[Federal Register Volume 72, Number 155 (Monday, August 13, 2007)]
[Notices]
[Pages 45287-45288]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-15758]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56211; File No. SR-ISE-2007-34]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Order Approving a Proposed Rule Change Relating to an Amendment to 
the International Securities Exchange, LLC Constitution and Amended and 
Restated LLC Agreement

August 6, 2007.

I. Introduction

    On May 8, 2007, the International Securities Exchange, LLC (``ISE'' 
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 the Exchange's Constitution (``ISE 
Constitution'' or ``Constitution'') and Amended and Restated LLC 
Agreement (``ISE LLC Agreement''). The proposed rule change was 
published for comment in the Federal Register on June 4, 2007.\3\ The 
Commission received no comments regarding the proposal. 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. 55809 (May 23, 
2007), 72 FR 30894.
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II. Description of the Proposal

    Currently, the ISE Constitution requires that the President of the 
Exchange and the Chief Executive Officer (``CEO'') of the Exchange be 
the same person. The Constitution also

[[Page 45288]]

currently requires that the number of directors on the board of 
directors (``Board'') of the Exchange be fixed at 15, to be comprised 
of: (i) Two ``PMM Directors'' \4\; (ii) two ``CMM Directors'' \5\; 
(iii) two ``EAM Directors'' \6\; (iv) eight ``Non-Industry Directors'' 
\7\--at least two of whom must be ``Public Directors'' \8\--and (v) the 
person holding the office of President and CEO.
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    \4\ As set forth in Article III, Section 3.2(b)(i) of the ISE 
Constitution, a PMM Director is an officer, director, or partner of 
a Primary Market Maker elected by a plurality of the holders of the 
PMM Rights (see Article XII, Section 12.1 of the ISE Constitution) 
voting together as a class.
    \5\ As set forth in Article III, Section 3.2(b)(ii) of the ISE 
Constitution, a CMM Director is an officer, director, or partner of 
a Competitive Market Maker elected by a plurality of the holders of 
the CMM Rights (see Article XII, Section 12.2 of the ISE 
Constitution) voting together as a class.
    \6\ As set forth in Article III, Section 3.2(b)(iii) of the ISE 
Constitution, an EAM Director is an officer, director, or partner of 
an Electronic Access Member elected by the plurality of the holders 
of the EAM Rights (see Article XII, Section 12.3 of the ISE 
Constitution) voting together as a class.
    \7\ As set forth in Article III, Section 3.2(b)(iii) of the ISE 
Constitution, a ``Non-Industry Director'' is a director elected by 
the Sole LLC Member (see infra, note 9) who meets the requirements 
to be a ``non-industry representative.'' A ``non-industry 
representative'' is defined in Article XIII, Section 13.1(w) as any 
person that would not be considered an ``industry representative'' 
(see below) as well as: (i) a person affiliated with a broker or 
dealer that operates solely to assist the securities-related 
activities of the business of non-member affiliates, (ii) an 
employee of an entity that is affiliated with a broker or dealer 
that does not account for a material portion of the revenues of the 
consolidated entity, and who is primarily engaged in the business of 
the non-member entity.
    An ``industry representative'' is defined in Article XIII, 
Section 13.1(t) as a person who is an officer, director, or employee 
of a broker or dealer or who has been employed in any such capacity 
at any time within the prior three years, as well as a person who 
has a consulting or employment relationship with or has provided 
professional services to the Exchange and a person who had any such 
relationship or provided any such services to the Exchange at any 
time within the prior three years.
    \8\ As set forth in Article III, Section 3.2(b)(iv) of the ISE 
Constitution, a ``Public Director'' must be a ``public 
representative,'' defined in Article XIII, Section 13.1(dd) as a 
non-industry representative (see supra, note 7) who has no material 
business relationship with a broker or dealer or the Exchange.
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    The proposed rule change would remove the requirement that the 
President be the CEO, and amend the ISE Constitution to require that 
the director position described in subparagraph (v) above be held by 
the CEO. The proposal also would amend the Constitution to establish 
the number of directors at no less than 15 and no more than 16.
    In conjunction with these changes, Sole LLC Member,\9\ in its sole 
and absolute discretion, would be able to elect one additional director 
(``Former Employee Director'') who was employed by the Exchange at any 
time during the three-year period prior to his or her initial election 
but otherwise meets the definition of a Non-Industry Director under the 
Exchange's Constitution.\10\ The proposed rule change also would make 
conforming amendments to the ISE LLC Agreement.
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    \9\ As set forth in Article I, Section 1.1 of the ISE 
Constitution, the ISE is a single member limited liability company 
with one limited liability company interest currently authorized 
(the ``LLC Interest''). The holder of the LLC interest is 
International Securities Exchange Holdings, Inc., which may assign 
the LLC Interest as provided in the LLC Agreement (the ``Sole LLC 
Member'').
    \10\ The term of a Former Employee Director would expire at the 
annual meeting of holders of Exchange Rights and the Sole LLC Member 
held in the second year following the year of his or her election. 
(Regarding Exchange Rights, see Article I, Section 1.2 of the ISE 
Constitution and Article VI of the ISE LLC Agreement.) A Former 
Employee Director would not be permitted to serve on the Board for 
more than three consecutive terms, but would be eligible for 
election as a director following a two-year hiatus from service on 
the Board, provided that he or she meets the relevant requirements. 
See proposed new Section 3.2(e)(iv) to Article III of the ISE 
Constitution.
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    According to the Exchange, the proposed modifications to its 
governance structure would provide it with the flexibility to structure 
its board of directors in a way that would enable the ISE to attract 
and keep talented individuals.

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. 
Specifically, the Commission finds that the proposed rule change is 
consistent with section 6(b)(1) of the Act,\11\ which requires, among 
other things, that an exchange be so organized and have the capacity to 
be able to carry out the purposes of the Act; and with section 6(b)(5) 
of the Act,\12\ which requires, among other things, that the 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.\13\
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    \11\ 15 U.S.C. 78f(b)(1).
    \12\ 15 U.S.C. 78f(b)(5).
    \13\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
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    The Commission notes that the additional member that the Sole LLC 
Member would be permitted to elect to the Board, aside from having been 
an Exchange employee within the prior three years, otherwise would be 
required to meet the qualifications of a Non-Industry Director. Thus, 
the Former Employee Director could not be a person who is an officer, 
director, or employee of a broker or dealer or who has been employed in 
any such capacity at any time within the prior three years. Further, 
the Commission notes that, under the proposed rule change, the ISE 
Constitution would continue to provide that eight of the members of the 
Exchange's board of directors--out of a maximum total of 16 members--
must be non-industry representatives. The Commission believes that this 
proposed balance with respect to the composition of the Exchange's 
Board is consistent with other self-regulatory organization governance 
structures that were approved by the Commission.\14\
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    \14\ See, e.g., Securities Exchange Act Release No. 54494 
(September 25, 2006), 71 FR 58023 (October 2, 2006).
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IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\15\ that the proposed rule change (SR-ISE-2007-34) be, and hereby 
is, approved.
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    \15\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-15758 Filed 8-10-07; 8:45 am]
BILLING CODE 8010-01-P