
[Federal Register Volume 77, Number 199 (Monday, October 15, 2012)]
[Notices]
[Pages 62587-62592]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-25221]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68006; File No. SR-NYSEArca-2012-105]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Amending NYSE Arca Equities Rule 5.3(k)(4) To 
Comply With the Requirements of Securities and Exchange Commission Rule 
10C-1

October 9, 2012.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on September 25, 2012, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend NYSE Arca Equities Rule 5.3(k)(4) to 
comply with the requirements of Securities and Exchange Commission 
(``Commission'' or ``SEC'') Rule 10C-1.\4\ The text of the proposed 
rule change is available on the Exchange's Web site at www.nyse.com, at 
the principal office of the Exchange, and at the Commission's Public 
Reference Room.
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    \4\ 17 CFR 240.10C-1.
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II. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
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.

[[Page 62588]]

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

1. Purpose
    NYSE Arca, through its wholly-owned corporation, NYSE Arca 
Equities, proposes to amend NYSE Arca Equities Rule 5.3(k)(4) to comply 
with the requirements of SEC Rule 10C-1.
    The proposed changes to NYSE Arca Equities Rule 5.3(k)(4) will 
become operative on July 1, 2013. Consequently, the existing text of 
these sections will remain in the NYSE Arca Equities Rulebook until 
June 30, 2013 and will be removed immediately thereafter.\5\ Upon 
approval of this filing, the amended provisions of those sections will 
be included in the Rulebook with introductory text indicating that the 
revised text does not become operative until July 1, 2013
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    \5\ The Commission notes that the Exchange will have to comply 
with Section 19(b) of the Act.
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    Section 952 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act of 2010 (the ``Dodd-Frank Act'') \6\ added Section 10C 
to the Securities Exchange Act of 1934.\7\ Section 10C requires the 
Commission to adopt rules directing the national securities exchanges 
and national securities associations to prohibit the listing of any 
equity security of an issuer that is not in compliance with Section 
10C's compensation committee and compensation adviser requirements. On 
June 20, 2012, to comply with the requirements of Section 10C, the 
Commission adopted new Rule 10C-1, which directs the national 
securities exchanges to adopt listing rules effectuating the 
compensation committee and compensation adviser requirements of Section 
10C.\8\
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    \6\ Public Law 111-203, 124 Stat. 1900 (2010).
    \7\ 15 U.S.C. 78j-3.
    \8\ There are currently no issuers listed on the Exchange that 
would be subject to the proposed rules.
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Compensation Committee Director Independence Requirement
    In adopting independence requirements for compensation committee 
members, 10C-1(b)(1)(ii) \9\ requires the exchanges to consider 
relevant factors including, but not limited to: (i) The source of the 
director's compensation, including any consulting, advisory or other 
compensatory fees paid by the listed company; and (ii) whether the 
director has an affiliate relationship with the company, a subsidiary 
of the company or an affiliate of a subsidiary of the company. Rule 
10C-1(a)(4) \10\ requires that the rule filing submitted to the SEC by 
each exchange in connection with the adoption of the rules required by 
Rule 10C-1 must include a review of whether and how the proposed 
listing standards satisfy the requirements of the final rule; a 
discussion of the exchange's consideration of factors relevant to 
compensation committee independence; and the definition of independence 
applicable to compensation committee members that the exchange proposes 
to adopt or retain in light of such review.
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    \9\ 17 CFR 240.10C-1(b)(1)(ii).
    \10\ 17 CFR 240.10C-1(a)(4).
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    The Exchange's director independence standards are set forth in 
NYSE Arca Equities Rule 5.3(k)(1). That section provides that no 
director qualifies as independent unless the board of directors 
affirmatively determines that the director has no material relationship 
with the listed company, either directly or as a partner, shareholder 
or officer of an organization that has a relationship with the company. 
In addition, NYSE Arca Equities Rule 5.3(k)(1) provides that a director 
may not be deemed to be independent if such director has a relationship 
