[Federal Register Volume 85, Number 9 (Tuesday, January 14, 2020)]
[Notices]
[Pages 2191-2192]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-00348]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87914; File No. SR-NYSE-2019-62]


Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Approving Proposed Rule Change To Amend Article II, Section 2.03 of the 
Twelfth Amended and Restated Operating Agreement of the Exchange To 
Remove the Independence Requirement for the Director Elected by 
Exchange Membership Organizations

January 8, 2020.

Introduction

    On November 15, 2019, the 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 amend Article II, Section 2.03 of the Twelfth 
Amended and Restated Operating Agreement (``Operating Agreement'') of 
the Exchange to remove the independence requirement for the director 
elected by Exchange membership organizations, and make additional 
conforming and non-substantive edits. The proposed rule change was 
published for comment in the Federal Register on November 29, 2019.\3\ 
The Commission received no comment letters on the proposed rule change. 
This order approves 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. 87588 (November 22, 
2019), 84 FR 65875 (November 29, 2019) (``Notice'').
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Description of the Proposal

    The Exchange proposes to amend Article II, Section 2.03 of the 
Exchange's Operating Agreement to remove the independence requirement 
for the director elected by Exchange membership organizations, and make 
additional conforming and non-substantive edits.
    Currently, pursuant to the Operating Agreement, at least twenty 
percent of the Exchange's board of directors (``Board'') must be 
composed of persons who are not members of the board of directors of 
Intercontinental Exchange, Inc. (``ICE''), the Exchange's ultimate 
parent company, but who qualify as independent under the Exchange's 
director independence policy (such policy, the ``Independence Policy'', 
and such directors, the ``Non-Affiliated Directors'').\4\ The Non-
Affiliated Directors are nominated by the member organizations of the 
Exchange (``Member Organizations''),\5\ through a process set forth in 
the Operating Agreement.\6\
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    \4\ See Operating Agreement, Article II, Section 2.03(a)(iii).
    \5\ ``Member Organizations'' includes ``members, allied members 
and member organizations of the [Exchange].'' See Operating 
Agreement, Article II, Section 2.02 (Rules; Supervision of Member 
Organizations). As discussed below, the Exchange proposes to amend 
the definition to delete as obsolete the reference to ``allied 
members.''
    \6\ See id., Section 2.03(a)(iii)-(v). Other than to remove the 
independence requirement, the Exchange does not propose to amend the 
process for nominating the Non-Affiliated Directors.
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    Under the Independence Policy,\7\ a director is not independent--
and therefore cannot be a Non-Affiliated Director--if, among other 
things, the director:
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    \7\ The Independence Policy is available at: https://www.nyse.com/publicdocs/nyse/regulation/nyse/Director_Independence_Policy_of_New_York_Stock_Exchange_LLC.pdf.
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     Or one of his or her immediate family members is, or 
within the last year was, a Member \8\ of the Exchange;
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    \8\ The term ``Member'' is used in the Independence Policy as 
defined in Section 3(a)(3)(A)(i) of the Exchange Act. See 15 U.S.C. 
78c(a)(3)(A)(i).
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     is, or within the last year was, employed by a Member 
Organization; \9\
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    \9\ The term ``Member Organization'' is used in the Independence 
Policy as defined in Section 3(a)(3)(A)(ii), 3(a)(3)(A)(iii), and 
3(a)(3)(A)(iv) of the Exchange Act. See 15 U.S.C. 78c(a)(3)(A)(ii)-
(iv).
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     has within the last year received from any Member 
Organization more than $100,000 per year in direct compensation, or 
received from Member Organizations in the aggregate an amount of direct 
compensation which in any one year is more than 10 percent of the 
director's annual gross income for such year,\10\ or
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    \10\ Such limitations exclude 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).
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     is affiliated, directly or indirectly, with a Member 
Organization.
    As the Exchange states, the requirement that Non-Affiliated 
Directors qualify as independent precludes the Member Organizations 
from nominating a candidate from among their own numbers or who was 
recently employed by a Member or Member Organization. Because of this, 
the Exchange believes, the current requirement limits members' ability 
to

[[Page 2192]]

