[Federal Register Volume 80, Number 191 (Friday, October 2, 2015)]
[Notices]
[Pages 59837-59843]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-24971]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75991; File No. SR-NYSE-2015-27]


Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Approving Proposed Rule Change Amending the Eighth Amended and Restated 
Operating Agreement of the Exchange To Establish a Regulatory Oversight 
Committee as a Committee of the Board of Directors of the Exchange and 
Amending Other Rules of the Exchange

September 28, 2015.

I. Introduction

    On June 12, 2015, New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) \1\ of the Securities 
Exchange Act of 1934 (``Act''),\2\ and Rule 19b-4 thereunder,\3\ a 
proposed rule change to amend the Eighth Amended and Restated Operating 
Agreement (``Operating Agreement'') of the Exchange and to amend other 
rules of the Exchange, as described below. The

[[Page 59838]]

proposed rule change was published for comment in the Federal Register 
on June 30, 2015.\4\ The Commission received one comment letter on the 
proposed rule change \5\ and a response to the comment letter from the 
Exchange.\6\ On August 11, 2015, the Commission extended the time 
period in which to approve the proposed rule change, disapprove the 
proposed rule change, or institute proceedings to determine whether to 
disapprove the proposed rule change, to September 28, 2015.\7\ This 
order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ See Securities Exchange Act Release No. 75288 (June 24, 
2015), 80 FR 37316 (``Notice'').
    \5\ See letter from J. Robert Brown, Jr., Professor of Law & 
Director, Corporate & Commercial Law Program, University of Denver 
Sturm College of Law, to Brent J. Fields, Secretary, Commission, 
dated September 8, 2015 and received by the Commission on September 
21, 2015 (``Professor Brown Letter'').
    \6\ See letter from Martha Redding, Senior Counsel and Assistant 
Secretary, NYSE, to Brent J. Fields, Secretary, Commission, dated 
September 24, 2015 and received by the Commission on September 24, 
2015 (``NYSE Response Letter'').
    \7\ See Securities Exchange Act Release No. 75659, 80 FR 49285 
(August 17, 2015).
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II. Description of the Proposal

    NYSE proposes to: (i) Amend the Exchange's Operating Agreement to 
establish a Regulatory Oversight Committee (``ROC'') as a committee of 
the Exchange's Board of Directors (``Board'') and make conforming 
amendments to Exchange Rules 1, 46, 46A, and 497; (ii) terminate the 
Delegation Agreement (``Delegation Agreement'') among the Exchange, 
NYSE Market (DE), Inc. (``NYSE Market (DE)''), and NYSE Regulation, 
Inc. (``NYSE Regulation''), delete Exchange Rule 20, which sets forth 
the terms of the delegation, and make conforming amendments to Section 
4.05 of the Operating Agreement and Exchange Rules 0, 1, 22, 36, 37, 
46, 48, 49, 54, 70, 103, 103A, 103B, 104, 422 476A, and 497; (iii) 
remove from the Exchange Rules certain organizational documents of NYSE 
Market (DE) and NYSE Regulation in connection with the proposed 
termination of the Delegation Agreement; (iv) amend the Operating 
Agreement to establish a Director Candidate Recommendation Committee 
(``DCRC'') as a committee of the Board and set forth the process by 
which Non-Affiliated Director Candidates are named to the new DCRC; (v) 
amend the Operating Agreement to establish a Committee for Review 
(``CFR'') as a subcommittee of the ROC and make conforming changes to 
Exchange Rules 308, 475, 476, 476A, and 9310; and (vi) replace 
references to the Chief Executive Officer of NYSE Regulation in 
Exchange Rules 48, 49, and 89 with references to the Chief Regulatory 
Officer of the Exchange.

