
[Federal Register Volume 78, Number 15 (Wednesday, January 23, 2013)]
[Notices]
[Pages 4910-4914]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-01281]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68662; File No. SR-NSX-2012-15]


Self-Regulatory Organizations; National Stock Exchange, Inc.; 
Order Granting Approval of Proposed Rule Change as Modified by 
Amendment No. 1 To Amend the Listing Rules for Compensation Committees 
To Comply With Rule 10C-1 Under the Act

January 15, 2013.

I. Introduction

    On September 26, 2012, National Stock Exchange, Inc. (``NSX'' 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. 
On October 10, 2012, NSX filed Amendment No. 1 to the proposed rule 
change.\3\ The proposed rule change, as modified by Amendment No. 1 
thereto, was published for comment in the Federal Register on October 
17, 2012.\4\ 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.\5\ The 
Commission received no comment letters on the proposed rule change.\6\ 
This order approves the proposed rule change, as modified by Amendment 
No. 1 thereto.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 replaced the filing in its entirety.
    \4\ See Securities Exchange Act Release No. 68039 (October 11, 
2012), 77 FR 63914 (``Notice'').
    \5\ See Securities Exchange Act Release No. 68313 (November 28, 
2012), 77 FR 71853 (December 4, 2012).
    \6\ The Commission notes that comments were received on 
substantially similar proposals filed by the Nasdaq Stock Market LLC 
(Nasdaq) and the New York Stock Exchange, LLC (``NYSE''). For a 
summary and discussion of these comments see Securities Exchange Act 
Release Nos. 68640 (January 11, 2013) (``Nasdaq Approval Order'') 
and 68639 (January 11, 2013) (``NYSE Approval Order'').
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II. Description of 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''),\7\ the Commission proposed 
Rule 10C-1 under the Act,\8\ 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.\9\
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    \7\ Public Law 111-203, 124 Stat. 1900 (2010).
    \8\ 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'').
    \9\ 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 \10\ of 
a listed issuer must be a member of the board of directors of the 
issuer, and must otherwise be independent.\11\ 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'').\12\
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    \10\ For a definition of the term ``compensation committee'' for 
purposes of Rule 10C-1, see Rule 10C-1(c)(2)(i)-(iii).
    \11\ See Rule 10C-1(a) and (b)(1).
    \12\ 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.\13\ 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

[[Page 4911]]

compensation adviser retained by the compensation committee.\14\ 
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,\15\ as well as any 
other factors identified by the relevant exchange in its listing 
standards.\16\
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    \13\ See Rule 10C-1(b)(2).
    \14\ See Rule 10C-1(b)(3).
    \15\ See Rule 10C-1(b)(4). The six factors, which NSX proposes 
to set forth explicitly in its rules, are specified in the text 
accompanying note 29, infra.
    \16\ 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. See 
also infra note 34 and accompanying text.
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B. NSX's Proposed Rule Change, as Amended

