
[Federal Register Volume 78, Number 14 (Tuesday, January 22, 2013)]
[Notices]
[Pages 4570-4585]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-01106]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68639; File No. SR-NYSE-2012-49]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Amendment No. 3, and Order Granting Accelerated 
Approval for Proposed Rule Change, as Modified by Amendment Nos. 1 and 
3, To Amend the Listing Rules for Compensation Committees To Comply 
With Securities Exchange Act Rule 10C-1 and Make Other Related Changes

January 11, 2013.

I. Introduction

    On September 25, 2012, New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to modify the Exchange's rules for compensation 
committees of listed issuers to comply with Rule 10C-1 under the Act 
and make other related changes. On October 1, 2012, NYSE filed 
Amendment No. 1 to the proposed rule change. The proposed rule change, 
as modified by Amendment No. 1 thereto, was published for comment in 
the Federal Register on October 15, 2012.\3\ The Commission 
subsequently extended the time period in which to either approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to disapprove the proposed rule 
change, to January 13, 2013.\4\ The Commission received seven comment 
letters on the proposed rule change,\5\ as well as a response to the 
comment letters from NYSE Euronext, Inc. regarding the NYSE 
proposal.\6\ On December 4, 2012, the Exchange filed Amendment No. 2 to 
the proposed rule change, which was later withdrawn.\7\ On January 8, 
2013, the Exchange filed Amendment No. 3 to the proposed rule 
change.\8\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 68011 (October 9, 
2012), 77 FR 62541 (``Notice'').
    \4\ See Securities Exchange Act Release No. 68313 (November 28, 
2012), 77 FR 71853 (December 4, 2012).
    \5\ See Letters to Elizabeth M. Murphy, Secretary, Commission, 
from: Thomas R. Moore, Vice President, Corporate Secretary and Chief 
Governance Officer, Ameriprise Financial, Inc., dated October 18, 
2012 (``Ameriprise Letter''); J. Robert Brown, Jr., Director, 
Corporate & Commercial Law Program, University of Denver Sturm 
College of Law, dated October 30, 3012 (``Brown Letter''); Dorothy 
Donohue, Deputy General Counsel, Securities Regulation, Investment 
Company Institute, dated November 1, 2012 (``ICI Letter''); Brandon 
J. Rees, Acting Director, Office of Investment, AFL-CIO, dated 
November 5, 2012 (``AFL-CIO Letter''); Carin Zelenko, Director, 
Capital Strategies Department, International Brotherhood of 
Teamsters, dated November 5, 2012 (``Teamsters Letter''); Wilson 
Sonsini Goodrich & Rosati, Professional Corporation, dated November 
14, 2012 (``Wilson Sonsini Letter''); and Robert B. Lamm, Chair, 
Securities Law Committee, The Society of Corporate Secretaries & 
Governance Professionals, dated December 7, 2012 (``Corporate 
Secretaries Letter'').
    In addition, the Commission received one comment on a 
substantially similar proposal by NYSE Arca, Inc. (``NYSE Arca'') by 
a party that did not specifically comment on the NYSE filing. See 
Securities Exchange Act Release No. 68006 (October 9, 2012), 77 FR 
62587 (October 15, 2012) (SR-NYSEArca-2012-105). The comment letter 
received on the NYSE Arca filing is a letter from Jeff Mahoney, 
General Counsel, Council of Institutional Investors to Elizabeth M. 
Murphy, Secretary, Commission, dated November 1, 2012 (``CII 
Letter''). Since the comment letter received on the NYSE Arca filing 
discusses issues directly related to the NYSE filing, the Commission 
has included it in its discussion of this filing.
    \6\ See Letter to Elizabeth M. Murphy, Secretary, Commission, 
from Janet McGinness, Executive Vice President and Corporate 
Secretary, NYSE Euronext, Inc., dated January 10, 2013 (``NYSE 
Response Letter''). In the NYSE Response Letter, NYSE Euronext, 
Inc., the parent company of NYSE, states that, as the comments made 
by the letters submitted on the NYSE and NYSE Arca proposals are 
applicable in substance to NYSE, NYSE Arca and NYSE MKT LLC, its 
response will address the comments on behalf of all three exchanges.
    \7\ Amendment No. 2, dated December 4, 2012, was withdrawn on 
January 7, 2013.
    \8\ In Amendment No. 3 to SR-NYSE-2012-49, NYSE: (a) Revised the 
transition period for companies that cease to be Smaller Reporting 
Companies to comply with the full range of new requirements, see 
infra notes 70-73 and accompanying text; (b) changed references in 
the rule text from Regulation S-K, Item 10(f)(1) to Exchange Act 
Rule 12b-2; (c) added commentary to state that the independence 
assessment of compensation advisers required of compensation 
committees does not need to be conducted for advisers whose roles 
are limited to those entitled to an exception from the compensation 
adviser disclosure rules under Item 407(e)(3)(iii) of Regulation S-
K, see infra notes 45-48 and accompanying text; and (d) added 
commentary to state that the independence assessment of compensation 
advisers required of compensation committees does not require the 
adviser to be independent, only that the compensation committee 
consider the enumerated factors before selecting or receiving advice 
from the adviser. See infra notes 49-51 and accompanying text.

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[[Page 4571]]

    This order approves the proposed rule change, as modified by 
Amendment Nos. 1 and 3 thereto, on an accelerated basis.

II. Description of the Proposed Rule Change

A. Background: Rule 10C-1 Under the Act

    On March 30, 2011, to implement Section 10C of the Act, as added by 
Section 952 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act of 2010 (``Dodd-Frank Act''),\9\ the Commission proposed 
Rule 10C-1 under the Act,\10\ which directs each national securities 
exchange (hereinafter, ``exchange'') to prohibit the listing of any 
equity security of any issuer, with certain exceptions, that does not 
comply with the rule's requirements regarding compensation committees 
of listed issuers and related requirements regarding compensation 
advisers. On June 20, 2012, the Commission adopted Rule 10C-1.\11\
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    \9\ Public Law 111-203, 124 Stat. 1900 (2010).
    \10\ See Securities Act Release No. 9199, Securities Exchange 
Act Release No. 64149 (March 30, 2011), 76 FR 18966 (April 6, 2011) 
(``Rule 10C-1 Proposing Release'').
    \11\ See Securities Act Release No. 9330, Securities Exchange 
Act Release No. 67220 (June 20, 2012), 77 FR 38422 (June 27, 2012) 
(``Rule 10C-1 Adopting Release'').
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    Rule 10C-1 requires, among other things, each exchange to adopt 
rules providing that each member of the compensation committee \12\ of 
a listed issuer must be a member of the board of directors of the 
issuer, and must otherwise be independent.\13\ In determining the 
independence standards for members of compensation committees of listed 
issuers, Rule 10C-1 requires the exchanges to consider relevant 
factors, including, but not limited to: (a) The source of compensation 
of the director, including any consulting, advisory or other 
compensatory fee paid by the issuer to the director (hereinafter, the 
``Fees Factor''); and (b) whether the director is affiliated with the 
issuer, a subsidiary of the issuer or an affiliate of a subsidiary of 
the issuer (hereinafter, the ``Affiliation Factor'').\14\
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    \12\ For a definition of the term ``compensation committee'' for 
purposes of Rule 10C-1, see Rule 10C-1(c)(2)(i)-(iii).
    \13\ See Rule 10C-1(a) and (b)(1).
    \14\ See id. See also Rule 10C-1(b)(1)(iii)(A), which sets forth 
exemptions from the independence requirements for certain categories 
of issuers. In addition, an exchange may exempt a particular 
relationship with respect to members of a compensation committee 
from these requirements as it deems appropriate, taking into 
consideration the size of an issuer and any other relevant factors. 
See Rule 10C-1(b)(1)(iii)(B).
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    In addition, Rule 10C-1 requires the listing rules of exchanges to 
mandate that compensation committees be given the authority to retain 
or obtain the advice of a compensation adviser, and have direct 
responsibility for the appointment, compensation and oversight of the 
work of any compensation adviser they retain.\15\ The exchange rules 
must also provide that each listed issuer provide for appropriate 
funding for the payment of reasonable compensation, as determined by 
the compensation committee, to any compensation adviser retained by the 
compensation committee.\16\ Finally, among other things, Rule 10C-1 
requires each exchange to provide in its rules that the compensation 
committee of each listed issuer may select a compensation consultant, 
legal counsel or other adviser to the compensation committee only after 
taking into consideration six factors specified in Rule 10C-1,\17\ as 
well as any other factors identified by the relevant exchange in its 
listing standards.\18\
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    \15\ See Rule 10C-1(b)(2).
    \16\ See Rule 10C-1(b)(3).
    \17\ See Rule 10C-1(b)(4). The six factors, which NYSE proposes 
to set forth in its rules, are specified in the text accompanying 
note 43, infra.
    \18\ Other provisions in Rule 10C-1 relate to exemptions from 
the rule and a requirement that each exchange provide for 
appropriate procedures for a listed issuer to have a reasonable 
opportunity to cure any defects that would be the basis for the 
exchange, under Rule 10C-1, to prohibit the issuer's listing.
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B. NYSE's Proposed Rule Change, as Amended

    To comply with Rule 10C-1, NYSE proposes to amend three sections of 
its rules concerning corporate governance requirements for companies 
listed on the Exchange: NYSE Listed Company Manual (``Manual'') Section 
303A.00, ``Corporate Governance Standards;'' Section 303A.02, 
``Independence Tests;'' and Section 303A.05, ``Compensation 
Committee.'' In addition, NYSE proposes to make some other changes to 
its rules regarding compensation committees. To accomplish these 
changes, the Exchange proposes to replace current Sections 303A.00, 
303A.02 and 303A.05 of the Manual with new operative text that will be 
effective on July 1, 2013.
    Current Section 303A.05 of the Manual provides that each listed 
company have a compensation committee, and that such compensation 
committee be composed entirely of ``Independent Directors'' \19\ and 
have a written charter.\20\
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    \19\ ``Independent Directors'', as defined in Section 
303A.02(a)-(b) of the Manual and used herein, includes a two-part 
test for independence. The rule sets forth specific categories of 
directors who cannot be considered independent because of certain 
discrete relationships (``bright-line tests''); and also provides 
that a listed company's board make an affirmative determination that 
each independent director has no material relationship that, in the 
opinion of the board, would raise concerns about independence from 
management. Id. See also the Commentary to Section 303A.02(a) of the 
Manual.
    \20\ See Section 303A.05(b) of the Manual.
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    Under its proposal, NYSE will retain its existing requirement that 
each listed company be required to have a compensation committee 
composed entirely of Independent Directors, as defined in NYSE's 
rules.\21\ Under the proposed amendment, however, each compensation 
committee member must also satisfy additional independence 
requirements, as described in Section II.B.1 below.\22\
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    \21\ See id.
    \22\ See proposed Section 303A.02(a)(ii) of the Manual 
(concerning the consideration of director compensation and 
affiliation).
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    NYSE will also retain the existing requirement that a listed issuer 
adopt a formal written compensation committee charter \23\ that 
specifies the scope of the committee's responsibilities and how it 
carries out those responsibilities, including structure, operations and 
membership requirements.\24\ The proposed amendment to the rule would 
require the charter to specify additional responsibilities and 
authority with respect to retaining its own advisers; appointing, 
compensating, and overseeing such advisers; considering certain 
independence factors before selecting and receiving advice from 
advisers; and receiving funding from the company to engage them, which 
are discussed in detail in Section II.B.2

