[Federal Register Volume 73, Number 165 (Monday, August 25, 2008)]
[Notices]
[Pages 50061-50063]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-19591]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-58367; File No. SR-NYSE-2008-75]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Section 303A.02(b) of the Listed Company Manual with respect to
Two of Its Director Independence Tests
August 15, 2008.
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 August 12, 2008, the New York Stock Exchange
[[Page 50062]]
LLC (``NYSE'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'' or ``SEC'') the proposed rule change as
described in Items I, II, and III below, which Items have been
substantially prepared by NYSE. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to make amendments to two of the tests with
respect to the independence of directors set forth in Section
303A.02(b) of the Exchange's Listed Company Manual (the ``Manual'').
The text of the proposed rule change is available on the Exchange's Web
site (http://www.nyse.com), at the Exchange's Office of the Secretary
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, NYSE 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. NYSE 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 Exchange proposes to make amendments to two of the tests with
respect to the independence of directors set forth in Section
303A.02(b) of the Manual.
Direct Compensation Test
Section 303A.02(b)(ii) of the Manual provides that a director may
not be deemed independent for purposes of Section 303A if such director
has received, or has an immediate family member who has received,
during any twelve-month period within the last three years, more than
$100,000 in direct compensation from the listed company, other than
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). NYSE proposes to increase
the dollar threshold in this test from $100,000 to $120,000. This
change reflects the SEC's August 2006 amendment to the dollar threshold
applicable to related party transactions that must be disclosed under
Item 404 of Regulation S-K.\3\ Prior to the SEC's amendment to Item
404, the applicable threshold for disclosures was $60,000. The NYSE
believes that the monetary threshold in its independence definition
should be consistent with the amount in Regulation S-K Item 404. Using
a consistent standard would enhance the NYSE's ability to assess
compliance with the independent director requirements because companies
are required to disclose compensation in excess of $120,000, but are
not necessarily required to disclose compensation between $100,000 and
$120,000.
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\3\ See Securities Act Release No. 8732A (August 29, 2006).
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Auditor Test
Additionally, NYSE is proposing to amend the bright line test set
out in Section 303A.02(b)(iii) relating to a listed company's internal
or external auditor. The test currently precludes a director from being
deemed independent if:
The director or an immediate family member is a current
partner of a firm that is the company's internal or external auditor;
The director is a current employee of such a firm;
The director has an immediate family member who is a
current employee of such a firm and who participates in the firm's
audit, assurance or tax compliance (but not tax planning) practice; or
The director or an immediate family member was within the
last three years (but is no longer) a partner or employee of such a
firm and personally worked on the listed company's audit within that
time.
NYSE's experience to date has demonstrated that the current
standard with respect to immediate family members has had the effect of
precluding a director from being deemed independent in cases even where
an immediate family member had no relationship to the listed company's
audit. For example, NYSE's current test has required a listed company's
board to conclude that a director may no longer be deemed independent
when the director's child took an entry-level job in the audit practice
of the listed company's external auditor upon graduation from college,
notwithstanding the fact that the child was a low-level employee in a
different region and had no involvement with the listed company's
audit.
In addition, NYSE's proposed change will bring its standards more
in line with the auditor tests utilized by Nasdaq and the American
Stock Exchange.\4\
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\4\ See NASDAQ Marketplace Rule 4200(a)(15)(F) and Amex Company
Guide Section 803(A)(2)(f).
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NYSE proposes to modify its current test with respect to a
director's immediate family member to cover only an immediate family
member who:
Is a current partner of the company's internal or external
auditor;
Is a current employee of such a firm and personally works
on the listed company's audit; or
Was within the last three years a partner or employee of
such a firm and personally worked on the listed company's audit within
that time.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) \5\ of the Act in general, and furthers the
objectives of Section 6(b)(5) of the Act,\6\ in particular, in that it
is designed to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, 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.
The Exchange believes that the proposed amendment to Section
303A.02(b)(iii) will help to perfect the mechanism of a free and open
market in that it will conform the Exchange's approach to that of
Nasdaq and Amex.
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\5\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that this amendment is consistent with the
protection of investors and the public interest because the amended
test will continue to bar a finding of independence where a director
has any material relationship with the listed company. The proposed
amendment to Section 303A.02(b)(ii) furthers the protection of
investors and the public interest in that it adopts the Commission's
own materiality threshold for related party transactions and will
therefore provide a standard that is clear, straightforward, and easy
for issuers to understand and apply.
[[Page 50063]]
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is 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
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, if consistent with
the protection of investors and the public interest, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \7\ and Rule 19b-
4(f)(6) thereunder.\8\
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\7\ 15 U.S.C. 78s(b)(3)(A).
\8\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires that a self-regulatory organization submit to the
Commission written notice of its intent to file the proposed rule
change, along with a brief description and text of the proposed rule
change, at least five business days prior to the date of filing of
the proposed rule change, or such shorter time as designated by the
Commission. The Commission notes that the Exchange has satisfied the
five-day pre-filing notice requirement.
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At any time within 60 days of the filing of the proposed rule
change, the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.
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 e-mail to [email protected]. Please include
File Number SR-NYSE-2008-75 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-NYSE-2008-75. This file
number should be included on the subject line if e-mail 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 inspection and
copying in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office 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-NYSE-2008-75 and should be
submitted on or before September 15, 2008.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-19591 Filed 8-22-08; 8:45 am]
BILLING CODE 8010-01-P