with the listed company which violates any one of five ``bright line'' 
tests.\11\
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    \11\ NYSE Arca Equities Rule 5.3(k)(1) provides that the 
following categories of directors may not be deemed independent: (A) 
A director who is or has been within the last three years, an 
employee of the listed company, or whose immediate family member is 
or has been within the last three years an executive officer of the 
listed company; (B) (i) A director or a director who has an 
immediate family member who is a current partner of a firm that is 
the company's internal or external auditor; (ii) A director who is a 
current employee of such a firm; (iii) A director who has an 
immediate family member who is a current employee of such a firm and 
who participates in the firm's audit, assurance or tax compliance 
(but not tax planning) practice; or (iv) A director or a director 
who has an immediate family member who was within the last three 
years (but is no longer) a partner or employee of such a firm and 
personally worked on the listed company's audit within that time; 
(C) A director or a director who has an immediate family member who 
is, or in the past three years has been, part of an interlocking 
directorate in which an executive officer of the listed company 
serves or served on the compensation committee of another company 
that concurrently employs or employed the director; (D) A director 
who is an executive officer or an employee, or whose immediate 
family member is an executive officer, of a company that makes 
payments to, or receives payments from, the listed company for 
property or services in an amount which, in any single fiscal year, 
exceeds the greater of $200,000 or 5% of such other company's 
consolidated gross revenues, is not ``independent'' until three 
years after falling below such threshold; (E) A director who 
received, or whose immediate family member is an executive officer 
who received, during any twelve-month period within the last three 
years, more than $100,000 in direct compensation from the listed 
company, other than director and committee fees and pension or other 
forms of deferred compensation for prior service (provided such 
compensation is not contingent in any way on continued service); (F) 
In the case of an investment company, in lieu of paragraphs (A)-(E) 
above, a director who is an ``interested person'' of the company as 
defined in section 2(a)(19) of the Investment Company Act of 1940, 
other than in his or her capacity as a member of the board of 
directors or any board committee.
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    The provisions of NYSE Arca Equities Rule 5.3(k)(1) as currently in 
effect will continue to be applicable to independence determinations in 
relation to compensation committee service, as compensation committee 
members will be required to be independent under the Exchange's general 
board independence standards set forth in NYSE Arca Equities Rule 
5.3(k)(1), in addition to the independence requirements proposed 
specifically for compensation committee service.
    The Exchange proposes to amend NYSE Arca Equities Rule 5.3(k)(4) to 
require that, in affirmatively determining the independence of any 
director who will serve on the compensation committee of the listed 
company's board of directors, the board of directors must consider all 
factors specifically relevant to determining whether a director has a 
relationship to the listed company which is material to that director's 
ability to be independent from management, in connection with the 
duties of a compensation committee member including, but not limited 
to, the two factors that are set forth in proposed NYSE Arca Equities 
Rule 5.3(k)(4) and are explicitly enumerated in Rule 10C-1(b)(ii). When 
considering the sources of a director's compensation in determining his 
independence for purposes of compensation committee service, NYSE Arca 
Equities Rule 5.3(k)(4) as amended provides that the board should 
consider whether the director receives compensation from any person or 
entity that would impair his ability to make independent judgments 
about the listed company's executive compensation. Similarly, when 
considering any affiliate relationship a director has with the company, 
a subsidiary of the company, or an affiliate of a subsidiary of the 
company, in determining his independence for purposes of compensation 
committee service, the proposed amended rule text provides that the 
board should consider whether the affiliate relationship places the 
director under the direct or indirect control of the listed company or 
its senior management, or creates a direct relationship between the 
director and members of senior management, in each case of a nature 
that would impair his ability to make independent judgments

