[Federal Register Volume 80, Number 85 (Monday, May 4, 2015)]
[Notices]
[Pages 25347-25350]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-10311]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74824; File No. SR-NYSEARCA-2015-29]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change to Amend NYSE Arca Rules 3.1 and 3.3 and 
Section 4.01(a) of the Exchange's Bylaws to Establish a Regulatory 
Oversight Committee as a Committee of the Board of Directors of the 
Exchange

April 28, 2015.
    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 April 17, 2015, NYSE Arca, Inc. (the ``Exchange'' or ``NYSE Arca'') 
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 proposes to amend NYSE Arca Rules 3.1 and 3.3 and 
section 4.01(a) of the Exchange's Bylaws to establish a Regulatory 
Oversight Committee (``ROC'') as a committee of the board of directors 
of the Exchange (the ``Board''). The text of the proposed rule change 
is available on the Exchange's Web site at www.nyse.com, at 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 self-regulatory organization 
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 those 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 parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to establish a ROC as a committee of the 
Board with the responsibility to independently monitor the Exchange's 
regulatory operations.\3\ To effectuate this change, the Exchange 
proposes to amend NYSE Arca Rules 3.1 and 3.3 and Section 4.01(a) of 
the Bylaws of the Exchange.
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    \3\ NYSE Regulation, Inc. (``NYSE Regulation''), a not-for-
profit subsidiary of the Exchange's affiliate New York Stock 
Exchange LLC (``NYSE''), performs all of the Exchange's regulatory 
functions pursuant to an intercompany Regulatory Services Agreement 
(``RSA'') that gives the Exchange the contractual right to review 
NYSE Regulation's performance. NYSE Regulation performs regulatory 
functions for the Exchange's affiliate NYSE MKT LLC (``NYSE MKT'') 
pursuant to a similar intercompany RSA. NYSE MKT has submitted a 
similar proposal to establish a ROC with primary responsibility for 
overseeing regulatory operations. See SR-NYSEMKT-2015-27.
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    Rule 3.1(a) provides the Board with authority to establish one or 
more committees consisting of one or more

[[Page 25348]]

