
[Federal Register: August 24, 2009 (Volume 74, Number 162)]
[Notices]               
[Page 42711-42714]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24au09-114]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60493; File No. SR-BSECC-2009-04]

 
Self-Regulatory Organizations; the Boston Stock Exchange Clearing 
Corporation; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Related to an Amendment to the By-Laws of The NASDAQ OMX 
Group, Inc.

August 12, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on July 22, 2009, Boston 
Stock Exchange Clearing Corporation (``BSECC'') filed with the 
Securities and Exchange Commission (``Commission or SEC'') the proposed 
rule change described in Items I and II below, which items have been 
prepared primarily by BSECC. BSECC filed the proposed rule change under 
Rule 19b-4(f)(6) under the Act \2\ so that the proposal was effective 
upon filing with the Commission. The Commission is publishing this 
notice to solicit comments on the rule change from interested parties.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    BSECC is filing this proposed rule change with regard to proposed 
changes to the bylaws of its parent corporation, The NASDAQ OMX Group, 
Inc. (``NASDAQ OMX''). The proposed rule change will be implemented as 
soon as practicable following submission of this filing. The text of 
the proposed rule change is available at http://
nasdaqomxbx.cchwallstreet.com, at BSECC's principal office, and at the 
Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, BSECC 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 these statements may be examined at the places specified in 
Item IV below. BSECC has prepared summaries, set forth in sections (A), 
(B), and (C) below, of the most significant aspects of these 
statements.\3\
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    \3\ The Commission has modified the text of the summaries 
prepared by DTC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    NASDAQ OMX made certain amendments to its by-laws to update its by-
laws and to make improvements in its governance. In SR-NASDAQ-2009-039, 
The NASDAQ Stock Market LLC (``NASDAQ Exchange'') sought and received 
Commission approval to adopt these by-law changes as part of the rules 
of the NASDAQ Exchange.\4\ BSECC is submitting this filing to adopt the 
same by-law changes as rules of BSECC.
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    \4\ Securities Exchange Act Release No. 59858 (May 4, 2009), 74 
FR 22191 (May 12, 2009) (SR-NASDAQ-2009-039); Securities Exchange 
Act Release No. 60183 (June 26, 2009), 74 FR 32207 (July 7, 2009) 
(SR-NASDAQ-2009-039).
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    The proposed changes to the by-laws are as follows:
     Article I is being amended to reflect the recent name 
changes of the Philadelphia Stock Exchange and the Boston Stock 
Exchange to NASDAQ OMX PHLX, Inc. and NASDAQ OMX BX, Inc., 
respectively.
     Article III is being amended to modify the procedures 
governing proposals by stockholders, including proposals by 
stockholders to nominate directors. Specifically, the amendment will 
require a stockholder making a proposal to supply more complete 
information about the stockholder's background, including a description 
of any agreement, arrangement, or understanding between the 
stockholder, the beneficial owner of the stock, and any other persons 
acting in concert with them; a description of any agreement, 
arrangement or understanding (including any derivative or short 
positions, profit interests, options, warrants, convertible securities, 
stock appreciation or similar rights, hedging transactions, and 
borrowed or loaned shares), the effect or intent of which is to 
mitigate loss to, manage risk or benefit of share price changes for, or 
increase or decrease the voting power of, such stockholder or such 
beneficial owner, with respect to shares of stock of NASDAQ OMX; and 
any other information regarding the stockholder and beneficial owner 
that would be required to be disclosed in a proxy statement under 
Section 14(a) of the Act. These changes are designed to provide the 
NASDAQ OMX Board of Directors and its stockholders with greater insight 
into the identity and intentions of persons presenting stockholder 
proposals to allow more thorough consideration of the merits of such 
proposals. These requirements are

[[Page 42712]]