[[Page 4572]]

below and set forth in proposed Section 303A.05(c) of the Manual.\25\
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    \23\ Rule 10C-1 requires a compensation committee to have 
certain specified authority and responsibilities. See supra notes 
15-17 and accompanying text. The existing NYSE rule already requires 
compensation committees of listed companies to have a charter 
setting forth specified responsibilities, and the proposed rule 
updates the language concerning this authority and set of 
responsibilities and adds the required content discussed infra at 
text accompanying notes 40-42.
    \24\ See Section 303A.05(b) of the Manual. The existing 
Commentary to Section 303A.05, which NYSE proposed to replace with a 
comparable provision, currently provides that ``if a compensation 
consultant is to assist in the evaluation of director, CEO or 
executive officer compensation, the compensation committee charter 
should give that committee sole authority to retain and terminate 
the consulting firm, including sole authority to approve the firm's 
fees and other retention terms.'' See discussion infra at text 
accompanying notes 39-41.
    \25\ See proposed Section 303A.05(b) of the Manual. Because 
smaller reporting companies are not required to comply with the new 
compensation adviser independence considerations in proposed Section 
303A.05(c)(iv), see infra notes 52-56 and accompanying text, their 
charters are not required to reflect this requirement. See also 
proposed Section 303A.00 (Smaller Reporting Companies) of the 
Manual.
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1. Compensation Committee Composition and Independence Standards
    NYSE proposes to amend Section 303A.02(a) of the Manual, which 
would continue to provide that no director qualifies as ``independent'' 
unless the board of directors of the listed company affirmatively 
determines that the director has no material relationship with the 
listed company. As noted above, NYSE's rules currently require each 
member of a listed company's compensation committee to be an 
Independent Director, as defined in Section 303A.02(a) of the 
Manual.\26\ Rule 10C-1, as discussed above, provides that exchange 
standards must require compensation committee members to be 
independent, and further provides that each exchange, in determining 
independence for this purpose, must consider relevant factors, 
including the Fees Factor and Affiliation Factor described above. In 
its proposal, NYSE discussed its consideration of these factors,\27\ 
and proposed the following:\28\
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    \26\ See supra note 19.
    \27\ See Notice, supra note 3.
    \28\ See Notice, supra note 3, for the Exchange's explanation of 
its reasons for the proposed change. See infra Sections II.B.3 and 
II.B.4 concerning entities that would be exempt from this 
requirement.
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    With respect to the Fees and Affiliation Factors, NYSE proposes to 
adopt a provision stating that the board of directors of the listed 
company would be required, in affirmatively determining the 
independence of any director who will serve on the compensation 
committee of the board, to 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: (A) The source of 
compensation of such director, including any consulting, advisory or 
other compensatory fee paid by the listed company to such director; and 
(B) whether such director is affiliated with the listed company, a 
subsidiary of the listed company or an affiliate of a subsidiary of the 
listed company.\29\
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    \29\ See proposed Section 303A.02(a)(ii) of the Manual. See also 
Notice, supra note 3.
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    With respect to the Fees Factor, NYSE also proposes to amend the 
commentary to provide 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.\30\
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    \30\ See proposed Commentary to Section 303A.02(a)(ii) of the 
Manual.
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    With respect to the Affiliation Factor, NYSE proposes, similarly, 
to amend the commentary to provide that the board should consider 
whether an 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.''\31\
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    \31\ See id.
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    Although Rule 10C-1 requires that exchanges consider ``relevant 
factors'' not limited to the Fees and Affiliation Factors, NYSE states 
that, after reviewing its current and proposed listing rules, it 
concluded not to propose 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 its proposal, 
NYSE stated that it did 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.\32\ Further, as stated in its filing, NYSE 
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.\33\ Additionally, NYSE stated that 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 from Section 303A.02(b) of the 
Manual.\34\ NYSE 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.\35\
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    \32\ See Notice, supra note 3.
    \33\ See id. 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.
    \34\ See Notice, supra note 3.
    \35\ See id.
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    NYSE proposes a cure period for a failure of a listed company to 
meet its committee composition requirements for independence. Under the 
provision, if a listed company fails to comply with the compensation 
committee composition requirements because a member of the compensation 
committee ceases to be independent for reasons outside the member's 
reasonable control, that person, only so long as a majority of the 
members of the compensation committee continue to be independent, may 
remain a member of the compensation committee until the earlier of the 
next annual shareholders' meeting of the listed company or one year 
from the occurrence of the event that caused the member to be no longer 
independent.\36\ The proposed rule also requires a company relying on 
this provision to provide notice to NYSE promptly.\37\
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    \36\ See proposed Section 303A.00 ``Cure Period for Compensation 
Committee Independence Non-Compliance'' of the Manual.
    \37\ See id.

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[[Page 4573]]

    NYSE modified the suggested cure period language contained in Rule 
10C-1(a)(3) by limiting the cure period's use to circumstances where 
the committee continues to have a majority of independent directors, as 
NYSE believes this would ensure that the applicable committee could not 
take an action without the agreement of one or more independent 
directors.\38\
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    \38\ See Notice, supra note 3. The Commission notes that while 
NYSE does not provide any new procedures for an issuer to have an 
opportunity to cure any other defects with respect to its proposed 
compensation committee requirements, current NYSE rules provide 
issuers with an opportunity to cure defects, and appeal, before 
their securities are delisted for rule violations. See NYSE Listed 
Company Manual, Sections 802.02 (``Continued Listing--Evaluation and 
Follow-up Procedures for Domestic Companies'') and 804.00 
(``Procedure for Delisting'').
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2. Authority of Committees to Retain Compensation Advisers; Funding; 
and Independence of Compensation Advisers
    In its proposed rule change, NYSE proposes to fulfill the 
requirements imposed by Rule 10C-1(b)(2)-(4) under the Act concerning 
compensation advisers by setting forth those requirements in its own 
rules and requiring these new rights and responsibilities to be 
included in the compensation committee's charter.\39\ Thus, proposed 
Section 303A.05(c)(i)-(iii) of the Manual proposes to adopt the 
requirements that NYSE believes are required by Rule 10C-1(b)(2)-(3) 
that: (i) The compensation committee may, in its sole discretion, 
retain or obtain the advice of a compensation consultant, independent 
legal counsel or other adviser; (ii) the compensation committee shall 
be directly responsible for the appointment, compensation and oversight 
of the work of any compensation consultant, independent legal counsel 
or other adviser retained by the compensation committee;\40\ and (iii) 
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.\41\
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    \39\ Rule 10C-1(b)(4), does not include the word ``independent'' 
before ``legal counsel'' and requires an independence assessment for 
any legal counsel to a compensation committee, other than in-house 
counsel. In providing commentary to proposed Section 
303A.05(b)(iii), as modified by Amendment No. 3, NYSE provides for 
two limited exceptions. See infra notes 45-48 and accompanying text.
    \40\ The proposal also includes a provision, derived from Rule 
10C-1, stating that nothing in the rule may 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. See Commentary to 
Section 303A.05 to the Manual.
    \41\ See Notice, supra note 3.
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    Proposed Section 303A.05(c)(iv) of the Manual, as amended, also 
sets forth explicitly, in accordance with Rule 10C-1, that the 
compensation committee may select, or receive advice from, a 
compensation consultant, legal counsel or other adviser to the 
compensation committee, other than in-house legal counsel, only after 
taking into consideration all factors relevant to that person's 
independence from management, including the following six factors set 
forth in Rule 10C-1 regarding independence assessments of compensation 
advisers.\42\
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    \42\ See Rule 10C-1(b)(4).
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    The six factors, which are set forth in full in the proposed rule, 
are: (A) The provision of other services to the listed company by the 
person that employs the compensation consultant, legal counsel or other 
adviser; (B) 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; 
(C) 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; (D) any business or personal 
relationship of the compensation consultant, legal counsel or other 
adviser with a member of the compensation committee; (E) any stock of 
the listed company owned by the compensation consultant, legal counsel 
or other adviser; and (F) 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.\43\
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    \43\ See also Rule 10C-1(b)(4)(i)-(vi).
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    As proposed, Section 303A.05(c)(iv) of the Manual would not include 
any specific additional factors for consideration, as NYSE stated that 
it believes 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.\44\
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    \44\ See Notice, supra note 3.
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    The proposed commentary to proposed Section 303A.05 of the Manual, 
as modified by Amendment No. 3,\45\ further states that, as provided in 
Rule 10C-1, a compensation committee is required to conduct the 
independence assessment outlined in proposed Section 303A.05(c)(iv) 
with respect to any compensation consultant, legal counsel or other 
adviser that provides advice to the compensation committee, other than 
(i) in-house legal counsel \46\ and (ii) any compensation consultant, 
legal counsel or other adviser whose role is limited to the following 
activities for which no disclosure would be required under Item 
407(e)(3)(iii) of Regulation S-K: Consulting on any broad-based plan 
that does not discriminate in scope, terms, or operation, in favor of 
executive officers or directors of the listed company, and that is 
available generally to all salaried employees; or providing information 
that either is not customized for a particular company or that is 
customized based on parameters that are not developed by the 
compensation consultant, and about which the compensation consultant 
does not provide advice.\47\ NYSE noted that this second exception is 
based on Item 407(e)(3)(iii) of Regulation S-K, which provides a 
limited exception to the Commission's requirement for a registrant to 
disclose any role of compensation advisers in determining or 
recommending the amount or form of a registrant's executive and 
director compensation.\48\
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    \45\ See supra note 8. NYSE's proposal as submitted originally 
only contained an exception for in-house legal counsel. As described 
below, the Exchange amended its proposal to add an exception for 
advisers whose role is limited to certain broad-based plans or to 
providing non-customized information.
    \46\ See proposed Commentary to Section 303A.05 of the Manual.
    \47\ See Exhibit 5 to Amendment No. 3 (amending, in part, the 
proposed Commentary to Section 303A.05 of the Manual).
    \48\ See Amendment No. 3; see also 17 CFR 229.407(e)(3)(iii). 
The Exchange believes that its proposed exception from the 
independence assessment requirement is appropriate because the types 
of services excepted do not raise conflict of interest concerns, and 
noted that this is the same reason for which the Commission excluded 
these types of services from the disclosure requirement in Item 
407(e)(3)(iii) of Regulation S-K.
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    The proposed commentary to Section 303A.05 of the Manual, as 
modified by Amendment No. 3, also clarifies that nothing in the rule 
requires a compensation consultant, legal counsel or other compensation 
adviser to be independent, only that the compensation committee 
consider the enumerated independence factors before selecting or 
receiving advice from a compensation adviser.\49\ It further

[[Page 4574]]

clarifies that compensation committees may select or receive advice 
from any compensation adviser they prefer, including ones that are not 
independent, after considering the six independence factors set forth 
in Section 303A.05(c)(iv)(A)-(F) of the Manual.\50\ The Exchange 
clarified that, while the compensation committee is required to 
consider the independence of compensation advisers, the compensation 
committee is not precluded from selecting or receiving advice from 
compensation advisers that are not independent.\51\
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    \49\ See Exhibit 5 to Amendment No. 3, supra note 8.
    \50\ See id.
    \51\ See Amendment No. 3, supra note 8.
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3. Application to Smaller Reporting Companies
    Rule 10C-1 includes an exemption for smaller reporting companies 
from all the requirements included within the rule.\52\ Consistent with 
this Rule 10C-1 provision, NYSE, as a general matter, proposes that a 
smaller reporting company, as defined in Rule 12b-2 \53\ under the Act 
(hereinafter, a ``Smaller Reporting Company''), not be subject to the 
new requirements set forth in its proposal specifically to comply with 
Rule 10C-1.\54\ Thus, NYSE proposes not to require Smaller Reporting 
Companies to comply with either the enhanced independence standards for 
members of compensation committees relating to compensatory fees and 
affiliation or the compensation adviser independence 
considerations.\55\
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    \52\ See supra Section II.A; see also Rule 10C-1(b)(5)(ii).
    \53\ 17 CFR 240.12b-2.
    \54\ See proposed Section 303A.00 of the Manual.
    \55\ See supra text accompanying notes 29 and 43.
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    NYSE proposes in Section 303A.00 of the Manual that Smaller 
Reporting Companies are not required to comply with Section 
303A.02(a)(ii) concerning the additional independence factors for 
members serving on the compensation committee. A Smaller Reporting 
Company will be required to continue to comply with the pre-existing 
portions of proposed Section 303A.05 of the Manual, including the 
requirements of Section 303A.05(c) concerning the compensation 
committee's authority, responsibility and funding of compensation 
advisers. However, NYSE proposes an exception from the new portion of 
proposed Section 303A.05(c)(iv) that would otherwise require the 
Smaller Reporting Company's compensation committee to consider 
independence factors before selecting such advisers, which goes beyond 
NYSE's existing requirements.\56\ NYSE argues that, under this 
approach, Smaller Reporting Companies will effectively be subject to 
the same requirements as is currently the case under the existing 
requirements of the Manual, but they will not be subject to any of the 
new requirements of proposed Sections 303A.02(a)(ii) and 
303A.05(c)(iv).\57\
---------------------------------------------------------------------------