directors of the Exchange (each, a ``Board Committee''). Rule 3.3 
specifies existing Board Committees. The Exchange proposes to amend 
Rule 3.3 to provide for a ROC and delineate its composition and 
functions. The proposed new rule text would be substantially similar to 
Article III, section 5(c) of the By-Laws of the NASDAQ Stock Market LLC 
(``Committees Composed Solely of Directors'') \4\ and Article V, 
section 6(c) of the Third Amended and Restated Bylaws of BATS Exchange, 
Inc. (``BATS'') (``BATS Bylaws'').\5\
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    \4\ See Securities Exchange Act Release No. 34-53128 (January 
13, 2006), 71 FR 3550 (January 23, 2006) (File No. 10-131) 
(``Release No. 34-53128'') (order granting application of NASDAQ 
Stock Market LLC (``NASDAQ'') for registration as a national 
securities exchange). As noted below, members of the NASDAQ ROC must 
satisfy both NASDAQ's public director and independent director 
requirements.
    \5\ See Securities Exchange Act Release No. 34-58375 (August 18, 
2008), 73 FR 49498, 49502 (August 21, 2008) (File No. 10-182) 
(``Release No. 34-58375'') (approving BATS' application seeking 
registration as a national securities exchange).
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    In particular, proposed Rule 3.3(a)(2)(A) would provide that the 
Board shall appoint a ROC on an annual basis. Proposed Rule 
3.3(a)(2)(B) would describe the composition of the ROC. The Exchange 
proposes that the ROC would consist of at least three members, each of 
whom would be a public director of the Exchange or a director of NYSE 
Regulation who satisfies the public director requirements set forth in 
section 3.02(a) of the Bylaws of the Exchange.\6\ The Exchange believes 
that the requirement for ROC members to be public directors ensures the 
independence of these members. The Exchange further believes that a ROC 
comprised of at least three members is appropriate. The size and 
composition of the proposed ROC would be largely the same as that of 
the ROCs of other self-regulatory organizations (``SROs''),\7\ with the 
exception of the possibility to include directors of NYSE Regulation 
who meet the public director requirements.\8\ A ROC with at least three 
members satisfying the exchange's independence requirements has been 
recognized as one of several measures that can help ensure the 
independence of the regulatory function from the market operations and 
commercial interests of a national securities exchange.\9\
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    \6\ Article III, section 3.02(a) of the Exchange's Bylaws 
requires that at least 50% of the Exchange's directors be public 
directors, defined as ``persons from the public and [who] will not 
be, or be affiliated with, a broker-dealer in securities or employed 
by, or involved in any material business relationship with, the 
Exchange or its affiliates.'' The Exchange believes that the Bylaw 
requirements for ``public directors'' establish the Exchange's 
criteria for director independence, and therefore serve the same 
purpose as the NYSE and NYSE MKT Independence Policies. See 
Securities Exchange Act Release No. 67564 (August 1, 2012), 77 FR 
47161 (August 7, 2012) (SR-NYSE- 2012-17; SR-NYSEArca-2012-59; SR-
NYSEMKT-2012-07) (approving NYSE's and NYSE MKT's director 
independence policy). See also Release No. 34-53128, 71 FR at 3553 
(the Commission has recognized that ``public directors can provide 
unique, unbiased perspectives'' that can ``enhance'' a board's 
ability ``to address issues in a non-discriminatory fashion and 
foster the integrity'' of the Exchange).
    \7\ See e.g., NASDAQ By-laws, Article III, section 5(c) 
(``NASDAQ Bylaws'') (specifying a ROC comprising three directors who 
must satisfy both NASDAQ's public director and independent director 
requirements); Third Amended and Restated Bylaws of BATS Exchange, 
Inc. (``BATS''), Article V, section 6(c) (``BATS Bylaws'') 
(specifying a ROC comprising three non-industry (i.e., public) 
directors); and Chicago Board Options Exchange, Incorporated 
(``CBOE'') Bylaws, Article IV, section 4.5 (specifying a ROC of at 
least three directors all of whom shall be ``non-industry'' 
directors).
    \8\ The Exchange proposes to amend Rule 3.1(a) to permit the 
appointment of NYSE Regulation directors to the ROC by amending the 
rule to provide that board committees ``may'' consist ``partly or 
entirely'' of Exchange directors instead of the current requirement 
that committees consist of ``one or more'' Exchange directors.
    \9\ See, e.g., Release No. 34-53128, 71 FR at 3555 (NASDAQ); 
Release No. 34-58375, 73 FR at 49502 (BATS); Securities Exchange Act 
