
[Federal Register Volume 81, Number 4 (Thursday, January 7, 2016)]
[Notices]
[Pages 817-819]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-33308]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76809; File No. SR-NASDAQ-2015-160]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 
1 Thereto, To Amend the By-Laws of Nasdaq, Inc.

December 31, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 21, 2015, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
On December 29, 2015, the Exchange filed Amendment No. 1 to the 
proposal.\3\ The Commission is publishing this notice to solicit 
comments on the proposed rule change, as modified by Amendment No. 1, 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 amends and replaces the original filing in 
its entirety. In Amendment No. 1, the Exchange, among other things, 
clarified the operation of the current and proposed provisions of 
the By-Laws of Nasdaq, Inc. and how the proposed rule change would 
operate in conjunction with the Listing Rules of The NASDAQ Stock 
Market. See infra, note 5.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing this proposed rule change with respect to 
amendments of the By-Laws (the ``By-Laws'') of its parent corporation, 
Nasdaq, Inc. (``Nasdaq'' or the ``Company''), to revise the 
requirements regarding Director classifications. This Amendment No. 1 
to SR-NASDAQ-2015-160 amends and replaces the original filing in its 
entirety. The proposed amendments will be implemented on a date 
designated by the Company following approval by the Commission. The 
text of the proposed rule change is available on the Exchange's Web 
site at http://nasdaq.cchwallstreet.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Company is proposing amendments to certain provisions of its 
By-Laws that relate to Director \4\ classifications.\5\ Specifically, 
the Company proposes to revise Section 4.3 of the By-Laws to state that 
it may, rather than shall, include at least one, but no more than two, 
Issuer Directors on its Board. In addition, the Company proposes to 
revise Section 4.7 of the By-Laws to clarify the procedures when a 
Director's classification changes between annual meetings of 
stockholders.
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    \4\ ``Director'' means a member of the Company's Board of 
Directors. See Article I(j) of the By-Laws.
    \5\ The provisions of the Company's By-Laws that relate to 
Director classifications are completely distinct from the Listing 
Rules of The NASDAQ Stock Market. Therefore, the proposed amendments 
do not affect in any way the Company's obligation, as an issuer 
listed on The NASDAQ Stock Market, to comply with the Listing Rules, 
and the Company will continue to comply with the Listing Rules, 
including provisions relating to corporate governance, following the 
effectiveness of the proposed By-Law amendments.
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i. Section 4.3
    Currently, the Company's By-Laws require that all of the Company's 
Directors be classified as: (i) Industry Directors; \6\ (ii) Non-
Industry Directors,\7\ which are further classified as either Issuer 
Directors \8\ or Public Directors; \9\ or (iii) Staff Directors.\10\ 
Section 4.3 of the By-Laws includes composition requirements for the 
Board based on these classifications. Specifically, the number of Non-
Industry Directors on the Board must equal or exceed the number of 
Industry Directors. In addition, the Board must include at least two 
Public Directors and at least one, but no more than two, Issuer 
Directors. Finally, the Board shall

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include no more than one Staff Director, unless the Board consists of 
ten or more Directors, in which case, the Board shall include no more 
than two Staff Directors.
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    \6\ ``Industry Director'' or ``Industry committee member'' means 
a Director (excluding any Staff Directors) or committee member who 
(1) is, or within the last year was, or has an immediate family 
member who is, or within the last year was, a member of a Self-
Regulatory Subsidiary; (2) is, or within the last year was, employed 
by a member or a member organization of a Self-Regulatory 
Subsidiary; (3) has an immediate family member who is, or within the 
last year was, an executive officer of a member or a member 
organization of a Self-Regulatory Subsidiary; (4) has within the 
last year received from any member or member organization of a Self-
Regulatory Subsidiary more than $100,000 per year in direct 
compensation, or received from such members or member organizations 
in the aggregate an amount of direct compensation that in any one 
year is more than 10 percent of the Director's annual gross 
compensation for such year, excluding in each case 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); or (5) is affiliated, directly or 
indirectly, with a member or member organization of a Self-
Regulatory Subsidiary. See Article I(m) of the By-Laws. A ``Self-
Regulatory Subsidiary'' is any subsidiary of the Company that is a 
self-regulatory organization as defined under Section 3(a)(26) of 
the Act. See Article I(s) of the By-Laws. Currently, the term 
``Self-Regulatory Subsidiary'' encompasses NASDAQ OMX BX, Inc. 