deemed satisfied, however, in the case of a proposal that is validly 
submitted under the rules and regulations promulgated under the Act 
(i.e. , SEC Rule 14a-8) and included in NASDAQ OMX's proxy. However, 
compliance with the By-Laws or with SEC Rule 14a-8 provides the 
exclusive means for stockholders to make proposals. The amendments also 
provide that a representative of a stockholder qualified to appear at 
an annual meeting must be an officer, manager, or partner of the 
stockholder or must have written authorization from the stockholder. 
The amendments also make several minor clarifying changes to the text 
of Article III.
     Article IV is being amended to state explicitly that the 
Management Compensation Committee and the Audit Committee must be 
composed exclusively of independent directors within the meaning of the 
rules of the NASDAQ Stock Market that govern NASDAQ OMX's listing (and 
in the case of the Audit Committee, Section 10A of the Act).\5\ 
Although NASDAQ OMX adheres scrupulously to the independence 
requirements imposed by the NASDAQ Stock Market and the Act, it 
believes that these requirements should be explicitly stated in the By-
Laws as well. NASDAQ OMX is also removing language making its Chief 
Executive Officer an ex-officio, non-voting member of the Management 
Compensation Committee. In this regard, listing standards of the NASDAQ 
Stock Market require management compensation determinations regarding 
executive officers to be made by vote of the Board's independent 
directors or by vote of or upon the recommendation of a committee 
composed solely of independent directors.\6\ NASDAQ OMX has satisfied 
this requirement by submitting compensation decisions to the vote of 
all of NASDAQ OMX's independent directors, but removing the Chief 
Executive Officer as an ex-officio director will provide it with 
flexibility to act upon the vote or upon the recommendation of the 
committee.
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    \5\ 15 U.S.C. 78j-1(m). Notably, ``Staff Directors,'' who are 
officers of NASDAQ OMX serving on the NASDAQ OMX Board, are not 
considered independent under these provisions, and are therefore 
ineligible for service on the Audit Committee or Management 
Compensation Committee or, as discussed below, the newly constituted 
Nominating Committee.
    \6\ NASDAQ Exchange Rule 4350(c)(3).
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     Currently, NASDAQ OMX's Nominating Committee is required 
to be composed of persons who are not directors or who are directors 
not standing for reelection. This compositional requirement, which 
NASDAQ OMX's predecessor, The Nasdaq Stock Market, Inc., originally 
adopted while it was a wholly owned subsidiary of the National 
Association of Securities Dealers (``NASD''), is highly unusual for a 
public company such as NASDAQ OMX. In light of NASDAQ OMX's continued 
evolution into a public company with global operations, NASDAQ OMX 
believes that it is appropriate to adopt a standard nominating 
committee structure in which the committee is composed exclusively of 
independent directors. Under the amended bylaw, the nominating 
committee shall consist of four or five directors, each of whom shall 
be an independent director within the meaning the rules of the NASDAQ 
Exchange. In addition, the number of Non-Industry Directors (i.e., 
Directors without material ties to the securities industry) must equal 
or exceed the number of Industry Directors, and at least two members of 
the committee must be Public Directors (i.e., directors who have no 
material business relationship with a broker or dealer, NASDAQ OMX, or 
its affiliates, or FINRA).
     Article VIII is being amended to provide that NASDAQ OMX 
shall provide indemnification against liability, advancement of 
expenses, and the power to purchase and maintain insurance on behalf of 
persons serving as a director, officer, or employee of any wholly owned 
subsidiary of NASDAQ OMX to the same extent as indemnification, 
advancement of expenses, and the power to maintain insurance is 
provided for directors, officers, or employees of NASDAQ OMX. Thus, for 
example, a director of one of NASDAQ OMX's U.S. or Nordic exchanges 
would be entitled to indemnification (and advancement of expenses) by 
NASDAQ OMX if made a party to a lawsuit to the same extent as a 
director of NASDAQ OMX. Similarly, the discretionary authority of 
NASDAQ OMX under Section 8.1(c) of the By-Laws to provide 
indemnification to persons serving as an agent of NASDAQ OMX is being 
extended to persons serving as an agent of any wholly owned subsidiary 
of NASDAQ OMX. Article VIII is also being amended to clarify that any 
repeal, modification, or amendment of, or adoption of any provision 
inconsistent with the indemnification and advancement of expenses 
provided for in Article VIII will not adversely affect the right of any 
person covered by the provision if the act or omission that any 
proceeding arises out of or is related to had occurred prior to the 
time for the repeal, amendment, adoption, or modification.
     Article IX is being amended to modernize the language of 
the provisions dealing with capital stock to reflect possible 
participation in the Direct Registration System (``DRS''). DRS provides 
for the electronic registration of eligible securities in an investor's 
name on the books of the transfer agent or corporation eliminating the 
need for physical stock certificates or shares held in book-entry form 
by the beneficial owner's broker. Although under the Delaware General 
Corporation Law, NASDAQ OMX can authorize participation in the program 
through a resolution, the various amendments to Article IX track more 
closely the language of Section 158 of the Delaware General Corporation 
Law, as recently revised, to explicitly reference the possibility of 
capital stock in uncertificated form. The amendments, however, do not 
require NASDAQ OMX to participate in DRS or to eliminate stock 
certificates.
     Article XII is being amended to conform certain of its 
provisions more closely to corresponding provisions in the Amended and 
Restated By-Laws of NYSE Euronext (``NYSE Euronext By-Laws''). Article 
XII contains provisions that govern the relationship between NASDAQ OMX 
and each of its subsidiaries that is a self-regulatory organization. 
First, the article requires NASDAQ OMX's ``[d]irectors, officers, 
employees, and agents'' (emphasis added) to give due regard to the 
preservation of the independence of each self-regulatory subsidiary, 
not to take any actions that would interfere with each self-regulatory 
subsidiary's regulatory functions, to cooperate with the Commission, to 
consent to U.S. jurisdiction, and to consent in writing to the 
applicability of these provisions. Corresponding provisions of Articles 
VII, VIII, and IX of the NYSE Euronext By-Laws, however, do not include 
the ambiguous and potentially expansive word ``agent.'' NASDAQ OMX is 
concerned that a broad construction of the term to include not only 
parties with which it establishes an explicit contractual agency 
relationship but also other service providers such as law firms and 
financial advisors that may act on NASDAQ OMX's behalf on certain 
occasions may deter some parties from providing services to NASDAQ OMX. 
However, in lieu of the requirement to obtain specific consents from 
agents, NASDAQ OMX proposes to adopt a provision from the NYSE Euronext 
By-Laws providing that NASDAQ OMX shall comply with the U.S. Federal 
securities laws and the

