
[Federal Register Volume 77, Number 158 (Wednesday, August 15, 2012)]
[Notices]
[Pages 49032-49034]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-19958]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67619; File Nos. SR-NYSEArca-2012-67]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Changes Amending NYSE Arca, Inc. Rule 3.2 and 
NYSE Arca Equities, Inc. Rule 3.2, Which Concern the Nomination and 
Election of Fair Representation Directors

August 8, 2012.

I. Introduction

    On June 18, 2012, NYSE Arca, Inc. (``NYSE Arca'') filed with the 
Securities and Exchange Commission (``Commission''), pursuant to 
Section 19(b)(1) \1\ of the Securities Exchange Act of 1934 
(``Act''),\2\ and Rule 19b-4 thereunder,\3\ proposed rule changes to 
amend NYSE Arca Rule 3.2 and NYSE Arca Equities, Inc. (``NYSE Arca 
Equities'') Rule 3.2, which concern the nomination and election of fair 
representation directors. The proposed rule changes were published for 
comment in the Federal Register on June 28, 2012.\4\ The Commission 
received no comment letters on the proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ See Securities Exchange Act Release No. 67244 (June 22, 
2012), 77 FR 38701 (SR-NYSEArca-2012-67) (the ``Notice'').
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II. Background

    NYSE Arca Rule 3.2 sets forth a process for the nomination and 
selection of fair representation directors for the NYSE Arca Board of 
Directors

[[Page 49033]]

(``NYSE Arca Board''),\5\ and NYSE Arca Equities Rule 3.2 sets forth a 
similar process for the nomination and selection of fair representation 
directors for the NYSE Arca Equities Board of Directors (``Equities 
Board'').\6\ The Exchange states that the proposed rule changes would 
streamline those processes and make them more similar to the processes 
used by the New York Stock Exchange LLC (``NYSE'') and NYSE MKT LLC 
(``NYSE MKT'').\7\
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    \5\ Under Section 3.02(a) of the Bylaws of NYSE Arca (``NYSE 
Arca Bylaws'') the NYSE Arca Board must have 8-12 directors, and at 
least 20 percent of the directors must be individuals nominated by 
trading permit holders, with at least one director nominated by the 
Equities Trading Permit Holders (``ETP Holders'') of NYSE Arca 
Equities, and at least one director nominated by the Options Trading 
Permit Holders (``OTP Holders'') of the Exchange. In addition, at 
least 50 percent of the directors must be directors who represent 
the public. The exact number of the directors nominated by the ETP 
Holders and OTP Holders is determined from time to time by the NYSE 
Arca Board, subject to the percentage restrictions described above.
    Similar to the NYSE Arca Bylaws, Section 3.02(a) of the Bylaws 
of NYSE Arca Equities, Inc. (the ``Equities Bylaws'') requires that 
at least 20 percent of the Equities Board, but no fewer than two 
directors, must be nominees of the nominating committee of the 
Equities Board (``Equities Nominating Committee'') selected in 
accordance with NYSE Arca Equities Rule 3.2. Under Section 3.02(e) 
of the Equities Bylaws, the Equities Board nominates directors for 
election at the annual meeting of stockholders, and such nominations 
must comply with Section 3.02(a) of the Equities Bylaws and NYSE 
Arca Equities Rules. A 10-member Equities Board must include two 
nominees of the Equities Nominating Committee. See Section 3.02(e) 
of the Equities Bylaws.
    \6\ NYSE Arca Equities, Inc. is a wholly-owned subsidiary of 
NYSE Arca.
    \7\ See Notice, supra note 4 at 38701.
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A. Amendments to NYSE Arca Rules