A. Establishing a ROC and Making Conforming Amendments to Exchange 
Rules

    The Exchange proposes to add subsection (ii) to Section 2.03(h) of 
the Operating Agreement to establish a ROC and to delineate its 
composition and functions. The Exchange states that new Section 
2.03(h)(ii) of the Operating Agreement would be substantially similar 
to the recently approved changes by the Exchange's affiliates, NYSE 
Arca, Inc. (``NYSE Arca'') and NYSE MKT LLC (``NYSE MKT''), to 
establish ROCs,\8\ as well as Article III, Section 5(c) of the By-Laws 
of the NASDAQ Stock Market LLC (``NASDAQ'') (``NASDAQ By-Laws'').\9\ 
The ROC would be appointed annually and would have the following 
responsibilities:
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    \8\ See Securities Exchange Act Release Nos. 75148 (June 11, 
2015), 80 FR 34751 (June 17, 2015) (approving NYSE MKT's 
establishment of a ROC of the exchange's Board of Directors) (``NYSE 
MKT Approval Order'') and 75155 (June 11, 2015), 80 FR 34744 (June 
17, 2015) (approving NYSE Arca's establishment of a ROC of the 
exchange's Board of Directors) (``NYSE Arca Approval Order'').
    \9\ See Securities Exchange Act Release No. 53128 (January 13, 
2006), 71 FR 3550 (January 23, 2006) (order granting application of 
NASDAQ for registration as a national securities exchange) (``NASDAQ 
Approval Order'').
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     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.\10\
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    \10\ See Notice, supra note 4, at 37317.
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    In furtherance of these functions, the Exchange proposes that the 
ROC shall have the authority and obligation to: (i) Review the 
regulatory budget of the Exchange and specifically inquire into the 
adequacy of resources available in the budget for regulatory 
activities; (ii) meet regularly with the Chief Regulatory Officer 
(``CRO'') in executive session; (iii) in consultation with the 
Exchange's Chief Executive Officer, establish the goals, assess the 
performance, and recommend the CRO's compensation; and (iv) keep the 
Board informed with respect to the foregoing matters.
    With respect to the ROC's composition, Section 2.03(h)(ii) would 
provide that the ROC shall consist of at least three members, each of 
whom shall be a Director of the Exchange who satisfies the independence 
requirements of the Exchange.\11\ The Exchange states that a ROC 
comprised of at least three independent members 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.\12\
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    \11\ The Exchange's independence requirements are set forth in 
the Company Director Independence Policy of the Exchange. See 
Securities Exchange Act Release No. 67564 (August 1, 2012), 77 FR 
47161 (August 7, 2012) (SR-NYSE-2012-17) (approving, among other 
things, the Exchange's Company Director Independence Policy).
    \12\ See Notice, supra note 4, at 37317.
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    In addition, Section 2.03(h)(ii) of the Operating Agreement would 
provide that the Board, on affirmative vote of a majority of Directors, 
at any time may remove a member of the ROC for cause, and also would 
provide that a failure of the ROC member to qualify as independent 
under the Company Director Independence Policy would constitute a basis 
to remove a member of the ROC for cause. If the term of office of a ROC 
member terminates, and the remaining term of office of such member at 
the time of termination is not more than three months, Section 
2.03(h)(ii) would provide that during the period of vacancy, the ROC 
would not be deemed to be in violation of its compositional 
requirements by virtue of the vacancy. To clarify the process for 
filling vacancies on any committee of the Exchange, including the ROC, 
the Exchange also proposes to amend Section 2.03(h) of the Operating 
Agreement to provide that vacancies in the membership of any committee 
shall be filled by the Board. 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 SROs and would enable the Exchange to undertake its 
regulatory responsibilities under a corporate governance structure that 
is consistent with its industry peers.\13\ Moreover, the Exchange 
believes that the proposed ROC would ensure the continued independence 
of the regulatory process.\14\ The Exchange states that oversight of 
the Exchange's self-regulatory responsibilities and regulatory 
performance, including review of the regulatory plan, programs, budget 
and staffing by a ROC composed of individuals independent of Exchange

[[Page 59839]]

management and a CRO having general supervision of the regulatory 
operations of the Exchange that meets regularly with the ROC is 
integral to the proposal.\15\
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    \13\ See id. See also NASDAQ Approval Order, NYSE MKT Approval 
Order and NYSE Arca Approval Order, supra notes 8 and 9.
    \14\ See Notice, supra note 4, at 37317.
    \15\ See id.
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    The Exchange also proposes to make conforming amendments to 
Exchange Rules 1, 46, 46A and 497 by replacing references to ``Board of 
Directors of NYSER'' and ``NYSE Regulation Board of Directors'' with 
references to the ROC.

