[Federal Register Volume 74, Number 162 (Monday, August 24, 2009)]
[Notices]
[Pages 42711-42714]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-20193]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-60493; File No. SR-BSECC-2009-04]
Self-Regulatory Organizations; the Boston Stock Exchange Clearing
Corporation; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change Related to an Amendment to the By-Laws of The NASDAQ OMX
Group, Inc.
August 12, 2009.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on July 22, 2009, Boston
Stock Exchange Clearing Corporation (``BSECC'') filed with the
Securities and Exchange Commission (``Commission or SEC'') the proposed
rule change described in Items I and II below, which items have been
prepared primarily by BSECC. BSECC filed the proposed rule change under
Rule 19b-4(f)(6) under the Act \2\ so that the proposal was effective
upon filing with the Commission. The Commission is publishing this
notice to solicit comments on the rule change from interested parties.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
BSECC is filing this proposed rule change with regard to proposed
changes to the bylaws of its parent corporation, The NASDAQ OMX Group,
Inc. (``NASDAQ OMX''). The proposed rule change will be implemented as
soon as practicable following submission of this filing. The text of
the proposed rule change is available at http://nasdaqomxbx.cchwallstreet.com, at BSECC's principal office, 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, BSECC 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. BSECC has prepared summaries, set forth in sections (A),
(B), and (C) below, of the most significant aspects of these
statements.\3\
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\3\ The Commission has modified the text of the summaries
prepared by DTC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
NASDAQ OMX made certain amendments to its by-laws to update its by-
laws and to make improvements in its governance. In SR-NASDAQ-2009-039,
The NASDAQ Stock Market LLC (``NASDAQ Exchange'') sought and received
Commission approval to adopt these by-law changes as part of the rules
of the NASDAQ Exchange.\4\ BSECC is submitting this filing to adopt the
same by-law changes as rules of BSECC.
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\4\ 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
[[Page 42712]]
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).\5\
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.\6\ 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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\5\ 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.
\6\ 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 reelection. 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 bylaw, 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 U.S. 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 subsidiary
of NASDAQ OMX. Article VIII is also being 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 (``DRS''). 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 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 (``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
[[Page 42713]]
rules and regulations thereunder and shall cooperate with the
Commission 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
Commission and where applicable with the self-regulatory subsidiaries
pursuant to their regulatory authority. Second, Article XII provides
that NASDAQ OMX and its officers, directors, and employees \7\ 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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\7\ The existing reference to ``agents'' in the sentence is
proposed to be deleted.
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2. Statutory Basis
The proposed rule change is consistent with provisions of Section
17A of the Act \8\ in general and with Section 17A(b)(3)(A) of the
Act,\9\ in particular, because it is designed to ensure that BSECC is
so organized and has the capacity to be able to facilitate the prompt
and accurate clearance and settlement of securities transactions and to
enforce compliance by its participants with the rules of the clearing
agency. The proposed changes will enhance the clarity of NASDAQ OMX's
governance documents and improve its Board committee structures.
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\8\ 15 U.S.C. 78q-1.
\9\ 15 U.S.C. 78q-1(b)(3)(A).
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(B) Self-Regulatory Organization's Statement on Burden on Competition
BSECC does not believe that the proposed rule change 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 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)
becomes operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-
4(f)(6) thereunder.\11\
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative for 30 days after the date of filing. However,
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter
time if such action is consistent with the protection of investors and
the public interest. BSECC requests that the Commission waive the 30-
day pre-operative waiting period contained in Rule 19b-
4(f)(6)(iii).\12\ Waiver of the waiting period will ensure that NASDAQ
OMX is able to implement the proposed rule change, which has already
been approved as a rule of the NASDAQ Exchange, without undue delay.
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\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\ The Commission notes the proposal is substantively
identical to proposals that were recently approved by the Commission
and does not raise any new regulatory issues.\14\ For these reasons,
the Commission designates the proposed rule change as operative upon
filing.
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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 infra note 3.
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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-BSECC-2009-04 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 Number SR-BSECC-2009-04. 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 filings also will be available for
inspection and copying at the principal office of BSECC. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You
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should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-BSECC-2009-04
and should be submitted on or before September 14, 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. E9-20193 Filed 8-21-09; 8:45 am]
BILLING CODE 8010-01-P