[Federal Register Volume 74, Number 143 (Tuesday, July 28, 2009)]
[Notices]
[Pages 37277-37280]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-17889]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-60358; File Nos. SR-BX-2009-040, SR-Phlx-2009-60]
Self-Regulatory Organizations; NASDAQ OMX BX, Inc. and NASDAQ OMX
PHLX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed
Rule Changes Amending the By-Laws of The NASDAQ OMX Group, Inc., Their
Parent Company
July 21, 2009.
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 July 16, 2009, NASDAQ OMX BX, Inc. (``BX'') and NASDAQ OMX PHLX,
Inc. (``Phlx'') (collectively, the ``NASDAQ OMX Exchange
Subsidiaries'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule changes as described in Items I, II,
and III below, which Items have been substantially prepared by the
NASDAQ OMX Exchange Subsidiaries. The Commission is publishing this
notice to solicit comments on the proposed rule changes 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 Organizations' Statement of the Terms of Substance
of the Proposed Rule Changes
The NASDAQ OMX Exchange Subsidiaries are filing these proposed rule
changes with regard to proposed changes to the By-Laws of their parent
corporation, The NASDAQ OMX Group, Inc. (``NASDAQ OMX''). The proposed
rule changes will be implemented as soon as practicable following
submission of these filings. The text of the proposed rule changes is
available at http://nasdaqomxbx.cchwallstreet.com and http://nasdaqomxphlx.cchwallstreet.com/nasdaqomxphlx/phlx, respectively, and
at the respective NASDAQ OMX Exchange Subsidiary's principal office,
and at the Commission's Public Reference Room.
II. Self-Regulatory Organizations' Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Changes
In their filings with the Commission, each of the NASDAQ OMX
Exchange Subsidiaries included statements concerning the purpose of and
basis for its proposed rule change and discussed any comments it
received on its proposed rule change. The text of these statements may
be examined at the
[[Page 37278]]
places specified in Item IV below. Each of the NASDAQ OMX Exchange
Subsidiaries has prepared summaries, set forth in Sections A, B, and C
below, of the most significant aspects of such statements.
A. Self-Regulatory Organizations' Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Changes
1. Purpose
NASDAQ OMX has proposed making certain amendments to its By-Laws to
make improvements in its governance and update several provisions. In
SR-NASDAQ-2009-039, The NASDAQ Stock Market LLC (the ``NASDAQ
Exchange'') sought Commission approval to adopt these By-Law changes as
part of the rules of the NASDAQ Exchange, and the Commission granted
approval to these changes in an order dated June 26, 2009.\3\ The
NASDAQ OMX Exchange Subsidiaries are now submitting these filings on an
immediately effective basis to adopt the same By-Law changes as rules
of each Exchange.
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\3\ Securities Exchange Act Release No. 59858 (May 4, 2009), 74
FR 22191 (May 12, 2009) (SR-NASDAQ-2009-039); Securities Exchange
Act Release No. 60183 (June 26, 2009), 74 FR 32207 (July 7, 2009)
(SR-NASDAQ-2009-039).
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The proposed changes to the By-Laws are as follows:
Article I is being amended to reflect the recent name
changes of the Philadelphia Stock Exchange and the Boston Stock
Exchange to NASDAQ OMX Phlx, Inc. and NASDAQ OMX BX, Inc.,
respectively.