B. Terminating the Delegation Agreement, Deleting Exchange Rule 20, and 
Conforming the Operating Agreement and Other Exchange Rules

    The Exchange proposes to terminate the Delegation Agreement and 
delete Exchange Rule 20, which sets forth the delegation of the 
Exchange's regulatory functions to NYSE Regulation and the Exchange's 
market functions to NYSE Market (DE),\16\ each of which is a subsidiary 
of the Exchange created in 2006 following the merger of New York Stock 
Exchange, Inc. with Archipelago Holdings, Inc.\17\ In connection with 
that transaction, NYSE Regulation became a separate not-for-profit 
entity, and its Board of Directors assumed the regulatory oversight 
functions and responsibilities of the Exchange that are proposed to be 
assumed by the ROC. The Exchange notes that, although the Delegation 
Agreement sets forth the terms under which the Exchange delegated its 
functions to NYSE Regulation and NYSE Market (DE), the Exchange 
retained ultimate responsibility for the operations, rules and 
regulations developed by NYSE Regulation and NYSE Market (DE) and for 
their enforcement.\18\
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    \16\ See Exchange Rule 20(a). Exchange Rule 20(b) requires that 
NYSE Market (DE) establish a Market Performance Committee and that 
NYSE Regulation establish a Regulatory Advisory Committee, each to 
include persons associated with member organizations and 
representatives of both those member organizations doing business on 
the Floor of the Exchange and those who do not do business on the 
Floor. The Exchange does not propose to retain these committees. 
Rather, the Exchange proposes that the Committee for Review, which 
would include persons associated with member organizations and 
representatives of both those member organizations doing business on 
the Floor of the Exchange and those who do not do business on the 
Floor, assume the advisory roles of these committees. See Section 
II.E., infra.
    \17\ See Notice, supra note 4, at 37318.
    \18\ The Exchange notes that functions delegated to NYSE Market 
(DE) included, among other things, operating the NYSE marketplace, 
including the automated systems supporting it; providing and 
maintaining a communications network infrastructure linking market 
participants for the efficient process and handling of quotations, 
orders, transaction reports and comparisons of transactions; acting 
as a Securities Information Processor for quotations and transaction 
information related to securities traded on NYSE and other trading 
facilities operated by NYSE Market (DE); administering the 
Exchange's participation in National Market System Plans; and 
collecting, processing, consolidating and providing to NYSE 
Regulation accurate information requisite to operation of the 
surveillance audit trail. See id. at 37318 n.21.
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    With the termination of the Delegation Agreement, the Exchange 
proposes to re-integrate its regulatory and market functions.\19\ The 
Exchange believes that its proposal to establish a ROC to undertake the 
independent oversight of the Exchange's regulatory responsibilities 
would ensure independent oversight of the regulatory process and would 
have the additional benefit of aligning the Exchange's corporate 
governance practices with its industry peers.\20\
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    \19\ See Notice, supra note 4, at 37322.
    \20\ See id. at 37318.
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    The Exchange proposes to functionally separate its regulatory 
functions from its business lines.\21\ The Exchange's CRO would head 
the Exchange's regulatory department and continue to manage the 
Exchange's regulatory functions, under the oversight of the proposed 
ROC. The regulatory staff supporting the regulatory functions of NYSE 
would report to the CRO. The Exchange believes that a CRO reporting to 
an independent ROC should add a ``significant degree of independence'' 
and should ``insulate'' regulatory activity from economic pressures and 
potential conflicts of interest.\22\
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    \21\ See id.
    \22\ See id. (citing Securities Exchange Act Release No. 48946 
(December 17, 2003), 68 FR 74678, 74687 (December 24, 2003)).
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    The Exchange proposes to make certain conforming amendments to its 
Rules to reflect the termination of the Delegation Agreement and the 
re-integration of its regulatory and market operations. As further 
described in the Notice,\23\ the Exchange proposes conforming 
amendments in Section 4.05 of the Exchange's Operating Agreement, and 
Exchange Rules 0, 1, 22, 36 (Supplementary Material .30), 37, 46, 48, 
49, 54(b), 70 (subparts (1) and (7) of Supplementary Material .40), 
103, 103A, 103B, 104, 422, 476A and 497, by removing references to NYSE 
Regulation and NYSE Market \24\ and, where applicable, replacing such 
deletions with references to the Exchange or to the applicable Exchange 
personnel, as appropriate, who will be carrying out the regulatory 
responsibilities on behalf of the Exchange following the termination of 
the Delegation Agreement.
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    \23\ See id. at 37318-19.
    \24\ The Exchange notes that NYSE Market (DE) was formerly known 
as ``NYSE Market, Inc.'' Accordingly, references to ``NYSE Market'' 
in the Exchange Rules and Operating Agreement are references to NYSE 
Market (DE).
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C. Deleting NYSE Market (DE) and NYSE Regulation's Organizational 
Documents as Rules of the Exchange