[[Page 62589]]

about the listed company's executive compensation.
    The Exchange does not propose to adopt any specific numerical tests 
with respect to the factors specified in proposed NYSE Arca Equities 
Rule 5.3(k)(4)(ii) or to adopt a requirement to consider any other 
specific factors. In particular, the Exchange does not intend to adopt 
an absolute prohibition on a board making an affirmative finding that a 
director is independent solely on the basis that the director or any of 
the director's affiliates are shareholders owning more than some 
specified percentage of the listed company. In the adopting release for 
Rule 10C-1 (the ``Adopting Release''),\12\ the SEC recognized that the 
exchanges might determine that not all affiliate relationships would 
adversely affect a director's ability to be independent from 
management.\13\ Consistent with the views of commenters on the SEC's 
rules as originally proposed, the Exchange believes that--rather than 
adversely affecting a director's ability to be independent from 
management as a compensation committee member--share ownership in the 
listed company aligns the director's interests with those of 
unaffiliated shareholders, as their stock ownership gives them the same 
economic interest in ensuring that the listed company's executive 
compensation is not excessive.
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    \12\ Release Nos. 33-9330; 34-67220 (June 20, 2012); 77 FR 38422 
(June 27, 2012).
    \13\ See Adopting Release at 38428.
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    The Exchange believes that its existing ``bright line'' 
independence standards as set forth in NYSE Arca Equities Rule 
5.3(k)(1) are sufficiently broad to encompass the types of 
relationships which would generally be material to a director's 
independence for compensation committee service. In addition to these 
``bright line'' tests, NYSE Arca Equities Rule 5.3(k)(1) also already 
requires the board to consider any relationship that would be material 
to the independence of a director. The Exchange believes that these 
requirements with respect to general director independence, when 
combined with the specific considerations required by proposed NYSE 
Arca Equities Rule 5.3(k)(4)(ii), represent an appropriate standard for 
compensation committee independence that is consistent with the 
requirements of Rule 10C-1.
Compensation Committee Advisers
    Rule 10C-1(b)(2) \14\ requires exchange rules to mandate that 
compensation committees must have broad authority to engage advisers to 
assist in their performance of the committee's functions. Specifically, 
exchange rules must mandate that:
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    \14\ 17 CFR 240.10C-1(b)(2).
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    (a) The compensation committee may, in its sole discretion, retain 
or obtain the advice of a compensation consultant, independent legal 
counsel or other adviser; and
    (b) The compensation committee shall be directly responsible for 
the appointment, compensation and oversight of the work of any 
compensation consultant, independent legal counsel and other adviser 
retained by the compensation committee.
    Rule 10C-1(b)(3) \15\ requires exchange rules to mandate that the 
listed company must provide for appropriate funding, as determined by 
the compensation committee, for payment of reasonable compensation to a 
compensation consultant, independent legal counsel or any other adviser 
retained by the compensation committee.
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    \15\ 17 CFR 240.10C-1(b)(3).
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    The Exchange proposes to adopt the requirements specified in Rule 
10C-1(b)(2) and (3) verbatim as new subsection (iv) to NYSE Arca 
Equities Rule 5.3(k)(4).
Compensation Adviser Independence Factors
    Rule 10C-1(b)(4) \16\ provides that the compensation committee of a 
listed issuer may select a compensation consultant, legal counsel or 
other adviser to the compensation committee only after taking into 
consideration the following factors, as well as any other factors 
identified by the relevant national securities exchange or national 
securities association in its listing standards:
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    \16\ 17 CFR 240.10C-1(b)(4).
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    (i) The provision of other services to the listed company by the 
person that employs the compensation consultant, legal counsel or other 
adviser;
    (ii) The amount of fees received from the listed company by the 
person that employs the compensation consultant, legal counsel or other 
adviser, as a percentage of the total revenue of the person that 
employs the compensation consultant, legal counsel or other adviser;
    (iii) The policies and procedures of the person that employs the 
compensation consultant, legal counsel or other adviser that are 
designed to prevent conflicts of interest;
    (iv) Any business or personal relationship of the compensation 
consultant, legal counsel or other adviser with a member of the 
compensation committee;
    (v) Any stock of the listed company owned by the compensation 
consultant, legal counsel or other adviser; and
    (vi) Any business or personal relationship of the compensation 
consultant, legal counsel, other adviser or the person employing the 
adviser with an executive officer of the listed company.
    Accordingly, the Exchange proposes to add as new subsection (v) to 
NYSE Arca Equities Rule 5.3(k)(4) a provision specifying that, before 
engaging an adviser, the compensation committee must consider the 
factors enumerated above. As proposed, NYSE Arca Equities Rule 
5.3(k)(4)(v) would not include any additional factors for 
consideration, as the Exchange believes that the list included in Rule 
10C-1(b)(4) is very comprehensive and the proposed listing standard 
would also require the compensation committee to consider any other 
factors that would be relevant to the adviser's independence from 
management.
    Consistent with Rule 10C-1(b)(2)(iii),\17\ the Exchange proposes to 
include as new Commentary .04 to NYSE Arca Equities Rule 5.3(k)(4) an 
explicit statement that nothing in NYSE Arca Equities Rule 
5.3(k)(4)(ii) shall be construed: (A) To require the Compensation 
Committee to implement or act consistently with the advice or 
recommendations of the compensation consultant, independent legal 
counsel or other adviser to the compensation committee; or (B) to 
affect the ability or obligation of the Compensation Committee to 
exercise its own judgment in fulfillment of the duties of the 
Compensation Committee (or, if applicable, the independent directors). 
In addition, as provided by Rule 10C-1(b)(4), proposed new Commentary 
.05 to NYSE Arca Equities Rule 5.3(k)(4) would specify that the 
compensation committee need not engage in an analysis of the 
independence factors before consulting with or obtaining advice from 
in-house legal counsel.
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    \17\ 17 CFR 240.10C-1(b)(2)(iii).
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Cure Periods
    Rule 10C-1(a)(3) \18\ requires that exchange rules must include 
appropriate procedures for a listed issuer to have a reasonable 
opportunity to cure any non-compliance with the provisions of exchange 
rules adopted as required by Rule 10C-1. In addition, Rule 10C-1(a)(3) 
states that such rules may provide that if a member of a compensation 
committee ceases to be

