
[Federal Register Volume 76, Number 125 (Wednesday, June 29, 2011)]
[Notices]
[Pages 38231-38232]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-16243]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64727; File No. SR-C2-2011-012]


Self-Regulatory Organizations; C2 Options Exchange, Incorporated; 
Order Approving Proposed Rule Change, as Modified by Amendment No. 1, 
To Reduce the Minimum Size of the Nominating and Governance Committee

 June 22, 2011.

I. Introduction

    On April 27, 2011, C2 Options Exchange, Incorporated (``C2'' or 
``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 reduce the minimum size of the Nominating and 
Governance Committee (``NGC'') from seven to five. On May 18, 2011, the 
Exchange filed Amendment No. 1 to the proposed rule change.\3\ The 
proposed rule change was published for comment in the Federal Register 
on May 10, 2011.\4\ The Commission received no comment letters 
regarding the proposal. This order approves the proposed rule change, 
as modified by Amendment No. 1.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ At the time C2 submitted the original proposed rule change, 
it had not yet obtained formal approval from its Board of Directors 
for the specific Bylaw changes set forth in this proposed rule 
change. C2 stated that once that approval was obtained, it would 
file a technical amendment to its proposed rule change to reflect 
that approval. In Amendment No. 1, the Exchange notes that the C2 
Board of Directors approved the specific Bylaw changes set forth in 
SR-C2-2011-012 on May 17, 2011 and stated that no further action was 
necessary in connection with its proposal. Because Amendment No. 1 
is technical in nature, the Commission is not required to publish it 
for public comment.
    \4\ See Securities Exchange Act Release No. 64394 (May 4, 2011), 
76 FR 27112 (``Notice'').
---------------------------------------------------------------------------

II. Description of the Proposal

    C2 is proposing to reduce the minimum size of its NGC from seven to 
five directors. Section 4.4 of the Second Amended and Restated Bylaws 
of C2 (``Bylaws'') currently provides, in pertinent part, that the NGC 
shall consist of at least seven directors, including both Industry and 
Non-Industry Directors; that a majority of the directors on the 
Committee shall be Non-Industry Directors; and that the exact number of 
members on the Committee shall be determined from time to time by C2's 
Board of Directors (the ``Board'' or ``C2 Board''). Pursuant to the 
proposed rule change, Section 4.4 of the Bylaws would be amended to 
provide that the NGC shall consist of at least five directors. The 
other provisions of Section 4.4 of the Bylaws would remain 
unchanged.\5\
---------------------------------------------------------------------------

    \5\ Additionally, the title of the Bylaws would be changed to 
the Third Amended and Restated Bylaws of C2.
---------------------------------------------------------------------------

    In outlining the purpose behind its proposal, the Exchange noted 
that the size of its Board declined from its initial size of twenty-
three to nineteen directors in 2009 and again to sixteen directors in 
2011.\6\ As the size of its Board has declined, the Exchange noted that 
it has become more challenging to populate larger-size Board committees 
since there are fewer directors to serve on a multitude of 
committees.\7\ The Exchange's proposal to reduce the minimum size of 
the NGC is intended to help address this issue.
---------------------------------------------------------------------------

    \6\ Section 3.1 of the Bylaws provides that the C2 Board shall 
consist of not less than eleven and not more than twenty-three 
directors, with the exact size determined by the Board.
    \7\ See Notice, supra note 4, at 27112.
---------------------------------------------------------------------------

III. Discussion

    After careful review of the proposal, the Commission finds that the 
proposed rule change, as modified by Amendment No. 1, is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\8\ In 
particular, the Commission finds that the proposal is consistent with 
Section 6(b)(1) of the Act,\9\ which requires a national securities 
exchange to be so organized and have the capacity to carry out the 
purposes of the Act and to comply, and to enforce compliance by its 
members and persons associated with its members, with the provisions of 
the Act, as well as Section 6(b)(5) of the

[[Page 38232]]

Act,\10\ in that it is designed to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
to remove impediments to, and perfect the mechanism of a free and open 
market, and, in general, to protect investors and the public interest. 
While the Exchange has proposed to reduce the minimum size of the NGC, 
it has not proposed any other changes to the composition of the 
committee or the scope or exercise of its responsibilities. In its 
filing, the Exchange affirmatively represented that the NGC ``will 
continue to be able to appropriately perform its functions'' despite 
the reduction in minimum required size.\11\ The Commission further 
finds that the proposal, as modified by Amendment No. 1, is consistent 
with the requirements of Section 6(b)(3) of the Act,\12\ which requires 
that one or more directors of an exchange shall be representative of 
issuers and investors and not be associated with a member of the 
exchange, broker or dealer.
---------------------------------------------------------------------------

    \8\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(1).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ See Notice, supra note 4, at 27112.
    \12\ 15 U.S.C. 78f(b)(3).
---------------------------------------------------------------------------

    In particular, the Commission notes that the Exchange will continue 
to provide for the fair representation of C2 Trading Permit Holders in 
the selection of directors and the administration of the Exchange 
consistent with Section 6(b)(3) of the Act \13\ following this rule 
change. Specifically, the C2 Bylaws will continue to require that at 
least thirty percent of the directors on the C2 Board be Industry 
Directors and that at least twenty percent of C2's directors be 
Representative Directors elected by permit holders.\14\ Further, the 
NGC will continue to include both Industry and Non-Industry Directors 
(including a majority of Non-Industry Directors) and have an Industry-
Director Subcommittee that is composed of all of the Industry Directors 
serving on the Committee. Representative Directors will continue to be 
nominated (or otherwise selected through a petition process) by the 
Industry-Director Subcommittee. Additionally, C2 Trading Permit Holders 
will continue to be able to nominate alternative Representative 
Director candidates to those nominated by the Industry Director 
Subcommittee, in which case a Run-off Election will be held in which 
C2's Trading Permit Holders vote to determine which candidates will be 
elected to the C2 Board to serve as Representative Directors. 
Furthermore, the Commission notes that the Exchange's proposal to 
reduce the minimum size of its NGC is consistent with a proposal that 
the Commission previously approved for another self-regulatory 
organization in which that self-regulatory organization reduced the 
minimum size of its nominating and governance committee from six to 
four members.\15\
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f(b)(3).
    \14\ See Section 3.2 of the C2 Bylaws (defining ``Representative 
Director'').
    \15\ See Securities Exchange Act Release No. 54494 (September 
25, 2006), 71 FR 58023 (October 2, 2006) (SR-CHX-2006-23) (approving 
reduction of the Chicago Stock Exchange's Nominating and Governance 
Committee from six directors to four directors). See also Article 
II, Section 3 of the Bylaws of the Chicago Stock Exchange, Inc. 
(providing for a Nominating and Governance Committee with four 
directors).
---------------------------------------------------------------------------

    Finally, the Exchange has represented that, although the proposed 
rule change would permit the Exchange to appoint a five-person NGC and 
the Exchange may elect to do so in the future, it is the current 
intention of the Exchange to appoint a six-person NGC.\16\
---------------------------------------------------------------------------

    \16\ See Notice, supra note 4, at 27112.
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\17\ that the proposed rule change (SR-C2-2011-012), as modified by 
Amendment No. 1, be, and hereby is, approved.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78s(b)(2).
    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-16243 Filed 6-28-11; 8:45 am]
BILLING CODE 8011-01-P


