[Federal Register Volume 79, Number 188 (Monday, September 29, 2014)]
[Notices]
[Pages 58393-58395]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-23050]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73194; File No. SR-Phlx-2014-61)


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing of Proposed Rule Change To Amend the Amended and Restated 
Certificate of Incorporation and By-Laws of the NASDAQ OMX Group, Inc.

September 23, 2014.
    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 September 10, 2014, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. 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 is filing this proposed rule change with respect to 
amendments of the Amended and Restated Certificate of Incorporation 
(the ``Charter'') and By-Laws (the ``By-Laws'') of its parent 
corporation, The NASDAQ OMX Group, Inc. (``NASDAQ OMX'' or the 
``Company''). The proposed amendments will be implemented on a date 
designated by NASDAQ OMX following approval by the Commission. The text 
of the proposed rule change is available on the Exchange's Web site at 
http://nasdaqomxphlx.cchwallstreet.com, at

[[Page 58394]]

the principal office of the Exchange, 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, the Exchange 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. The Exchange 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
    NASDAQ OMX is proposing to make certain amendments to its Charter 
and By-Laws.
(i) Background
    Article Fourth, Paragraph C of NASDAQ OMX's Charter includes a 
voting limitation that generally prohibits a stockholder from voting 
shares beneficially owned, directly or indirectly, by such stockholder 
in excess of 5% of the then-outstanding shares of capital stock of 
NASDAQ OMX entitled to vote as of the record date in respect of any 
matter. Pursuant to Article Fourth, Paragraph C(6) of the Charter, 
NASDAQ OMX's Board may grant exemptions to this limitation prior to the 
time a stockholder beneficially owns more than 5% of the outstanding 
shares of stock entitled to vote on the election of a majority of 
directors at such time. NASDAQ OMX's Board has never granted an 
exemption to the 5% voting limitation and has no current plans to do 
so. However, in the event the Board decides to grant such an exemption 
in the future, Article Fourth, Paragraph C(6) of the Charter and 
Section 12.5 of the By-Laws limit the Board's authority to grant the 
exemption. These provisions, which are intended to be substantively 
identical, currently contain some language differences. Following 
discussions with the SEC staff,\3\ NASDAQ OMX proposes the amendments 
described below to the Charter and By-Laws to conform these provisions 
and remove any ambiguity that may exist because of the current language 
differences.
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    \3\ See Securities Exchange Act Release No. 71353 (January 17, 
2014), 79 FR 4209 (January 24, 2014) (SR-BSECC-2013-001, SR-BX-2013-
057, SR-NASDAQ-2013-148, SR-Phlx-2013-115, SR-SCCP-2013-01), at note 
14.
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(ii) Proposed Amendments to Charter
    First, unlike the Charter, the By-Laws state that for so long as 
NASDAQ OMX shall control, directly or indirectly, any self-regulatory 
subsidiary, a resolution of the Board to approve an exemption for any 
person under Article Fourth, Paragraph C(6) of the Charter shall not be 
permitted to become effective until such resolution has been filed with 
and approved by the SEC under Section 19 of the Act. NASDAQ OMX 
proposes that this requirement be added to the Charter and that ``self-
regulatory subsidiary,'' which is currently not a defined term in the 
Charter, be defined as any subsidiary of NASDAQ OMX that is a ``self-
regulatory organization'' as defined under Section 3(a)(26) of the 
Act.\4\ At present, this defined term would include NASDAQ, BX and 
Phlx, which are national securities exchanges, and BSECC and SCCP, 
which are registered clearing agencies that are both currently dormant.
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    \4\ Under Section 3(a)(26) of the Act, a ``self-regulatory 
organization'' is ``any national securities exchange, registered 
securities association, or registered clearing agency . . .'' 15 
U.S.C. 78c(a)(26).
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    Second, both the Charter and the By-Laws state that the Board may 
not approve an exemption to the 5% voting limitation for: (i) A 
registered broker or dealer or an affiliate thereof or (ii) an 
individual or entity that is subject to a statutory disqualification 
under Section 3(a)(39) of the Act. The By-Laws include a further 
proviso stating that, for these purposes, an ``affiliate'' shall not be 
deemed to include an entity that either owns 10% or less of the equity 
of a broker or dealer, or receives 1% or less of its consolidated gross 
revenues from a broker or dealer. This proviso, which is not currently 
included in the Charter, allows NASDAQ OMX's Board to grant exemptions 
to the 5% voting limitation for entities that either own 10% or less of 
the equity of a broker or dealer, or receive 1% or less of their 
consolidated gross revenues from a broker or dealer. NASDAQ OMX 
proposes that this proviso be added to the Charter to ensure 
consistency between the Charter and By-Laws.
    Third, both the Charter and By-Laws require the Board to make 
certain determinations prior to granting an exemption to the 5% voting 
limitation. Regarding the first of these determinations, the Charter 
states that the Board must determine that granting such an exemption 
would not reasonably be expected to diminish the quality of, or public 
confidence in, NASDAQ OMX or The NASDAQ Stock Market LLC or the other 
operations of NASDAQ OMX and its subsidiaries, on the ability to 
prevent fraudulent and manipulative acts and practices and on investors 
and the public. The By-Laws include similar language, but state that 
the Board must make this determination with respect to NASDAQ OMX or 
its self-regulatory subsidiaries. Because the term ``self-regulatory 
subsidiary'' includes The NASDAQ Stock Market LLC but also includes 
other entities, NASDAQ OMX proposes that the provisions be made fully 
consistent by amending the Charter to refer to NASDAQ OMX or the self-
regulatory subsidiaries, and to define the term ``self-regulatory 
subsidiary'' as described above.
    Fourth, unlike the Charter, the By-Laws further provide that prior 
to granting an exemption from the 5% voting limitation, the Board must 
also determine that granting the exemption would promote the prompt and 
accurate clearance and settlement of securities transactions (and to 
the extent applicable, derivative agreements, contracts and 
transactions), assure the safeguarding of securities and funds in the 
custody or control of the self-regulatory subsidiaries that are 
clearing agencies or securities and funds for which they are 
responsible, foster cooperation and coordination with persons engaged 
in the clearance and settlement of securities transactions, and remove 
impediments to and perfect the mechanism of a national system for the 
prompt and accurate clearance and settlement of securities 
transactions. NASDAQ OMX proposes that this language be added to the 
Charter.
    Finally, NASDAQ OMX proposes that Article Fourth, Paragraph C(6) of 
the Charter be amended to correct a cross-reference to subparagraph 
6(b), which no longer exists.
(iii) Proposed Amendments to the By-Laws
    NASDAQ OMX also proposes amendments to NASDAQ OMX's By-Laws to 
further conform the Charter and By-Law provisions discussed above. 
Specifically, the proposed amendment to Article I(s) revises the 
definition of ``self-regulatory subsidiary'' in the By-Laws to refer to 
any subsidiary of NASDAQ OMX that is a self-regulatory organization as 
defined under Section 3(a)(26) of the Act, rather than list specific 
subsidiaries that would fall within this category. This revised 
definition, which is the same definition of ``self-regulatory 
subsidiary'' proposed

