
[Federal Register Volume 76, Number 217 (Wednesday, November 9, 2011)]
[Notices]
[Pages 69780-69783]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-29037]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65682; File No. SR-CBOE-2011-099]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Proposed Rule Change, as Modified by Amendment 
No. 1 Thereto, Concerning Industry Directors and the Nomination of 
Representative Directors

 November 3, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on October 21, 2011, the Chicago Board Options Exchange, 
Incorporated (``Exchange'' or ``CBOE'') filed with the Securities and 
Exchange Commission (the ``Commission'') the proposed rule change as 
described in Items I and II below, which Items have been prepared by 
the Exchange. On November 1, 2011, the Exchange submitted a technical 
amendment (``Amendment No. 1'') to the proposed rule change.\3\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ As provided in the instructions to Form 19b-4, the Exchange 
noted in Item 2 of its filing that it needed to obtain, but had not 
yet obtained, formal approval from its Board of Directors for the 
Bylaw, Certificate of Incorporation, and Voting Agreement changes 
set forth in this proposed rule change. The Exchange also noted that 
it needed to obtain, but had not yet obtained, approval from CBOE 
Holdings, the Exchange's sole stockholder, of the changes to the 
Certificate of Incorporation and Voting Agreement. The Exchange 
stated that once these approvals were obtained, it would file a 
technical amendment to this proposed rule change to reflect these 
approvals. Amendment No. 1 reflected that the requisite approvals 
were obtained on November 1, 2011, and represented that no further 
action in connection with this proposed rule change was required. In 
addition, Amendment No. 1 contained the Exchange's consent to an 
extension of time for Commission consideration of this proposed rule 
change for an additional thirty-five days after November 1, 2011 
(the filing date of this amendment).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to: (i) Amend its Bylaws to eliminate the 
requirement that at least 30% of the members of the Board of Directors 
must be Industry Directors; (ii) amend its Bylaws relating to its 
Advisory Board; (iii) amend its Bylaws relating to the nomination of 
Representative Directors; and (iv) make conforming changes to the CBOE 
Certificate of Incorporation and the

[[Page 69781]]

Voting Agreement between CBOE and CBOE Holdings, Inc. (``CBOE 
Holdings''). The text of the proposed amendments to CBOE's Bylaws, 
CBOE's Certificate of Incorporation and the Voting Agreement are 
available on the Exchange's Web site (http://www.cboe.org/legal), at 
the Exchange's Office of the Secretary and at the Commission.

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

    In its filing with the Commission, the Exchange 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.

