
[Federal Register Volume 78, Number 128 (Wednesday, July 3, 2013)]
[Notices]
[Pages 40252-40253]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-15916]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69869; File No. SR-NYSE-2013-32]


Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Approving a Proposed Rule Change Proposing an Amendment to the Bylaws 
of Its Wholly-Owned Subsidiary, NYSE Regulation, Inc. (``NYSE 
Regulation''), To Eliminate a Requirement That Not Less Than Two 
Members of the Board of Directors of NYSE Regulation Must Qualify as 
``Fair Representation Candidates''

June 27, 2013.

I. Introduction

    On May 8, 2013, the New York Stock Exchange LLC (``NYSE'' or the 
``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 amend the bylaws of its wholly-owned subsidiary 
NYSE Regulation, Inc. (``NYSE Regulation'') to eliminate a requirement 
that not less than two members of the board of directors of NYSE 
Regulation (``NYSE Regulation Board'' or ``Board'') must qualify as 
``fair representation candidates'' (as that term is defined in those 
bylaws). A requirement that such directors constitute a minimum of 20% 
of the NYSE Regulation Board would remain in place. The proposed rule 
change was published for comment in the Federal Register on May 22, 
2013.\3\ The Commission received no comments on 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. 69590 (May 16, 
2013), 78 FR 30378 (``Notice'').
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II. Description of the Proposal

    The Exchange proposes to amend the Fourth Amended and Restated 
Bylaws of NYSE Regulation (``NYSE Regulation Bylaws'') to eliminate the 
requirement that not less than two members of the NYSE Regulation Board 
must be ``fair representation candidates'' (as defined in the NYSE 
Regulation Bylaws). However, the current requirement that such 
directors constitute a minimum of 20% of the Board would continue to 
apply. Furthermore, under the proposal, if the number that is equal to 
20% of the entire Board is not a whole number, such number would be 
rounded up to the next whole number, and a provision so stating would 
be added to the NYSE Regulation Bylaws.
    As defined in the NYSE Regulation Bylaws, the fair representation 
candidates are Board members who are determined by member organizations 
of the Exchange through a specified petition process (``Petition 
Candidates'') or, in the absence of a sufficient number of Petition 
Candidates, candidates would be recommended by the Director Candidate 
Recommendation Committee (``DCRC'') of NYSE Regulation. In addition, 
fair representation candidates for the NYSE Regulation Board must 
qualify as ``non-affiliated directors'' (as such term is defined in the 
NYSE Regulation Bylaws), i.e., such persons must be U.S. Persons who 
are not members of the board of directors of NYSE Euronext and qualify 
as independent under the director independence policy of NYSE 
Regulation.\4\ Finally, like all members of the NYSE Regulation Board 
except for the Chief Executive Officer, the fair representation 
candidates must qualify as independent under the director independence 
policy of NYSE Regulation.\5\ The Exchange stated that it is not 
proposing to change the NYSE Regulation independence requirements.\6\
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    \4\ See Securities Act Release No. 67564 (August 1, 2012), 77 FR 
47161 (August 7, 2012) (SR-NYSE-2012-17) (approving a new director 
independence policy for NYSE, NYSE Regulation, NYSE Market, Inc., 
and NYSE MKT LLC).
    \5\ The NYSE Regulation Bylaws require that a majority of the 
NYSE Regulation Board must consist of non-affiliated directors. The 
remaining directors are comprised of the Chief Executive Officer of 
NYSE Regulation and members of the board of directors of NYSE 
Euronext that qualify as independent under the NYSE Euronext 
independence policy. The NYSE Regulation Bylaws do not require any 
affiliated directors other than the Chief Executive Officer of NYSE 
Regulation.
    \6\ See Notice, 78 FR at 30379.
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    The NYSE Regulation Bylaws provide that the Board shall consist of 
not less than three persons and that the number of directors shall be 
fixed from time to time by the Exchange, as sole equity member of NYSE 
Regulation. The size of the NYSE Regulation Board is currently fixed at 
five members, of which four positions are currently filled and one 
position is open.\7\ The Exchange represented that both the Exchange 
and NYSE Regulation believe that a board

