYSE process more efficient.
The Exchange believes that having the Exchange determine whether persons endorsed to be petition candidates are eligible also would be more efficient, as it would not require action from the ICE NGC, thereby removing the possibility of any delay in the process. The proposed change would be consistent with the petition processes of the Exchange's affiliate, NYSE MKT LLC (``NYSE MKT''), and the Nasdaq Stock Market LLC. In both cases the exchange determines the eligibility of proposed nominees.\6\
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\6\ See Article II, Section 2.03(a) of the Ninth Amended and Restated Operating Agreement of NYSE MKT LLC; Securities Exchange Act Release No. 77901 (May 25, 2016), 81 FR 35092 (June 1, 2016) (SR-NYSEMKT-2016-26) (``NYSE MKT 2016 Release'') and By-Laws of the Nasdaq Stock Market LLC, Art. II, Sec. 1(b) (``The Company may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as a Member Representative Director.'').
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The Exchange believes that the proposed changes will make its process more consistent with the process by which its affiliates, NYSE MKT and NYSE Arca, Inc. (``NYSE Arca''), designate their fair representation
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directors, in which the ICE NGC plays no role.\7\
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\7\ See Article II, Section 2.03(a) of the Ninth Amended and Restated Operating Agreement of NYSE MKT LLC; NYSE MKT 2016 Release, supra note 6; and Article III, Section 3.02 of the NYSE Arca Bylaws and NYSE Arca Rule 3.2(b)(2). Similarly, the board of directors of The NASDAQ OMX Group, Inc., the sole member of the Nasdaq Stock Market LLC, plays no role in nominating or determining the eligibility of Member Representative Directors. See By-Laws of the Nasdaq Stock Market LLC, Art. II, Sec. 1.
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Accordingly, the Exchange proposes to revise Section 2.03(a)(iii)-
(v) of the Operating Agreement to amend the process for electing Non-
Affiliated Directors. As proposed, the process would be as follows. First, as is currently the case, the DCRC would recommend a candidate, whose name would be announced to the Member Organizations, and the Member Organizations could propose alternate candidates by petition. Second, if there were no petition candidates, the DCRC would nominate the candidate(s) it had previously recommended. If there were petition candidates, the Exchange would make the eligibility determination of petition candidates, all eligible candidates would be submitted to the Member Organizations for a vote, and the DCRC would nominate the candidate receiving the highest number of votes. Finally, NYSE Group would be obligated to elect the DCRC-nominated candidate as a Non-
Affiliated Director.
The Exchange would make a conforming change to Section 2.03(h)(i) to state that the DCRC ``will be responsible for nominating Non-
Affiliated Director Candidates.'' Currently, the provision states that the DCRC ``will be responsible for recommending Non-Affiliated Director Candidates to the ICE NGC.''
Reference to NYSE Market (DE), Inc.
Section 2.02 of the Operating Agreement sets forth the Board's general supervision over Member Organizations and approved persons in connection with their conduct with or affecting Member Organizations. It provides that the Board ``shall have supervision relating to the collection, dissemination and use of quotations and of reports of prices on NYSE Market (DE), Inc.'' The Exchange proposes to amend Section 2.02 to replace the reference to NYSE Market (DE) with a reference to ``the exchange operated by the Company.'' \8\
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\8\ See Article II, Section 2.02 of the proposed Tenth Amended and Restated Operating Agreement of New York Stock Exchange LLC. References to the ``Company'' in the Operating Agreement are to the Exchange.
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Following the merger of New York Stock Exchange, Inc. with Archipelago Holdings, Inc., the Exchange and its subsidiaries NYSE Market (DE) and NYSE Regulation, Inc. entered into a Delegation Agreement, pursuant to which the Exchange delegated its market functions to NYSE Market (DE) and its regulatory functions to NYSE Regulation, Inc.\9\
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\9\ See Securities Exchange Act Release No. 75991 (September 28, 2015), 80 FR 59837 (October 2, 2015) (SR-NYSE-2015-27), at 59839.
