
[Federal Register Volume 78, Number 24 (Tuesday, February 5, 2013)]
[Notices]
[Pages 8203-8205]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-02423]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68766; File No. SR-CBOE-2012-116]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Granting Approval to a Proposed Rule Change 
Relating to Bylaw and Other Changes Concerning the Board of Directors 
of the Exchange

January 30, 2013.

I. Introduction

    On November 30, 2012, the Chicago Board Options Exchange, 
Incorporated (``Exchange'' or ``CBOE'') 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 amend its Bylaws concerning 
the nomination of Representative Directors, petition candidates, and 
the size of the

[[Page 8204]]

Exchange's Board of Directors (``Board''), and to make conforming 
changes to the CBOE Certificate of Incorporation. On December 19, 2012, 
the proposed rule change was published for comment in the Federal 
Register.\3\ The Commission received no comments on the proposed rule 
change. This order grants approval to the proposed rule change.
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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. 68428 (December 13, 
2012), 77 FR 75230 (``Notice'').
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II. Description of the Proposed Rule Change

Compositional Requirements Determined by the Board

    In December of 2011, CBOE amended its Bylaws and Certificate of 
Incorporation to, among other things: (i) eliminate the requirement 
that its Board of Directors be composed of at least 30% Industry 
Directors, and (ii) eliminate the requirement in Section 3.2 of the 
Bylaws that the Representative Directors must be Industry Directors.\4\ 
In connection with these changes, CBOE also amended Section 3.1 of the 
Bylaws to provide that: ``[T]he Board shall determine from time to time 
pursuant to resolution adopted by the Board the total number of 
directors, the number of Non-Industry Directors and Industry Directors 
(if any), and the number of Representative Directors that are Non-
Industry Directors and Industry Directors (if any).'' \5\
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    \4\ See Securities Exchange Act Release Nos. 65682 (November 3, 
2011), 76 FR 69780 (November 9, 2011) (SR-CBOE-2011-099) (noticing 
for comment); and 65980 (December 15, 2011), 76 FR 79252 (December 
21, 2011) (approving SR-CBOE-2011-099).
    \5\ See CBOE Bylaw 3.1. See also Securities Exchange Act Release 
Nos. 65682 (November 3, 2011), 76 FR 69780 at (November 9, 2011) 
(SR-CBOE-2011-099) (noticing for comment).
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    CBOE proposed to amend the Bylaws to expressly provide that any 
person nominated by the Representative Director Nominating Body \6\ and 
any petition candidate nominated pursuant to the Section 3.2 of the 
Bylaws must satisfy the compositional requirements determined by the 
Board pursuant to a resolution adopted by the Board in accordance with 
Section 3.1 designating the number of Representative Directors that are 
Non-Industry Directors and Industry Directors (if any). CBOE also 
proposed to amend Section 3.5 of the Bylaws relating to the filling of 
vacancies on the Board to provide that the Representative Director 
Nominating Body may only recommend individuals to fill a vacancy in a 
Representative Director position who satisfy those same compositional 
requirements.
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    \6\ The Exchange noted that at all times at least 20% of the 
directors serving on the Board would be Representative Directors 
nominated by the Representative Director Nominating Body as provided 
in Section 3.2 of the Bylaws (or otherwise selected through the 
petition process). See Notice, supra note 3, at 75230.
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Board Size Range

    Currently, the Bylaws provide that the Board shall consist of not 
less than 11 and not more than 23 directors. CBOE proposed to change 
the Board size range such that the Board would consist of not less than 
12 and not more than 16 directors.

Conforming Amendments to Certificate of Incorporation

    Finally, CBOE proposed to make conforming changes to its 
Certificate of Incorporation and to include in its Certificate of 
Incorporation that the Board and/or Nominating and Governance 
Committee, as applicable, shall make determinations as to whether a 
director candidate satisfies applicable qualifications for election as 
a director pursuant to and in accordance with Section 3.1 of the 
Exchange's Bylaws, which is nearly identical to the current provisions 
in the Exchange's existing Bylaws.

III. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange.\7\ 
In particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(1) of the Act,\8\ which requires a 
national securities exchange to be so organized and have the capacity 
to carry out the purposes of the Act and to enforce compliance by its 
members and persons associated with its members with the provisions of 
the Act; Section 6(b)(3) of the Act,\9\ which requires that the rules 
of a national securities exchange assure the fair representation of its 
members in the selection of its directors and administration of its 
affairs, and provide that one or more directors shall be representative 
of issuers and investors and not be associated with a member of the 
exchange, broker, or dealer (the ``fair representation requirement''); 
and Section 6(b)(5) of the Act,\10\ in that it is 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.
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    \7\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f(b)(1).
    \9\ 15 U.S.C. 78f(b)(3).
    \10\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the Exchange's proposal to expressly 
provide that any person nominated by the Representative Director 
Nominating Body \11\ and any petition candidate nominated pursuant to 
the Section 3.2 of the Bylaws must satisfy the compositional 
requirements determined by the Board pursuant to a resolution adopted 
by the Board in accordance with Section 3.1 of the Bylaws, as well as 
the proposal to amend Section 3.5 of the Bylaws to provide that the 
Representative Director Nominating Body may only recommend individuals 
to fill a vacancy in a Representative Director position who satisfy 
those same compositional requirements, are consistent with Section 6(b) 
of the Act,\12\ including Section 6(b)(3) of the Act.\13\ The 
Exchange's proposal would not impact its current process to ensure fair 
representation of its Trading Permit Holders in the selection of its 
directors and administration of its affairs as required by Section 
6(b)(3) of the Act.\14\ Specifically, the proposed changes are 
consistent with the changes to the Bylaws that CBOE made in December of 
2011 and simply reflect the application of those changes. As the 
Commission noted when it approved that prior proposal, the Commission 
had previously approved proposals in which an exchange's board of 
directors was composed of all or nearly all non-industry directors 
where the process was nevertheless designed to comply with the ``fair 
representation'' requirement in the selection and election of 
directors.\15\
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    \11\ See supra note 6.
    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(3). Section 6(b)(3) of the Act requires 
that the rules of a national securities exchange assure the fair 
representation of its members in the selection of its directors and 
administration of its affairs, and provide that one or more 
directors shall be representative of issuers and investors and not 
be associated with a member of the exchange, broker, or dealer.
    \14\ See id.
    \15\ See Securities Exchange Act Release No. 65980 (December 15, 
2011), 76 FR 79252 at 79253 (December 21, 2011) (approving SR-CBOE-
2011-099) (citing to Securities Exchange Act Release No. 48946 
(December 17, 2003), 68 FR 74678 (December 24, 2003) (approving SR-
NYSE-2003-34)).
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    In addition, the Commission believes that the Exchange's proposal 
to change the Board size range to consist of not less than 12 and not 
more than 16 directors is consistent with Section 6(b) of the Act,\16\ 
including Section 6(b)(3) of

[[Page 8205]]

the Act.\17\ The Exchange's proposal would not impact in any manner its 
current process to ensure fair representation of its Trading Permit 
Holders in the selection of its directors and administration of its 
affairs as required by Section 6(b)(3) of the Act.\18\ Further, the 
proposed change is consistent with the current size of CBOE's Board and 
simply narrows the possible size range from 11 to 23 to 12 to 16.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(3).
    \18\ See id.
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IV. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with the Act and the rules and regulations 
thereunder applicable to a national securities exchange.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\19\ that the proposed rule change (SR-CBOE-2012-116) be and hereby 
is approved.
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    \19\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-02423 Filed 2-4-13; 8:45 am]
BILLING CODE 8011-01-P


