[Federal Register Volume 78, Number 128 (Wednesday, July 3, 2013)]
[Notices]
[Pages 40239-40241]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-15935]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69883; File No. SR-BATS-2013-024]


 Self-Regulatory Organizations; BATS Exchange, Inc.; Order 
Granting Approval to Proposed Rule Change Amending and Restating the 
Amended and Restated By-Laws of BATS Exchange, Inc.

June 27, 2013.

I. Introduction

    On April 29, 2013, BATS Exchange, Inc. (the ``Exchange'' or 
``BATS'') 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 and restate the Amended and Restated By-
Laws of BATS Exchange. The proposed rule change was published for 
comment in the Federal Register on May 15, 2013.\3\ The Commission 
received no comments on 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. 69540 (May 8, 2013), 
78 FR 28663 (May 15, 2013) (``Notice'').
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II. Description of the Proposal

    The Exchange has proposed to amend and restate its Amended and 
Restated By-Laws (the ``Current By-Laws'') and adopt these changes as 
its Second Amended and Restated By-Laws (the ``New By-Laws''). The 
Exchange's proposed amendments to the Current By-Laws include: (i) 
Providing that the Board of Directors will consist of four (4) or more 
directors, with the board fixing the actual number of directors from 
time to time by resolution of the Board of Directors rather than fixing 
the number of directors in the by-laws; (ii) clarifying that the 
existing procedures for filling vacancies on the Board of Directors 
apply only for non-Member Director Representative Director positions; 
(iii) clarifying separate procedures for filling vacancies on the Board 
of Directors for Member Representative Director positions; and (iv) 
adding a new requirement that the processes for filling any director 
vacancies apply to vacancies created as a result of an increase in the 
size of the board.

A. Number of Directors

    Article III, Section 2(a) of the Exchange's Current By-Laws fixes 
the number of directors of the Exchange at ten (10) directors. Article 
III, Section 2(a) of the New By-Laws would amend Article III, Section 
2(a) to state that the Board of Directors of the Exchange shall consist 
of four (4) or more members, the number thereof to be determined from 
time to time by resolution of the Board of Directors, subject to the 
compositional requirements of the board set forth in Article III, 
Section 2(b).
    The Current By-Laws and the New By-Laws require that the Board of 
Directors consist of the following: (i) One (1) director who is the 
Chief Executive Officer of the Company; (ii) representation by Member 
Representative Directors of at least twenty percent (20%) of the board; 
\4\ and (iii) representation by Non-Industry Directors (including at 
least one (1) Independent Director) that equals or exceeds the sum of 
the number of Industry Directors and Member Representative 
Directors.\5\ Under the Current By-Laws and the New By-Laws, the Chief 
Executive Officer is considered to be an Industry Director.\6\ 
Additionally, under the Current By-Laws and New By-Laws, the Member 
Representative Director requirement of twenty percent (20%) would 
require the board to include at least one (1) Member Representative 
Director.\7\ Thus, under the proposal, the minimum requisite sum of the 
number of Industry Directors and Member Representative Directors

[[Page 40240]]

would equal two (2) directors. As such, under the composition 
requirements, the board would also have to include at least two (2) 
Non-Industry Directors, bringing the total minimum size of the board to 
four (4) directors.
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    \4\ The Exchange noted that because the number of Member 
Representative Directors must be at least twenty percent (20%) of 
the board, it is required under the Current By-Laws and the New By-
Laws that if twenty percent (20%) of the directors then serving on 
the board is not a whole number, such number of Member 
Representative Directors must be rounded up to the next whole 
number.
    \5\ See Article III, Section 2(b) of the Current By-Laws.
    \6\ See id.
    \7\ Id.
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B. Member Representative Director Vacancies

