
[Federal Register Volume 77, Number 199 (Monday, October 15, 2012)]
[Notices]
[Pages 62576-62582]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-25222]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68007; File No. SR-NYSEMKT-2012-48]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of 
Proposed Rule Change, as Modified by Amendment No. 1, Amending Sections 
110, 801, 803 and 805 of the Exchange's Company Guide 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 MKT LLC (the ``Exchange'' or 
``NYSE MKT'') 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 110, 801, 803 and 805 of 
the Exchange's Company Guide (the ``Company Guide'') 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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[[Page 62577]]

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-NYSEMKT-2012-48 (the ``filing'') 
replaces the original Filing submitted on September 25, 2012 in its 
entirety. Amendment No. 1 corrects a single error in the rule text in 
Exhibit 5 as originally filed. The error was in Section 805(c)(5) under 
the heading ``Transition Period.''
    NYSE MKT proposes to amend Sections 110, 801, 803 and 805 of the 
Company Guide to comply with the requirements of SEC Rule 10C-1.
    The proposed changes to Sections 110, 801, 803 and 805 will become 
operative on July 1, 2013. Consequently, the existing text of these 
sections will remain in the Company Guide 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 Company 
Guide 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.
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    \6\ Pub. L. No. 111-203, 124 Stat. 1900 (2010).
    \7\ 15 U.S.C. 78j-3.
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    Rule 10C-1 does not by its terms require a national securities 
exchange to mandate that listed companies must have a compensation 
committee. However, in the absence of a compensation committee, most of 
the provisions of Rule 10C-1 applicable to compensation committees are 
applicable to ``the members of the board of directors who oversee 
executive compensation matters on behalf of the board of directors.'' 
\8\ NYSE MKT's listing standard with respect to executive compensation, 
Section 805 of the Company Guide, provides that the compensation of the 
chief executive officer of a listed company must be determined, or 
recommended to the board for determination, either by a compensation 
committee comprised of independent directors or by a majority of the 
independent directors on the company's board of directors. 
Consequently, if a listed company does not have a compensation 
committee, the Exchange's proposed amendments to its rules pursuant to 
Rule 10C-1 would apply to the independent directors of the listed 
company individually and as a group, as applicable. The Exchange 
proposes to amend Section 805(a) to provide that all references to a 
listed company's compensation committee in Section 805 will, in the 
case of a listed company that does not have a compensation committee, 
be applicable to the listed company's independent directors as a group, 
and the same approach is utilized in this filing.
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    \8\ See the definition of the term ``compensation committee'' in 
Rule 10C-1(c)(2)(iii).
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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 
Section 803(A)(2). That section provides that no director qualifies as 
independent unless the issuer's board of directors affirmatively 
determines that the director does not have a relationship that would 
interfere with the exercise of independent judgment in carrying out the 
responsibilities of a director. In addition, Section 803(A)(2) 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\ The following are the ``bright line'' tests set forth in 
Section 803(A)(2): (a) The director is, or during the past three 
years was, employed by the company, other than prior employment as 
an interim executive officer (provided the interim employment did 
not last longer than one year); (b) The director accepted or has an 
immediate family member who accepted any compensation from the 
company in excess of $120,000 during any period of twelve 
consecutive months within the three years preceding the 
determination of independence, other than the following: (i) 
Compensation for board or board committee service; or, (ii) 
compensation paid to an immediate family member who is an employee 
(other than an executive officer) of the company; or, (iii) 
compensation received for former service as an interim executive 
officer (provided the interim employment did not last longer than 
one year); or, (iv) benefits under a tax-qualified retirement plan, 
or non-discretionary compensation; (c) The director is an immediate 
family member of an individual who is, or at any time during the 
past three years was, employed by the company as an executive 
officer; (d) The director is, or has an immediate family member who 
is, a partner in, or a controlling shareholder or an executive 
officer of, any organization to which the company made, or from 
which the company received, payments (other than those arising 
solely from investments in the company's securities or payments 
under non-discretionary charitable contribution matching programs) 
that exceed 5% of the organization's consolidated gross revenues for 
that year, or $200,000, whichever is more, in any of the most recent 
three fiscal years; (e) The director is, or has an immediate family 
member who is, employed as an executive officer of another entity 
where at any time during the most recent three fiscal years any of 
the issuer's executive officers serve on the compensation committee 
of such other entity; or (f) The director is, or has an immediate 
family member who is, a current partner of the company's outside 
auditor, or was a partner or employee of the company's outside 
auditor who worked on the company's audit at any time during any of 
the past three years. In lieu of Section 803A(2)(a) through (f), 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 provisions of Section 803(A)(2) will continue to be applicable 
to

[[Page 62578]]

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 803(A)(2), in addition to the independence 
requirements proposed specifically for compensation committee service.
    The Exchange proposes to amend Section 803(A)(2) of the Company 
Guide 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, or, in the case of a company that does 
not have a compensation committee, in affirmatively determining the 
independence of all independent 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 explicitly 
enumerated in Rule 10C-1(b)(ii) that are set forth in proposed Section 
805(c)(1). When considering the sources of a director's compensation in 
determining his independence for purposes of compensation committee 
service, proposed new commentary .03 to Section 805 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.
    The Exchange does not propose to adopt any specific numerical tests 
with respect to the factors specified in proposed Section 805(c)(1) 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 Section 803(A)(2) of the Company 
Guide 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 803(A)(2) already 
requires the board to consider any relationship that would interfere 
with the director's exercise of independent judgment in carrying out 
the responsibilities of a director. The Exchange believes that these 
requirements with respect to general director independence, when 
combined with the specific considerations required by proposed Section 
805(c)(1), 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 (c)(3) to Section 805.
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.