Article III is being amended to modify the procedures
governing proposals by stockholders, including proposals by
stockholders to nominate directors. Specifically, the amendment will
require a stockholder making a proposal to supply more complete
information about the stockholder's background, including a description
of any agreement, arrangement, or understanding between the
stockholder, the beneficial owner of the stock, and any other persons
acting in concert with them; a description of any agreement,
arrangement or understanding (including any derivative or short
positions, profit interests, options, warrants, convertible securities,
stock appreciation or similar rights, hedging transactions, and
borrowed or loaned shares), the effect or intent of which is to
mitigate loss to, manage risk or benefit of share price changes for, or
increase or decrease the voting power of, such stockholder or such
beneficial owner, with respect to shares of stock of NASDAQ OMX; and
any other information regarding the stockholder and beneficial owner
that would be required to be disclosed in a proxy statement under
Section 14(a) of the Act. These changes are designed to provide the
NASDAQ OMX Board of Directors and its stockholders with greater insight
into the identity and intentions of persons presenting stockholder
proposals to allow more thorough consideration of the merits of such
proposals. These requirements are deemed satisfied, however, in the
case of a proposal that is validly submitted under the rules and
regulations promulgated under the Act (i.e., SEC Rule 14a-8) and
included in NASDAQ OMX's proxy. However, compliance with the By-Laws or
with SEC Rule 14a-8 provides the exclusive means for stockholders to
make proposals. The amendments also provide that a representative of a
stockholder qualified to appear at an annual meeting must be an
officer, manager or partner of the stockholder or must have written
authorization from the stockholder. The amendments also make several
minor clarifying changes to the text of Article III.
Article IV is being amended to state explicitly that the
Management Compensation Committee and the Audit Committee must be
composed exclusively of independent directors within the meaning of the
rules of the NASDAQ Stock Market that govern NASDAQ OMX's listing (and,
in the case of the Audit Committee, Section 10A of the Act).\4\
Although NASDAQ OMX adheres scrupulously to the independence
requirements imposed by the NASDAQ Stock Market and the Act, it
believes that these requirements should be explicitly stated in the By-
Laws as well. NASDAQ OMX is also removing language making its Chief
Executive Officer an ex-officio, non-voting member of the Management
Compensation Committee. In this regard, listing standards of the NASDAQ
Stock Market require management compensation determinations regarding
executive officers to be made by vote of the Board's independent
directors, or by vote of or upon the recommendation of a committee
composed solely of independent directors.\5\ NASDAQ OMX has satisfied
this requirement by submitting compensation decisions to the vote of
all of NASDAQ OMX's independent directors, but removing the Chief
Executive Officer as an ex-officio director will provide it with
flexibility to act upon the vote or upon the recommendation of the
committee.
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\4\ 15 U.S.C. 78j-1(m). Notably, ``Staff Directors,'' who are
officers of NASDAQ OMX serving on the NASDAQ OMX Board, are not
considered independent under these provisions, and are therefore
ineligible for service on the Audit Committee or Management
Compensation Committee, or, as discussed below, the newly
constituted Nominating Committee.
\5\ NASDAQ Exchange Rule 4350(c)(3).
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Currently, NASDAQ OMX's Nominating Committee is required
to be composed of persons who are not directors or who are directors
not standing for re-election. This compositional requirement, which
NASDAQ OMX's predecessor, The Nasdaq Stock Market, Inc., originally
adopted while it was a wholly owned subsidiary of the National
Association of Securities Dealers (``NASD''), is highly unusual for a
public company such as NASDAQ OMX. In light of NASDAQ OMX's continued
evolution into a public company with global operations, NASDAQ OMX
believes that it is appropriate to adopt a standard nominating
committee structure in which the committee is composed exclusively of
independent directors. Under the amended by-law, the nominating
committee shall consist of four or five directors, each of whom shall
be an independent director within the meaning the rules of the NASDAQ
Exchange. In addition, the number of Non-Industry Directors (i.e.,
Directors without material ties to the securities industry) must equal
or exceed the number of Industry Directors, and at least two members of
the committee must be Public Directors (i.e., directors who have no
material business relationship with a broker or dealer, NASDAQ OMX or
its affiliates, or FINRA).
