
[Federal Register Volume 77, Number 199 (Monday, October 15, 2012)]
[Notices]
[Pages 62541-62547]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-25278]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68011; File No. SR-NYSE-2012-49]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change, as Modified by Amendment 
No.1, Amending Sections 303A.00, 303A.02(a) and 303A.05 of the 
Exchange's Listed Company Manual 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, New York Stock Exchange LLC (``NYSE'' 
or the ``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II and III below, which filing was amended and replaced in its 
entirety by Amendment No. 1 thereto on October 1, 2012, and 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 Sections 303A.00, 303A.02(a) and 
303A.05 of the Exchange's Listed Company Manual (the ``Manual'') 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.

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

1. Purpose
    This Amendment No. 1 to SR-NYSE-2012-49 (the ``filing'') amends and 
replaces in its entirety the Filing as originally submitted on 
September 25, 2012. Amendment No. 1 corrects a single error in the rule 
text in Exhibit 5 as originally filed. The error was in Section 303A.00 
under the heading ``Transition Periods for Compensation Committee 
Requirements.''
    The Exchange proposes to amend Sections 303A.00, 303A.02(a) and 
303A.05 of the Manual to comply with the requirements of SEC Rule 10C-
1.
    The proposed changes to Sections 303A.00, 303A.02(a) and 303A.05 
will not become operative until July 1, 2013. Consequently, the 
existing text of these sections will remain in the Manual 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 Manual 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

[[Page 62542]]

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.
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    \6\ Public Law 111-203, 124 Stat. 1900 (2010).
    \7\ 15 U.S.C. 78j-3.
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Compensation Committee Director Independence Requirement
    In adopting independence requirements for compensation committee 
members, Rule 10C-1(b)(1)(ii) \8\ 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) \9\ 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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    \8\ 17 CFR 240.10C-1(b)(1)(ii).
    \9\ 17 CFR 240.10C-1(a)(4).
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    The Exchange's director independence standards are set forth in 
Section 303A.02. Section 303A.02(a) 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 (directly or as a partner, shareholder or officer of an 
organization that has a relationship with the company).\10\ In 
addition, Section 303A.02(b) 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\ 
Section 303A.02(b) 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 
Section 303A.02, in addition to the independence requirements proposed 
specifically for compensation committee service.
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    \10\ Commentary to Section 303A.02(a) notes that it is not 
possible to anticipate, or explicitly to provide for, all 
circumstances that might signal potential conflicts of interest, or 
that might bear on the materiality of a director's relationship to a 
listed company (references to ``listed company'' would include any 
parent or subsidiary in a consolidated group with the listed 
company). Accordingly, the commentary states that it is best that 
boards making ``independence'' determinations broadly consider all 
relevant facts and circumstances. In particular, the Exchange 
believes that, when assessing the materiality of a director's 
relationship with the listed company, the board should consider the 
issue not merely from the standpoint of the director, but also from 
that of persons or organizations with which the director has an 
affiliation. The Exchange does not view the ownership of even a 
significant amount of stock, by itself, as a bar to an independence 
finding.
    \11\ The following are the ``bright line'' tests set forth in 
Section 303A.02(b): (i) The director is, or has been within the last 
three years, an employee of the listed company, or an immediate 
family member is, or has been within the last three years, an 
executive officer, of the listed company; (ii) The director has 
received, or has an immediate family member who has received, during 
any twelve-month period within the last three years, more than 
$120,000 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); (iii) (A) The director 
is a current partner or employee of a firm that is the listed 
company's internal or external auditor; (B) the director has an 
immediate family member who is a current partner of such a firm; (C) 
the director has an immediate family member who is a current 
employee of such a firm and personally works on the listed company's 
audit; or (D) the director or an immediate family member was within 
the last three years a partner or employee of such a firm and 
personally worked on the listed company's audit within that time; 
(iv) The director or an immediate family member is, or has been 
within the last three years, employed as an executive officer of 
another company where any of the listed company's present executive 
officers at the same time serves or served on that company's 
compensation committee; (v) The director is a current employee, or 
an immediate family member is a current executive officer, of a 
company that has made payments to, or received payments from, the 
listed company for property or services in an amount which, in any 
of the last three fiscal years, exceeds the greater of $1 million, 
or 2% of such other company's consolidated gross revenues. For 
purposes of Sections 303A.01, 303A.03, 303A.04, 303A.05 and 303A.09, 
a director of a business development company is considered to be 
independent if he or she is not an ``interested person'' of the 
company, as defined in Section 2(a)(19) of the Investment Company 
Act of 1940.
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    The Exchange proposes to amend Section 303A.02(a) of the Manual to 
adopt proposed Section 303A.02(a)(ii),\12\ which would 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 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, commentary 
to proposed Section 303A.02(a)(ii) 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 commentary 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 about the 
listed company's executive compensation.
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    \12\ As proposed, the current text of Section 303.02(a) would 
become Section 303A.02(a)(i).
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    The Exchange does not propose to adopt any specific numerical tests 
with respect to the factors specified in proposed Section 
303A.02(a)(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''),\13\ 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.\14\ Consistent with the views of commenters on the SEC's 
rules as originally proposed, the Exchange believes that--rather than 
adversely