    With the termination of the Delegation Agreement, NYSE Regulation 
and NYSE Market (DE) no longer would be performing the Exchange's 
regulatory and market functions, respectively. According to the 
Exchange, the previously filed constituent documents of NYSE Regulation 
and NYSE Market (DE) therefore no longer would constitute ``rules of 
[the] exchange'' under Section 3(a)(27) of the Act.\25\ As a result, 
the Exchange proposes to remove the following NYSE Regulation and NYSE 
Market (DE) constituent documents as rules of the Exchange upon 
termination of the Delegation Agreement:
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    \25\ 15 U.S.C. 78c(a)(27).
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     Restated Certificate of Incorporation of NYSE Regulation, 
Inc.;
     Seventh Amended and Restated Bylaws of NYSE Regulation, 
Inc.;
     Independence Policy of NYSE Regulation, Inc.;
     Third Amended and Restated Certificate of Incorporation of 
NYSE Market (DE), Inc.;
     Fourth Amended and Restated Bylaws of NYSE Market (DE), 
Inc.; and
     Independence Policy of NYSE Market (DE), Inc.\26\
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    \26\ The Commission notes that on September 22, 2015, NYSE MKT 
LLC filed a proposed rule change to add the Third Amended and 
Restated Certificate of Incorporation of NYSE Market (DE), Inc. and 
the Eighth Amended and Restated Operating Agreement of New York 
Stock Exchange LLC as ``rules of [the] exchange'' of NYSE MKT in 
light of NYSE Market (DE), Inc.'s majority ownership interest in a 
facility of NYSE MKT. See Securities Exchange Act Release No. 75984 
(September 25, 2015) (SR-NYSEMKT-2015-71).
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D. Establishing a DCRC and Naming Non-Affiliated Director Candidates

    Section 2.03(a)(iii) of the Operating Agreement provides that Non-
Affiliated Director Candidates (also known as ``Fair Representation 
Candidates'') are nominated by the nominating and governance committee 
(``NGC'') of the Intercontinental Exchange, Inc. (``ICE'') Board of 
Directors, which must designate as Non-Affiliated Director Candidates 
the candidates recommended jointly by the NYSE Market (DE) DCRC and the 
NYSE Regulation DCRC. Section 2.03(a)(iv) of the Operating Agreement 
describes the process whereby member organizations can nominate 
alternate candidates to those candidates selected by the NYSE Market 
(DE) DCRC and the NYSE Regulation DCRC.

[[Page 59840]]