[[Page 62590]]

independent in accordance with the requirements of Rule 10C-1 for 
reasons outside the member's reasonable control, that person, with 
notice by the issuer to the exchange, may remain a compensation 
committee member of the listed issuer until the earlier of the next 
annual meeting or one year from the occurrence of the event that caused 
the member to be no longer independent. The Exchange proposes to adopt, 
as a third paragraph in new subsection (ii) to NYSE Arca Equities Rule 
5.3(k)(4), this cure provision period for events of non-compliance with 
the proposed compensation committee independence requirements that are 
outside of the director's reasonable control. However, the Exchange 
proposes to modify this cure provision by limiting its use to 
circumstances where the compensation committee continues to have a 
majority of independent directors, as this would ensure that the 
compensation committee could not take any action without the agreement 
of one or more independent directors. The Exchange believes that this 
requirement addresses any actual or apparent conflict of interest which 
may arise due to the continued service of a non-independent director on 
the compensation committee.
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    \18\ 17 CFR 240.10C-1(a)(3).
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General Exemptions
    Rule 10C-1(b)(5) \19\ provides an automatic exemption from the 
application of the entirety of Rule 10C-1 for controlled companies and 
smaller reporting companies,\20\ and Rule 10C-1(b)(1)(iii)(A) \21\ 
provides an automatic exemption from the compensation committee 
independence requirements for limited partnerships, companies in 
bankruptcy, open-end management investment companies registered under 
the Investment Company Act of 1940 (``1940 Act''). Rule 10C-
1(b)(1)(iii)(A) also exempts from the compensation committee 
independence requirements any foreign private issuer that discloses in 
its annual report filed with the SEC the reasons that the foreign 
private issuer does not have an independent compensation committee.
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    \19\ 17 CFR 240.10C-1(b)(5).
    \20\ A ``smaller reporting company'' is defined in SEC Rule 12b-
2 and in Regulation S-K, Item 10(f)(1). Proposed Commentary .02 to 
NYSE Equities Rule 5.3(k)(4) will state that smaller reporting 
companies must comply with NYSE Equities Rule 5.3(k)(4), except that 
they need not comply with NYSE Equities Rule 5.3(k)(4)(ii) and (v). 
Proposed Commentary .02 will also include a transition period 
applicable to a company that ceases to be a smaller reporting 
company. Under SEC Rule 12b-2, a company tests its status as a 
smaller reporting company on an annual basis at the end of its most 
recently completed second fiscal quarter (hereinafter, for purposes 
of this subsection, the ``Smaller Reporting Company Determination 
Date''). To the extent a smaller reporting company ceases to qualify 
as such under SEC rules, Commentary .02 will provide that such 
company is required, if applicable, to: (I) Have a compensation 
committee of which all of the members meet the independence standard 
of Rule 5.3(k)(4)(ii) within six months of the Smaller Reporting 
Company Determination Date; and (II) comply with Rule 5.3(k)(4)(v) 
as of the Smaller Reporting Company Determination Date.
    \21\ 17 CFR 240.10C-1(b)(1)(iii)(A).
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    Pursuant to the general exemptive authority granted in Rule 10C-
1(b)(5)(i), the Exchange proposes to exempt from all of the proposed 
requirements each category of issuer that qualifies for a general or 
specific exemption under Rule 10C-1(b)(1)(iii)(A). The Exchange also 
proposes to provide a general exemption from all of the requirements to 
all of the other categories of issuers that are currently exempt from 
the Exchange's existing compensation committee requirements. Thus, as 
proposed, controlled companies, limited partnerships and companies in 
bankruptcy, closed-end and open-end funds registered under the 1940 