[[Page 62579]]

    Accordingly, the Exchange proposes to add as new subsection (c)(4) 
to Section 805 a provision specifying that, before engaging an adviser, 
the compensation committee must consider the factors enumerated above. 
As proposed, Section 805(c)(4) 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 Rule 805 an explicit statement that 
nothing in Section 805(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 new Commentary 
.05 to Section 805 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 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 new Rule 805(c)(2), 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.\19\ 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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    \18\ 17 CFR 240.10C-1(a)(3).
    \19\ See proposed Section 803(c)(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 the Exchange's 
current corporate governance requirements at the time of their original 
adoption,\21\ the Exchange proposes to adopt new Section 805(c)(5), 
under which 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 805(c)(1) compensation committee 
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. 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 809(a) of the Company Guide.\22\
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    \20\ See Adopting Release at 38444.
    \21\ See Securities Exchange Act Release No. 48863 (December 1, 
2003), 68 FR 68432 (December 8, 2003) (SR-Amex-2003-65).
    \22\ Section 809(a) affords companies that have listed in 
conjunction with their initial public offering exemptions from all 
board composition requirements consistent with the exemptions 
afforded in Exchange Act Rule 10A-3. That is, for each applicable 
committee that the company establishes (i.e., nominating and/or 
compensation) the company must have one independent member at the 
time of listing, a majority of independent members within 90 days of 
listing and all independent members within one year.
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    The Exchange proposes to exempt smaller reporting companies \23\ 
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 include in proposed Section 805(c)(5) a transition 
provision applicable to companies that cease to be smaller reporting 
companies and become subject to the compensation committee independence 
requirements of proposed Section 805(c)(1).\24\ As proposed, a company 
that ceases to be a smaller reporting company would be required, if 
applicable, to (I) have a committee composed entirely of members that 
meet the independence requirements of proposed Section 805(c) within 
six months of the Smaller Reporting Company Determination Date and (II) 
have a compensation committee as of the Smaller Reporting Company 
Determination Date that complies with the requirements of proposed 
Section 805(c)(4) with respect to compensation consultant independence 
considerations.
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    \23\ As defined in SEC Rule 12b-2 and Item 10(f) of Regulation 
S-K.
    \24\ 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) \25\ provides an automatic exemption from the 
application of the entirety of Rule 10C-1 for controlled companies and 
smaller reporting companies,\26\ and Rule 10C-1(b)(1)(iii)(A) \27\ 
provides an automatic

[[Page 62580]]

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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    \25\ 17 CFR 240.10C-1(b)(5).
    \26\ The Exchange proposes to amend subsection (h) of Section 
801 to include a statement that smaller reporting companies are 
required to comply with Section 805(c), with the exception of the 
compensation committee independence requirements of [sic] Section 
803(c)(1) [sic] and the requirements of proposed Section 805(c)(4) 
with respect to compensation consultant independence considerations. 
The same statement will be included in proposed Commentary .01 to 
Section 805. In addition, the Exchange proposes to amend Section 
805(b) to clarify that henceforth only smaller reporting companies 
will be eligible to avail themselves of the ability of the board 
under exceptional and limited circumstances to appoint a non-
independent director to the compensation committee.
    \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 issuers 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, companies in 
bankruptcy, and open-end and closed-end funds that are registered under 
the 1940 Act, asset-backed issuers and other passive business 
organizations (such as royalty trusts) or derivatives and special 
purpose securities listed pursuant to Exchange Rules 1000, and 1200 and 
Sections 106, 107 and 118B would be exempt from both the new 
compensation committee independence requirements and the new 
compensation adviser requirements. 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 (such as royalty trusts)); 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.
    Foreign private issuers \28\ are currently permitted by Section 110 
to apply for an exemption from the Exchange's compensation committee 
requirements. 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),\29\ from the proposed new compensation 
committee requirements to foreign private issuers that seek an 
exemption on the basis that they follow home country practice. The 
Exchange notes that Section 110 provides that foreign based entities 
availing themselves of exemptions from compliance with Exchange rules 
must provide English language disclosure of any significant ways in 
which their corporate governance practices differ from those followed 
by domestic companies pursuant to the Exchange's standards. Section 110 
currently provides that this disclosure may be provided on the 
company's Web site and/or in its annual report as distributed to 
shareholders in the U.S. As the Exchange no longer requires companies 
to distribute annual reports, except for its requirements in Section 
610 with respect to the Web site posting and distribution of annual 
reports filed with the SEC, the Exchange proposes to modify this 
provision to provide that a company must either include this disclosure 
on its web site or in the annual report it is required to file with the 
SEC that includes audited financial statements (including on Forms 10-
K, 20-F, or 40-F) While Section 110 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\ The term ``foreign private issuer'' used in Section 110 is 
defined in Exchange Act Rule 3b-4(c).
    \29\ 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 805. 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) \30\ of the Exchange Act in general, and 
furthers the objectives of Section 6(b)(5) of the Exchange Act,\31\ 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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    \30\ 15 U.S.C. 78f(b).
    \31\ 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 that 
request an exemption based on home country practice 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

[[Page 62581]]

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.\32\ 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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    \32\ 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. Section 
803(A) provides that, in making its affirmative determination with 
respect to a director's independence, the board must satisfy itself 
that the director ``does not have a relationship that would interfere 
with the exercise of independent judgment in carrying out the 
responsibilities of a director.'' 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 803(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. 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.

[[Page 62582]]

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-NYSEMKT-2012-48 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-NYSEMKT-2012-48. 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-NYSEMKT-2012-48, and should 
be submitted on or before November 5, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
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    \33\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-25222 Filed 10-12-12; 8:45 am]
BILLING CODE 8011-01-P