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

1. Purpose
    The purpose of this proposed rule change is to (i) Amend CBOE's 
Bylaws to eliminate the requirement that at least 30% of the members of 
the Board of Directors must be Industry Directors; (ii) amend CBOE's 
Bylaws relating to its Advisory Board; (iii) amend CBOE's Bylaws 
relating to the nomination of Representative Directors; and (iv) make 
conforming changes to CBOE's Certificate of Incorporation and the 
Voting Agreement between CBOE and CBOE Holdings.
(1) Elimination of 30% Industry Director Requirement
    In light of CBOE's demutualization and conversion from a membership 
organization to a stock corporation owned by a public holding company 
in June, 2010, and based on the Exchange's experience since that time 
in operating in that form, the Exchange believes that it is no longer 
necessary that its Bylaws contain a requirement that its Board of 
Directors be composed of at least 30% Industry Directors. The Exchange 
believes that eliminating the requirement that at least 30% of its 
Board be composed of Industry Directors as defined in the Bylaws 
provides it with appropriate flexibility as it evaluates the structure 
and composition of its Board in the future. The Exchange notes that it 
has not made a determination as to whether it will reduce (or 
eliminate) the number of directors on its Board who qualify as an 
Industry Director as defined in the Bylaws. Even if the number of 
individuals who would technically qualify as Industry Directors on the 
Board of Directors is reduced, the Exchange recognizes the importance 
of having directors who have industry expertise and knowledge (whether 
those directors are Industry Directors or Non-Industry Directors). 
Additionally, no matter what the composition of its Board is, the 
Exchange intends to maintain the fair representation of its Trading 
Permit Holders in the selection of its directors and administration of 
its affairs consistent with Section 6(b)(3) of the Securities Exchange 
Act of 1934, as amended (``Act''), as further described below.
    In the event the Exchange determines in the future to reduce the 
number of directors on its Board who would qualify as an Industry 
Director, the Exchange believes that a Board composed of all or nearly 
all Non-Industry Directors would be consistent with the Act, including 
Section 6(b)(3) of the Act relating to the fair representation of CBOE 
Trading Permit Holders in the selection of directors and the 
administration of the Exchange.\4\ The Exchanges also notes that in 
such a case, at all times at least 20% of the directors serving on the 
Board shall be Representative Directors nominated (or otherwise 
selected through the petition process) by the Representative Director 
Nominating Body as provided in Section 3.2 of the Bylaws. Under Section 
3.2, the Representative Director Nominating Body provides a mechanism 
for Trading Permit Holders to provide input with respect to the 
nominees for Representative Directors and also allows for Trading 
Permit Holders to nominate alternative candidates by petition.
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    \4\ See, e.g., Securities Exchange Act Release No. 48946 
(December 17, 2003), 68 FR 74678 (December 24, 2003) (approving SR-
NYSE-2003-34).
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    In connection with the proposed elimination of the requirement that 
at least 30% of the Board shall be composed of Industry Directors, CBOE 
also proposes to amend Section 4.4 of its Bylaws relating to the 
composition of the Nominating and Governance Committee. Specifically, 
CBOE proposes to delete the clause that states that the Nominating and 
Governance Committee shall consist of both Industry and Non-Industry 
Directors, given that at some point in the future the Board may not 
have Industry Directors serving on it.
(2) Amendments Relating to the Advisory Board
    Recently, CBOE amended its Bylaws to provide for the establishment 
of an Advisory Board which shall advise the Office of the Chairman 
regarding matters of interest to Trading Permit Holders. CBOE now 
proposes to amend Section 6.1 of the Bylaws to clarify that the 
Exchange ``will'' (as opposed to ``may'') have an Advisory Board, which 
shall advise the Board of Directors in addition to the Office of the 
Chairman regarding matters that impact Trading Permit Holders. CBOE 
also proposes to amend Section 6.1 of its Bylaws to expressly provide 
that at least two members of the Advisory Board shall be Trading Permit 
Holders or persons associated with Trading Permit Holders. CBOE notes 
that the Advisory Board provides a mechanism for Trading Permit Holders 
to provide industry feedback to CBOE's Chairman and CEO, Executive Vice 
Chairman, President and Lead Director, all of whom are members of the 
Advisory Board, consistent with Section 6(b)(3) of the Act.
(3) Nomination of Representative Directors
    The Exchange Bylaws will continue to require that at least 20% of 
CBOE's directors must be Representative Directors. However, the 
Exchange proposes to amend its Bylaws in a number of respects with 
regard to the nomination process for the Representative Directors. 
Currently, as described in Section 3.2 of the Bylaws, the 
Representative Directors are nominated (or otherwise selected through a 
petition process) by the Industry-Director Subcommittee of the CBOE 
Nominating and Governance Committee. The Industry-Director Subcommittee 
is composed of all of the Industry Directors serving on the Nominating 
and Governance Committee. CBOE Trading Permit Holders may nominate 
alternative Representative Director candidates to those nominated by 
the Industry Director Subcommittee, in which case a Run-off Election is 
held in which CBOE's Trading Permit Holders vote to determine which 
candidates will be elected to the CBOE Board of Directors to serve as 
Representative Directors.
    Because it is possible that at some point in the future CBOE's 
Board may not have Industry Directors as defined in the Bylaws serving 
on it, CBOE proposes to amend its Bylaws to eliminate the requirement 
in Section 3.2 that the Representative Directors must be Industry 
Directors. In addition, CBOE proposes to incorporate into the Bylaws