Act, asset backed issuers and other passive business organizations 
(such as royalty trusts), derivatives and special purpose securities, 
and issuers whose only listed equity security is a preferred stock, 
would be exempt. The Exchange notes that these categories of issuers 
typically: (i) Are externally managed and do not directly employ 
executives (e.g., limited partnerships that are managed by their 
general partner or closed-end funds managed by an external investment 
adviser); (ii) do not by their nature have employees (e.g., passive 
business organizations in the form of trusts or issuers of derivative 
or special purpose securities); or (iii) have executive compensation 
policy set by a body other than the board (e.g., bankrupt companies 
have their executive compensation determined by the bankruptcy court). 
In light of these structural reasons why these categories of issuers 
generally do not have compensation committees, the Exchange believes 
that it would be a significant and unnecessarily burdensome alteration 
in their governance structures to require them to comply with the 
proposed new requirements and that it is appropriate to grant them an 
exemption.
    The Exchange proposes to adopt as new Commentary .03 to NYSE Arca 
Equities 5.3(k)(4) a general exemption from the application of the rule 
for foreign private issuers. Foreign private issuers are currently 
exempt from the existing compensation committee requirement pursuant to 
NYSE Arca Equities Rule 5.3(n). The Exchange proposes to follow this 
approach by granting a general exemption, pursuant to the discretion 
granted to the Exchange by Rule 10C-1(b)(5)(i),\22\ from the proposed 
new compensation committee requirements to foreign private issuers that 
follow home country practice. The Exchange notes that NYSE Arca 
Equities Rule 5.3(n) requires foreign private issuers to disclose any 
significant ways in which their corporate governance practices differ 
from those followed by domestic companies under Exchange listing 
standards. Listed foreign private issuers may provide this disclosure 
either on their Web site (provided it is in the English language and 
accessible from the United States) and/or in their annual report as 
distributed to shareholders in the United States (again, in the English 
language). If the disclosure is only made available on the Web site, 
the annual report must so state and provide the Web address at which 
the information may be obtained. As any foreign private issuer availing 
itself of the proposed exemption would have to disclose that fact in 
its statement of significant differences, the Exchange does not propose 
to require those companies to comply with the disclosure requirement of 
Rule 10C-1(b)(1)(iii)(A). While Section 110 [sic] does not require a 
statement as to why a company does not comply with an applicable 
requirement in the manner provided by Rule 10C-1(b)(1)(iii)(A), the 
Exchange does not believe that this is a significant difference, as the 
explanation companies would likely provide for not having an 
independent compensation committee would simply be that they were not 
required to do so by home country law.
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    \22\ 17 CFR 240.10C-1(b)(5)(i).
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    The Exchange currently does not require issuers whose only listed 
security is a preferred stock to comply with NYSE Arca Equities Rule 
5.3(k)(4). The Exchange proposes to grant these issuers a general 
exemption from compliance with the proposed amended rule. The Exchange 
believes this approach is appropriate because holders of listed 
preferred stock have significantly greater protections with respect to 
their rights to receive dividends and a liquidation preference upon 
dissolution of the issuer, and preferred stocks are typically regarded 
by investors as a fixed income investment comparable to debt 
securities, the issuers of which are exempt from compliance with Rule 
10C-1.
2. Statutory Basis
    The Exchange believes that the proposed rule change in relation to 
the Exchange's compensation committee