(``BX''), the Exchange, NASDAQ OMX PHLX LLC (``Phlx''), Boston Stock 
Exchange Clearing Corporation (``BSECC'') and the Stock Clearing 
Corporation of Philadelphia (``SCCP'').
    \7\ ``Non-Industry Director'' or ``Non-Industry committee 
member'' means a Director (excluding any Staff Director) or 
committee member who is (1) a Public Director or Public committee 
member; (2) an Issuer Director or Issuer committee member; or (3) 
any other individual who would not be an Industry Director or 
Industry committee member. See Article I(q) of the By-Laws.
    \8\ ``Issuer Director'' or ``Issuer committee member'' means a 
Director (excluding any Staff Director) or committee member who is 
an officer or employee of an issuer of securities listed on a 
national securities exchange operated by any Self-Regulatory 
Subsidiary, excluding any Director or committee member who is a 
director of such an issuer but is not also an officer or employee of 
such an issuer. See Article I(o) of the By-Laws.
    \9\ ``Public Director'' or ``Public committee member'' means a 
Director or committee member who (1) is not an Industry Director or 
Industry committee member, (2) is not an Issuer Director or Issuer 
committee member, and (3) has no material business relationship with 
a member or member organization of a Self- Regulatory Subsidiary, 
the Company or its affiliates, or the Financial Industry Regulatory 
Authority, Inc. and its affiliates. See Article I(r) of the By-Laws.
    \10\ ``Staff Director'' means an officer of the Company that is 
serving as a Director. See Article I(t) of the By-Laws.
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    The Company proposes to amend Section 4.3 of the By-Laws to state 
that the Board may, rather than shall, include one, but no more than 
two, Issuer Directors. With this change, the Company intends to give 
itself the option, but not the requirement, to include one or two 
Issuer Directors on its Board. Issuer Directors bring to the Board the 
perspective of an officer or employee of companies listed on The NASDAQ 
Stock Market. While the Company highly values the views of its listed 
companies, it does not believe that it is strictly necessary to have an 
Issuer Director on its own Board to represent those views. Within the 
overall governance structure of the Company and its subsidiaries, 
issues relating to listed companies are generally the province of 
NASDAQ and its Board of Directors, rather than the Company and its 
Board of Directors. The Company is a holding company for over 100 
subsidiaries that provide both regulated and unregulated products and 
services across the globe, while NASDAQ is the Company subsidiary that, 
among other things, provides listing services on The NASDAQ Stock 
Market. The Company's Board generally focuses on the overall strategic 
direction of the Company, while NASDAQ's Board generally focuses on 
issues relevant specifically to The NASDAQ Stock Market, including 
issues affecting listed companies. Furthermore, NASDAQ's Board includes 
issuer representation, as required by its By-Laws.\11\ Finally, if the 
Company's Board ever does address issues relating to listed companies, 
its Directors are experienced and capable enough to handle those issues 
without specifically having an Issuer Director on the Board.\12\
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    \11\ See Article III, Section 2 of NASDAQ's By-Laws.
    \12\ Currently, three of the Company's eleven Directors are also 
directors of companies listed on The NASDAQ Stock Market or another 
national securities exchange. These Directors do not qualify as 
Issuer Directors because they are not specifically officers or 
employees of listed companies; however, as directors of such 
companies, they are familiar with corporate governance topics and 
other issues confronted by listed companies.