    The Exchange proposes to establish a NYSE DCRC as a committee of 
the Board by adding new subsection (h)(i) to Section 2.03 of the 
Operating Agreement, and making conforming changes to Section 
2.03(a)(iii) and Section 2.03(a)(iv) by substituting the proposed NYSE 
DCRC for the NYSE Market (DE) DCRC and NYSE Regulation DCRC in the 
nominating process for Non-Affiliated Director Candidates. The Exchange 
states that, once the Delegation Agreement is terminated, neither the 
NYSE Market (DE) DCRC nor the NYSE Regulation DCRC should have a role 
in the nomination of Non-Affiliated Director Candidates process, as the 
Exchange no longer would be delegating any market or regulatory 
responsibilities to either entity.\27\
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    \27\ See Notice, supra note 4, at 37320.
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    Proposed Section 2.03(h)(i) of the Operating Agreement provides 
that the Board would appoint the members of the NYSE DCRC on an annual 
basis and that the NYSE DCRC would be responsible for recommending Non-
Affiliated Director Candidates to the ICE NGC. Proposed Section 
2.03(h)(i) also sets forth the compositional requirements for the NYSE 
DCRC.\28\ Specifically, the NYSE DCRC would include individuals who are 
associated with a member organization, and would include at least one 
individual from each of the following categories, that:
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    \28\ The proposed requirements are substantially similar to the 
requirements for the DCRCs of NYSE Regulation, NYSE Market (DE), and 
NYSE MKT. See Seventh Amended and Restated Bylaws of NYSE 
Regulation, Inc., Article III, Section 5; Fourth Amended and 
Restated Bylaws of NYSE Market (DE), Inc., Article III, Section 5; 
and Sixth Amended and Restated Operating Agreement of NYSE MKT LLC, 
Section 2.03(h). The Exchange notes that NYSE MKT has a fourth 
category of requirements similar to the third category noted above 
but it includes an individual that engages in the execution of 
transactions on NYSE MKT's trading floor for the associate person's 
own account. Because neither the NYSE Market (DE) DCRC nor the NYSE 
Regulation DCRC, which the NYSE DCRC is replacing, has this fourth 
category, the Exchange does not propose to include it in the revised 
Operating Agreement. See Notice, supra note 4, at 37320 n.37.
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     Engages in a business involving substantial direct contact 
with securities customers;
     is registered as a Designated Market Maker (``DMM'') and 
spends a substantial part of their time on the trading floor; and
     spends a majority of their time on the trading floor of 
the Exchange and has as a substantial part of their business the 
execution of transactions on the trading floor of the Exchange for 
other than their own account or the account of his or her Member 
Organization, but is not registered as a DMM.
    As proposed, Section 2.03(h)(i) would provide that the Board 
appoint such individuals after appropriate consultation with 
representatives of member organizations. Furthermore, the Exchange 
proposes to replace references to ``NYSE Market DCRC'' and ``NYSE 
Regulation DCRC'' with ``NYSE DCRC'' in Section 2.03(a)(iii) and 
Section 2.03(a)(iv) of the Operating Agreement.
    According to the Exchange, one benefit of the proposed rule change 
is that the Exchange's process for selecting Non-Affiliated Director 
Candidates would be harmonized with a similar process in place at NYSE 
MKT, an affiliate of the Exchange.\29\ Further, the Exchange believes 
that the proposed rule change would allow the Board to have a more 
direct role in the appointment of Non-Affiliated Director Candidates 
while complying with the fair representation requirement under Section 
6(b)(3) of the Act,\30\ which is intended to give members a voice in 
the selection of an exchange's directors and the administration of its 
affairs.\31\ In particular, the Exchange notes that, as is the case 
with the NYSE Regulation DCRC and NYSE Market (DE) DCRC, the proposed 
NYSE DCRC would be comprised of persons associated with Exchange member 
organizations and selected after appropriate consultation with those 
member organizations. The proposed Operating Agreement also retains a 
process by which members could directly petition and vote for 
representation on the Board.\32\ The Exchange therefore believes that 
the proposal would continue to allow members to have a voice in the 
Exchange's use of its self-regulatory authority, consistent with 
Section 6(b)(3) of the Act.\33\
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    \29\ See Notice, supra note 4, at 37316.
    \30\ See 15 U.S.C. 78f(b)(3).
    \31\ See Notice, supra note 4, at 37320.
    \32\ NYSE's Operating Agreement, Section 2.03(a)(iv).
    \33\ See Notice, supra note 4, at 37320 and 15 U.S.C. 78f(b)(3).
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E. Establishing a Committee for Review and Conforming Exchange Rules

    The Exchange proposes to establish a Committee for Review (``CFR'') 
as a subcommittee of the ROC by adding a new subsection (h)(iii) to 
Section 2.03 of the Operating Agreement and to make conforming changes 
to Exchange Rules 308, 475, 476, 476A, and 9310.\34\ The proposed CFR 
would be the successor to the current CFR, which is a committee of NYSE 
Regulation's Board of Directors.\35\ Section 2.03(h)(iii) of the 
Operating Agreement would provide that the Board shall annually appoint 
the members of the CFR. The Exchange notes that the proposed Section 
2.03(h)(iii) of the Operating Agreement incorporates member 
organization association requirements of the current CFR.\36\ The 
proposed CFR would be comprised of both Exchange directors who satisfy 
the NYSE's independence requirements as well as non-directors.\37\ The 
Exchange notes that because the majority of the Board would be 
independent and any Non-Affiliated Director must be independent, as a 
functional matter if the Exchange were to have a five-person Board, 
four of the five directors would qualify for CFR membership.\38\ Non-
directors serving on the proposed CFR would include representatives of 
member organizations that engage in a business involving substantial 
direct contact with securities customers (upstairs firms), DMMs, and 
floor brokers.\39\ The Exchange notes that the proposed CFR, like the 
current CFR, would be selected after appropriate consultation with 
those members. The Exchange notes further that for any CFR vote, a 
majority of the members of the CFR casting votes would have to be 
directors of the Exchange.
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    \34\ See Notice, supra note 4, at 37320-21.
    \35\ See id. at 37320.
    \36\ See id. at 37321.
    \37\ See id. at 37320-21.
    \38\ See id. at 37320-21 n.42.
    \39\ See id. at 37321.
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    The proposed CFR would be responsible for reviewing the 
disciplinary decisions on behalf of the Board and reviewing 
determinations to limit or prohibit the continued listing of an 
issuer's securities on the Exchange.\40\ Additionally, the Exchange 
proposes to incorporate the role of the Market Performance and 
Regulatory Advisory Committees into the proposed CFR.\41\ As a result, 
the proposed CFR would be charged with acting in an advisory capacity 
to the Board with respect to disciplinary matters, the listing and 
delisting of securities, regulatory