    To comply with Rule 10C-1, NSX proposes to amend several provisions 
of NSX Rule 15.5(d), ``Listed Company Corporate Governance 
Requirements.'' \17\ Specifically, the Exchange proposes to amend NSX 
Rule 15.5(d)(5), relating to compensation committees.
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    \17\ The proposal also amends NSX Rule 15.5(b), to set forth a 
transition period for companies to comply with the new requirements. 
See infra note 22 and accompanying text.
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1. Independence of Compensation Committee Members
    NSX's rules currently require each issuer listed on the Exchange to 
have a compensation committee \18\ composed entirely of ``independent 
directors'' as defined in NSX's Rules.\19\ 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.
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    \18\ The proposed NSX Rule change sets forth the following 
definition of ``compensation committee'' for purposes of its 
compensation-related rules: ``A committee that oversees executive 
compensation, whether or not such committee also performs other 
functions or is formally designated as a compensation committee.'' 
See proposed NSX Rule 15.5(f).
    \19\ ``Independent directors,'' as defined in NSX Rule 
15.5(d)(2) and used herein, includes a two-part test for 
independence. The definition sets forth five specific categories of 
directors who cannot be considered independent because of certain 
discrete relationships (``the bright-line tests''). In addition, no 
director qualifies as ``independent'' unless the board of directors 
affirmatively determines that the director has no material 
relationship with the listed company (either directly or as a 
partner, shareholder or officer of an organization that has a 
relationship with the company).
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    To comply with this requirement, NSX proposes to amend its rules to 
provide that, for purposes of determining the independence of a member 
of its compensation committee, a listed company must consider the 
following factors: (i) The source of compensation of a member of the 
committee, including any consulting, advisory or other compensatory fee 
paid by the listed company to such member; and (ii) whether the member 
of the committee is affiliated with the listed company, a subsidiary of 
the listed company or an affiliate of a subsidiary of the listed 
company.\20\ The Exchange believes this requirement will benefit 
investors by ensuring that the members of committees that oversee 
executive compensation are not subject to conflicts of interest.\21\
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    \20\ See infra note 34 and accompanying text describing a cure 
period proposed by NSX, under certain conditions, for a situation in 
which a member of the committee ceases to be independent.
    \21\ See Notice, supra note 4.
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    The proposed rules provide a transition period for companies to 
comply with these independence standards. Listed companies will have 
until the earlier of their first annual meeting after January 15, 2014, 
or October 31, 2014, to comply with these requirements.\22\
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    \22\ See proposed amendment to NSX Rule 15.5(b).
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2. Authority of Committees To Retain Compensation Advisers; 
Independence of Compensation Advisers; and Funding
    NSX's rules currently provide that the compensation committee of a 
listed company must have a written charter that addresses the 
committee's purpose and responsibilities, and sets forth the direct 
responsibilities that the committee must have as a minimum.\23\ To 
comply with the requirements of Rule 10C-1 regarding the authority to 
retain compensation advisers \24\ and the independence of such 
advisers,\25\ NSX proposes that the compensation committee's charter 
must also include the responsibilities to: retain or obtain the advice 
of compensation consultants, independent legal counsel and other 
compensation advisers as determined in its sole discretion; \26\ to 
appoint, compensate and oversee the work of any compensation 
consultant, independent legal counsel and other adviser that the 
committee retains; \27\ and to select a compensation consultant, 
independent legal counsel or other adviser to the committee only after 
considering six enumerated factors that may affect the independence of 
the compensation adviser.\28\
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    \23\ See NSX Rule 15.5(d)(5)(b).
    \24\ See supra text accompanying note 13, relating to Rule 10C-
1(b)(2).
    \25\ See supra text accompanying note 15, relating to Rule 10C-
1(b)(4).
    \26\ See proposed NSX Rule 15.5(d)(5)(b)(i)(D).
    \27\ See proposed NSX Rule 15.5(d)(5)(b)(i)(E).
    \28\ See proposed NSX Rule 15.5(d)(5)(b)(i)(F).
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    The factors are: (i) The provision of other services to the issuer 
by the person that employs the compensation consultant, independent 
legal counsel or adviser; (ii) the amount of fees received from the 
issuer by the person that employs the compensation consultant, 
independent legal counsel or other adviser, as a percentage of the 
employer's total revenue; (iii) the policies and procedures of the 
person that employs the compensation consultant, independent legal 
counsel or other adviser that are designed to prevent conflicts of 
interest; (iv) any business or personal relationship of the 
compensation consultant, independent legal counsel or other adviser 
with a member of the compensation committee; (v) any stock of the 
issuer owned by the compensation consultant, independent legal counsel 
or other adviser; and (vi) any business or personal relationship of the 
compensation consultant, independent legal counsel, other adviser or 
person employing the adviser with an executive officer of the 
issuer.\29\
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    \29\ See proposed NSX Rule 15.5(d)(5)(b)(i)(F)(1)-(6).
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    To comply with Rule 10C-1's requirement with respect to funding of 
compensation advisers engaged by compensation committees,\30\ NSX 
proposes to add a provision to its rules stating that listed companies 
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.\31\
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    \30\ See supra note 14 and accompanying text.
    \31\ See proposed NSX Rule 15.5(d)(5)(c).
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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.\32\ Consistent with 
this Rule 10C-1 provision, NSX proposes to exempt smaller reporting 
companies, as defined in Rule 12b-2 under the Act (hereinafter, 
``Smaller Reporting Companies'') from compliance with the proposed new 
independence standards