    A Member Representative Director is defined in relevant part in 
Article I of the Current By-Laws as a Director ``elected by the 
stockholders after having been nominated by the Member Nominating 
Committee \8\ or by an Exchange Member pursuant to these By-Laws.'' 
Article III, Section 4 of the Current By-Laws in turn specifies the 
precise process the Member Nominating Committee is required to follow 
with the respect to the election and nomination of Member 
Representative Directors.\9\
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    \8\ See Article VI, Section 3 of the Current By-Laws for a 
detailed description of the Member Nominating Committee and its 
responsibilities.
    \9\ See Article III Section 4(c) of the Current By-Laws for 
detailed provisions relating to the Member Representative Director 
nomination and election process.
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    As distinguished from the nomination and election of directors as 
part of the Exchange's annual stockholders meeting, Article III, 
Section 6 of the Current By-Laws specifies the procedures for filling 
vacancies on the board when a director position becomes vacant prior to 
the election of a successor at the end of such director's term, whether 
because of death, disability, disqualification, removal, or 
resignation. Under these circumstances, the Nominating Committee \10\ 
must nominate, and the stockholders must elect, a person satisfying the 
classification for the directorship in compliance with the board 
compositional requirements of Article III, Section 2(b) of the Current 
By-Laws to fill such vacancy; provided, however, that if the remaining 
term of office of a Member Representative Director at the time of such 
director's termination is not more than six (6) months, during the 
period of vacancy the board is not deemed to be in violation of the 
board compositional requirements because of such vacancy.
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    \10\ See Article VI, Section 2 of the Current By-Laws for a 
detailed description of the Nominating Committee and its 
responsibilities.
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    The Exchange has proposed, in Article III, Section 6(a) of the New 
By-Laws, to clarify that the procedures therein for filling director 
vacancies would apply only to non-Member Representative Director 
positions. The Exchange also has proposed in new Section 6(b) of the 
New By-Laws to clarify separate procedures for filling Member 
Representative Director vacancies on the board, which procedures would 
require that the Member Nominating Committee shall either (i) recommend 
an individual to the stockholders to be elected to fill such vacancy or 
(ii) provide a list of recommended individuals to the stockholders from 
which the stockholders shall elect the individual to fill such vacancy.
    In addition, the Exchange has proposed, in Article III, Section 
6(a) and (b) of the New By-Laws, to add the requirement that the 
process for filling vacancies described therein would be followed in 
the circumstance where such vacancy is created as a result of an 
increase in the size of the board. Under the New By-Laws, in the case 
of a director filling a vacancy not resulting from a newly-created 
directorship, the new director would serve until the expiration of the 
remaining term. However, in the case of a director filling a vacancy 
resulting from a newly-created directorship, the new director would 
serve until the expiration of such person's designated term. In all 
cases, however, if the remaining term of office of a director at the 
time of such director's vacancy is not more than six (6) months, during 
the period of vacancy the board would not be deemed to be in violation 
of Article III, Section 2(b) because of such vacancy. Under the Current 
By-Laws, this six-month grace period applies only to Member 
Representative Director vacancies. Under the New By-Laws, this six-
month grace period would be expanded to apply to any director vacancy, 
which the Exchange notes is consistent with precedent from other 
exchanges.\11\
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    \11\ See Notice supra note 3, 78 FR at 28665 n. 7.
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III. Comment Letter and the Exchange's Response

    The Commission received no comment letters on the proposed rule 
change.