Release No. 34-61152 (December 10, 2009), 74 FR 66699, 66704-705 
(December 16, 2009) (File No. 10-191) (approving application of C2 
Options Exchange, Incorporated, seeking registration as a national 
securities exchange); and Securities Exchange Act Release No. 34-
61698 (March 10 [sic], 2010), 75 FR 13151, 13161 (March 12 [sic], 
2010) (``Release No. 34-61698'') (approving application of EDGX 
Exchange, Inc. and EDGA Exchange, Inc., seeking registration as a 
national securities exchange).
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    Further, proposed Rule 3.3(a)(2)(B) would provide that the Board 
may, on affirmative vote of a majority of directors, at any time remove 
any member of the ROC for cause. Proposed Rule 3.3(a)(2)(B) would also 
provide that a failure of the member to qualify as a public director 
shall constitute a basis to remove a member of the ROC for cause. 
Similar authority is found in the bylaws governing the ROCs of other 
SROs.\10\ Finally, proposed Rule 3.3(a)(2)(B) would provide that, if 
the term of office of a ROC committee member terminates under this 
section, and the remaining term of office of such committee member at 
the time of termination is not more than three months, during the 
period of vacancy the ROC would not be deemed to be in violation of its 
compositional requirements by virtue of the vacancy. Once again, this 
is consistent with the rules and bylaws of other SROs.\11\
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    \10\ See e.g., BATS Bylaws, Article V, section 2(a) (``the 
Chairman may, at any time, with or without cause, remove any member 
of a committee so appointed, with the approval of the Board.''); 
Second Amended and Restated By-laws of National Stock Exchange, 
Inc., Article V, section 5.2 (same).
    \11\ See e.g., NASDAQ Bylaws, Article III, Section 2(b).
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    Proposed Rule 3.3(a)(2)(C) would describe the functions and 
authority of the proposed ROC. The proposed ROC's responsibilities 
would be to:
     Oversee the Exchange's regulatory and self-regulatory 
organization responsibilities and evaluate the adequacy and 
effectiveness of the Exchange's regulatory and self-regulatory 
organization responsibilities;
     assess the Exchange's regulatory performance; and
     advise and make recommendations to the Board or other 
committees of the Board about the Exchange's regulatory compliance, 
effectiveness and plans.\12\
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    \12\ These three core responsibilities of the proposed ROC would 
be substantially similar to those of other SROs' ROCs. See, e.g., 
NASDAQ Bylaws, Article III, section 5; Release No. 34-58375, 73 FR 
at 49502 (BATS); Release No. 34-61698, 75 FR at 13161 (EDGX 
Exchange, Inc. and EDGA Exchange, Inc.); and Amended and Restated 
By-Laws of Miami International Securities Exchange, LLC, Article IV, 
section 4.5(c).
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    In furtherance of these functions, the proposed rule would provide 
the ROC with the authority and obligation to review the regulatory 
budget of the Exchange and specifically inquire into the adequacy of 
resources available in the budget for regulatory activities. Moreover, 
under the proposed rule, the ROC would be charged with meeting 
regularly with the Chief Regulatory Officer (``CRO'') in executive 
session and, in consultation with the Exchange's Chief Executive 
Officer, establishing the goals, assessing the performance, and 
recommending the CRO's compensation. Finally, under the proposed rule, 
the ROC would be responsible for keeping the Board informed with 
respect to the foregoing matters.\13\
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    \13\ The obligations of the proposed ROC would be substantially 
similar to those of other SROs' ROCs. See, e.g., NASDAQ Bylaws, 
Article III, section 5; Bylaws of NASDAQ OMX PHLX LLC, Article V, 
Section 5-2; Third Amended and Restated Bylaws of BATS-Exchange, 
Inc., Article V, Section 6(c).
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    Finally, the Exchange proposes to amend Article IV, section 4.01 of 
its Bylaws governing board committees. Specifically, the Exchange 
proposes to add references to the proposed ROC to subsection (a) of 
Section 4.01. Further, the Exchange proposes to add ``Except as 
otherwise provided in the Rules'' to the clause in section 4.01(a) that 
requires each board committee to be comprised of at least 50% public 
directors because, under the proposed changes to Rules 3.1 and 3.3, the 
ROC may include directors of NYSE Regulation. Lastly, the Exchange 
proposes to add text to section 4.01(a)