[[Page 40253]]

consisting of five members is sufficiently large to effectively perform 
the NYSE Regulation Board's oversight responsibilities.\8\ In addition, 
with a Board size of five directors, the Exchange stated that it 
believes that retaining the requirement that at least two directors 
must be ``fair representation candidates'' is now unwarranted, because 
such directors would constitute 40% of the Board rather than 20% as was 
the case when the number of directors was fixed at ten members.\9\
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    \7\ The Exchange noted that the number of directors on the NYSE 
Regulation Board was reduced from ten to five in early 2013 in 
connection with the Financial Industry Regulatory Authority's 
(``FINRA'') completion of specified milestones in the regulatory 
services agreement by and among FINRA, NYSE Group, Inc., NYSE, NYSE 
Regulation, NYSE Arca, Inc., and NYSE MKT LLC pursuant to which 
FINRA assumed responsibility for performing the market surveillance 
and enforcement functions previously conducted by NYSE Regulation. 
See Notice, 78 FR at 30379 n.6.
    \8\ See Notice, 78 FR at 30379.
    \9\ See id.
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    The Exchange represented that the DCRC of NYSE Regulation is aware 
of and is in agreement with the proposed plan of implementation. The 
Exchange also represented that there is otherwise no change to the fair 
representation candidate selection and petition process.\10\
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    \10\ See Notice, 78 FR at 30379 n.7.
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    The Exchange stated that it believes that the elimination of the 
two-director minimum requirement for fair representation candidates is 
consistent with the governance structures of other national securities 
exchanges that have been approved by the Commission.\11\ The Exchange 
pointed out that similar changes were approved subsequently to the 
Commission's approval of a structure for the board of NYSE Alternext US 
LLC (now NYSE MKT LLC), an affiliate of the Exchange, that included a 
requirement that at least 20% of that exchange's board constitute fair 
representation directors, but without the requirement that there be no 
less than two such directors.\12\ The Exchange also noted that, more 
recently, the Commission approved a similar change when it considered a 
proposal to revise the Operating Agreement and Bylaws of the Exchange's 
wholly owned subsidiary, NYSE Market, Inc.\13\
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    \11\ See Notice, 78 FR at 30379. The Exchange noted that, for 
example, Article III, Section 5(e) of the By-Laws of the of the 
NASDAQ Stock Market LLC (``NASDAQ'') requires that the Regulatory 
Oversight Committee of the NASDAQ Board of Directors (``NASDAQ 
ROC''), which has an oversight role comparable to that of the NYSE 
Regulation Board, must consist of three members, each of whom must 
be a ``Public Director'' (i.e., ``a Director who has no material 
business relationship with a broker or dealer, [NASDAQ] or its 
affiliates, or FINRA'') and an ``independent director'' as defined 
by NASDAQ Marketplace Rule 4200. The Exchange also noted that there 
is no requirement that the NASDAQ ROC have any members who would be 
the equivalent of a fair representation candidate on the NYSE 
Regulation Board.
    \12\ See Securities Exchange Act Release No. 58673 (September 
29, 2008), 73 FR 57707, 57711-12 (October 3, 2008) (SR-Amex-2008-
62).
    \13\ Securities Exchange Act Release No. 59683 (April 1, 2009), 
74 FR 15799 (April 7, 2009 (SR-NYSE-2009-12).
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III. Discussion and Commission Findings

    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.\14\ In particular, the Commission finds 
that the proposal is consistent with the requirements of Section 
6(b)(3) of the Act, which provides that the rules of an exchange must 
assure a 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.\15\
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    \14\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
    \15\ 15 U.S.C. 78f(b)(3).
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    The fair representation requirement in Section 6(b)(3) of the Act 
is intended to give members a voice in the selection of the exchange's 
directors and the administration of its affairs. Moreover, the Section 
6(b)(3) requirement helps to ensure that members are protected from 
unfair, unfettered actions by an exchange and that, in general, an 
exchange is administered in a way that is equitable to all those who 
trade on its market or through its facilities. The Commission notes 
that the requirement that at least 20% of the directors on the NYSE 
Regulation Board be fair representation candidates is designed to 
ensure the fair representation of NYSE members on its Board. The 
Commission notes that, while the proposal eliminates the requirement 
regarding a specific minimum number of fair representation candidates 
on the Board, it does not alter the minimum 20% requirement for fair 
representation candidates or the process by which members can directly 
petition and vote for representatives on the NYSE Regulation Board. 
Moreover, the Commission notes that the proposal adds to the NYSE 
Regulation Bylaws a provision that whenever 20% of the Board would not 
result in a whole number, such number would in all cases be rounded up 
to the nearest whole number, thus ensuring that the fair representation 
candidates never constitute less than 20% of the Board. Furthermore, as 
the Exchange noted, the proposed change to the NYSE Regulation Bylaws 
is consistent with previous proposals approved by the Commission.\16\ 
The Commission therefore finds that the Exchange's proposal is 
consistent with Section 6(b)(3) of the Act.\17\
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    \16\ See supra notes 12 and 13 and accompanying text.
    \17\ 15 U.S.C. 78f(b)(3).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\18\ that the proposed rule change (SR-NYSE-2013-32) is approved.
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    \18\ 15 U.S.C. 78s(b)(2).
    \19\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-15916 Filed 7-2-13; 8:45 am]
BILLING CODE 8011-01-P