    \56\ As noted above, NYSE currently requires such authority, 
responsibility and funding be provided by all listed companies to 
compensation committees, including by Smaller Reporting Companies. 
See supra text accompanying note 24. As Smaller Reporting Companies 
will not be required to comply with the consideration of certain 
independence factors when selecting an adviser, their charters will 
not be required to reflect this provision.
    \57\ See Notice, supra note 3.
---------------------------------------------------------------------------

4. Exemptions
    NYSE proposes that its existing exemptions from the Exchange's 
compensation-related listing rules currently in place, which are set 
forth in Section 303A.00 of the Manual, apply also to the new 
requirements of the proposed rule change and thereby will continue to 
provide a general exemption from all of the compensation committee 
requirements of Section 303A.05 of the Manual.\58\ These include 
exemptions to the following issuers: Any listed company of which more 
than 50% of the voting power for the election of directors is held by 
an individual, a group or another company (in other words, a controlled 
company); limited partnerships; companies in bankruptcy; closed-end and 
open-end management investment companies that are registered under the 
Investment Company Act of 1940; passive business organizations in the 
form of trusts (such as royalty trusts) or derivatives and special 
purpose securities; and issuers whose only listed equity stock is a 
preferred stock.\59\ NYSE states that these categories of issuers 
typically: (i) Are externally managed and do not directly employ 
executives; (ii) do not by their nature have employees; or (iii) have 
executive compensation policy set by a body other than the board.\60\ 
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.\61\
---------------------------------------------------------------------------

    \58\ See id. In addition, such exempt companies would also 
thereby be exempt from the enhanced independence requirements for 
compensation committee composition described in proposed Section 
303A.02 of the Manual.
    \59\ See Section 303A.00 of the Manual.
    \60\ See Notice, supra note 3.
    \61\ See id.
---------------------------------------------------------------------------

    Concerning foreign private issuers,\62\ NYSE's current rules in 
Section 303A.11 of the Manual permit any such issuer to follow its home 
country practice in lieu of many of NYSE's corporate governance listing 
standards, including the Exchange's compensation-related listing rules. 
Section 303A.00 of the Manual currently provides that listed companies 
that are foreign private issuers are permitted to follow home country 
practice in lieu of the provisions of Section 303A, but this allowance 
is granted on condition that the issuer discloses in its annual report 
filed with the Commission any significant ways in which its corporate 
governance practices differ from those followed by domestic companies 
under NYSE listing standards.\63\ NYSE proposes that this allowance 
continue to apply, generally, to the Exchange's compensation committee 
rules as revised by the instant proposal on the same condition, namely 
that the issuer discloses any significant ways in which its corporate 
governance practices differ from those followed by domestic companies 
under NYSE listing standards in its annual report.\64\ NYSE does not 
propose to add any additional requirements to this disclosure 
requirement applicable to foreign private issuers, and argues that an 
additional statement as to why the company does not comply would likely 
simply be that the foreign private issuer was not required to do so by 
home country law.\65\
---------------------------------------------------------------------------

    \62\ Under NYSE's listing rules, ``foreign private issuer'' has 
the same meaning and is defined in accordance with the SEC's 
definition of foreign private issuer set out in Rule 3b-4(c) (17 CFR 
240.3b-4). See Section 103.00 of the Manual.
    \63\ See Section 303A.11 of the Manual. If a foreign private 
issuer is not required to file its annual report with the Commission 
on Form 20-F, it may either make this disclosure in another annual 
report filed with the Commission or make this disclosure available 
on or through its Web site.
    \64\ See Notice, supra note 3.
    \65\ See id.; see also Commentary to Section 303A.11 of the 
Manual.
---------------------------------------------------------------------------

5. Transition to the New Rules for Companies Listed as of the Effective 
Date
    The proposed rule change provides that certain of the new 
requirements for listed companies will be effective on July 1, 2013 and 
others will be effective after that date.\66\ Specifically, NYSE 
proposes to amend Section 303A.00 to

[[Page 4575]]

provide transition periods by which listed companies would be required 
to comply with the new Section 303A.02(a)(ii) compensation committee 
director independence standards. Pursuant to the proposal, 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 
standards for compensation committee director independence. Existing 
compensation committee independence standards would continue to apply 
pending the transition to the new independence standards. NYSE proposes 
that all other proposed sections of the proposal would become effective 
on July 1, 2013 for purposes of compliance by currently listed issuers 
that are not otherwise exempted. On July 1, 2013, such issuers will be 
required to comply with the provisions relating to the authority of a 
compensation committee to retain compensation consultants, legal 
counsel, and other compensation advisers; the authority to fund such 
advisers; and the responsibility of the committee to consider 
independence factors before selecting or receiving advice from such 
advisers.\67\
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    \66\ During the transition periods described herein, 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.
    \67\ As noted above, NYSE already requires that, if a 
compensation consultant is to assist in the evaluation of director, 
CEO or executive officer compensation, the compensation committee 
charter should give that committee sole authority to retain and 
terminate the consulting firm, including sole authority to approve 
the firm's fees and other retention terms.
---------------------------------------------------------------------------

6. Compliance Schedules: IPOs; Companies that Lose their Exemptions; 
Companies Transferring from Other Markets
    NYSE's existing rules permit certain companies listing on the 
Exchange to phase-in compliance with all of the Exchange's applicable 
independence requirements for compensation committees after the date 
that the company's securities first trade on NYSE.\68\ NYSE proposes to 
preserve its current compliance periods for those categories of issuers 
with respect to the enhanced independence standard for directors 
serving on the compensation committee, which means that companies 
listing in conjunction with their initial public offerings,\69\ 
companies listing in connection with a spin-off or carve-out, companies 
listing upon emergence from bankruptcy, and companies that cease to 
qualify as a controlled company would continue to be entitled to a 
transition period under which the company must have: At least one 
independent member that meets the enhanced standards (concerning fees 
received by members and their affiliations) on its compensation 
committee by the listing date; at least a majority of independent 
members that meet the enhanced standards on the compensation committee 
within 90 days of the listing date; and a fully independent 
compensation committee where all members meet the enhanced standards 
within one year of the listing date.
---------------------------------------------------------------------------

    \68\ See Section 303A.00 of the Manual (Compliance Dates).
    \69\ NYSE notes that, 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 Act.
---------------------------------------------------------------------------

    Companies that cease to qualify as foreign private issuers would 
continue to have a transition period under which they must have a fully 
independent compensation committee where all members meet the enhanced 
standards within six months of that determination.
    Companies listing upon transfer from another market would have one 
year from the listing date to satisfy all the requirements of Section 
303A to the extent the national securities exchange on which they were 
listed did not have the same requirement.
    For a company that was, but has ceased to be, a Smaller Reporting 
Company, the proposed rule change, as modified by Amendment No. 3, 
establishes a compliance schedule based on certain dates relating to 
the company's change in status.\70\ Pursuant to Rule 12b-2 under the 
Act, a company tests its status as a Smaller Reporting Company on an 
annual basis as of the last business day of its most recently completed 
second fiscal quarter (the ``Smaller Reporting Company Determination 
Date''). A company with a public float of $75 million or more as of the 
Smaller Reporting Company Determination Date will cease to be a Smaller 
Reporting Company as of the beginning of the fiscal year following the 
Smaller Reporting Company Determination Date. Under NYSE's proposal, 
the day of this change in status is the beginning of the compliance 
period (``Start Date'').\71\
---------------------------------------------------------------------------

    \70\ See proposed Section 303A.00 (Compliance Dates), as 
amended. In the proposal as originally submitted, the compliance 
schedule was to require compliance with the enhanced standards for 
director independence six months after the company ceases to be a 
Smaller Reporting Company, but immediate compliance with all other 
requirements. In Amendment No. 3, NYSE states that while the revised 
compliance schedule is different from what it originally proposed, 
the amended version will allow companies sufficient time to adjust 
to the differences, as many companies will likely not become aware 
of their change in status until significantly after the 
determination date and would therefore not utilize the transition 
period as originally proposed to bring themselves into compliance 
with the enhanced requirements, and that such companies would have 
significant difficulty in becoming compliant within the transition 
period as originally proposed.
    \71\ See Amendment No. 3, supra note 8.
---------------------------------------------------------------------------

    By six months from the Start Date, the company will be required to 
comply with Section 303A.05(c)(iv) of the Manual, which sets forth the 
provision described above relating to the requirement that the 
committee consider independence factors before selecting compensation 
advisers.\72\ Six months from the Start Date, the company will begin to 
comply with the additional requirements in Section 303A.02(ii) 
regarding member independence on the compensation committee. Under the 
proposal, as amended, a company that has ceased to be a Smaller 
Reporting Company will be permitted to phase in its compliance with the 
enhanced independence requirements for compensation committee members 
(relating to compensatory fees and affiliation) as follows: (i) One 
member must satisfy the requirements by six months from the Start Date; 
(ii) a majority of members must satisfy the requirements by nine months 
from the Start Date; and (iii) all members must satisfy the 
requirements by one year from the Start Date.\73\
---------------------------------------------------------------------------

    \72\ In addition, this will require the company to update its 
charter to reflect this additional responsibility of the 
compensation committee. See Section 303A.05(b)(iii) of the Manual.
    \73\ During the compliance schedule, a company that has ceased 
to be a Smaller Reporting Company will be required to continue to 
comply with the rules previously applicable to it.
---------------------------------------------------------------------------

III. Comments on the Proposed Rule Change and NYSE's Response

    As stated previously, the Commission received a total of seven 
comment letters on the NYSE proposal,\74\ and one comment letter on a 
related proposal by NYSE Arca.\75\ The Commission is treating the 
comment letter submitted on the NYSE Arca filing, for which a 
comparable letter was not submitted on the NYSE filing, as also being 
applicable to the NYSE filing since the NYSE and NYSE Arca filings 
address the same substantive issues. NYSE Euronext, Inc., on behalf of 
NYSE, responds to these comment letters for the NYSE proposal.\76\
---------------------------------------------------------------------------

    \74\ See supra note 5.
    \75\ See id.
    \76\ See supra note 6.
---------------------------------------------------------------------------

    Three commenters expressed general support for the proposal, 
although two believed that it needed to be amended before being 
approved.\77\ Some

[[Page 4576]]

commenters supported specific provisions of the proposal,\78\ some 
opposed specific provisions,\79\ and some sought clarification of 
certain aspects of the proposal.\80\ Some commenters believed that the 
proposal fell short of meeting the requirements of Rule 10C-1 and 
believed that it should have been more stringent.\81\ These and other 
comments, as well as NYSE's responses to some of the comments that 
raised issues with the proposal, are summarized below.
---------------------------------------------------------------------------

