
[Federal Register: April 7, 2009 (Volume 74, Number 65)]
[Notices]               
[Page 15799-15800]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07ap09-131]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59683; File No. SR-NYSE-2009-12]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Approving a Proposed Rule Change Amending Its Limited Liability Company 
Operating Agreement and the Bylaws of Its Wholly-Owned Subsidiary NYSE 
Market, Inc. To Eliminate, in Each Case, a Requirement That Not Less 
Than Two Members of the Board of Directors Must Qualify as ``Non-
Affiliated Directors'' and a Related Requirement That Not Less Than Two 
Members of the Board of Directors Must Qualify as ``Fair Representation 
Candidates''

April 1, 2009.

I. Introduction

    On February 2, 2009, 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: (i) its Second Amended and Restated 
Operating Agreement (``NYSE Operating Agreement''); and (ii) the bylaws 
of its wholly-owned subsidiary NYSE Market, Inc. (``NYSE Market'') 
(``NYSE Market Bylaws''), to eliminate the requirement that not less 
than two members of the board of directors of NYSE (``NYSE Board'') and 
of NYSE Market (``NYSE Market Board''), respectively, must qualify as 
``non-affiliated directors'' and the requirement that not less than two 
members of such boards must qualify as ``fair representation 
candidates'' (as each of those terms is defined in the NYSE Operating 
Agreement and NYSE Market Bylaws, respectively). The requirements that 
at least 20% of NYSE Board's directors and NYSE Market Board's 
directors must be ``non-affiliated directors'' and ``fair 
representation candidates'' would remain in place. The proposed rule 
change was published for comment in the Federal Register on February 
20, 2009.\3\ The Commission received no comments on the proposal.
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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. 59400 (February 12, 
2009), 74 FR 7945.
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II. Description of the Proposal

    The Exchange proposes that its parent company, NYSE Group, Inc., as 
the sole member of the Exchange, amend the NYSE Operating Agreement to 
eliminate the requirements that: (i) not less than two members of NYSE 
Board must be persons who are not members of the board of directors of 
NYSE Euronext (``NYSE Euronext Board''), and who qualify as independent 
under the independence policy of the NYSE Euronext Board (``NYSE non-
affiliated directors''); and (ii) not less than two members of the NYSE 
Board must be ``fair representation candidates'' (as defined in the 
NYSE Operating Agreement). In each case, however, the current 
requirements that a minimum of 20% of NYSE Board's directors must be 
NYSE non-affiliated directors and that a minimum of 20% of NYSE Board's 
directors must be fair representation candidates would continue to 
apply.\4\
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    \4\ The Exchange has represented that fair representation 
candidates on the NYSE Board qualify as NYSE non-affiliated 
directors.
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    The Exchange also proposes that the Exchange, as the sole 
stockholder of NYSE Market, amend the NYSE Market Bylaws to eliminate 
the requirements that: (i) not less than two members of the NYSE Market 
Board must be persons who are not members of the NYSE Euronext Board, 
although such directors need not be independent (``NYSE Market non-
affiliated directors''); and (ii) not less than two members of the NYSE 
Market Board must be ``fair representation candidates'' (as defined in 
the NYSE Market Bylaws). In each case, however, the current 
requirements that a minimum of 20% of NYSE Market Board's directors 
must be NYSE Market non-affiliated directors and that a minimum of 20% 
of NYSE Market Board's directors must be fair representation candidates 
would continue to apply.\5\
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    \5\ The Exchange has represented that fair representation 
candidates on the NYSE Market Board qualify as NYSE Market non-
affiliated directors.
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    The Exchange also proposes to specify in the NYSE Operating 
Agreement and the NYSE Market Bylaws that, for purposes of calculating 
the minimum number of non-affiliated directors and