[[Page 42713]]

rules and regulations thereunder and shall cooperate with the 
Commission and the self-regulatory subsidiaries pursuant to and to the 
extent of their respective regulatory authority and shall take 
reasonable steps necessary to cause its agents to cooperate with the 
Commission and where applicable with the self-regulatory subsidiaries 
pursuant to their regulatory authority. Second, Article XII provides 
that NASDAQ OMX and its officers, directors, and employees \7\ agree to 
maintain an agent for service of process in the U.S. By contrast, 
Article VII of the NYSE Euronext By-Laws includes a statement that 
officers, directors and employees shall be deemed to agree that the 
Corporation may serve as the U.S. agent for service of process. 
Accordingly, NASDAQ OMX proposes to adopt this more self-executing 
version. Finally, while the NASDAQ OMX By-Laws provide that NASDAQ OMX 
shall take such action as is necessary to insure that officers, 
directors and employees consent in writing to the applicability of 
these provisions, Article IX of the NYSE Euronext By-Laws requires only 
that NYSE Euronext take reasonable steps necessary to cause officers, 
directors, and employees to consent. Although NASDAQ OMX has begun the 
process of collecting written consents from current officers, 
directors, and employees, it believes that the current language may be 
unreasonably demanding as applied to a multinational exchange operator 
with over 2,000 employees in over 20 countries. Accordingly, NASDAQ OMX 
proposes to adopt a version of NYSE Euronext's language, which will 
require reasonable steps to obtain consent from both current officers, 
directors, and employees, as well as prospective officers, directors, 
and employees prior to their acceptance of a position.
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    \7\ The existing reference to ``agents'' in the sentence is 
proposed to be deleted.
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2. Statutory Basis
    The proposed rule change is consistent with provisions of Section 
17A of the Act \8\ in general and with Section 17A(b)(3)(A) of the 
Act,\9\ in particular, because it is designed to ensure that BSECC is 
so organized and has the capacity to be able to facilitate the prompt 
and accurate clearance and settlement of securities transactions and to 
enforce compliance by its participants with the rules of the clearing 
agency. The proposed changes will enhance the clarity of NASDAQ OMX's 
governance documents and improve its Board committee structures.
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    \8\ 15 U.S.C. 78q-1.
    \9\ 15 U.S.C. 78q-1(b)(3)(A).
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    BSECC does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
becomes operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-
4(f)(6) thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. BSECC requests that the Commission waive the 30-
day pre-operative waiting period contained in Rule 19b-
4(f)(6)(iii).\12\ Waiver of the waiting period will ensure that NASDAQ 
OMX is able to implement the proposed rule change, which has already 
been approved as a rule of the NASDAQ Exchange, without undue delay.
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    \12\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public 
interest.\13\ The Commission notes the proposal is substantively 
identical to proposals that were recently approved by the Commission 
and does not raise any new regulatory issues.\14\ For these reasons, 
the Commission designates the proposed rule change as operative upon 
filing.
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    \13\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \14\ See infra note 3.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.

IV. 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-BSECC-2009-04 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-BSECC-2009-04. This file 
number should be included on the subject line if e-mail 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 inspection and 
copying in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filings also will be available for 
inspection and copying at the principal office of BSECC. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You

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should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-BSECC-2009-04 
and should be submitted on or before September 14, 2009.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E9-20193 Filed 8-21-09; 8:45 am]

BILLING CODE 8010-01-P