[[Page 62591]]

requirements and the proposed compensation consultant independence 
requirements are consistent with Section 10C of the Exchange Act and 
Rule 10C-1 thereunder in that they comply with the requirements of Rule 
10C-1 with respect to the adoption by national securities exchanges of 
compensation committee listing standards. The Exchange believes that 
the proposed rule change is consistent with Section 6(b) \23\ of the 
Exchange Act in general, and furthers the objectives of Section 6(b)(5) 
of the Exchange Act,\24\ in particular in that it is designed to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest.
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    \23\ 15 U.S.C. 78f(b).
    \24\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed amendments to its 
compensation committee listing standard are consistent with the 
protection of investors and the public interest in that they strengthen 
the independence requirements for compensation committee membership, 
provide additional authority to compensation committees and require 
compensation committees to consider the independence of compensation 
consultants.
    The Exchange believes that the general exemptions from the proposed 
requirements that it is granting to foreign private issuers and smaller 
reporting companies are consistent with Section 10C and Rule 10C-1, for 
the reasons stated above in the ``Purpose'' section, including because 
(i) Rule 10C-1(b)(5)(ii) explicitly exempts smaller reporting companies 
and (ii) foreign private issuers will comply with their home country 
law and, if they avail themselves of the exemption, will be required to 
disclose that fact under existing Exchange listing requirements. The 
Exchange believes it is an appropriate use of its exemptive authority 
under Rule 10C-1(b)(5)(i), and that it is not unfairly discriminatory 
under Section 6(b)(5) of the Act, to provide general exemptions under 
the proposed rules to issuers whose only listed class of equity 
securities on the Exchange is a preferred stock, as holders of listed 
preferred stock have significantly greater protections with respect to 
their rights to receive dividends and a liquidation preference upon 
dissolution of the issuer, and preferred stocks are typically regarded 
by investors as a fixed income investment comparable to debt 
securities, the issuers of which are exempt from compliance with Rule 
10C-1. The Exchange believes that it is an appropriate use of its 
exemptive authority under Rule 10C-1(b)(5)(i), and that it is not 
unfairly discriminatory under Section 6(b)(5) of the Act, to provide 
general exemptions under the proposed rules for all of the other 
categories of issuers that are not currently subject to the Exchange's 
compensation committee requirement, for the structural reasons 
discussed in the ``Purpose'' section and because it would be a 
significant and unnecessarily burdensome alteration in their governance 
structures to require them to comply with the proposed new 
requirements.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is 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 has not solicited written comments on the proposed 
rule change. The Exchange has received two comment letters on the 
proposed rule change.\25\ One commenter made the following points: (i) 
The Exchange should specify that the relevant factors for consideration 
with respect to compensation committee independence should include a 
consideration of fees received for service on the board itself; (ii) 
the relevant factors should explicitly include consideration of the 
personal and business relationships between directors and officers; 
(iii) the additional factors to be considered for compensation 
committee independence should be considered as a part of general board 
independence determinations; and (iv) the listing standards should 
specify that, while the factors must be considered in their totality, a 
single factor can result in the loss of board independence.
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    \25\ Both of these letters were addressed to NYSE Regulation, 
Inc. Neither author indicated that the comments related to just one 
of the three national securities exchanges owned by NYSE Euronext. 
Therefore, the Exchange is addressing those comments to the extent 
they are applicable to its existing rules and the proposed 
amendments.
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    The Exchange does not believe that it is appropriate to consider 
board compensation as part of the compensation committee independence 
determination with respect to individual directors. Non-executive 
directors devote considerable time to the affairs of the companies on 
whose boards they sit and eligible candidates would be difficult to 
find if board and committee service were unpaid in nature. 
Consequently, independent directors of listed companies are almost 
invariably paid for their board and committee service. As all 
independent directors are almost certainly going to receive board 
compensation from the company and do so on terms determined by the 
board as a whole, the Exchange does not believe that an analysis of the 
board compensation of individual directors is a meaningful 
consideration in determining their independence for purposes of 
compensation committee service.
    The Exchange interprets its existing director independence 
requirements as requiring the board to consider relationships between 
the director and any member of management in making its affirmative 
independence determinations. Consequently, the Exchange does not 
believe that any further clarification of this requirement is 
necessary.
    The Exchange does not believe that it is necessary to explicitly 
require that the additional independence considerations for 
compensation committee service should be a part of the board's general 
independence determinations for all independent directors. NYSE Arca 
Equities Rule 5.3(k)(1) provides that the board must affirmatively 
determine that the director has no material relationship with the 
listed company, either directly or as a partner, shareholder or officer 
of an organization that has a relationship with the company. As such, 
the Exchange believes that, where appropriate, listed company boards 
should already be including in their general independence 
determinations factors including those being added to the compensation 
committee independence determination.
    The Exchange does not believe it is necessary to include in the 
rule a statement that a single factor may be sufficiently material to 
render a director non-independent, as this is clearly the intention of 
the rule as drafted. NYSE Arca Equities Rule 5.3(k)(1) in its current 
form and proposed NYSE Arca Equities Rule 5.3(k)(4) require the board 
to consider the materiality of each separate relationship between the 
director and the listed company or its management.