    \77\ See Ameriprise Letter, which supported the proposal but 
believed that certain aspects were not sufficiently clear such that 
the proposal needed to be amended to provide additional clarity; ICI 
Letter, which urged approval of the proposal; and Corporate 
Secretaries Letter, which generally supported the proposal, but 
believed that certain of its aspects were unnecessarily burdensome 
or not sufficiently clear such that the proposal needed to be 
amended before being approved by the Commission.
    \78\ See Brown Letter, CII Letter, and ICI Letter.
    \79\ See AFL-CIO Letter, Brown Letter, and Wilson Sonsini 
Letter. See also CII Letter, which stated that it believed that 
specific aspects of the NYSE Arca proposal were lacking.
    \80\ See Ameriprise Letter and Corporate Secretaries Letter.
    \81\ See AFL-CIO Letter, Brown Letter, CII Letter, and Teamsters 
Letter.
---------------------------------------------------------------------------

A. Definition of Independence

1. Consideration of Director Compensation
    Three commenters believed that the proposal falls short of the 
requirements of Rule 10C-1, which, in their view, requires that fees 
paid to a director for service on the company's board also be 
considered.\82\ Two of these commenters, after noting that the proposal 
did not require boards of directors to also consider the compensation 
paid to the directors for their service on the board in determining the 
independence of directors serving on the compensation committee, argued 
that the proposal falls short of the requirements of Rule 10C-1, which, 
in their view, requires that fees paid to a director for service on the 
company's board also be considered.\83\ The other commenter argued that 
the language of Section 10C of the Act itself, as well as its 
legislative history, indicates Congress's intent that such fees be 
considered.\84\ These commenters believed that compensation for board 
service can result in ``the impairment of independence as a result of 
excessive fees,'' \85\ because ``[h]igh director fees relative to other 
sources of income can compromise director objectivity,'' \86\ and 
``[h]ighly paid directors also may be more inclined to approve large 
executive pay packages.'' \87\ One of these commenters believed that 
the requirement of Section 10C of the Act and Rule 10C-1 to consider 
the source of compensation of a director goes further, and applies to 
all types of compensation that a director may receive, including 
compensation paid by any person, including non-issuers.\88\
---------------------------------------------------------------------------

    \82\ See Brown Letter, AFL-CIO Letter, and Teamsters Letter.
    \83\ See AFL-CIO Letter and Teamsters Letter, noting that Rule 
10C-1 requires the exchanges to consider a director's ``source of 
compensation,'' and arguing that this phrase includes director fees.
    \84\ See Brown Letter.
    \85\ Id.
    \86\ See AFL-CIO Letter and Teamsters Letter.
    \87\ Id.
    \88\ See Brown Letter.
---------------------------------------------------------------------------

    In its response to comments, NYSE stated that, as all non-
management directors of a listed company are eligible to receive the 
same fees for service as a director or board committee member, NYSE 
does not believe that it is likely that director compensation would be 
a relevant consideration for compensation committee independence.\89\ 
NYSE noted that, however, the proposed rules require the board to 
consider all relevant factors in making compensation committee 
independence determinations.\90\ Therefore, NYSE believes that, to the 
extent that excessive board compensation might affect a director's 
independence, the proposed rules would require the board to consider 
that factor in its determination.\91\
---------------------------------------------------------------------------

    \89\ See NYSE Response Letter.
    \90\ See id.
    \91\ See id.
---------------------------------------------------------------------------

2. Personal or Business Relationships Between Directors and Officers
    Some commenters believed that the proposed rules should explicitly 
require the board of a listed company, when considering affiliations of 
a director in determining eligibility for compensation committee 
membership, to consider personal or business relationships between the 
director and the company's executive officers.\92\ As expressed by two 
of these commenters, ``too many corporate directors have significant 
personal, financial or business ties to the senior executives that they 
are responsible for compensating.'' \93\
---------------------------------------------------------------------------

    \92\ See AFL-CIO Letter, Brown Letter, CII Letter, and Teamsters 
Letter.
    \93\ AFL-CIO Letter and Teamsters Letter.
---------------------------------------------------------------------------

    Some commenters believed that related party transactions should 
explicitly be included as a relevant factor in determining independence 
for members of compensation committees.\94\ The additional requirements 
suggested by commenters also included, for example, disqualification of 
a director from membership on the compensation committee if an 
immediate family member of the director received compensation in excess 
of $120,000 a year from the company even if that family member was not 
an executive officer of the company; \95\ or if the director has, or in 
the past five years has had, a personal contract with the company, with 
an executive officer of the company, or with any affiliate of the 
company.\96\
---------------------------------------------------------------------------

    \94\ See AFL-CIO Letter and Teamsters Letter.
    \95\ See AFL-CIO Letter and Teamsters Letter. NYSE's definition 
of Independent Director already disqualifies a director from 
membership on the compensation committee if an immediate family 
member of the director receives in excess of $120,000 from the 
company or was an executive officer of the company.
    \96\ See CII Letter. The commenter acknowledged, however, that 
existing director requirements implicitly require this 
consideration, but similarly recommended that the importance of the 
factor requires it be explicit in the NYSE Arca's proposal. Outside 
the scope of this proposal, the commenter also suggested NYSE Arca 
consider, at some future date, developing a more comprehensive and 
robust definition of independent directors that could be applicable 
to all board committees and provided a proposed definition for NYSE 
Arca's consideration. As noted above, the comment letter refers 
specifically to NYSE Arca, but applies equally to the NYSE proposal.
---------------------------------------------------------------------------

    One commenter acknowledged that the proposal would require 
consideration of all factors specifically relevant to determining 
whether a director has a relationship which is material to that 
director's ability to be independent from management, but argued that 
such requirement is not sufficient to ensure that boards weigh personal 
or business relationships between directors and executive officers.\97\ 
In support, the commenter argued that: (1) Such relationships were not 
technically with the ``listed company'' and therefore would at least 
create confusion as to whether it should be considered; (2) the 
omission of an explicit reference to this relationship was inconsistent 
with other approaches taken in the proposal that made reference to 
certain other relationships; and (3) legislative history makes it clear 
that Congress expected these relationships to be explicitly considered 
in determining director independence.\98\
---------------------------------------------------------------------------

    \97\ See Brown Letter.
    \98\ See id.
---------------------------------------------------------------------------

    In response, NYSE noted that the existing independence standards of 
NYSE require the board to make an affirmative determination that there 
is no material relationship between the director and the company which 
would affect the director's independence.\99\ NYSE further stated that 
commentary to Section 303A.02(a) explicitly notes with respect to the 
board's affirmative determination of a director's independence that the 
concern is independence from management, and NYSE MKT LLC and NYSE Arca 
have always interpreted their respective director independence 
requirements in

[[Page 4577]]

the same way.\100\ Consequently, NYSE stated that it did not believe 
that any further clarification of this requirement is necessary.\101\
---------------------------------------------------------------------------

    \99\ See NYSE Response Letter.
    \100\ See id.
    \101\ See id.
---------------------------------------------------------------------------

    As to a requirement to consider related party transactions, NYSE 
responded that it believes that this is unnecessary as the existing 
director independence standards require boards to consider all material 
factors relevant to an independence determination, as do the specific 
compensation committee independence requirements of the proposed 
rules.\102\
---------------------------------------------------------------------------

    \102\ See id.
---------------------------------------------------------------------------

3. Sufficiency of Single Factor and Additional Comments on Independence
    Two commenters explicitly sought clarification that a single factor 
can result in the loss of independence.\103\ In its response letter, 
NYSE confirmed that it has interpreted the existing general board 
independence standards as providing that a single relationship could be 
sufficiently material that it would render a director non-independent. 
NYSE stated it was not aware that there has been any confusion with 
respect to this interpretation.\104\ Consequently, NYSE did not believe 
it is necessary to include in the proposed rules a statement that a 
single factor may be sufficiently material to render a director non-
independent, as this is clearly the intention of the rules as 
drafted.\105\
---------------------------------------------------------------------------

    \103\ See AFL-CIO Letter and Teamsters Letter.
    \104\ See NYSE Response Letter.
    \105\ See id.
---------------------------------------------------------------------------

    Some of the above commenters expressed the belief, in general, that 
the definition of an independent director should be more narrowly 
drawn, that the bright-line tests of independence should be 
strengthened, and that the standards of independence should be uniform 
for all committees requiring independent directors.\106\
---------------------------------------------------------------------------

    \106\ See CII Letter, AFL-CIO Letter, and Teamsters Letter.
---------------------------------------------------------------------------

    One commenter believed that the requirement that the board ``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'' was vague and 
unnecessary in light of the comprehensive factors already 
required.\107\ In responding to this commenter, NYSE disagreed, noting 
that the requirement to consider all material relationships, not just 
those enumerated, was essential, as it is impossible to foresee all 
relationships that may be material.\108\
---------------------------------------------------------------------------

    \107\ See Corporate Secretaries Letter.
    \108\ See NYSE Response Letter.
---------------------------------------------------------------------------

B. Compensation Adviser Independence Factors

    The Commission received letters from four commenters relating to 
the provision of the proposed rule change that requires a compensation 
committee to take into consideration the factors set forth in the 
proposal in the selection of a compensation consultant, legal counsel, 
or other adviser to the committee.\109\
---------------------------------------------------------------------------

    \109\ See Ameriprise Letter, Wilson Sonsini Letter, CII Letter, 
and Corporate Secretaries Letter.
---------------------------------------------------------------------------

1. Additional Factors for Consideration
    One commenter generally supported the proposal's requirement that a 
board consider six independence factors before engaging an adviser, but 
believed that at least one additional factor should be considered: 
``whether the compensation committee consultants, legal counsel or 
other advisers require that their clients contractually agree to 
indemnify or limit their liability.'' \110\ The commenter believed that 
such contractual provisions, which the commenter indicated have become 
standard practice for many consultants, ``raise conflict of interest 
red flags'' that every compensation committee should consider in 
determining the independence of the consultant.\111\
---------------------------------------------------------------------------

    \110\ See CII Letter. As noted above, the comment letter refers 
specifically to NYSE Arca, but applies equally to the NYSE proposal.
    \111\ See CII Letter.
---------------------------------------------------------------------------

    In response, NYSE stated that it did not believe that this is an 
appropriate addition because a relationship would affect an adviser's 
independence from management only if it gave rise to a concern that it 
would subject the adviser to influence by management.\112\ It was not 
apparent to NYSE why the existence of contractual indemnification and 
limitation of liability provisions would subject an adviser to any 
influence by management and, therefore, it is not clear how they are 
relevant to an independence determination.\113\ NYSE expressed no view 
on the desirability of such agreements.\114\
---------------------------------------------------------------------------

    \112\ See NYSE Response Letter.
    \113\ See id.
    \114\ See id.
---------------------------------------------------------------------------

2. Non-Independent Consultants
    One commenter suggested that, although the portion of the proposal 
which relates to the compensation committee's use of a compensation 
consultant was thoughtfully drafted and accurately reflects the 
substance of Rule 10C-1, there was a possibility that a reader may not 
properly interpret the intended meaning of proposed Section 303A.05(c) 
of the Manual concerning the use of compensation consultants, legal 
counsel and advisers that are not independent.\115\ First, the 
commenter suggested the use of the example ``independent legal 
counsel'' might be read to require the compensation committee to only 
use independent legal counsel, when Rule 10C-1 would otherwise permit a 
compensation committee to receive advice from non-independent counsel, 
such as in-house counsel or outside counsel retained by 
management.\116\ Second, the commenter suggested that the proposal 
could be revised to emphasize that a compensation committee is not 
responsible for advisers retained by management or other parties.\117\ 
Third, the commenter suggested that the section addressing the funding 
of consultants should be revised to make clear that: (a) Retained legal 
counsel need not be independent: and (b) expenses of an adviser, in 
addition to its compensation, would also be provided for by the 
issuer.\118\ Fourth, the commenter suggested that the proposal be 
clarified to require a compensation committee to take into account the 
independence requirements only when selecting a consultant for matters 
related to executive compensation, rather than for consultants selected 
to assist with any other responsibilities the committee may have in 
addition to executive compensation.\119\ In response, NYSE noted that 
Amendment No. 3 amended the proposed rule text to provide that: (i) 
Nothing in the proposed rules requires a compensation consultant, legal 
counsel or other compensation adviser to be independent, only that the 
compensation committee consider the enumerated independence factors 
before selecting a compensation adviser; and (ii) the compensation 
committee may select any compensation adviser they prefer including 
ones that are not independent, after considering the six independence 
factors outlined in the proposed rules.\120\ In addition, NYSE noted 
that Rule 10C-1 and the SEC's adopting release refer only to 
compensation advisers generally without carving out compensation 
advisers retained by the compensation