[[Page 62543]]

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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    \13\ Release Nos. 33-9330; 34-67220 (June 20, 2012); 77 FR 38422 
(June 27, 2012).
    \14\ See Adopting Release at 38428.
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    The Exchange believes that its existing ``bright line'' 
independence standards as set forth in Section 303A.02(b) of the Manual 
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, Section 303A.02(a) already 
requires the board to consider any other material relationships between 
the director and the listed company or its management that are not the 
subject of ``bright line'' tests in Section 303A.02(b). The Exchange 
believes that these requirements with respect to general director 
independence, when combined with the specific considerations required 
by proposed Section 303A.02(a)(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) \15\ 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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    \15\ 17 CFR 240.10C-1(b)(2).
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    (i) The compensation committee may, in its sole discretion, retain 
or obtain the advice of a compensation consultant, independent legal 
counsel or other adviser; and
    (ii) 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) \16\ 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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    \16\ 17 CFR 240.10C-1(b)(3).
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    The required powers of the compensation committee under Rule 10C-
1(b)(2) and (3) as set forth above are in significant part already 
required by the NYSE's existing compensation committee listing 
standard, as they are required elements of the compensation committee 
charter as set forth in Section 303A.05(b). In the interests of clarity 
and emphasis, the Exchange proposes to adopt the requirements specified 
in Rule 10C-1(b)(2) and (3) verbatim as a proposed new subsection (c) 
of Section 303A.05. The Exchange proposes to remove the comparable 
requirements currently in Section 303A.05(b) commentary and replace 
them with a provision stating that the compensation committee charter 
must provide that the committee has all of the powers specified in new 
subsection (c).
Compensation Adviser Independence Factors
    Rule 10C-1(b)(4) \17\ 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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    \17\ 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 include in proposed Section 
303A.05(c) a provision specifying that, before engaging an adviser, the 
compensation committee must consider the factors enumerated above. As 
proposed, Section 303A.05(c) would not include any specific 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),\18\ the Exchange proposes to 
include in Section 303A.05(c) an explicit statement that nothing in 
Section 303A.05(c) 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 in [sic] Section 
303A.05(c) 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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    \18\ 17 CFR 240.10C-1(b)(2)(iii).
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Cure Periods
    Rule 10C-1(a)(3) \19\ 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 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 amend Section 303A.00 to adopt this cure provision period 
for events of non-

[[Page 62544]]