[[Page 25349]]

providing that vacancies in the membership of any committee would be 
filled by the Exchange Board, which is consistent with proposed Rule 
3.3 and the same as other SROs.\14\
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    \14\ See Second Amended Limited Liability Company Agreement of 
the NASDAQ Stock Market LLC, Section 9(g).
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    As stated above, the Exchange proposes that members of the ROC 
could be either public directors of the Exchange Board or directors of 
NYSE Regulation who satisfy the public director requirements, thereby 
ensuring that the ROC would be comprised of independent members.\15\ 
The proposed eligibility of qualifying directors of the NYSE Regulation 
board for the ROC would allow individuals to be members of the ROC who 
have direct experience in overseeing the adequacy and effectiveness of 
the Exchange's and its affiliates' regulatory programs.
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    \15\ See note 7 and accompanying text supra.
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    The Exchange believes that the proposed rule change creating an 
independent board committee to oversee the adequacy and effectiveness 
of the performance of its self-regulatory responsibilities is 
consistent with previously approved rule changes for other self-
regulatory organizations and would enable the Exchange to harmonize its 
corporate governance with that of its industry peers.\16\ Moreover, the 
Exchange believes that the proposed adoption of a ROC would ensure the 
continued independence of the regulatory process.\17\ The fundamental 
hallmarks of regulatory independence--determinations regarding the 
Exchange's regulatory plan, programs, budget and staffing made by 
individuals independent of Exchange management and a CRO having general 
supervision of the regulatory operations of the Exchange and reporting 
to a ROC--are integral to the proposal.\18\
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    \16\ See NASDAQ Bylaws, Article III, section 5(c); BATS Bylaws, 
Article V, section 6(c).
    \17\ See, e.g., Securities Exchange Act Release No. 34-48946 
(December 17, 2003), 68 FR 74678, 74687 (August 21, 2008 [sic]) (SR-
NYSE-2003-34).
    \18\ See, e.g., Release No. 34-53128, 71 FR at 3555. Prior to 
2010, the Exchange's rules and Bylaws provided for a ROC composed 
entirely of public directors that was responsible for ensuring (i) 
the independence of Exchange regulation; (ii) adequate resources for 
the Exchange to properly fulfill its self-regulatory obligations; 
and (iii) that Exchange management fully supported the execution of 
the regulatory process. See Securities Exchange Act Release No. 34-
62304 (June 16, 2010), 75 FR 36136, 36138 (May 6, 2010) (SR-
NYSEArca-2010-31). In 2010, in order to align corporate practices 
with its affiliates NYSE and NYSE MKT, the Exchange transferred 
oversight of the Exchange's regulatory activities to the board of 
directors of NYSE Regulation and eliminated the ROC. See id.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Exchange Act \19\ in general, and with section 
6(b)(1) \20\ in particular, in that it enables the Exchange to be so 
organized as to have the capacity to be able to carry out the purposes 
of the Exchange Act and to comply, and to enforce compliance by its 
exchange members and persons associated with its exchange members, with 
the provisions of the Exchange Act, the rules and regulations 
thereunder, and the rules of the Exchange.
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    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(1).
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    The proposed change would create an independent board committee to 
oversee the adequacy and effectiveness of the performance of the 
Exchange's self-regulatory responsibilities. The proposed ROC, similar 
in composition and functions to the approved ROCs of other SROs, would 
be designed to oversee the Exchange's regulatory and self-regulatory 
organization responsibilities and evaluate the adequacy and 
effectiveness of the Exchange's regulatory and self-regulatory 
organization responsibilities; assess the Exchange's regulatory 
performance; and advise and make recommendations to the Board or other 
committees of the Board about the Exchange's regulatory compliance, 
effectiveness and plans.
    As noted, the Exchange proposes that members of the ROC could be 
either public directors of the Exchange Board or directors of NYSE 
Regulation who satisfy the public director requirements, thereby 
ensuring that the ROC would be comprised of independent members. The 
Exchange believes that proposing to allow directors of NYSE Regulation 
who satisfy the public director requirements to be eligible for the ROC 
would provide the choice to include these individuals who have direct 
experience in overseeing the adequacy and effectiveness of the 
Exchange's and its affiliates' regulatory programs. Accordingly, the 
Exchange believes that the proposed amendment would contribute to the 
orderly operation of the Exchange and would enable the Exchange to be 
so organized as to have the capacity to carry out the purposes of the 
Exchange Act and comply and enforce compliance by its members and 
persons associated with its members with the provisions of the Exchange 
Act. The Exchange therefore believes that approval of the proposed 
amendment to the Bylaws is consistent with section 6(b)(1).
    The Exchange also believes that this filing furthers the objectives 
of section 6(b)(5) of the Exchange Act \21\ because the proposed rule 
change would be consistent with and facilitate a governance and 
regulatory structure that is 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.
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    \21\ 15 U.S.C. 78f(b)(5).
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    As discussed above, the Exchange believes that the proposed 
creation of a ROC composed of public directors of the Exchange Board or 
directors of NYSE Regulation who satisfy the public director 
requirements would align the Exchange's corporate governance practices 
with other SROs that have adopted a ROC to monitor the adequacy and 
effectiveness of the regulatory program, assess regulatory performance, 
and assist the Board in reviewing the regulatory plan and the overall 
effectiveness of the regulatory function. Moreover, the Exchange 
believes that the proposed ROC structure would also sufficiently 
``insulate'' the regulatory functions from the Exchange's ``market and 
other commercial interests'' in order for the Exchange to carry out its 
regulatory obligations.\22\ The Exchange believes that the proposed 
rule change is therefore consistent with and facilitates a governance 
and regulatory structure that furthers the objectives of section 
6(b)(5) of the Exchange Act. The independent oversight of the 
Exchange's regulatory functions by the proposed ROC is also designed to 
protect investors as well as the public interest.
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    \22\ Release No. 34-53128, 71 FR at 3556.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Exchange Act. The proposed rule 
change is not intended to address competitive issues but rather is 
concerned solely with the administration and functioning of the 
Exchange's Board.

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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

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 up to 90 days (i) as the Commission may designate 
if it finds such longer period to be appropriate and publishes its 
reasons for so finding or (ii) as to which the self-regulatory 
organization consents, the Commission will:
    (A) By order approve or disapprove the 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-NYSEARCA-2015-29 on the subject line.

Paper comments

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

    All submissions should refer to File Number SR-NYSEARCA-2015-29. 
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-
NYSEARCA-2015-29, and should be submitted on or before May 26, 2015.
    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).

Brent J. Fields,
Secretary.
[FR Doc. 2015-10311 Filed 5-1-15; 8:45 am]
 BILLING CODE 8011-01-P