[[Page 4912]]

with respect to compensation committee service.\33\
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    \32\ See Rule 10C-1(b)(5)(ii).
    \33\ See proposed NSX Rule 15.5(e).
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    Under the proposal, a company that ceases to be a Smaller Reporting 
Company will be allowed six months from the date that the company tests 
its status as such a company (``Smaller Reporting Company Determination 
Date'') to meet the independence standards applicable to compensation 
committees. However, the compensation committee will be required to 
comply with the rule requiring an independence assessment of 
compensation consultants and other advisers that it retains as of the 
Smaller Reporting Company Determination Date.
4. Opportunity To Cure Defects
    Rule 10C-1 requires that an exchange's rules must provide for 
appropriate procedures for a listed issuer to have a reasonable 
opportunity to cure any defects in the issuer's compliance with the 
Rule, and provides a specific cure period that may be used by an 
exchange, under certain conditions, when a member of a compensation 
committee ceases to be independent.\34\ NSX's proposal states that 
listed companies that fail to comply with the requirements of the 
Exchange's compensation-related rules will be subject to the delisting 
procedures set forth in Rule 15.7 of the Exchange's rules, ``Suspension 
and/or Delisting by Exchange,'' unless the deficiencies are cured 
within 45 days from the date of notification by the Exchange. With 
respect to the rules specifically regarding the independence of 
compensation committee members, however, NSX proposes to allow the cure 
period permitted by Rule 10C-1: If a member of the compensation 
committee ceases to be independent for reasons outside of the member's 
control, that person, with notice by the listed company to the 
Exchange, may remain a member of the 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.
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    \34\ See Rule 10C-1(a)(3).
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5. Exemptions
    The Exchange proposes that its existing exemptions from its 
compensation-related listing rules remain unchanged. The Exchange's 
current listing rules provide exemptions for: controlled companies; 
limited partnerships and companies in bankruptcy; closed-end and open-
end funds registered under the Investment Company Act of 1940 Act 
(``the 1940 Act''); passive business organizations in the form of 
trusts (such as royalty trusts); derivatives and special purpose 
securities; and issuers whose only listed equity security is a 
preferred stock.\35\
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    \35\ See NSX Rule 15.5(a)(1).
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    The Exchange states that these categories of issuers typically: (i) 
Are externally managed and do not directly employ executives (e.g., 
limited partnerships that are managed by their general partner or 
closed-end funds managed by an external investment adviser); (ii) do 
not by their nature have employees (e.g., passive business 
organizations in the form of trusts or issuers of derivative or special 
purpose securities); or (iii) have executive compensation policy set by 
a body other than the board (e.g., bankrupt companies have their 
executive compensation determined by the bankruptcy court). The 
Exchange states that, in light of these structural differences, which, 
it states, are the reasons why these categories of issuers generally do 
not have compensation committees, it 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.
    The Exchange currently does not require issuers whose only listed 
security is a preferred stock to comply with NSX Rule 15.5. The 
Exchange proposes to continue to exempt these issuers from compliance 
with the proposed amended rule. The Exchange believes this approach is 
appropriate because holders of listed preferred stock have 
significantly greater protections with respect to their rights to 
receive dividends and a liquidation preference upon dissolution of the 
issuer, and preferred stocks are typically regarded by investors as a 
fixed income investment comparable to debt securities, the issuers of 
which are exempt from compliance with Exchange Act Rule 10C-1.