Article VIII is being amended to provide that NASDAQ OMX
shall provide indemnification against liability, advancement of
expenses, and the power to purchase and maintain insurance on behalf of
persons serving as a director, officer, or employee of any wholly owned
subsidiary of NASDAQ OMX to the same extent as indemnification,
advancement of expenses, and the power to maintain insurance is
provided for directors, officers, or employees of NASDAQ OMX. Thus, for
example, a director of one of NASDAQ OMX's US or Nordic exchanges would
be entitled to indemnification (and advancement of expenses) by NASDAQ
OMX if made a party to a lawsuit to the same extent as a director of
NASDAQ OMX. Similarly, the discretionary authority of NASDAQ OMX under
Section 8.1(c) of the By-Laws to provide indemnification to persons
serving as an agent of NASDAQ OMX is being extended to persons serving
as an agent of any wholly owned
[[Page 37279]]
subsidiary of NASDAQ OMX. Article VIII is also amended to clarify that
any repeal, modification or amendment of, or adoption of any provision
inconsistent with, the indemnification and advancement of expenses
provided for in Article VIII will not adversely affect the right of any
person covered by the provision if the act or omission that any
proceeding arises out of or is related to had occurred prior to the
time for the repeal, amendment, adoption or modification.
Article IX is being amended to modernize the language of
the provisions dealing with capital stock to reflect possible
participation in the Direct Registration System (the ``DRS''). The DRS
provides for the electronic registration of eligible securities in an
investor's name on the books of the transfer agent or corporation,
eliminating the need for physical stock certificates or shares held in
book-entry form by the beneficial owner's broker. Although under the
Delaware General Corporation Law, NASDAQ OMX can authorize
participation in the program through a resolution, the various
amendments to Article IX track more closely the language of Section 158
of the Delaware General Corporation Law, as recently revised, to
explicitly reference the possibility of capital stock in uncertificated
form. The amendments, however, do not require NASDAQ OMX to participate
in the DRS or to eliminate stock certificates.
Article XII is being amended to conform certain of its
provisions more closely to corresponding provisions in the Amended and
Restated By-Laws of NYSE Euronext (the ``NYSE Euronext By-Laws'').
Article XII contains provisions that govern the relationship between
NASDAQ OMX and each of its subsidiaries that is a self-regulatory
organization. First, the article requires NASDAQ OMX's ``[d]irectors,
officers, employees, and agents'' (emphasis added) to give due regard
to the preservation of the independence of each self-regulatory
subsidiary, not to take any actions that would interfere with each
self-regulatory subsidiary's regulatory functions, to cooperate with
the Commission, to consent to U.S. jurisdiction, and to consent in
writing to the applicability of these provisions. Corresponding
provisions of Articles VII, VIII, and IX of the NYSE Euronext By-Laws,
however, do not include the ambiguous and potentially expansive word
``agent.'' NASDAQ OMX is concerned that a broad construction of the
term--to include not only parties with which it establishes an explicit
contractual agency relationship, but also other service providers such
as law firms and financial advisors that may act on NASDAQ OMX's behalf
on certain occasions--may deter some parties from providing services to
NASDAQ OMX. However, in lieu of the requirement to obtain specific
consents from agents, NASDAQ OMX proposes to adopt a provision from the
NYSE Euronext By-Laws providing that NASDAQ OMX shall comply with the
U.S. federal securities laws and the rules and regulations thereunder
and shall cooperate with the SEC and the Self-Regulatory Subsidiaries
pursuant to and to the extent of their respective regulatory authority,
and shall take reasonable steps necessary to cause its agents to
cooperate, with the SEC and, where applicable, the Self-Regulatory
Subsidiaries pursuant to their regulatory authority. Second, Article
XII provides that NASDAQ OMX and its officers, directors and employees
\6\ agree to maintain an agent for service of process in the U.S. By
contrast, Article VII of the NYSE Euronext By-Laws includes a statement
that officers, directors and employees shall be deemed to agree that
the Corporation may serve as the U.S. agent for service of process.