[[Page 4578]]

committee with respect to matters other than executive 
compensation.\121\
---------------------------------------------------------------------------

    \115\ See Ameriprise Letter.
    \116\ See id.
    \117\ See id.
    \118\ See id.
    \119\ See id. See also Corporate Secretaries Letter.
    \120\ See NYSE Response Letter.
    \121\ See id.
---------------------------------------------------------------------------

    One commenter believed that the proposed rule could be read as 
requiring a compensation committee to consider the independence factors 
set forth in Rule 10C-1 when selecting any consultant providing advice 
to the compensation committee, including any outside legal counsel that 
might provide legal advice to a compensation committee.\122\ The 
commenter argued that outside legal counsel often provides advice to 
compensation committees on matters other than how much a company should 
pay an executive.\123\ The commenter suggested it would not be 
``necessary or a good use of resources for compensation committees to 
review independence factors for such attorneys providing advice to the 
compensation committee.'' \124\ The commenter stated that no other rule 
requires a board committee to consider the independence of its regular 
legal counsel,\125\ and noted that, while it may, at times, be 
appropriate for a board or a committee to consider independence 
factors, such a consideration should not be made part of a listing 
standard that singles out the compensation committee.\126\ The 
commenter suggested that different language originally proposed by The 
NASDAQ Stock Market LLC reflected a more balanced rule that only 
required the compensation committee to consider the independence when 
selecting independent legal counsel, not every outside attorney that 
provides advice to the compensation committee.\127\
---------------------------------------------------------------------------

    \122\ See Wilson Sonsini Letter.
    \123\ See id.
    \124\ See id.
    \125\ See id.
    \126\ See id.
    \127\ See id. The Commission notes that The NASDAQ Stock Market 
LLC has since revised its proposed rule language and added 
commentary that makes clear its original intent that the 
compensation committee of an issuer listed on The NASDAQ Stock 
Market LLC, absent an exemption, must consider the independence of 
every adviser, other than in-house legal counsel, that provides 
advice to the compensation committee, including non-independent 
legal counsel. See SR-NASDAQ-2012-109, Amendment No. 1.
---------------------------------------------------------------------------

    In response, NYSE stated that it believes that its proposal is 
dictated by Rule 10C-1, which excludes only in-house legal counsel from 
the requirement to conduct an independence analysis with respect to any 
legal counsel consulted by the compensation committee, including the 
company's regular securities or tax counsel.\128\ NYSE noted that the 
Rule 10C-1 Adopting Release provides that ``[t]he exemption of in-house 
counsel from the independence analysis will not affect the obligation 
of a compensation committee to consider the independence of outside 
legal counsel or compensation consultants or other advisers retained by 
management or by the issuer.'' \129\
---------------------------------------------------------------------------

    \128\ See NYSE Response Letter.
    \129\ See id.
---------------------------------------------------------------------------

    Another commenter, while generally supporting the proposal, 
maintained that the required independence assessment will be ``time-
consuming and burdensome'' due to the scope of information that will 
need to be gathered in order to conduct the required independence 
assessment.\130\ This commenter believed that uncertainty over the 
scope of the requirement could have a counterproductive effect of 
discouraging compensation committees from obtaining the advice of 
advisers subject to the rule, particularly in situations where quick 
action is required of the compensation committee, and further 
identified a number of specific issues that it believed the Exchange 
should address to provide greater clarity regarding the standard.\131\
---------------------------------------------------------------------------

    \130\ See Corporate Secretaries Letter.
    \131\ The Commission notes that NYSE addressed some of the 
commenter's concerns in Amendment No. 3.
---------------------------------------------------------------------------

    In response, NYSE disagreed with the commenter, arguing that it was 
impossible to specifically enumerate every category of relationship 
which might be material to a compensation committee adviser's 
independence.\132\ NYSE believes that it is therefore necessary for a 
compensation committee to conduct a more flexible analysis.\133\ NYSE 
believes that it would not be appropriate for it to identify additional 
relevant factors in the rule, as it would be impossible to predict 
every category of relationship that might be material.\134\
---------------------------------------------------------------------------

    \132\ See NYSE Response Letter.
    \133\ See id.
    \134\ See id.
---------------------------------------------------------------------------

C. Opportunity to Cure Defects

    One commenter supported the rule proposed by the Exchange to permit 
issuers a period of time, under specified conditions, to cure failures 
to comply with the independence requirements for compensation committee 
members.\135\ The commenter was concerned, however, that the proposed 
rules did not specify a cure period for any other form of non-
compliance with the new rules.\136\ The commenter believed that a 
company should be allowed to take corrective action within a reasonable 
time after the company's senior executives learn of the non-compliance.
---------------------------------------------------------------------------

    \135\ See Corporate Secretaries Letter.
    \136\ See id. The commenter mentioned, in particular, the 
requirement that the committee may obtain advice from a consultant 
or adviser only after assessing that individual's independence. The 
commenter believed that inadvertent violations of this requirement 
could arise, for example, if a person is appearing before a 
compensation committee solely to provide information or other 
services, and the individual then on a solicited or unsolicited 
basis makes a statement that could be viewed as providing advice on 
executive compensation. In the absence of a cure mechanism, the 
commenter believed, the company would be in violation of the listing 
standard and have no recourse.
---------------------------------------------------------------------------

    In response, NYSE noted that it had existing policies and 
procedures that govern non-compliance with rules generally and that 
these provisions would apply to any events of non-compliance under the 
proposed rules.\137\ NYSE believes these provisions provide it with the 
ability to grant a discretionary period for an issuer to return to 
compliance, and noted that the determination of a reasonable cure 
period can only be made in light of specific facts and 
circumstances.\138\
---------------------------------------------------------------------------

    \137\ See NYSE Response Letter.
    \138\ See id.
---------------------------------------------------------------------------

D. Exemptions

    The Commission received one comment letter supporting the 
Exchange's proposal to exempt investment companies from the Rule 10C-1 
requirements.\139\ As the commenter noted, although Rule 10C-1 exempts 
certain entities, including registered open-end management investment 
companies, from the enhanced independence requirements for members of 
compensation committees, it did not explicitly exempt other types of 
investment companies registered under the Investment Company Act of 
1940 (``Investment Company Act''), including closed-end funds, from any 
of the requirements of Rule 10C-1. Under the proposal, both closed-end 
and open-end funds would be exempt from all the requirements of the 
rule. The commenter supported this aspect of the proposal, stating that 
both open-end and closed-end funds typically are externally managed and 
do not employ executives or, by their nature, have employees. The 
commenter agreed with the proposal that it would be significantly and 
unnecessarily burdensome to require such entities to comply with the 
proposed requirements, and further noted that any conflicts with 
respect to compensation of investment advisers are governed by the 
Investment Company Act.\140\
---------------------------------------------------------------------------

    \139\ See ICI Letter.
    \140\ See ICI Letter.

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[[Page 4579]]

E. Transition Period

    One commenter voiced support for the transition period proposed for 
compliance with the new compensation committee independence standard, 
but believed that the Exchange should provide a longer period for 
companies to satisfy proposed Section 303A.05 of the Manual, relating 
to the authority of a compensation committee to retain compensation 
consultants, legal counsel, and other compensation advisers; the 
authority to fund such advisers; and the responsibility of the 
committee to consider independence factors before selecting such 
advisers.\141\
---------------------------------------------------------------------------

    \141\ See Corporate Secretaries Letter.
---------------------------------------------------------------------------

    In response, the Exchange stated that it believes that the 
transition periods are sufficient to enable companies to become 
compliant on a timely basis in a manner that is not unduly 
burdensome.\142\ The Exchange also noted that the proposed transition 
period was identical to that used at the time of the initial 
implementation of NYSE's current board and committee independence 
requirements and that NYSE believes that the transition period was not 
unduly burdensome for companies at that time.\143\
---------------------------------------------------------------------------

    \142\ See NYSE Response Letter.
    \143\ See NYSE Response Letter.
---------------------------------------------------------------------------

IV. Discussion

    After careful review, the Commission finds that the NYSE proposal, 
as amended, is consistent with the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\144\ In 
particular, the Commission finds that the amended proposed rule change 
is consistent with the requirements of Section 6(b) of the Act,\145\ as 
well as with Section 10C of the Act \146\ and Rule 10C-1 
thereunder.\147\ Specifically, the Commission finds that the proposed 
rule change, as amended, is consistent with Section 6(b)(5) of the 
Act,\148\ which requires that the rules of a national securities 
exchange be designed, among other things, to prevent fraudulent and 
manipulative acts and practices; to promote just and equitable 
principles of trade; to remove impediments to and perfect the mechanism 
of a free and open market and a national market system; and, in 
general, to protect investors and the public interest; and not be 
designed to permit, among other things, unfair discrimination between 
issuers.
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    \144\ In approving the NYSE proposed rule change, as amended, 
the Commission has considered its impact on efficiency, competition 
and capital formation. 15 U.S.C. 78c(f).
    \145\ 15 U.S.C. 78f(b).
    \146\ 15 U.S.C. 78j-3.
    \147\ 17 CFR 240.10C-1.
    \148\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The development and enforcement of meaningful listing standards for 
a national securities exchange is of substantial importance to 
financial markets and the investing public. Meaningful listing 
standards are especially important given investor expectations 
regarding the nature of companies that have achieved an exchange 
listing for their securities. The corporate governance standards 
embodied in the listing rules of national securities exchanges, in 
particular, play an important role in assuring that companies listed 
for trading on the exchanges' markets observe good governance 
practices, including a reasoned, fair, and impartial approach for 
determining the compensation of corporate executives. The Commission 
believes that the NYSE proposal will foster greater transparency, 
accountability, and objectivity in the oversight of compensation 
practices of listed issuers and in the decision-making processes of 
their compensation committees.
    In enacting Section 10C of the Act as one of the reforms of the 
Dodd-Frank Act,\149\ Congress resolved to require that ``board 
committees that set compensation policy will consist only of directors 
who are independent.'' \150\ In June 2012, as required by this 
legislation, the Commission adopted Rule 10C-1 under the Act, which 
directs the national securities exchanges to prohibit, by rule, the 
initial or continued listing of any equity security of an issuer (with 
certain exceptions) that is not in compliance with the rule's 
requirements regarding issuer compensation committees and compensation 
advisers.
---------------------------------------------------------------------------

    \149\ See supra note 9.
    \150\ See H.R. Rep. No. 111-517, Joint Explanatory Statement of 
the Committee of Conference, Title IX, Subtitle E ``Accountability 
and Executive Compensation,'' at 872-873 (Conf. Rep.) (June 29, 
2010).
---------------------------------------------------------------------------

    In response, NYSE submitted the proposed rule change, which 
includes rules intended to comply with the requirements of Rule 10C-1 
and additional provisions designed to strengthen the Exchange's listing 
standards relating to compensation committees. The Commission believes 
that the proposed rule change satisfies the mandate of Rule 10C-1 and 
otherwise will promote effective oversight of its listed issuers' 
executive compensation practices.
    The Commission notes that a number of the commenters generally 
supported the proposed rule change, although some commenters offered 
suggestions to clarify or improve various provisions of NYSE's proposal 
or NYSE Arca's substantially similar proposal. The Commission believes 
that the proposed rule change, as modified by Amendment Nos. 1 and 3, 
appropriately revises NYSE's rules for compensation committees of 
listed companies, for the following reasons:

A. Compensation Committee Composition

    As discussed above, under Rule 10C-1, the exchanges must adopt 
listing standards that require each member of a compensation committee 
to be independent, and to develop a definition of independence after 
considering, among other relevant factors, the source of compensation 
of a director, including any consulting, advisory or other compensatory 
fee paid by the issuer to the director, as well as whether the director 
is affiliated with the issuer or any of its subsidiaries or their 
affiliates.
    The Commission notes that Rule 10C-1 leaves it to each exchange to 
formulate a final definition of independence for these purposes, 
subject to review and final Commission approval pursuant to Section 
19(b) of the Act. As the Commission stated in the Rule 10C-1 Adopting 
Release, ``given the wide variety of issuers that are listed on 
exchanges, we believe that the exchanges should be provided with 
flexibility to develop independence requirements appropriate for the 
issuers listed on each exchange and consistent with the requirements of 
the independence standards set forth in Rule 10C-1(b)(1).'' \151\ This 
discretion comports with the Act, which gives the exchanges the 
authority, as self-regulatory organizations, to propose the standards 
they wish to set for companies that seek to be listed on their markets 
consistent with the Act and the rules and regulations thereunder, and, 
in particular, Section 6(b)(5) of the Act.
---------------------------------------------------------------------------

    \151\ As explained further in the Rule 10C-1 Adopting Release, 
prior to final approval, the Commission will consider whether the 
exchanges' proposed rule changes are consistent with the 
requirements of Section 6(b) and Section 10C of the Act.
---------------------------------------------------------------------------

    As noted above, in addition to retaining its existing independence 
standards that currently apply to board and compensation committee 
members, which include certain bright-line tests, NYSE has enhanced its 
listing requirements regarding compensation committees by adopting 
additional standards for independence to comply with the Fees Factor 
and Affiliation Factor, as well as the other standards set forth in 
Rule 10C-1. The NYSE's

[[Page 4580]]

proposal also adopts the cure procedures required in Rule 10C-1(a)(3) 
for compensation committee members who cease to be independent for 
reasons outside their reasonable control, so long as the majority of 
the members of the compensation committee continue to be independent, 
and retains the requirement that listed issuers have a compensation 
committee composed entirely of independent directors as required by 
Rule 10C-1.
    Further, as discussed in more detail below, the NYSE proposal 
retains the requirement that the compensation committee have a written 
charter that addresses the committee's purpose and responsibilities, 
and adds requirements to specify the compensation committee's authority 
and responsibilities as to compensation advisers as set forth under 
Rule 10C-1. Finally, to help in assuring that companies comply with 
these provisions, Exchange rules will continue to require that the 
compensation committee charter address an annual performance evaluation 
of the compensation committee. Taken as a whole, the Commission 
believes that these changes will strengthen the oversight of executive 
compensation in NYSE-listed companies and further greater 
accountability, and will therefore further the protection of investors 
consistent with Section 6(b)(5) of the Act.
    The Commission believes that the Exchange's proposal, which 
requires the consideration of the additional independence factors for 
compensation committee members, is designed to protect investors and 
the public interest and is consistent with the requirements of Sections 
6(b)(5) and 10C of the Act and Rule 10C-1 thereunder.
    With respect to the Fees Factor of Rule 10C-1, the Exchange 
commentary states when considering the source of a director's 
compensation in determining independence for compensation committee 
service, 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. In addition to the continued application of the NYSE's 
current bright-line tests, NYSE's new rules also require the board to 
consider all relevant factors in making independence determinations for 
compensation committee membership. The Exchange believes that these 
requirements of proposed Section 303A.02(a)(ii) of the Manual, in 
addition to the general director independence requirements, represent 
an appropriate standard for compensation committee independence that is 
consistent with the requirements of Rule 10C-1 and the Fees Factor.
    The Commission believes that the provisions noted above to address 
the Fees Factor give a board broad flexibility to consider a wide 
variety of fees, including any consulting, advisory or other 
compensatory fee paid by the issuer or entity, when considering a 
director's independence for compensation committee service. While the 
Exchange does not bar all compensatory fees, the approach is consistent 
with Rule 10C-1 and provides a basis for a board to prohibit a director 
from being a member of the compensation committee, should the director 
receive compensation that impairs the ability to make independent 
decisions on executive compensation matters, even if that compensation 
does not exceed the threshold in the bright-line test.\152\ The 
Commission, therefore, believes that the proposed compensatory fee 
requirements comply with Rule 10C-1 and are designed to protect 
investors and the public interest, consistent with Section 6(b)(5) of 
the Act. The Commission notes that the compensatory fee consideration 
may help ensure that compensation committee members are less likely to 
have received fees, from either the issuer or another entity, that 
could potentially influence their decisions on compensation matters.
---------------------------------------------------------------------------

    \152\ See supra note 33, setting forth the existing bright-line 
tests.
---------------------------------------------------------------------------

    The Commission recognizes that some commenters did not believe that 
the proposal went far enough because the Exchange did not adequately 
consider the compensation that directors receive for board or committee 
service in formulating its standards of independence for service on the 
compensation committee, and, in particular, the levels to which such 
compensation may rise,\153\ or otherwise favored additional 
requirements.\154\ The Commission notes, however, that to the extent a 
conflict of interest exists because directors set their own 
compensation, companies must disclose director compensation, and 
investors will become aware of excessive or non-customary director 
compensation through this means. In addition, as NYSE states, a 
company's board of directors must consider all relevant factors in 
making compensation committee independence determinations, and if 
director fees could, in the opinion of the board, impair the director's 
independent judgment with respect to compensation-related matters, the 
board could therefore consider director compensation in that 
context.\155\ The Commission believes that, based on the NYSE's 
argument and the disclosure requirements noted above, these arguments 
are sufficient to find that NYSE has complied with the requirements of 
Rule 10C-1 in this regard.
---------------------------------------------------------------------------

    \153\ See AFL-CIO Letter, Brown Letter, and Teamsters Letter, 
maintaining that NYSE's proposal ``falls short'' of the Rule 10C-1 
provision requiring exchanges to consider a director's source of 
compensation. See also supra notes 92-96 and accompanying text. As 
stated by commenters, ``[h]igh director fees relative to other 
sources of income can compromise director objectivity'' and 
``[h]ighly paid directors also may be more inclined to approve large 
executive pay packages.'' AFL-CIO Letter. See also Teamsters Letter.
    \154\ See, e.g., CII Letter.
    \155\ See NYSE Response letter, supra note 6. The Commission 
also notes that in the NYSE Response Letter, the Exchange states 
that to the extent that excessive board compensation might affect a 
director's independence, the new rules would require the board to 
consider that factor in its independence determination.
---------------------------------------------------------------------------

    With respect to the Affiliation Factor of Rule 10C-1, NYSE has 
concluded that an outright bar from service on a company's compensation 
committee of any director with an affiliation with the company, its 
subsidiaries, and their affiliates is inappropriate for compensation 
committees. NYSE's existing independence standards will also continue 
to apply to those directors serving on the compensation committee. NYSE 
maintains that it may be appropriate for certain affiliates, such as 
representatives of significant stockholders, to serve on compensation 
committees as ``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.'' In 
spite of the argument of two commenters in favor of an outright ban on 
affiliations with the company,\156\ the Commission believes that NYSE's 
approach of requiring boards only to consider such affiliations is 
reasonable and consistent with the requirements of the Act.
---------------------------------------------------------------------------

    \156\ See Teamsters Letter and AFL-CIO Letter.
---------------------------------------------------------------------------

    The Commission notes that Congress, in requiring the Commission to 
direct the exchanges to consider the Affiliation Factor, did not 
declare that an absolute bar was necessary. Moreover, as the Commission 
stated in the Rule 10C-1 Adopting Release, ``In establishing their 
independence requirements, the exchanges may determine that, even 
though affiliated directors are not allowed to serve on audit 
committees,

[[Page 4581]]

such a blanket prohibition would be inappropriate for compensation 
committees, and certain affiliates, such as representatives of 
significant shareholders, should be permitted to serve.'' \157\ In 
determining that NYSE's affiliation standard is consistent with 
Sections 6(b)(5) and 10C under the Act, the Commission notes that 
NYSE's proposal requires a company's board, in selecting compensation 
committee members, to consider whether any such affiliation would 
impair a director's judgment as a member of the compensation committee. 
The NYSE rule further states that, in considering affiliate 
relationships, a board should consider whether such affiliate 
relationship places the director under the direct or indirect control 
of the listed company or its senior management such that it would 
impair the ability of the director to make independent judgments on 
executive compensation. We believe that this should give companies the 
flexibility to assess whether a director who is an affiliate, including 
a significant shareholder, should or should not serve on the company's 
compensation committee, depending on the director's particular 
affiliations with the company or its senior management.\158\
---------------------------------------------------------------------------

    \157\ Rule 10C-1 Adopting Release. At the same time, the 
Commission noted that significant shareholders may have other 
relationships with the listed company that would result in such 
shareholders' interests not being aligned with those of other 
shareholders and that the exchanges may want to consider these other 
ties between a listed issuer and a director. While the Exchange did 
not adopt any additional factors, the current affiliation standard 
would still allow a company to prohibit a director whose 
affiliations ``impair his ability to make independent judgment'' as 
a member of the committee. See also supra notes 31-35 and 
accompanying text.
    \158\ The Commission notes that one commenter suggested there 
was ambiguity as to whether boards must consider business or 
personal relationships between directors and senior management. See 
Brown Letter. In response, NYSE noted that its existing independence 
standards require the board to make an affirmative determination 
that there is no material relationship between the director and the 
company which would affect the director's independence. NYSE noted 
that Commentary to Section 303A.02(a) of the Manual explicitly notes 
with respect to the board's affirmative determination of a 
director's independence that the concern is independence from 
management. Consequently, NYSE does not believe that any further 
clarification of this requirement is necessary. See NYSE Response 
Letter.
---------------------------------------------------------------------------

    As to whether NYSE should adopt any additional relevant 
independence factors, the Exchange stated that it reviewed its rules in 
light of Rule 10C-1, and concluded that its existing rules together 
with its proposed rules are sufficient to ensure committee member 
independence. The Commission believes that, through this review, the 
Exchange has complied with the requirement that it consider relevant 
factors, including, but not limited to, the Fees and Affiliation 
Factors in determining its definition of independence for compensation 
committee members. The Commission does not agree with the commenters 
who argued that the Exchange's proposal falls short of ``the 
requirements and/or intent'' of Section 10C of the Act and Rule 10C-1. 
The Commission notes that Rule 10C-1 requires each exchange to consider 
relevant factors in determining independence requirements for members 
of a compensation committee, but does not require the exchange's 
proposal to reflect any such additional factors.
    As noted above, several commenters argued that the proposal should 
require that other ties between directors and the company, including 
business and personal relationships with executives of the company, be 
considered by boards in making independence determinations.\159\ The 
Commission did emphasize in the Rule 10C-1 Adopting Release that ``it 
is important for exchanges to consider other ties between a listed 
issuer and a director * * * that might impair the director's judgment 
as a member of the compensation committee,'' \160\ and noted that ``the 
exchanges might conclude that personal or business relationships 
between members of the compensation committee and the listed issuer's 
executive officers should be addressed in the definition of 
independence.'' However, the Commission did not require exchanges to 
reach this conclusion and thus NYSE's decision that such ties need not 
be included explicitly in its definition of independence does not 
render its proposal insufficient.
---------------------------------------------------------------------------