III. Discussion

    After careful review, the Commission finds that the NSX proposal, 
as amended, is consistent with the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\36\ In 
particular, the Commission finds that the amended proposed rule change 
is consistent with the requirements of Section 6(b) of the Act,\37\ as 
well as with Section 10C of the Act \38\ and Rule 10C-1 thereunder.\39\ 
Specifically, the Commission finds that the proposed rule change, as 
amended, is consistent with Section 6(b)(5) of the Act,\40\ 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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    \36\ In approving the NSX proposed NSX Rule change, as amended, 
the Commission has considered its impact on efficiency, competition 
and capital formation. 15 U.S.C. 78c(f).
    \37\ 15 U.S.C. 78f(b).
    \38\ 15 U.S.C. 78j-3.
    \39\ 17 CFR 240.10C-1.
    \40\ 15 U.S.C. 78f(b)(5).
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    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 NSX 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,\41\ Congress resolved to require that ``board 
committees that set compensation policy will consist only of directors 
who are independent.'' \42\ 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

[[Page 4913]]

requirements regarding issuer compensation committees and compensation 
advisers.
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    \41\ See supra note 7.
    \42\ 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).
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    In response, NSX submitted the proposed rule change, which includes 
rules intended to comply with the requirements of Rule 10C-1. 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.

A. Independence of Compensation Committee Members

    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. 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. 
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).'' \43\
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    \43\ As explained further in the Rule 10C-1 Adopting Release, 
prior to final approval, the Commission will consider whether the 
exchanges' proposed changes are consistent with the requirements of 
Section 6(b) and Section 10C of the Exchange Act.
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    The enhanced independence standards proposed by NSX specifically 
require that, when evaluating the independence of a director 
responsible for determining executive compensation, a company's board 
of directors must consider the following factors: (i) the source of 
compensation of the director, including consulting, advisory or other 
compensatory fee paid by the company to the director; and (ii) whether 
the director is affiliated with the company, a subsidiary of the 
company, or an affiliate of a subsidiary of the company, in accordance 
with the requirements of Rule 10C-1(b)(1).\44\
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    \44\ As noted above, NSX rules require all listed companies to 
have a compensation committee, and the proposal adds that a 
compensation committee means a committee that oversees executive 
compensation, whether or not such committee also performs other 
functions or is formally designated as a compensation committee. 
This definition of compensation committee is consistent with Section 
6(b)(5) of the Act and should give companies flexibility while 
continuing to ensure that a structured committee is overseeing 
executive compensation.
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    The Commission believes that by incorporating these independence 
standards, the Exchange has complied with the independence requirements 
of Rule 10C-1(b)(1), and that the proposed independence requirements, 
which are designed to protect investors and the public interest, are 
consistent with the requirements of Section 6(b)(5) of the Act. The 
Commission believes that the enhanced standards, in conjunction with 
the Exchange's existing general and ``bright line'' independence 
standards,\45\ are sufficiently broad to encompass the types of 
relationships which would generally be material to a director's 
independence for determining executive compensation.
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    \45\ See supra note 19.
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B. Authority of Committees To Retain Compensation Advisers; 
Independence of Compensation Advisers; and Funding

    As discussed above, NSX proposes to require its listed companies to 
include provisions in the charters of their compensation committees 
that reflect the provisions of Rule 10C-1 setting forth the authority 
that must be given to compensation committees to retain compensation 
advisers, the responsibilities of compensation committees regarding the 
appointment, compensation, and oversight of such advisers, and the 
requirement that compensation committees assess the independence of 
such advisers. NSX further proposes, in accordance with Rule 10C-1, to 
require listed companies 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 and are consistent with the Act.
    In approving these provisions, 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. 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,'' \46\ and thus 
requires an independence assessment with respect to regular outside 
legal counsel.
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    \46\ See Instruction to paragraph (b)(4) of Rule 10C-1.
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    As noted above, 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 the six factors set forth in Rule 10C-1 
\47\ regarding independence assessments of compensation advisers, which 
will be set forth in detail in NSX's rules. Codifying the comprehensive 
list of factors, as set forth in Rule 10C-1, into the Exchange's own 
rules will ensure that issuers adequately assess the independence of 
potential compensation advisers.
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    \47\ See Rule 10C-1(b)(4).
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    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. As it has stated elsewhere, the 
Commission anticipates that compensation committees will conduct such 
an independence assessment at least annually.\48\
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    \48\ See NYSE Approval Order and Nasdaq Approval Order, supra 
note 6.
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C. Application to Smaller Reporting Companies

    As noted by NSX, Rule 10C-1 provides that the requirements 
established by the rule shall not apply to any smaller reporting 
company. As such, the Commission believes that the Exchange's proposed 
exemption of Smaller Reporting Companies from the new requirements 
comports with Rule 10C-1 and is consistent with the Act. As noted in 
the Commission's Rule 10C-1 Adopting Release, exempting Smaller 
Reporting Companies from the requirements mandated by Rule 10C-1 could 
offer cost savings to such companies.

