[Federal Register Volume 76, Number 124 (Tuesday, June 28, 2011)]
[Notices]
[Pages 37867-37868]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-16133]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64725; File No. SR-CBOE-2011-044]


 Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Order Approving Proposed Rule Change, as Modified by 
Amendment No. 1, to Reduce the Minimum Size of the Nominating and 
Governance Committee

June 22, 2011.

I. Introduction

    On April 27, 2011, Chicago Board Options Exchange, Incorporated 
(``CBOE'' 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 reduce the minimum size of the 
Nominating and Governance Committee (``NGC'') from seven to five. On 
May 18, 2011, the Exchange filed Amendment No. 1 to the proposed rule 
change.\3\ The proposed rule change was published for comment in the 
Federal Register on May 10, 2011.\4\ The Commission received no comment 
letters regarding the proposal. This order approves the proposed rule 
change, as modified by Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ At the time CBOE submitted the original proposed rule 
change, it had not yet obtained formal approval from its Board of 
Directors for the specific Bylaw changes set forth in this proposed 
rule change. CBOE stated that once that approval was obtained, it 
would file a technical amendment to its proposed rule change to 
reflect that approval. In Amendment No. 1, the Exchange notes that 
the CBOE Board of Directors approved the specific Bylaw changes set 
forth in SR-CBOE-2011-044 on May 17, 2011 and stated that no further 
action was necessary in connection with its proposal. Because 
Amendment No. 1 is technical in nature, the Commission is not 
required to publish it for public comment.
    \4\ See Securities Exchange Act Release No. 64395 (May 4, 2011), 
76 FR 27125 (``Notice'').
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II. Description of the Proposal

    CBOE is proposing to reduce the minimum size of its NGC from seven 
to five directors. Section 4.4 of the Second Amended and Restated 
Bylaws of CBOE (``Bylaws'') currently provides, in

[[Page 37868]]

pertinent part, that the NGC shall consist of at least seven directors, 
including both Industry and Non-Industry Directors; that a majority of 
the directors on the Committee shall be Non-Industry Directors; and 
that the exact number of members on the Committee shall be determined 
from time to time by CBOE's Board of Directors (the ``Board'' or ``CBOE 
Board''). Pursuant to the proposed rule change, Section 4.4 of the 
Bylaws would be amended to provide that the NGC shall consist of at 
least five directors. The other provisions of Section 4.4 of the Bylaws 
would remain unchanged.\5\
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    \5\ Additionally, the title of the Bylaws would be changed to 
the Third Amended and Restated Bylaws of CBOE.
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    In outlining the purpose behind its proposal, the Exchange noted 
that the size of its Board declined from its initial size of twenty-
three to nineteen directors in 2009 and again to sixteen directors in 
2011.\6\ As the size of its Board has declined, the Exchange noted that 
it has become more challenging to populate larger-size Board committees 
since there are fewer directors to serve on a multitude of 
committees.\7\ The Exchange's proposal to reduce the minimum size of 
the NGC is intended to help address this issue.
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    \6\ Section 3.1 of the Bylaws provides that the CBOE Board shall 
consist of not less than eleven and not more than twenty-three 
directors, with the exact size determined by the Board.
    \7\ See Notice, supra note 4, at 27125-26.
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III. Discussion

    After careful review of the proposal, the Commission finds that the 
proposed rule change, as modified by Amendment No. 1, is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\8\ In 
particular, the Commission finds that the proposal is consistent with 
Section 6(b)(1) of the Act,\9\ which requires a national securities 
exchange to be so organized and have the capacity to carry out the 
purposes of the Act and to comply, and to enforce compliance by its 
members and persons associated with its members, with the provisions of 
the Act, as well as Section 6(b)(5) of the Act,\10\ in that it is 
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, in 
general, to protect investors and the public interest. While the 
Exchange has proposed to reduce the minimum size of the NGC, it has not 
proposed any other changes to the composition of the committee or the 
scope or exercise of its responsibilities. In its filing, the Exchange 
affirmatively represented that the NGC ``will continue to be able to 
appropriately perform its functions'' despite the reduction in minimum 
required size.\11\ The Commission further finds that the proposal, as 
modified by Amendment No. 1, is consistent with the requirements of 
Section 6(b)(3) of the Act,\12\ which requires that one or more 
directors of an exchange shall be representative of issuers and 
investors and not be associated with a member of the exchange, broker 
or dealer.
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    \8\ 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).
    \9\ 15 U.S.C. 78f(b)(1).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ See Notice, supra note 4, at 27126.
    \12\ 15 U.S.C. 78f(b)(3).
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    In particular, the Commission notes that the Exchange will continue 
to provide for the fair representation of CBOE Trading Permit Holders 
in the selection of directors and the administration of the Exchange 
consistent with Section 6(b)(3) of the Act \13\ following this rule 
change. Specifically, the CBOE Bylaws will continue to require that at 
least thirty percent of the directors on the Board be Industry 
Directors and that at least twenty percent of CBOE's directors be 
Representative Directors elected by permit holders.\14\ Further, the 
NGC will continue to include both Industry and Non-Industry Directors 
(including a majority Non-Industry Directors) and have an Industry-
Director Subcommittee that is composed of all of the Industry Directors 
serving on the Committee. Representative Directors will continue to be 
nominated (or otherwise selected through a petition process) by the 
Industry-Director Subcommittee. Additionally, CBOE Trading Permit 
Holders will continue to be able to nominate alternative Representative 
Director candidates to those nominated by the Industry Director 
Subcommittee, in which case a Run-off Election will be held in which 
CBOE's Trading Permit Holders vote to determine which candidates will 
be elected to the Board to serve as Representative Directors. 
Furthermore, the Commission notes that the Exchange's proposal to 
reduce the minimum size of its NGC is consistent with a proposal that 
the Commission previously approved for another self-regulatory 
organization in which that self-regulatory organization reduced the 
minimum size of its nominating and governance committee from six to 
four members.\15\
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    \13\ 15 U.S.C. 78f(b)(3).
    \14\ See Section 3.2 of the CBOE Bylaws (defining 
``Representative Director'').
    \15\ See Securities Exchange Act Release No. 54494 (September 
25, 2006), 71 FR 58023 (October 2, 2006) (SR-CHX-2006-23) (approving 
reduction of the Chicago Stock Exchange's Nominating and Governance 
Committee from six directors to four directors). See also Article 
II, Section 3 of the Bylaws of the Chicago Stock Exchange, Inc. 
(providing for a Nominating and Governance Committee with four 
directors).
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    Finally, the Exchange has represented that, although the proposed 
rule change would permit the Exchange to appoint a five-person NGC and 
the Exchange may elect to do so in the future, it is the current 
intention of the Exchange to appoint a six-person NGC.\16\
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    \16\ See Notice, supra note 4, at 27126.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\17\ that the proposed rule change (SR-CBOE-2011-044), as modified 
by Amendment No. 1, be, and hereby is, approved.
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    \17\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-16133 Filed 6-27-11; 8:45 am]
BILLING CODE 8011-01-P