[[Page 15800]]

fair representation candidates for each the NYSE Board and the NYSE 
Market Board, if the number that is equal to 20% of the total number of 
directors on their respective boards is not a whole number, such number 
would be rounded up to the next whole number.\6\
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    \6\ See Section 2.03(a)(i) and (iii) of the NYSE Operating 
Agreement and Article III, Section 1(A) and (B) of the NYSE Market 
Bylaws.
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    The Exchange has stated that the practical effect of the proposed 
rule change would be to enable the size of both the NYSE Board and the 
NYSE Market Board to be reduced from ten members to five members. The 
Exchange has represented that the initial implementation of the 
proposed changes immediately following approval by the Commission would 
be accomplished through the voluntary resignation of five of the ten 
directors from the NYSE Board and NYSE Market Board, respectively, 
including one ``fair representation'' director from each of the boards, 
in connection with a reduction in the size of each board to five 
directors. The Exchange's proposal would not revise the current fair 
representation candidate selection and petition process for, or the 
appointment or election of a fair representation candidate to, the NYSE 
Board and the NYSE Market Board.\7\
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    \7\ As defined in the NYSE Operating Agreement, fair 
representation candidates are NYSE Board members that are determined 
by member organizations of the Exchange through a specified petition 
process (``Petition Candidates'') or, in the absence of Petition 
Candidates, candidates recommended jointly by the Director Candidate 
Recommendation Committee (``DCRC'') of NYSE Market and of NYSE 
Regulation, Inc. In the case of NYSE Market, fair representation 
candidates on the Market Board are determined similarly except that, 
in the absence of Petition Candidates, they are individuals 
recommended by the DCRC of NYSE Market.
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    The Exchange has stated that its proposal is consistent with the 
governance structures of other national securities exchanges that have 
been approved by the Commission. The Exchange has noted, for example, 
that The NASDAQ Stock Market LLC (``Nasdaq'') has a 20% fair 
representation requirement, without specifying a minimum number of fair 
representation directors,\8\ and that Nasdaq has complete discretion as 
to the number of board members.\9\ The Exchange also has noted that in 
the approval order relating to the acquisition of the American Stock 
Exchange LLC by NYSE Euronext, the Commission similarly approved a 
discretionary board size (noting that Amex intended to have a five-
member board), a 20% fair representation requirement, and no minimum 
number of fair representation directors.\10\ The Exchange indicated 
that, by eliminating, for itself and NYSE Market, the current 
requirements for a minimum of two non-affiliated directors and two fair 
representation candidates, it will be able to improve administrative 
efficiency and effectiveness by operating with a smaller number of 
directors, while continuing to fulfill its statutory obligations 
regarding the fair representation of its members.
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    \8\ See Article I, paragraph (q) of the By-Laws of the NASDAQ 
Stock Market LLC, which states that, `` `Membership Representative 
Director' means a Director who has been elected or appointed after 
having been nominated by the Member Nominating Committee or by a 
Nasdaq Member pursuant to these By-Laws.''
    \9\ See Section 9(a) of the NASDAQ Stock Market LLC Agreement.
    \10\ See Securities Exchange Act Release No. 58673 (September 
29, 2008), 73 FR 57707 (October 3, 2008) (SR-Amex-2008-62).
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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.\11\ 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 issues and investors and not 
be associated with a member of the exchange, broker, or dealer.\12\
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    \11\ 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).
    \12\ 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 and 
NYSE Market boards be non-affiliated directors and fair representation 
candidates is designed to ensure the fair representation of NYSE 
members on the NYSE Board and the NYSE Market Board.\13\ The Commission 
notes that, while the proposal eliminates the requirement regarding a 
specific minimum number of non-affiliated directors and fair 
representation candidates on the boards, it does not alter the minimum 
20% requirement for non-affiliated directors or fair representation 
candidates or the process by which members can directly petition and 
vote for representatives on the boards. Moreover, the proposal adds to 
the NYSE Operating Agreement and NYSE Market 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 non-affiliated directors and fair representation 
candidates never constitute less than 20% of the board. The Commission 
further notes that the proposed changes to the NYSE Operating Agreement 
and NYSE Market Bylaws are consistent with previous proposals approved 
by the Commission for other exchanges, which also do not specify the 
number of fair representation directors and which allow discretion as 
to the size of their boards.\14\ The Commission therefore finds that 
the Exchange's proposal is consistent with Section 6(b)(3) of the 
Act.\15\
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    \13\ See supra notes 4 and 5.
    \14\ See, e.g., Section 9(a) of the NASDAQ Stock Market LLC 
Agreement and Article IV, Section 4-1 of the NASDAQ OMX PHLX, Inc. 
By-Laws.
    \15\ 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,\16\ that the proposed rule change (SR-NYSE-2009-12) is approved.
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    \16\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
Florence E. Harmon,
Deputy Secretary.
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    \17\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E9-7834 Filed 4-6-09; 8:45 am]

BILLING CODE 8010-01-P