[[Page 4914]]

D. Opportunity To Cure Defects

    NSX proposes, generally, to allow listed companies that fail to 
comply with the compensation-related rules 45 days from the date of 
notification by the Exchange to cure any deficiency. If the deficiency 
is not cured by this time, the company will be subject to the delisting 
procedures set forth in the Exchange's rules regarding suspension and 
delisting. With respect, specifically, to the independence requirements 
for compensation committee members, the Exchange proposes to provide 
the cure period permitted by Rule 10C-1 for these rules.
    The Commission notes that NSX's rules relating to delisting 
procedures require the Exchange to provide: (1) Notice to the issuer of 
the Exchange's decision to delist the issuer's securities; (2) an 
opportunity for the issuer to file an appeal pursuant to the Exchange's 
rules governing adverse actions; (3) public notice, no fewer than ten 
days before the delisting becomes effective, of the Exchange's final 
determination to delist the security via a press release and posting on 
the Exchange's Web site; and (4) the prompt delivery to the issuer of a 
copy of the form that the Exchange filed with the Commission, as 
required, upon its institution of proceedings to delist the issuer's 
security.\49\
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    \49\ See NSX Rule 15.7.
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    The Commission believes that NSX's proposed grant of 45 days to a 
company that fails to meet the new standards (other than the 
independence requirements) before instituting the Exchange's general 
procedures for companies out of compliance with its listing 
requirements, as well as the particular cure period it proposes to 
provide to a company that fails to meet the new independence standards, 
adequately meet the mandate of Rule 10C-1. The Commission believes that 
these cure provisions 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.

E. Exemptions

    As NSX notes, its existing rules relating to compensation afford an 
exemption to controlled companies, limited partnerships, companies in 
bankruptcy, closed-end and open-end funds registered under the 1940 
Act, passive business organizations in the form of trusts (such as 
royalty trusts), derivatives and special purpose securities as 
described above, and issuers whose only listed equity security is a 
preferred stock. The Exchange proposes to extend the exemptions for 
these entities to the new requirements of the proposed rule change.
    The Commission notes that Rule 10C-1 allows exchanges to exempt 
from the listing rules adopted pursuant to Rule 10C-1 certain 
categories of issuers, as the national securities exchange determines 
is appropriate.\50\ The Commission believes that, given the specific 
characteristics of the aforementioned types of issuers,\51\ it is 
reasonable and consistent with Section 6(b)(5) of the Act for the 
Exchange to extend their existing exemptions from the new requirements.
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    \50\ The Commission notes, moreover, that, in the case of 
limited partnerships and open-end funds registered under the 1940 
Act, Rule 10C-1 itself provides exemptions from the independence 
requirements of the Rule. 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).
    \51\ See supra Section II.B.5.
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IV. Conclusion

    In summary, and for the reasons discussed in more detail above, the 
Commission believes that the rules being adopted by NSX, taken as 
whole, should benefit investors by helping listed companies make 
informed decisions regarding the amount and form of executive 
compensation. NSX'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.
    NSX'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 NSX-listed 
companies are better informed about potential conflicts when selecting 
and receiving advice from advisers. Similarly, the provisions of NSX'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, as modified by Amendment No. 1, 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.\52\
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    \52\ 15 U.S.C. 78f(b)(5).
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    It is therefore ordered, pursuant to Section 19(b)(2) \53\ of the 
Act, that the proposed rule change, SR-NSX-2012-15, as modified by 
Amendment No. 1, is approved.
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    \53\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\54\
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    \54\ 17 CFR 200.30-3(a)(12).

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-01281 Filed 1-22-13; 8:45 am]
BILLING CODE 8011-01-P