[[Page 69782]]

the concept of a Representative Director Nominating Body which shall 
mean the current Industry-Director Subcommittee of the Nominating and 
Governance Committee if there are at least two Industry Directors on 
the Nominating and Governance Committee. If the Nominating and 
Governance Committee has less than two Industry Directors as defined in 
the Bylaws, then the Representative Director Nominating Body shall mean 
the Trading Permit Holders Subcommittee of the Advisory Board.\5\ The 
Representative Director Nominating Body will nominate the 
Representative Directors in accordance with the provisions of Section 
3.2 of the Bylaws. In that regard, it will perform the functions 
currently performed by the Industry-Director Subcommittee.
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    \5\ See proposed new Bylaw definition 1.1(k) and the proposed 
changes to Sections 4.4 and 6.1 of the Bylaws.
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    In addition, CBOE proposes to amend Section 3.2 of the Bylaws with 
regard to the time period by which the Representative Director nominees 
are announced via circular to the Trading Permit Holders, the deadline 
for Trading Permit Holders to nominate alternative candidates via 
petition, and the timing of any Run-Off Election. Presently, Section 
3.2 of the Bylaws provides that the Industry-Director Subcommittee 
shall issue a circular announcing its Representative Director nominees 
not later than January 15th, or the first business day thereafter if 
the 15th is not a business day. Trading Permit Holders may nominate 
alternative candidates for the Representative Director positions by 
petition, which petition needs to be filed with the Secretary of the 
Exchange not later than 5 p.m. on the Monday preceding the first Friday 
in February (or the first business day thereafter in the event that 
Monday occurs on a holiday). If one or more valid petitions are 
received, a Run-Off Election is held at least 20 days prior to the 
mailing of any notice of the annual meeting.
    CBOE believes that it would be useful and appropriate to modify 
these deadlines in order to provide the Exchange, the Nominating and 
Governance Committee and the Representative Director Nominating Body 
with additional flexibility. The Exchange proposes to amend Section 3.2 
to provide that:

     The Representative Director Nominating Body shall issue 
a circular to the Trading Permit Holders identifying the 
Representative Director nominees not earlier than December 1st and 
not later than January 15th, or the first business day thereafter if 
January 15th is not a business day;
     Trading Permit Holders may nominate alternative 
candidates for election to the Representative Director positions to 
be elected in a given year by submitting a petition to the Secretary 
not later than 5 p.m. (Chicago time) on the 10th business day 
following the issuance of the circular to the Trading Permit Holders 
identifying the Representative Director nominees selected by the 
Representative Director Nominating Body (``Petition Deadline''). The 
Exchange believes that 10 business days is a reasonable and 
sufficient amount of time for Trading Permit Holders to obtain a 
petition signed by individuals representing not more than 10% of the 
total outstanding Trading Permits at that time to nominate by 
petition alternative candidates for election to the Representative 
Director positions. CBOE notes that many Trading Permit Holders hold 
multiple permits. CBOE also notes that 10 business days is 
consistent with the minimum time period that was effective in 2010 
and that would be available in 2011 under the existing Bylaws for 
the nomination of alternative candidates by petition; and
     The Run-off Election will be held not more than 45 days 
after the Petition Deadline.