Nominating Committee Composition and Appointment
    The Exchange proposes to amend NYSE Arca Rules 3.2(b)(2)(A) and (B) 
to change the composition of, and the appointment process for, its 
nominating committee for fair representation directors (the 
``Nominating Committee'').\8\ The Exchange proposes to eliminate the 
public member position from the Nominating Committee and eliminate the 
nomination process for the Nominating Committee members and instead 
have the NYSE Arca Board appoint the members of the Nominating 
Committee. The Exchange represents that this change is consistent with 
the fair representation nominating committee composition and selection 
processes followed by NYSE and NYSE MKT.\9\
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    \8\ Currently, the Nominating Committee has seven members, 
consisting of six OTP Holders and one member of the public.
    \9\ See Notice, supra note 4 at 38702.
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Petition Process for Fair Representation Director Nominees
    The Exchange also proposes to amend the petition process for fair 
representation director nominees to the NYSE Arca Board.\10\ Under 
proposed NYSE Arca Rule 3.2(b)(2)(C)(ii), the Nominating Committee 
would publish the names of the nominees to the NYSE Arca Board on an 
``Announcement Date'' each year sufficient to accommodate the 
nomination and petition processes of the proposed rule. OTP Holders in 
good standing would be permitted to nominate additional eligible 
candidates if a written petition of at least 10 percent of OTP Holders 
in good standing were submitted to the Nominating Committee within two 
weeks after the Announcement Date. The Exchange states that these 
proposed revisions would make the petition process more efficient and 
consistent with the petition process for fair representation directors 
for NYSE and NYSE MKT.\11\
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    \10\ Under current NYSE Arca Rule 3.2(b)(2)(C)(ii), the 
Nominating Committee publishes the names of the fair representation 
director nominees to the NYSE Arca Board no later than 65 days prior 
to the expiration of the term of its directors. OTP Holders may 
submit a petition to add another nominee within 10 business days 
after the Nominating Committee publishes its nominees to the NYSE 
Arca Board. If a written petition of the lesser of 35 OTP Holders or 
10 percent of OTP Holders in good standing is submitted to the 
Nominating Committee, such person also is nominated by the 
Nominating Committee.
    \11\ See Notice, supra note 4 at 38702.
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    The proposed rule would also require each petition candidate to 
include a completed questionnaire used to gather information concerning 
director candidates, and the Nominating Committee would determine 
whether the petition candidate is eligible to serve on the NYSE Arca 
Board (including whether such person was free of a statutory 
disqualification under Section 3(a)(39) of the Act), and such 
determination would be final and conclusive. The questionnaire would be 
a new requirement to assist the Nominating Committee in reaching its 
decision. According to the Exchange, such a questionnaire is already 
used by NYSE and NYSE MKT and having the Nominating Committee determine 
the qualifications of a petition candidate is similar to the NYSE and 
NYSE MKT processes.\12\
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    \12\ See id.
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Contested Nominations
    Currently, in the event that the OTP Holder position is nominated 
by the Nominating Committee pursuant to a petition by the OTP Holders, 
and there are two or more nominees for the NYSE Arca Board, the 
Nominating Committee must submit the contested nomination to the OTP 
Holders for selection. The nominee for the NYSE Arca Board selected by 
the most OTP Holders is submitted by the Nominating Committee to the 
NYSE Arca Board. The Exchange proposes to amend this rule to simplify 
it and provide that if the number of nominees exceeds the number of 
available seats, the Nominating Committee would submit the contested 
nomination to the OTP Holders for selection, and the nominee for the 
NYSE Arca Board receiving the most votes of OTP Holders would be 
submitted by the Nominating Committee to the NYSE Arca Board.\13\
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    \13\ The Exchange also proposes to amend this rule to explicitly 
provide that OTP Holders would be afforded no less than 20 calendar 
days to submit their votes on a confidential basis.
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B. Amendments to NYSE Arca Equities Rules

Nominating Committee Composition and Appointment
    Current NYSE Arca Equities Rules 3.2(b)(2)(A) and (B) are similar 
to the counterpart NYSE Arca rules described above.\14\ As proposed 
with respect to NYSE Arca Rules 3.2(b)(2)(A) and (B), and consistent 
with current NYSE and NYSE MKT processes described above, the Exchange 
proposes to amend NYSE Arca Equities Rule 3.2 to eliminate the public 
member position from the Equities Nominating Committee and eliminate 
the nomination process for the Equities Nominating Committee members 
and instead have the Equities Board appoint the members of the Equities 
Nominating Committee.
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    \14\ Under current NYSE Arca Equities Rule 3.2(b)(2)(A), the 
Equities Nominating Committee has seven members, consisting of six 
ETP Holders and one member of the public.
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Petition Process for Fair Representation Director Nominees
    The Exchange also proposes to amend the petition process for fair 
representation director nominees to the Equities Board. Under proposed 
NYSE Arca Equities Rule 3.2(b)(2)(C)(ii), the Equities Nominating 
Committee would publish the names of the nominees on an ``Announcement 
Date'' each year sufficient to accommodate the nomination and petition 
processes as set forth in the proposed rule.\15\ ETP