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 committee continues to have 
a majority of independent directors, as this would ensure that the 
applicable 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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    \19\ 17 CFR 240.10C-1(a)(3).
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Transition Periods
    The Adopting Release contemplates that exchanges may provide 
transition periods through the exemptive authority provided to the 
exchanges under Rule 10C-1(b)(1)(iii).\20\ Consistent with the 
transition periods approved by the SEC for inclusion in Section 303A at 
the time of its original adoption,\21\ the Exchange proposes to amend 
Section 303A.00 to provide that listed companies would have until the 
earlier of their first annual meeting after January 15, 2014, or 
October 31, 2014, to comply with the new Section 303A.02(a)(ii) 
compensation committees independence standards . Existing compensation 
committee independence standards would continue to apply pending the 
transition to the new independence standards. The Exchange believes 
that its prior use of a similar transition period was satisfactory and 
that it is reasonable to follow the same approach in connection with 
the proposed changes to the compensation committee independence 
standards.
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    \20\ See Adopting Release at 38444.
    \21\ See Securities Exchange Act Release No. 48745 (November 4, 
2003), 68 FR 64154 (November 12, 2003) (SR-NYSE-2002-33).
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    In addition, the Exchange proposes to continue to apply to the 
proposed new compensation committee requirements the existing 
transition periods available to newly-listed companies under Section 
303A.00. Transition periods are available to: Companies listing in 
connection with their initial public offerings (``IPOs'') or which did 
not have a class of common stock registered under the Exchange Act 
prior to the listing date; \22\ companies listing in connection with a 
spin-off or carve-out; companies listing upon emergence from 
bankruptcy; companies previously registered under Section 12(g) of the 
Exchange Act; and companies previously registered under Section 12(b) 
of the Exchange Act to the extent the national securities exchange on 
which they were listed did not have the same requirement; and companies 
that cease to qualify as a controlled company or a foreign private 
issuer. All of the foregoing categories of issuers (other than 
companies previously registered under Section 12(b) of the Exchange 
Act) would continue to be entitled to a transition under which the 
company must have: At least one independent member on its compensation 
committee by the listing date (or (i) in the case of an IPO, the 
earlier of the closing date of the IPO or five business days from the 
listing date, or (ii) in the case of a spin-off or carve-out, by the 
date the transaction closes); at least a majority of independent 
members on the compensation committee within 90 days of the listing 
date; and a fully independent compensation committee within one year of 
the listing date. A company that ceases to qualify as a controlled 
company would continue to have a transition under which it must have at 
least one independent member on its compensation committee by the date 
its status changed, at least a majority of independent members on the 
compensation committee within 90 days of the date its status changed 
and a fully independent compensation committee within one year of the 
date its status changed. A company that ceases to be a foreign private 
issuer would continue to have a transition under which it must have a 
fully independent compensation committee within six months of the 
Foreign Private Issuer Determination Date.\23\ A company previously 
registered under Section 12(b) of the Exchange Act must satisfy the 
requirements of Section 303A within one year of the listing date to the 
extent the national securities exchange on which it was listed did not 
have the same requirements; and if the other exchange had a 
substantially similar requirement and the company was afforded a 
transition period that had not expired, the company has the same 
transition period as would have been available to it on the other 
exchange.
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    \22\ For purposes of Section 303A other than Sections 303A.06 
and 303A.12(b), a company is considered to be listing in conjunction 
with an initial public offering if, immediately prior to listing, it 
does not have a class of common stock registered under the Exchange 
Act.
    \23\ Section 303A.00 currently defines the ``Determination 
Date'' as the date at the end of a company's second fiscal quarter 
on which it is required by SEC Rule 240.3b-4 to test its foreign 
private issuer status on an annual basis. The Exchange proposes to 
change this to the ``Foreign Private Issuer Determination Date'' so 
it is distinguished from the new ``Smaller Reporting Company 
Determination Date''.
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    The Exchange proposes to exempt smaller reporting companies \24\ 
from compliance with the proposed new independence requirements with 
respect to compensation committee service. Under SEC Rule 12b-2, a 
smaller reporting company is required to test whether it continues to 
qualify for that status as of the last business day of its second 
quarter of each fiscal year (the ``Smaller Reporting Company 
Determination Date'') and ceases as of the first day of the next fiscal 
year to be able to avail itself of the benefits under SEC rules 
applicable to smaller reporting companies. Consequently, the Exchange 
proposes to adopt a new transition provision applicable to companies 
that cease to be smaller reporting companies and become subject to the 
compensation committee independence requirements of proposed Section 
303A.02(a)(ii).\25\ As proposed, a company that ceases to be a smaller 
reporting company would be required, if applicable, (I) to have a 
committee composed entirely of members that meet the independence 
requirements of proposed Section 303A.02(a)(ii) within six months of 
the Smaller Reporting Company Determination Date and (II) to comply 
with Section 303A.05(c)(iv) as of the Smaller Reporting Company 
Determination Date. The Exchange also proposes to include a new 
subsection in Section 303A.00 specifying that smaller reporting 
companies are subject to proposed Section 303A.05(c) with the exception 
of proposed Section 303A.05(c)(iv) requirements with respect to the 
Compensation Committee's consideration of compensation consultant's 
independence from management. Under this approach, smaller reporting 
companies will effectively be subject to precisely the same 
requirements as is currently the case.
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    \24\ As defined in SEC Rule 12b-2 and Item 10(f) of Regulation 
S-K.
    \25\ A company that is otherwise exempt from the requirement to 
have an independent compensation committee when it ceases to be a 
smaller reporting company would not, of course, be subject to a 
transition period. See discussion infra.
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General Exemptions
    Rule 10C-1(b)(5) \26\ provides an automatic exemption from the 
application of the entirety of Rule 10C-1 for controlled companies and 
smaller reporting companies, and Rule 10C-1(b)(1)(iii)(A) \27\ provides 
an automatic exemption from the compensation committee independence 
requirements