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    Therefore, it is not strictly necessary to have an officer or 
employee of a listed company on the Company's Board of Directors, and 
accordingly, the Company proposes to amend its By-Laws to give itself 
the option, but not the requirement, to include an Issuer Director on 
its Board.
ii. Section 4.7
    As required by Section 4.13(h)(iii) of the By-Laws, the Company's 
Corporate Secretary certifies to the Nominating & Governance Committee 
of the Company's Board on an annual basis the classification of each 
Director following a review of information relating to the 
classifications collected from the Directors. This certification 
usually occurs in connection with the Company's annual meeting of 
stockholders, and at the same time, Directors are elected to serve on 
various Board committees, all of which have compositional requirements 
relating to the classifications.\13\ However, Directors' 
classifications may change from time to time following the annual 
meeting due to various changes in personal circumstances (e.g., a 
retirement or job change). Directors are required to report to the 
Corporate Secretary any change in the information used as the basis of 
their classification.\14\
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    \13\ See Section 4.13 of the By-Laws.
    \14\ See Section 4.13(h)(iii) of the By-Laws.
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    Section 4.7 of the By-Laws addresses potential disqualifications of 
Directors due to a classification change. Under this section, the term 
of office of a Director shall terminate immediately upon a 
determination by the Board, by a majority vote of the remaining 
Directors, that: (a) The Director no longer satisfies the 
classification for which the Director was elected; and (b) the 
Director's continued service would violate the Board compositional 
requirements. Section 4.7 also states that if a Director position 
becomes vacant because of such disqualification, and the remaining term 
of office is not more than six months, the By-Laws do not require an 
immediate replacement.
    The Company has observed two potential weaknesses relating to the 
disqualification procedures as currently drafted. First, Section 4.7 of 
the By-Laws does not address a situation where a Director's 
classification has changed, but the Board believes that it is in the 
best interests of the Company and its stockholders for such Director to 
remain on the Board. Second, the By-Laws could be read to contemplate 
that the Company must immediately cure any deficiencies in Board or 
committee composition that may occur because of a change in a Director 
or committee member's classification because otherwise the Board would 
not meet all of the compositional requirements set forth in Section 4.3 
of the By-Laws.\15\ It would be extremely disruptive to the Board, its 
committees and the Company to add, remove, disqualify or replace a 
Director between annual meetings of stockholders simply because the 
Director no longer has the same classification he or she had at the 
time of the annual meeting. In addition, the selection of nominees to 
the Company's Board is an extremely complex process, managed by the 
Board's Nominating & Governance Committee, that takes almost the full 
year between annual meetings of stockholders. The Nominating & 
Governance Committee considers possible candidates suggested by Board 
members, industry groups, stockholders, senior management and/or a 
third-party search firm engaged from time-to-time to assist in 
identifying and evaluating qualified candidates. In evaluating 
candidates for nomination to the Board, the Nominating & Governance 
Committee reviews the skills, qualifications, characteristics and 
experience desired for the Board as a whole and for its individual 
members, with the objective of having a Board that reflects diverse 
backgrounds and senior level experience in the areas of global 
business, finance, legal and regulatory, technology and marketing. The 
Nominating & Governance Committee evaluates each individual candidate 
in the context of the Board as a whole, with the objective of 
maintaining a group of Directors that can further the success of 
Nasdaq's business, while representing the interests of stockholders, 
employees and the communities in which the company operates. Because 
the nominee selection process is so long and complex, the Board cannot 
act quickly to replace a Director whose classification has changed, and 
it is not in the best interests of the Company's stockholders for the 
Board to be forced to take such an action when the Director otherwise 
provides valuable service to the Board.
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    \15\ But see Kurz v. Holbrook, 989 A.2d 140, 156-57 (Del.Ch. 
2010) (holding that a by-law cannot disqualify a director who was 
duly qualified at the time of election during the middle of his or 
her term), rev'd on other grounds sub nom Crown EMAK P'ners, LLC v. 