[[Page 62592]]

    The second commenter proposed that the Exchange should require 
companies to make a public disclosure with respect to the factors 
considered by the compensation committee in reviewing the independence 
of compensation consultants, legal counsel and other compensation 
advisers. This commenter also proposed that the Exchange should require 
with respect to outside counsel hired by the compensation committee the 
same disclosure as is required by Item 407(e)(3)(iv) of Regulation S-K 
with respect to the nature of any conflict that arises from the 
engagement of a compensation consultant identified in the proxy 
statement. The Exchange does not believe that it is necessary to 
establish additional disclosure requirements of this nature. Item 407 
of Regulation S-K contains extensive disclosure requirements with 
respect to a listed company's corporate governance. Moreover, with 
respect to disclosure of any conflicts of interest that may arise with 
respect to outside counsel hired by the compensation committee, the 
Exchange believes that the rigorous conflict of interest requirements 
applicable to attorneys adequately address such concerns, and the 
Exchange is mindful that requiring additional public disclosures 
regarding outside counsel could require a listed company to disclose 
information that otherwise may be protected by attorney-client 
privilege.

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 the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-NYSEArca-2012-105 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-NYSEArca-2012-105. 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 10:00 a.m. and 3:00 p.m. Copies of such 
filing also will be available for inspection and copying at the 
principal office and the Internet Web site 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-NYSEArca-2012-105, and 
should be submitted on or before November 5, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-25221 Filed 10-12-12; 8:45 am]
BILLING CODE 8011-01-P