nominate the individual of their choice. Moreover, the Exchange notes 
that individuals who are precluded by the independence requirement from 
serving as Non-Affiliated Directors are the very persons who, by virtue 
of their work as, with, or in affiliation with a Member Organization, 
are the most informed about the Member Organizations, their operations, 
and their concerns.
    The Exchange therefore proposes to remove this limitation in its 
current rules by:
     Amending Section 2.03(a)(i) to delete the requirement that 
Non-Affiliated Directors qualify as independent under the Independence 
Policy;
     adding a sentence stating that ``[t]he Non-Affiliated 
Directors need not be independent, and must meet any status or 
constituent affiliation qualifications prescribed by the Company and 
filed with and approved by the Commission; \11\ and
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    \11\ In tandem with this change, the Exchange also proposes to 
make a non-substantive amendment to the first sentence of Article 
III, Section 3.03 to delete the language in that sentence defining 
the term ``SEC''. Proposed Section 2.03(a)(i), which would appear 
earlier in the text, would already include such reference.
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     amending the third sentence of the second paragraph of 
Section 2.03(a)(iv) and fourth sentence of Section 2.03(l) to remove 
the references to potential petition candidates and current directors 
qualifying as independent under the Independence Policy.
    The Exchange states that the proposed rule change would bring the 
Operating Agreement into greater conformity with the operating 
agreement of its affiliate, NYSE American LLC (``NYSE American''), 
which does not require that the NYSE American Non-Affiliated Directors 
qualify as independent under the NYSE American Director Independence 
Policy,\12\ and with the bylaws of its affiliates, NYSE Arca, Inc., 
NYSE Chicago, Inc. and NYSE National, Inc., none of which, according to 
the Exchange, require that the directors nominated by their trading 
permit holders be qualified as independent.\13\ The Exchange further 
notes that the governing documents of other self-regulatory 
organizations, such as the Nasdaq Stock Market LLC \14\ and Cboe BYX 
Exchange, Inc.,\15\ do not require that the directors nominated by the 
membership of the exchange be independent.
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    \12\ See Notice, supra note 3, at 65876 n.16. See Twelfth 
Amended and Restated Operating Agreement of NYSE American LLC 
(``NYSE American Operating Agreement''), Section 2.03(a) and (l). 
According to the Exchange, the NYSE American Director Independence 
Policy is the same as the Exchange's Independence Policy. See 
Securities Exchange Act Release No. 85919 (May 22, 2019), 84 FR 
24842 (May 29, 2019) (SR-NYSEAMER-2019-20) (notice of filing and 
immediate effectiveness of proposed rule change to amend the 
Independence Policy of the Board of Directors of NYSE American).
    \13\ See Notice, supra note 3, at 65876 n.17. See Bylaws of NYSE 
Arca, Inc., Article III, Section 3.02(a) and NYSE Arca Rule 
3.2(b)(3)(C)(ii) (Directors Nominated by the Trading Permit 
Holders); Second Amended and Restated Bylaws of NYSE Chicago, Inc., 
Article II, Section 2 (General Composition and Term of Office); and 
Sixth Amended and Restated By-Laws of NYSE National, Inc., Article 
III, Sections 3.2(a) (General Composition).
    \14\ See Notice, supra note 3, at 65876 n.18. See Bylaws of the 
Nasdaq Stock Market LLC, Article I (noting that a ``Member 
Representative Director may, but is not required to be, an officer, 
director, employee, or agent of a Nasdaq Member'').
    \15\ See Notice, supra note 3, at 65876 n.19. See Ninth Amended 
and Restated Bylaws of Cboe BYX Exchange, Inc., Article III, 
Sections 3.1 and 3.2.
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    The Exchange also proposes to delete the reference to ``allied 
members'' from the definition of ``Member Organizations'' in Section 
2.02. The Exchange states that it no longer has allied members and that 
therefore the reference is obsolete.\16\ Finally, the Exchange proposes 
to make non-substantive conforming changes to the title, recitals, and 
signature page of the Operating Agreement, which would become the 
Thirteenth Amended and Restated Operating Agreement of the Exchange.
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    \16\ See Notice, supra note 3, at 65876.
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III. Discussion and Commission Findings

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the requirements of the Act \17\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.\18\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\19\ which 
requires, among other things, that rules of a national securities 
exchange be designed 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 that those rules are not designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.
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    \17\ 15 U.S.C. 78f.
    \18\ 15 U.S.C. 78f(b). In approving this proposal, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \19\ 15 U.S.C. 78f(b)(5).
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    The Commission further finds that the proposed rule change is 
consistent with Section 6(b)(3) of the Act,\20\ which, among other 
things, requires the rules of a national securities exchange to assure 
the fair representation of its members in the selection of its 
directors and administration of its affairs.
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    \20\ 15 U.S.C. 78f(b)(3).
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    As the Exchange notes, the requirement that Non-Affiliated 
Directors qualify as independent dates to the demutualization of the 
Exchange, when the Exchange filed with the Commission a proposed new 
organizational structure that included a requirement that all Board 
members of the Exchange be independent.\21\ Moreover, as the Exchange 
also notes, the Commission has approved governing documents of other 
exchanges that do not require the member representatives on their 
boards to be independent.\22\
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    \21\ See Securities Exchange Act Release No. 53382 (February 27, 
2006), 71 FR 11251 (March 6, 2006) (SR-NYSE-2005-77) (Commission 
order granting approval of NYSE's business combination with 
Archipelago Holdings, Inc.).
    \22\ See supra notes 12-15.
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    Therefore, the Commission believes that it is reasonable for NYSE 
to eliminate the independence requirement for Non-Affiliated Directors 
and thereby afford its Member Organizations the same flexibility in 
selecting directors that need not be independent as exists at other 
national securities exchanges. The Commission notes that the proposed 
rule change will enable the Exchange to conform its governing documents 
with those of its affiliated exchanges, which do not require that 
directors nominated by the membership be independent.
    Based on the foregoing, the Commission finds that the proposed rule 
change is consistent with the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\23\ that the proposed rule change (SR-NYSE-2019-62) be, and hereby 
is, approved.
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    \23\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2020-00348 Filed 1-13-20; 8:45 am]
BILLING CODE 8011-01-P