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The Delegation Agreement terminated in April 2016. Accordingly, NYSE Market (DE) no longer is delegated the Exchange's market functions, making the reference to NYSE Market (DE) in Section 2.02 obsolete. The Exchange therefore proposes to update the reference to NYSE Market (DE) with a reference to ``the exchange operated by the Company.''
The proposed change would be consistent with Article II, Section 2.02 of the operating agreement of the Exchange's affiliate NYSE MKT, which states that its board of directors ``shall have supervision relating to the collection, dissemination and use of quotations and of reports of prices on the exchange operated by the Company.'' \10\
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\10\ Article II, Section 2.02 of the Ninth Amended and Restated Operating Agreement of NYSE MKT LLC.
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Finally, the Exchange proposes to make technical and conforming changes to the recitals and signature page of the Operating Agreement.
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Statutory Basis
The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Exchange Act \11\ in general, and with Section 6(b)(1) \12\ in particular, in that it enables the Exchange to be so organized as to have the capacity to be able to carry out the purposes of the Exchange Act and to comply, and to enforce compliance by its exchange members and persons associated with its exchange members, with the provisions of the Exchange Act, the rules and regulations thereunder, and the rules of the Exchange.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(1).
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The proposed change would remove the requirement that the ICE NGC nominate the candidates for Non-Affiliated Directors and have the DCRC nominate the candidates for Non-Affiliated Director directly. This proposed change would remove an unnecessary step in the process of nominating candidates for Non-Affiliated Directors and increase efficiency. In addition, the proposed change would remove the requirement that the ICE NGC make the determination whether persons endorsed to be petition candidates are eligible to be Non-Affiliated Directors, and have the Exchange make such determination instead. By not requiring action from the ICE NGC, the possibility of any resulting delay in the process is removed. For these reasons, the Exchange believes that the proposed rule change would contribute to the orderly operation of the Exchange and would enable the Exchange to be so organized as to have the capacity to carry out the purposes of the Exchange Act and comply and enforce compliance with the provisions of the Exchange Act by its members and persons associated with its members. The Exchange therefore believes that approval of the proposed is consistent with Section 6(b)(1) of the Act.
The Exchange believes that amending Section 2.02 of the Operating Agreement to replace the reference to NYSE Market (DE) with a reference to ``the exchange operated by the Company'' would remove an obsolete reference to an entity that is no longer delegated the Exchange's market functions, thereby reducing potential confusion that may result from retaining obsolete references in the Exchange's Operating Agreement. The proposed replacement will clarify that the Board has supervision relating to the collection, dissemination and use of quotations and of reports of prices on the Exchange. The Exchange believes that replacing such obsolete reference would not be inconsistent with the public interest and the protection of investors because investors will not be harmed and in fact would benefit from increased transparency, thereby reducing potential confusion. Removing such obsolete reference will also further the goal of transparency and add clarity to the Exchange's rules.
The Exchange also believes that this filing furthers the objectives of Section 6(b)(5) of the Exchange Act \13\ because the proposed rule change would be consistent with and facilitate a governance and regulatory structure that is 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.
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\13\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that having the DCRC nominate the candidates for Non-
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Affiliated Director would remove impediments to and perfect a national market system because the proposed rule change would remove an unnecessary step in the process for nominating candidates for Non-
Affiliated Directors and would remove the ICE NGC from making the determination whether persons endorsed to be petition candidates are eligible to be Non-Affiliated Directors. By not requiring action from the ICE NGC, the possibility of any resulting delay in the process is removed. The Exchange believes that the proposed rule change is therefore consistent with and facilitates a governance and regulatory structure that furthers the objectives of Section 6(b)(5) of the Act.
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Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Exchange Act. The proposed rule change is not intended to address competitive issues but rather is concerned solely with the administration and functioning of the Exchange and its Board.
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Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the proposed rule change.
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Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action
Within 45 days of the date of publication of this notice in the Federal Register or up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule change should be disapproved.
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Solicitation of Comments
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include File Number SR-NYSE-2016-51 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2016-51. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street NE., Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NYSE-2016-51 and should be submitted on or before August 24, 2016.
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\14\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\14\
Robert W. Errett,
Deputy Secretary.
FR Doc. 2016-18318 Filed 8-2-16; 8:45 am
BILLING CODE 8011-01-P