Kurz, 992 A.2d 377 (Del. 2010); see also Klaassen v. Allegro 
Development Corp., 2013 WL 5739680, at *23 (Del. Ch. Oct. 11, 2013) 
(noting that director qualifications are applied at the front-end of 
the director's term when such director is elected and qualified), 
aff'd 106 A.3d 1035 (Del. 2014).
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    The Company therefore proposes to amend Section 4.7 of the By-Laws 
to provide that the Board may elect to defer until the next annual 
meeting of stockholders a determination regarding a change in a 
Director's classification and such Director's continued service on the 
Board.\16\ Further, if the Board

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makes such an election, neither the Board nor any committee shall be 
deemed to be in violation of Section 4.3 of the By-Laws, which relates 
to Board composition, or Section 4.13 of the By-Laws, which relates to 
committee composition. This will give the Board the option to retain 
Directors whose classification has changed, but whose continued service 
is otherwise beneficial to the Board, the Company and its stockholders. 
This also will prevent the significant disruption that would occur if 
the Board had to replace a Director between annual meetings of 
stockholders and allow the Board to continue to make informed, 
deliberate decisions regarding Director nominees, rather than force it 
to act quickly in a way that is not in the best interest of the 
Company's stockholders.
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    \16\ The intent of the amendment is to allow the Board a 
deferral until the next annual meeting when it can nominate a slate 
of directors with classifications sufficient to satisfy the 
requirements of Section 4.3 of the By-Laws for election by the 
Company's stockholders. Assuming due election of the Board's 
nominees, the Board therefore will comply with Section 4.3 of the 
By-Laws immediately after the next annual meeting.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\17\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\18\ in particular, in that it is designed 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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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
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    First, the Company is proposing an amendment to Section 4.3 of the 
By-Laws to state that it may, rather than shall, include at least one, 
but no more than two, Issuer Directors on its Board. The Exchange 
believes that this change will protect investors and the public 
interest by allowing the Company's Nominating & Governance Committee to 
select nominees for the Company's Board based on the overall strategic 
needs of the Board, the Company and its stockholders without forcing 
the Board to fill one slot with an officer or director of a listed 
company (i.e., an Issuer Director). The Exchange notes that the Company 
would still have the option to include Issuer Directors on the Board, 
and the Exchange believes the views of listed companies are well-
represented on the Board without the explicit participation of an 
Issuer Director.\19\
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    \19\ See note 12, supra.
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    Second, the Company is proposing an amendment to Section 4.7 of the 
By-Laws to provide that the Board may elect to defer until the next 
annual meeting of stockholders a determination regarding a change in a 
Director's classification and such Director's continued service on the 
Board. Further, if the Board makes such an election, neither the Board 
nor any committee shall be deemed to be in violation of Section 4.3 of 
the By-Laws, which relates to Board composition, or Section 4.13 of the 
By-Laws, which relates to committee composition. The Exchange believes 
that this change will protect investors and the public interest by 
clarifying the disqualification provisions in the Company's By-Laws, 
which are currently ambiguous. In addition, the change will prevent the 
significant disruption that would occur if the Board were forced to 
replace an otherwise valuable director between annual meetings.

B. Self-Regulatory Organization's Statement on Burden on Competition

    Because the proposed rule change relates to the governance of the 
Company and not to the operations of the Exchange, the Exchange does 
not believe that the proposed rule change will impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days of such 
date (i) as the Commission may designate if it finds such longer period 
to be appropriate and publishes its reasons for so finding or (ii) as 
to which the Exchange consents, the Commission shall: (a) By order 
approve or disapprove such proposed rule change, or (b) institute 
proceedings to determine whether the proposed rule change should be 
disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2015-160 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2015-160. 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, 100 F Street NE., 
Washington, DC 20549 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 offices of the Exchange. 
All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-NASDAQ-2015-
160, and should be submitted on or before January 28, 2016.

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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-33308 Filed 1-6-16; 8:45 am]
BILLING CODE 8011-01-P