[[Page 58395]]

for purposes of the Charter as described above, will capture NASDAQ 
OMX's current self-regulatory subsidiaries as well as any subsidiaries 
that in the future meet the definition of ``self-regulatory 
organization'' under the Act. Consequently, such future self-regulatory 
subsidiaries will automatically be subject to the By-Law provisions 
relating to these subsidiaries without NASDAQ OMX having to take formal 
action to amend the By-Laws to include them. The proposed By-Law 
amendments also include the correction of a typographical error in 
Article I and minor edits to Section 12.5 to conform the language 
regarding the 5% voting limitation to the language in the analogous 
provision of the Charter.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\5\ 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 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.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
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    NASDAQ OMX is proposing changes to its Charter and By-Laws to 
conform the provisions in each document relating to the procedures by 
which NASDAQ OMX's Board may grant an exemption to the prohibition on 
any NASDAQ OMX stockholder voting shares in excess of 5% of the 
Company's then-outstanding shares of capital stock. The Exchange 
believes that the changes will protect investors and the public 
interest by eliminating confusion that may exist because of the current 
language differences between the two provisions. In addition, NASDAQ 
OMX is proposing to define ``self-regulatory subsidiary'' with 
reference to a definition in the Act. The Exchange believes that this 
will protect investors and the public interest by ensuring that any 
NASDAQ OMX subsidiary that meets the definition of ``self-regulatory 
organization'' in the Act will be subject to the Charter and By-Law 
provisions relating to self-regulatory subsidiaries. Finally, the 
remaining changes are clarifying in nature, and they enhance investor 
protection by making NASDAQ OMX's governance documents clearer and 
easier to understand.

B. Self-Regulatory Organization's Statement on Burden on Competition

    Because the proposed rule change relates to the governance of 
NASDAQ OMX and not to the operations of the Exchange, the Exchange does 
not believe that the proposed rule change will impose any burden on 
competition 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

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be disapproved.

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 email to [email protected]. Please include 
File Number SR-Phlx-2014-61 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2014-61. This file 
number should be included on the subject line if email 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 Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal offices 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-Phlx-2014-61, 
and should be submitted on or before October 20, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-23050 Filed 9-26-14; 8:45 am]
BILLING CODE 8011-01-P