    As noted, the Exchange believes that modifying these deadlines as 
proposed will provide the Exchange with additional flexibility and 
enable the Exchange to complete the process for determining its 
nominees at an earlier point in time without changing the time period. 
Modifying these deadlines also will assist in synchronizing CBOE's 
nomination process with the nomination process for CBOE's parent 
company, CBOE Holdings, Inc. In addition to the above changes, CBOE 
proposes to replace all references to the Industry-Director 
Subcommittee in the Bylaws with the term Representative Director 
Nominating Body.
    Finally, CBOE proposes to amend Section 2.2 of its Bylaws relating 
to the timing of its annual meeting to clarify that in no event shall 
the annual meeting date each year be prior to the completion of the 
process for the nomination of the Representative Directors for that 
annual meeting as set forth in Sections 3.1 and 3.2.
    CBOE is not proposing to amend any other provisions with regard to 
the timing and process for the nomination of the Representative 
Directors.
(4) Amendment to Certificate of Incorporation and Voting Agreement
    CBOE also proposes to make conforming changes to its Certificate of 
Incorporation and the Voting Agreement between it and its parent 
company, CBOE Holdings. Specifically, CBOE proposes to amend its 
Certificate of Incorporation and the Voting Agreement to replace the 
references to the Industry-Director Subcommittee with the term 
Representative Director Nominating Body. It also proposes to make non-
substantive changes to the Voting Agreement.
2. Statutory Basis
    For the reasons set forth above, CBOE believes that this filing is 
consistent with Section 6(b) of the Act,\6\ in general, and furthers 
the objectives of Section 6(b)(1) of the Act \7\ and Section 6(b)(5) of 
the Act \8\ in particular, in that (i) It enables CBOE to be so 
organized as to have the capacity to be able to carry out the purposes 
of the Act and to comply, and to enforce compliance by its Trading 
Permit Holders and persons associated with its Trading Permit Holders, 
with the provisions of the Act, the rules and regulations thereunder, 
and the rules of CBOE and (ii) 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. 
Specifically, CBOE believes that the proposed changes will improve and 
add greater flexibility to CBOE's governance structure (i) By 
eliminating the requirement that the Board of Directors shall be 
composed of at least 30% Industry Directors as defined in the Bylaws; 
(ii) by modifying the process for the nomination of Representative 
Directors, including granting the Trading Permit Holders and persons 
associated with Trading Permit Holders on the Advisory Board the 
authority to nominate the Representative Directors in those instances 
in which the Nominating and Governance Committee has less than two 
Industry Directors; (iii) by amending the Bylaws to provide that the 
Exchange will establish an Advisory Board, which CBOE views as a useful 
vehicle for the Board to receive input from the perspective of Trading 
Permit Holders and with respect to matters of interest to Trading 
Permit Holders; and (iv) by modifying the deadlines relating to the 
nomination of the Representative Directors, which CBOE believes will 
provide it, the Nominating and Governance Committee and the 
Representative Director Nominating Body with additional flexibility 
with respect to the timing of the nomination process so that the 
Exchange is not locked into specific dates that may not work well 
during a particular year. Additionally, CBOE believes that this filing 
is consistent with Section 6(b)(3) of the Act in that CBOE's Bylaws 
will continue to provide for the fair

[[Page 69783]]

representation of CBOE Trading Permit Holders in the selection of 
directors and the administration of the Exchange.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(1).
    \8\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    CBOE does not believe that the proposed rule change will impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act.

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

    The Exchange neither solicited nor received comments on the 
proposal.

III. 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 within such longer period (i) As the Commission may 
designate up to 90 days of such date 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 such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.
    As reflected in Amendment No. 1, the Exchange has consented to an 
extension of time for Commission consideration of this proposal for an 
additional thirty-five days after the filing of Amendment No. 1.\9\
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    \9\ Amendment No. 1 was filed on November 1, 2011. See supra 
note 3 (describing Amendment No. 1).
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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 email to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2011-099 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-CBOE-2011-099. 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 on 
official business days between the hours of 10 a.m. and 3 p.m. Copies 
of such filing also will be available for inspection and copying at the 
principal offices 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-CBOE-2011-099, and should be submitted on or before 
November 30, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-29037 Filed 11-8-11; 8:45 am]
BILLING CODE 8011-01-P