[[Page 49034]]

Holders in good standing would be permitted to nominate additional 
eligible candidates if a written petition of at least 10 percent of ETP 
Holders in good standing were submitted to the Equities Nominating 
Committee within two weeks after the Announcement Date. Each petition 
candidate would be required to include a completed questionnaire used 
to gather information concerning director candidates, and the Equities 
Nominating Committee would determine whether the petition candidate is 
eligible to serve on the Equities Board or NYSE Arca Board (including 
whether such person was free of a statutory disqualification under 
Section 3(a)(39) of the Act), and such determination would be final and 
conclusive. According to the Exchange, the proposed rule change would 
amend this process to align it with the NYSE and NYSE MKT processes and 
proposed NYSE Arca Rule 3.2(b)(2)(C) for the same reasons stated above 
with respect to proposed NYSE Arca Rule 3.2.\16\
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    \15\ Under current NYSE Arca Equities Rule 3.2(b)(2)(C)(ii), the 
Equities Nominating Committee publishes the names of the fair 
representation director nominees no later than 65 days prior to the 
expiration of the term of the directors. ETP Holders may submit a 
petition to add another nominee within 10 business days after the 
Equities Nominating Committee publishes its nominees. If a written 
petition of at least 10 percent of ETP Holders in good standing is 
submitted to the Equities Nominating Committee within 45 days 
preceding the expiration of the current term, such person is also 
nominated by the Equities Nominating Committee.
    \16\ See Notice, supra note 4 at 38703.
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Contested Nominations
    Currently, in the event that there is a contested nomination, the 
Equities Nominating Committee submits such contested nomination to the 
ETP Holders, which may select two nominees for the contested seat on 
the Equities Board and one nominee for the contested seat on the NYSE 
Arca Board. The Exchange proposes to simplify this text to align it 
with the proposed changes to NYSE Arca Rule 3.2(b)(2)(C)(iii).\17\
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    \17\ Current NYSE Arca Equities Rule 3.2(b)(2)(C)(ii) does not 
describe the voting process. The proposed rule changes would amend 
the rule to explicitly provide that ETP Holders would be afforded no 
less than 20 calendar days to submit their votes on a confidential 
basis. The Exchange also proposes certain technical and conforming 
changes.
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III. Discussion and Commission Findings

    The Commission has reviewed carefully the proposed rule changes and 
finds that the proposed rule changes are consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\18\ In particular, the 
Commission finds that the proposed rule changes are consistent with 
Section 6(b)(3) of the Act,\19\ which, among other things, requires 
that the rules of an exchange assure a fair representation of its 
members in the selection of its directors and administration of its 
affairs and provides that one or more directors shall be representative 
of issuers and investors and not be associated with a member of the 
exchange, broker or dealer. The Commission also notes that the proposed 
rule changes are substantially similarly to the nominating and fair 
representation policies and procedures of NYSE and NYSE MKT. 
Furthermore, the proposed rule changes would not amend the fair 
representation requirements as set forth in Sections 3.02 of both the 
NYSE Arca Bylaws and the Equities Bylaws.
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    \18\ In approving the proposed rule changes, the Commission has 
considered their impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \19\ 15 U.S.C. 78f(b)(3).
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IV. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule changes are consistent with the Act and the rules and regulations 
thereunder applicable to a national securities exchange.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\20\ that the proposed rule changes (SR-NYSEArca-2012-67), are 
approved.
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    \20\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-19958 Filed 8-14-12; 8:45 am]
BILLING CODE 8011-01-P