Accordingly, NASDAQ OMX proposes to adopt this more self-executing
version. Finally, while the NASDAQ OMX By-Laws provide that NASDAQ OMX
shall take such action as is necessary to insure that officers,
directors and employees consent in writing to the applicability of
these provisions, Article IX of the NYSE Euronext By-Laws requires only
that NYSE Euronext take reasonable steps necessary to cause officers,
directors, and employees to consent. Although NASDAQ OMX has begun the
process of collecting written consents from current officers,
directors, and employees, it believes that the current language may be
unreasonably demanding as applied to a multinational exchange operator
with over 2,000 employees in over 20 countries. Accordingly, NASDAQ OMX
proposes to adopt a version of NYSE Euronext's language, which will
require reasonable steps to obtain consent from both current officers,
directors, and employees, as well as prospective officers, directors,
and employees prior to their acceptance of a position.
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\6\ The existing reference to ``agents'' in the sentence is
proposed to be deleted.
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2. Statutory Basis
The NASDAQ OMX Exchange Subsidiaries believe that the proposed rule
changes are consistent with the provisions of Section 6 of the Act,\7\
in general, and with Sections 6(b)(1) and (b)(5) of the Act,\8\ in
particular, in that the proposals enable them to be so organized as to
have the capacity to be able to carry out the purposes of the Act and
to comply with and enforce compliance by members and persons associated
with members with provisions of the Act, the rules and regulations
thereunder, and self-regulatory organization rules, and are designed to
prevent fraudulent and manipulative acts and practices, 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 proposed changes will
enhance the clarity of NASDAQ OMX's governance documents and improve
its Board committee structures.
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\7\ 15 U.S.C. 78f.
\8\ 15 U.S.C. 78f(b)(1), (5).
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B. Self-Regulatory Organizations' Statements on Burden on Competition
The NASDAQ OMX Exchange Subsidiaries do not believe that the
proposed rule changes will result in any burden on competition that is
not necessary or appropriate in furtherance of the purposes of the Act,
as amended.
C. Self-Regulatory Organizations' Statements on Comments on the
Proposed Rule Changes Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Changes and Timing for
Commission Action
The foregoing rule changes have become effective pursuant to
Section 19(b)(3)(A)(iii) of the Act \9\ and subparagraph (f)(6) of Rule
19b-4 thereunder.\10\ At any time within 60 days of the filing of the
respective proposed rule change by the applicable NASDAQ OMX Exchange
Subsidiary, 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.
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\9\ 15 U.S.C. 78s(b)(3)(A)(iii).
\10\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6) \11\ normally
does not become operative for 30 days after the
[[Page 37280]]
date of filing. However, Rule 19b-4(f)(6)(iii) \12\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The NASDAQ
OMX Exchange Subsidiaries request that the Commission waive the 30-day
operative delay so that the proposals may become operative immediately
upon filing. The NASDAQ OMX Exchange Subsidiaries state that the
proposed rule changes do not significantly affect the protection of
investors or the public interest and do not impose any significant
burden on competition.
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\11\ 17 CFR 240.19b-4(f)(6).
\12\ 17 CFR 240.19b-4(f)(6)(iii).
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The Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public
interest.\13\ As mentioned above, the Commission recently approved the
proposed rule change by The NASDAQ Stock Market LLC to adopt as part of
its rules these same proposed changes to the By-Laws of NASDAQ OMX.\14\
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\13\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\14\ See supra, note 3 and accompanying text.
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
changes are 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 Nos. SR-BX-2009-040 and SR-Phlx-2009-60 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Nos. SR-BX-2009-040 and SR-Phlx-
2009-60. These file numbers 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 changes that
are filed with the Commission, and all written communications relating
to the proposed rule changes 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 on official
business days between the hours of 10 a.m. and 3 p.m. Copies of such
filings also will be available for inspection and copying at the
principal offices of the respective 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 Nos. SR-BX-2009-040 and SR-Phlx-2009-60, and
should be submitted on or before August 18, 2009.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-17889 Filed 7-27-09; 8:45 am]
BILLING CODE 8010-01-P