IV. Discussion and Commission Findings

    After careful review of the proposal, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
the rules and regulations thereunder that are applicable to a national 
securities exchange.\12\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(1) of the Act,\13\ 
which requires, among other things, that an exchange be so organized 
and have the capacity to carry out the purposes of the Act and to 
comply, and enforce compliance by its members and persons associated 
with its members, with the provisions of the Act, the rules and 
regulations thereunder, and the rules of the Exchange.
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    \12\ In approving the proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \13\ 15 U.S.C. 78f(b)(1).
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    The Commission notes that the proposed rule change would provide a 
minimum number of directors for the Board of Directors of the Exchange, 
rather than a fixed number of directors. As such, the Exchange has 
noted that the New By-Laws would provide the board with the flexibility 
to increase or decrease the size of the board by resolution, rather 
than amending the by-laws each time the board seeks to increase or 
decrease the size of the board.\14\ The Commission notes that the 
Exchange has represented that it is not proposing to amend any of the 
compositional requirements of the board, which are set forth in in 
Article III, Section 2(b) of the Current By-Laws and the New By-
Laws.\15\
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    \14\ See Notice supra note 3, 78 FR at 28664.
    \15\ See id.
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    The proposed rule change would clarify that the Current By-Laws' 
existing procedures for filling director positions on its Board of 
Directors apply only to non-Member Representative Director positions 
and would clarify a specific process for filling vacancies for Member 
Representative Director positions. The Exchange has represented that 
the lack of such a specific process in the Current By-Laws for filling 
a Member Representative Director position that becomes vacant prior to 
the election of a successor at the end of such director's term has led 
to some confusion regarding the exact process to follow.\16\ In 
particular, the Exchange has noted that the Current By-Laws would 
appear to require that a Member Representative Director vacancy be 
filled by the Nominating Committee; however, the Exchange has stated 
that such a requirement would conflict with the Current By-Laws' 
definition of a Member Representative Director, which requires in all 
cases that such person be nominated by the Member Nominating Committee 
or by an Exchange Member. The Exchange has represented that it intended 
that its Current By-Laws would require that the Member Nominating 
Committee nominate one or more candidates to fill Member Representative 
Director vacancies, which is consistent with

[[Page 40241]]

precedent from other exchanges.\17\ The Commission notes that the 
proposed rule change would make such intended process for filling 
vacancies for Member Representative Director positions explicit in the 
New By-Laws.
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    \16\ Id.
    \17\ Id.
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    The proposed rule change would also clarify that the procedures for 
filling any vacancies would also apply to vacancies created as a result 
of an increase in the size of the board. The Exchange has represented 
that generally, if the board has determined to increase the size of the 
board, it is creating the new directorship seat(s) because it has 
identified a qualified candidate(s) who would improve the overall 
quality of the board.\18\ The Exchange has stated that, under these 
circumstances, time is of the essence and waiting to elect a 
director(s) to fill a newly created directorship seat(s) at the next 
scheduled annual stockholder meeting is not in the best interests of 
the Exchange or its stockholders. Consequently, the Exchange has stated 
that it is necessary that the New By-Laws provide a more streamlined 
process to fill a vacancy created by increasing the size of the 
board.\19\ The Commission notes that Exchange has represented that any 
vacancies filled pursuant to the New By-Laws would be required to 
continue to comply with its existing compositional requirements.
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    \18\ See Notice supra note 3, 78 FR at 28665.
    \19\ See id.
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    Finally, the proposed rule change would also provide that if the 
remaining term of office of any director at the time of the director's 
vacancy is not more than six months, during the period of such vacancy 
the board will not be deemed to be in violation of the compositional 
requirements of Article III, Section 2(b) because of such vacancy. The 
Exchange notes that applying the six month grace period to any director 
vacancy, rather than just a Member Representative Director vacancy, is 
consistent with precedent from other exchanges. Further, the Exchange 
notes that this would be less disruptive to the director election 
process by permitting any vacancy to be filled at the next scheduled 
annual stockholder meeting, rather than through an earlier-held special 
stockholder meeting.
    For the reasons stated above, the Commission believes that the 
proposal is consistent with the requirements of the Act and is designed 
to enable the Exchange to be so organized and have the capacity to 
carry out the purposes of the Act and to comply with, and enforce 
compliance by its members and persons associated with its members, with 
the provisions of the Act, the rules and regulations thereunder, and 
the rules of the Exchange.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\20\ that the proposed rule change (SR-BATS-2013-024) be, and 
hereby is, approved.
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    \20\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
Kevin M. O'Neill,
Deputy Secretary.
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    \21\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2013-15935 Filed 7-2-13; 8:45 am]
BILLING CODE 8011-01-P