[[Page 62545]]

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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    \26\ 17 CFR 240.10C-1(b)(5).
    \27\ 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 NYSE'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, passive business organizations in the form of trusts (such as 
royalty trusts), derivatives and special purpose securities (such as 
those described in Sections 703.19 and 703.20 of the Manual), 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.
    Section 303A.00 currently provides that foreign private issuers are 
permitted to follow home country practice in lieu of compliance with 
the Exchange's compensation committee listing standard. 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),\28\ from the proposed new compensation committee 
requirements to foreign private issuers that follow home country 
practice. The Exchange notes that Section 303A.11 requires foreign 
private issuers to disclose any significant ways in which their 
corporate governance practices differ from those followed by domestic 
companies under NYSE listing standards. Foreign private issuers that 
are required to file an annual report on Form 20-F with the SEC must 
include their statement of significant differences in that annual 
report. All other foreign private issuers may either (i) include the 
statement of significant differences in an annual report filed with the 
SEC or (ii) make the statement of significant differences available on 
or through the listed company's Web site. 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 303A.11 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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    \28\ 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 Section 303A.05(c). 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 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) \29\ of the Exchange Act in general, and 
furthers the objectives of Section 6(b)(5) of the Exchange Act,\30\ 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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    \29\ 15 U.S.C. 78f(b).
    \30\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed amendments to its 
compensation committee listing standards 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 NYSE 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

[[Page 62546]]

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.\31\ 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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    \31\ 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's existing director independence requirements require 
the board to consider relationships between the director and any member 
of management in making its affirmative independence determinations. 
Commentary included in Section 303A.02(a) makes this explicit by 
stating that when the board is making an affirmative independence 
determination ``the concern is independence from management.'' 
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. Section 
303A.02(a) notes that ``[I]t is not possible to anticipate, or 
explicitly to provide for, all circumstances that might signal 
potential conflicts of interest, or that might bear on the materiality 
of a director's relationship to a listed company'' and that the board 
should therefore ``broadly consider all relevant facts and 
circumstances'' when making affirmative independence determinations. 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 
listing standards a statement that a single factor may be sufficiently 
material to render a director non-independent, as this is clearly the 
intention of the listing standards as drafted. Section 303A.02(a) in 
its current form and in its proposed amended form requires the board to 
consider the materiality of each separate relationship between the 
director and the listed company or its management.
    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 and the Exchange's 
own rules generally incorporate those requirements by reference where 
applicable. 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

[[Page 62547]]

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-NYSE-2012-49 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-NYSE-2012-49. 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-NYSE-2012-49, and should be 
submitted on or before November 5, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
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    \32\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-25278 Filed 10-12-12; 8:45 am]
BILLING CODE 8011-01-P