    \159\ See supra notes 92-102 and accompanying text. As noted 
above, one comment letter refers specifically to NYSE Arca, but 
applies equally to the NYSE proposal.
    \160\ See supra note 11.
---------------------------------------------------------------------------

    In explaining why it did not include, specifically, personal and 
business relationships as a factor, NYSE cites its standards for 
Independent Directors, generally, which require the board of directors 
of a listed issuer to make an affirmative determination that each such 
director has no material relationship with the listed company with 
respect to their independence from management.\161\ All compensation 
committee members must meet the general independence standards under 
NYSE's rules in addition to the two new criteria being adopted herein. 
The Commission therefore expects that boards, in fulfilling their 
obligations, will apply this standard to each such director's 
individual responsibilities as a board member, including specific 
committee memberships such as the compensation committee. Although 
personal and business relationships, related party transactions, and 
other matters suggested by commenters are not specified either as 
bright-line disqualifications or explicit factors that must be 
considered in evaluating a director's independence, the Commission 
believes that compliance with NYSE's rules and the provision noted 
above would demand consideration of such factors with respect to 
compensation committee members, as well as to all Independent Directors 
on the board.
---------------------------------------------------------------------------

    \161\ See Section 303A.02(a) of the Manual. See also NYSE 
Response Letter.
---------------------------------------------------------------------------

    Notwithstanding the concern of some commenters, the Commission 
confirms that Rule 10C-1 does not mean that a director cannot be 
disqualified on the basis of one factor alone. Although NYSE does not 
state this explicitly in its rules, in response to comments, the 
Exchange confirmed that they have interpreted their current rules as 
providing that a single relationship could be sufficiently material 
that it would render a director non-independent. The Commission 
believes that nothing in Rule 10C-1 or in NYSE's current or proposed 
rules implies otherwise.
    Finally, the Commission does not believe that NYSE is required in 
the current proposed rule change to consider further revisions of its 
independence rules as suggested by some commenters, although it may 
wish to do so in the future after it has experience with its rules. The 
Commission notes that the NYSE provision requires a board to further 
exercise appropriate discretion to consider all factors specifically 
relevant in 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. The Commission notes that one commenter 
argues this provision is vague and unnecessary and should be deleted 
from the proposal.\162\ The Commission does not agree with the 
commenter, however, that the consideration of the explicitly enumerated 
factors will be sufficient in all cases to achieve the objectives of 
Section 10C(a)(3), because it is not possible to foresee all possible 
kinds of relationships that might be material to a compensation 
committee member's

[[Page 4582]]

independence. We therefore believe the flexibility provided in NYSE's 
new compensation committee independence standards provides companies 
with guidance, while allowing them to identify those relationships that 
might raise questions of independence for service on the compensation 
committee. For these reasons, we believe the director independence 
standards are consistent with the investor protection provision of 
Section 6(b)(5) of the Act.
---------------------------------------------------------------------------

    \162\ See Corporate Secretaries Letter.
---------------------------------------------------------------------------

B. Authority of Committees to Retain Compensation Advisers; Funding; 
and Independence of Compensation Advisers and Factors

    As discussed above, NYSE proposes to set forth explicitly in its 
rules the requirements of Rule 10C-1 regarding a compensation 
committee's authority to retain compensation advisers, its 
responsibilities with respect to such advisers, and the listed 
company's obligation to provide appropriate funding for payment of 
reasonable compensation to a compensation adviser retained by the 
committee. As such, the Commission believes these provisions meet the 
mandate of Rule 10C-1 \163\ and are consistent with the Act.\164\
---------------------------------------------------------------------------

    \163\ 17 CFR. 240.10C-1.
    \164\ 15 U.S.C. 78j-3.
---------------------------------------------------------------------------

    In addition, the Commission believes that requiring companies to 
specify the enhanced compensation committee responsibilities through 
the compensation committee's written charter will help to assure that 
there is adequate transparency as to the rights and responsibilities of 
compensation committee members. As discussed above, the proposed rule 
change requires the compensation committee of a listed company to 
consider the six factors relating to independence that are enumerated 
in the proposal before selecting a compensation consultant, legal 
counsel or other adviser to the compensation committee. The Commission 
believes that this provision is consistent with Rule 10C-1 and Section 
6(b)(5) of the Act.
    As noted above, one commenter believed that Rule 10C-1 could be 
read as not requiring a compensation committee to consider the 
enumerated independence factors with respect to regular outside legal 
counsel and sought to have NYSE revise its proposal.\165\ This reading 
is incorrect, and NYSE's rule language reflects the appropriate 
reading. The Commission notes that Rule 10C-1 includes an instruction 
that specifically requires a compensation committee to conduct the 
independence assessment with respect to ``any compensation consultant, 
legal counsel or other adviser that provides advice to the compensation 
committee, other than in-house counsel.'' \166\ To avoid any confusion, 
NYSE added rule text that reflects this instruction in its own 
rules.\167\
---------------------------------------------------------------------------

    \165\ See Wilson Sonsini Letter and supra notes 122-127 and 
accompanying text.
    \166\ See Instruction to paragraph (b)(4) of Rule 10C-1.
    \167\ See supra note 46 and accompanying text.
---------------------------------------------------------------------------

    In approving this aspect of the proposal, the Commission notes that 
compliance with the rule requires an independence assessment of any 
compensation consultant, legal counsel, or other adviser that provides 
advice to the compensation committee, and is not limited to advice 
concerning executive compensation. However, NYSE has proposed, in 
Amendment No. 3, to add language to the provision regarding the 
independence assessment of compensation advisers \168\ to state that 
the compensation committee is not required to conduct an independence 
assessment for a compensation adviser that acts in a role limited to 
the following activities for which no disclosure is required under Item 
407(e)(3)(iii) of Regulation S-K: (a) Consulting on any broad-based 
plan that does not discriminate in scope, terms, or operation, in favor 
of executive officers or directors of the company, and that is 
available generally to all salaried employees; and/or (b) providing 
information that either is not customized for a particular issuer or 
that is customized based on parameters that are not developed by the 
adviser, and about which the adviser does not provide advice. NYSE 
states that this exception is based on Item 407(e)(3)(iii) of 
Regulation S-K, which provides a limited exception to the Commission's 
requirement for a registrant to disclose any role of compensation 
consultants in determining or recommending the amount and form of a 
registrant's executive and director compensation.\169\
---------------------------------------------------------------------------

    \168\ See proposed Commentary to Section 303A.05(c), as amended 
by Amendment No. 3.
    \169\ See 17 CFR 229.407(e)(3)(iii).
---------------------------------------------------------------------------

    The Commission views NYSE's proposed exception as reasonable, as 
the Commission determined, when adopting the compensation consultant 
disclosure requirements in Item 407(e)(3)(iii), that the two excepted 
categories of advice do not raise conflict of interest concerns.\170\ 
The Commission also made similar findings when it noted it was 
continuing such exceptions in the Rule 10C-1 Adopting Release, 
including excepting such roles from the new conflict of interest 
disclosure rule required to implement Section 10C(c)(2). The Commission 
also believes that the exception should allay some of the concerns 
raised by the commenters regarding the scope of the independence 
assessment requirement. Based on the above, the Commission believes 
these limited exceptions are consistent with the investor protection 
provisions of Section 6(b)(5) of the Act.
---------------------------------------------------------------------------

    \170\ See Proxy Disclosure Enhancements, Securities Act Release 
No. 9089 (Dec. 19, 2009), 74 FR 68334 (Dec. 23, 2009), at 68348 
(``We are persuaded by commenters who noted that surveys that 
provide general information regarding the form and amount of 
compensation typically paid to executive officers and directors 
within a particular industry generally do not raise the potential 
conflicts of interest that the amendments are intended to 
address.'').
---------------------------------------------------------------------------

    Regarding the belief of another commenter that the independence 
assessment requirement could discourage compensation committees from 
obtaining the advice of advisers,\171\ the Commission notes that, as 
already discussed, nothing in the proposed rule prevents a compensation 
committee from selecting any adviser that it prefers, including ones 
that are not independent, after considering the six factors. In this 
regard, in Amendment No. 3, NYSE added specific rule language stating, 
among other things, that nothing in its rule requires a compensation 
adviser to be independent, only that the compensation committee must 
consider the six independence factors before selecting or receiving 
advice from a compensation adviser.\172\ Regarding the commenter's 
concern over the burdens that the Exchange proposal imposes, the 
Commission notes that Rule 10C-1 explicitly requires exchanges to 
require consideration of these six factors.\173\ Moreover, five of the 
six factors were dictated by Congress itself in the Dodd-Frank Act. As 
previously stated by the Commission in adopting Rule 10C-1, the 
requirement that compensation committees consider the independence of 
potential compensation advisers before they are selected should help 
assure that compensation committees of affected listed companies are 
better informed about potential conflicts, which could reduce the 
likelihood that

[[Page 4583]]

they are unknowingly influenced by conflicted compensation 
advisers.\174\
---------------------------------------------------------------------------

    \171\ See Corporate Secretaries Letter and supra note 130 and 
accompanying text.
    \172\ See supra notes 49-50 and accompanying text.
    \173\ The Commission also does not agree with the argument of 
one commenter that NYSE Arca's substantially similar proposal must 
require compensation committees to specifically consider, among the 
independence factors relating to compensation advisers, whether such 
an adviser requires that clients contractually agree to indemnify or 
limit their liability. See CII Letter. The Commission views as 
reasonable the Exchange's belief that the six factors set forth in 
Rule 10C-1 are sufficient for the required independence assessment.
    \174\ See Rule 10C-1 Adopting Release, supra note 11.
---------------------------------------------------------------------------

    Finally, one commenter requested guidance ``on how often the 
required independence assessment should occur.'' \175\ This commenter 
observed that it ``will be extremely burdensome and disruptive if prior 
to each such [compensation committee] meeting, the committee had to 
conduct a new assessment.'' The Commission anticipates that 
compensation committees will conduct such an independence assessment at 
least annually.
---------------------------------------------------------------------------

    \175\ See Corporate Secretaries Letter.
---------------------------------------------------------------------------

    The changes to NYSE's rules on compensation advisers should 
therefore benefit investors in NYSE-listed companies and are consistent 
with the requirements in Section 6(b)(5) of the Act that rules of the 
exchange further investor protection and the public interest.

C. Application to Smaller Reporting Companies

    The Commission believes that the requirement for Smaller Reporting 
Companies, like all other listed companies, to have a compensation 
committee, composed solely of Independent Directors is reasonable and 
consistent with the protection of investors. The Commission notes that 
NYSE's rules for compensation committees have not made a distinction 
for Smaller Reporting Companies in the past. However, consistent with 
the exemption of Smaller Reporting Companies from Rule 10C-1, the NYSE 
proposal would: (i) Exempt Smaller Reporting Companies from having to 
consider the additional independence requirements as to compensatory 
fees and affiliation; and (ii) exempt their compensation committees 
from having to consider the additional independence factors for 
compensation advisers. Under this approach, Smaller Reporting Companies 
will effectively be subject to the same requirements as is currently 
the case under the existing requirements of the Manual for all 
companies with respect to having a written charter that provides the 
compensation committee with the sole authority and funding for the 
retention of compensation consultants.
    The Commission believes that these provisions are consistent with 
the Act and do not unfairly discriminate between issuers. The 
Commission believes that, for similar reasons to those for which 
Smaller Reporting Companies are exempted from the Rule 10C-1 
requirements, it makes sense for NYSE to provide some flexibility to 
Smaller Reporting Companies. Further, because a Smaller Reporting 
Company does not need to include in its charter the additional 
provision regarding the independence of compensation advisers that NYSE 
is requiring all other listed companies to include to comply with Rule 
10C-1,\176\ and in view of the potential additional costs of such 
review, it is reasonable not to require a Smaller Reporting Company to 
conduct such analysis of compensation advisers.
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    \176\ As discussed supra notes 56-57 and accompanying text, the 
charter of a Smaller Reporting Company will not be required to 
include, like the charters of other listed companies, a requirement 
that the committee consider independence factors before selecting 
such advisers, because Smaller Reporting Companies are not subject 
to that requirement.
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D. Opportunity To Cure Defects

    Rule 10C-1 requires the rules of an exchange to provide for 
appropriate procedures for a listed issuer to have a reasonable 
opportunity to cure any defects that would be the basis for the 
exchange, under Rule 10C-1, to prohibit the issuer's listing. Rule 10C-
1 also specifies that, with respect to the independence standards 
adopted in accordance with the requirements of the Rule, an exchange 
may provide a cure period until the earlier of the next annual 
shareholders meeting of the listed issuer or one year from the 
occurrence of the event that caused the member to be no longer 
independent.
    The Commission notes that the cure period that NYSE proposes for 
companies that fail to comply with the enhanced independence 
requirements designed to comply with Rule 10C-1 is the same as the cure 
period suggested under Rule 10C-1, but NYSE limits the cure period's 
use to circumstances where the committee continues to have a majority 
of independent directors, as NYSE believes this would ensure that the 
applicable committee could not take an action without the agreement of 
one or more independent directors. The Commission believes that the 
accommodation, including the proposed period and limitation, although 
it gives a company less leeway in certain circumstances than the cure 
period provided as an option by Rule 10C-1, is fair and reasonable and 
consistent with investor protection under Rule 6(b)(5) by ensuring that 
a compensation committee cannot take action without a majority of 
independent directors even when a member ceases to be independent and 
the committee is entitled to a period to cure that situation.
    The Commission agrees with the understanding of the commenter who 
believed that Rule 10C-1 requires that an exchange provide a company an 
opportunity to cure any defects in compliance with any of the new 
requirements. The Commission believes that NYSE's general due process 
procedures for the delisting of companies that are out of compliance 
with the Exchange's rules satisfy this requirement. For example, NYSE's 
rules provide that, unless continued listing of the company raises a 
public interest concern, when a company is deficient in compliance with 
listing standards, the Exchange will provide the company with an 
opportunity to provide NYSE with a plan of definitive action the 
company has taken, or is taking, that would bring it into conformity 
with continued listing standards within 18 months of receipt of a 
notice of a deficiency.\177\
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    \177\ See supra text accompanying notes 137-138. See also NYSE 
Response Letter, supra note 6.
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    The Commission believes that these general procedures for companies 
out of compliance with listing requirements, in addition to the 
particular cure provisions for failing to meet the new independence 
standards, adequately meet the mandate of Rule 10C-1 and also are 
consistent with investor protection and the public interest, since they 
give a company a reasonable time period to cure non-compliance with 
these important requirements before they will be delisted.\178\
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    \178\ The Commission notes that the general procedures to cure 
non-compliance adequately address the comments made in the Corporate 
Secretaries Letter.
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E. Exemptions

    The Commission believes that it is appropriate for NYSE to exempt 
from the new requirements established by the proposed rule change the 
same categories of issuers that are exempt from its existing standards 
for oversight of executive compensation for listed companies. Although 
Rule 10C-1 does not explicitly exempt some of these categories of 
issuers from its requirements, it does grant discretion to exchanges to 
provide additional exemptions. NYSE states that the reasons it adopted 
the existing exemptions apply equally to the new requirements, and the 
Commission believes that this assertion is reasonable.
    NYSE proposed to exempt limited partnerships, companies in 
bankruptcy proceedings and open-end management investment companies 
that are registered under the Investment Company Act from all of the 
requirements of Rule 10C-1. The

[[Page 4584]]

Commission believes such exemptions are reasonable, and notes that such 
entities, which were already generally exempt from NYSE's existing 
compensation committee requirements, also are exempt from the 
compensation committee independence requirements specifically under 
Rule 10C-1. NYSE also proposes to exempt closed-end management 
investment companies registered under the Investment Company Act from 
the requirements of Rule 10C-1. The Commission believes that this 
exemption is reasonable because the Investment Company Act already 
assigns important duties of investment company governance, such as 
approval of the investment advisory contract, to independent directors, 
and because such entities were already generally exempt from NYSE's 
existing compensation committee requirements. The Commission notes 
that, as one commenter stated, typically registered investment 
companies do not employ executives or employees or have compensation 
committees. The Commission notes that the existing language of these 
exemptive provisions is not changed, but that the provisions, which go 
beyond Rule 10C-1's exemptions, are consistent with Rule 10C-1.
    The Commission further believes that other proposed exemption 
provisions relating to controlled companies,\179\ asset-backed issuers 
and other passive issuers, and issuers whose only listed equity stock 
is a preferred stock are reasonable, given the specific characteristics 
of these entities. As noted by the Exchange, many of these issuers are 
externally managed and do not directly employ executives; do not, by 
their nature, have employees, or have executive compensation policy set 
by a body other than their board.
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    \179\ The Commission notes that controlled companies are 
provided an automatic exemption from the application of the entirety 
of Rule 10C-1 by Rule 10C-1(b)(5).
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    The NYSE proposal would continue to permit foreign private issuers 
to follow home country practice in lieu of the provisions of the new 
rules, without requiring any further disclosure from such entities. The 
Commission believes that granting exemptions to foreign private issuers 
in deference to their home country practices with respect to 
compensation committee practices is appropriate, and believes that the 
existing disclosure requirements will help investors determine whether 
they are satisfied with the alternative standard. The Commission notes 
that such entities are exempt from the compensation committee 
independence requirements of Rule 10C-1 to the extent such entities 
disclose in their annual reports the reasons they do not have 
independent compensation committees.

F. Transition to the New Rules for Companies Listed as of the Effective 
Date

    The Commission believes that the deadlines for compliance with the 
proposal's various provisions are reasonable and should afford listed 
companies adequate time to make the changes, if any, necessary to meet 
the new standards. The Commission believes that the deadline proposed 
is clear-cut and matches the revised deadline set forth by The NASDAQ 
Stock Market.\180\ Accordingly, the deadline gives companies until the 
earlier of their first annual meeting after January 15, 2014, or 
October 31, 2014, to comply with the remaining provisions.\181\
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    \180\ See Amendment No. 1 to File No. SR-NASDAQ-2012-109; see 
also Securities Exchange Act Release No. 68013 (October 9, 2012), 77 
FR 62563 (October 15, 2012) (Notice of File No. SR-NASDAQ-2012-109).
    \181\ The proposal is, however, otherwise effective on July 1, 
2013, and issuers will be required to comply with the new 
compensation committee charter and adviser requirements as of that 
date. As noted above, certain existing issuers, such as smaller 
reporting companies, are exempt from compliance with the new 
independence requirement with respect to compensation committee 
service.
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G. Compliance Schedules: IPOs; Companies That Lose Their Exemptions; 
Companies Transferring From Other Markets

    The Commission believes that it is reasonable for NYSE to allow, 
with respect to IPOs, companies listing in conjunction with a carve-out 
or spin-off transaction, companies emerging from bankruptcy, companies 
ceasing to be controlled companies, companies ceasing to qualify as a 
foreign private issuer, and companies transferring from other markets, 
the same phase-in schedule for compliance with the new requirements as 
is permitted under its current compensation-related rules.
    The Commission also believes that the compliance schedule for 
companies that cease to be Smaller Reporting Companies, as revised in 
Amendment No. 3, affords such companies ample time to come into 
compliance with the full panoply of rules that apply to other 
companies. In the Commission's view, the revised schedule also offers 
such companies more clarity in determining when they will be subject to 
the heightened requirements.

V. Accelerated Approval of Amendment No. 3 to the Proposed Rule Change

    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Act,\182\ for approving the proposed rule change, as modified by 
Amendment Nos. 1 and 3, prior to the 30th day after the date of 
publication of notice in the Federal Register.
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    \182\ 15 U.S.C. 78s(b)(2).
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    The change made to the proposal by Amendment No. 3 to change a 
reference from Item 10(f)(1) of Regulation S-K to a reference to 
Exchange Act Rule 12b-2 is not a substantive one and merely references 
an otherwise identical definition.
    The revision made by Amendment No. 3 to the compliance rules for 
companies that cease to be Smaller Reporting Companies \183\ 
establishes a schedule that is easier to understand, while still 
affording such companies adequate time to come into compliance with the 
applicable requirements. The Commission notes that the Start Date of 
the compliance period for such a company is six months after the 
Smaller Reporting Company Determination Date, and the company is given 
no less than another six months from the Start Date to gain compliance 
with the rules from which it had been previously exempt. As originally 
proposed a Smaller Reporting Company had to comply within six months of 
the Smaller Reporting Company Determination Date, and for the adviser 
assessment at the Smaller Reporting Company Determination Date. The 
Commission believes the amendments to the transitions for issuers that 
lose their status as a Smaller Reporting Company will afford such 
companies additional time to comply and avoid issues involving 
inadvertent non-compliance because of the provision that originally 
applied immediately on the Smaller Reporting Company Determination 
Date. The amendments also provide additional clarity on when the time 
frames commence, and as such the Commission believes good cause exists 
to accelerate approval.
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    \183\ See supra notes 70-73 and accompanying text.
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    The change to commentary made by Amendment No. 3 to exclude 
advisers that provide only certain types of services from the 
independence assessment is also appropriate. As discussed above, the 
Commission has already determined to exclude such advisers from the 
disclosure requirement regarding compensation advisers in Regulation S-
K because these types of services do not raise

[[Page 4585]]

conflict of interest concerns. Finally, the addition of further 
guidance by Amendment No. 3 merely clarifies that nothing in the 
Exchange's rules requires a compensation adviser to be independent, 
only that the compensation committee consider the independence factors 
before selecting or receiving advice from a compensation adviser, and 
is not a substantive change, as it was the intent of the rule as 
originally proposed.
    For all the reasons discussed above, the Commission finds good 
cause to accelerate approval of the proposed changes made by Amendment 
No. 3.

VI. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing and whether Amendment No. 3 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 of NYSE. 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 February 12, 
2013.

VII. Conclusion

    In summary, and for the reasons discussed in more detail above, the 
Commission believes that the rules being adopted by NYSE, taken as 
whole, should benefit investors by helping listed companies make 
informed decisions regarding the amount and form of executive 
compensation. NYSE's new rules will help to meet Congress's intent that 
compensation committees that are responsible for setting compensation 
policy for executives of listed companies consist only of independent 
directors.
    NYSE's rules also, consistent with Rule 10C-1, require compensation 
committees of listed companies to assess the independence of 
compensation advisers, taking into consideration six specified factors. 
This should help to assure that compensation committees of NYSE-listed 
companies are better informed about potential conflicts when selecting 
and receiving advice from advisers. Similarly, the provisions of NYSE's 
standards that require compensation committees to be given the 
authority to engage and oversee compensation advisers, and require the 
listed company to provide for appropriate funding to compensate such 
advisers, should help to support the compensation committee's role to 
oversee executive compensation and help provide compensation committees 
with the resources necessary to make better informed compensation 
decisions.
    For the foregoing reasons, the Commission finds that the proposed 
rule change, SR-NYSE-2012-49, as modified by Amendment Nos. 1 and 3, is 
consistent with the Act and the rules and regulations thereunder 
applicable to a national securities exchange, and, in particular, with 
Section 6(b)(5) of the Act.\184\
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    \184\ 15 U.S.C. 78f(b)(5).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\185\ that the proposed rule change, SR-NYSE-2012-49, as modified 
by Amendment Nos. 1 and 3, be, and it hereby is, approved.
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    \185\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\186\
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    \186\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-01106 Filed 1-18-13; 8:45 am]
BILLING CODE 8011-01-P