[[Page 59841]]

programs, rulemaking and regulatory rules, including trading rules. The 
Exchange states that the proposed CFR would therefore serve in the same 
advisory capacity as the Market Performance and Regulatory Advisory 
Committees.\42\
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    \40\ The Exchange notes that these powers are currently set 
forth in the charter of the NYSE Regulation CFR, which also states 
that the CFR can provide general advice to the NYSE Regulation Board 
of Directors in connection with disciplinary, listing and other 
regulatory matters. The Exchange proposes to delineate the appellate 
and advisory powers of the proposed CFR in Section 2.03(h)(iii) of 
the Operating Agreement. Appeals of delisting determinations are 
governed by Rule 804.00 of the Exchange's Listed Company Manual, 
which provides that delisting determinations are to be reviewed by a 
``Committee of the Board of Directors of the Exchange''. See Notice, 
supra note 4, at 37321 n.44.
    \41\ Id. at 37321. The Exchange notes that the same profile of 
members who historically served on these advisory committees would 
be represented on the proposed CFR. Id.
    \42\ See Notice, supra note 4, at 37321.
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    According to the Exchange, member participation on the proposed CFR 
would be sufficient to provide for the fair representation of members 
in the administration of the affairs of the Exchange, including 
rulemaking and the disciplinary process, consistent with Section 
6(b)(3) of the Act.\43\
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    \43\ See id. and 15 U.S.C. 78f(b)(3).
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    Finally, the Exchange proposes to make conforming amendments to 
Exchange Rules 308, 475, 476, 476A and 9310 by generally replacing 
references to the current NYSE Regulation CFR with references to the 
``Committee for Review.''

F. Modifying Exchange Rules To Reference the Exchange's Chief 
Regulatory Officer

    The Exchange also proposes to amend Exchange Rule 48 (Exemptive 
Relief--Extreme Market Volatility Condition), Exchange Rule 49 
(Emergency Powers) and Exchange Rule 86 (NYSE BondsSM) by replacing 
references to the Chief Executive Officer of NYSE Regulation with 
references to the CRO of the Exchange.
    Exchange Rule 48 currently provides that, for purposes of the rule, 
a ``qualified Exchange officer'' means the Chief Executive Officer of 
ICE, or his or her designee, or the Chief Executive Officer of NYSE 
Regulation, or his or her designee. Exchange Rule 48 provides that the 
Exchange can invoke an extreme market volatility condition at the open 
(or reopen of trading following a market-wide halt of securities) 
during which time the Exchange could suspend Exchange Rules 15, 79A.30, 
and 123D(1) regarding obtaining certain prior Floor Official approvals 
and requirements for mandatory indications. Exchange Rule 49 addresses 
the Exchange's emergency powers and defines the term ``qualified 
Exchange officer'' as, inter alia, the ``NYSE Regulation, Inc. Chief 
Executive Officer'' or his or her designee. Exchange Rule 86 currently 
provides that Clearly Erroneous Execution panels in connection with 
trades on NYSE MKT Bonds be comprised of the Chief Executive Officer of 
NYSE Regulation or a designee and representatives from two members or 
member organizations that are users of NYSE Bonds.\44\
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    \44\ NYSE Bonds is the Exchange's electronic bond trading 
platform. Rule 86 prescribes what bonds are eligible to trade on the 
NYSE Bonds platform and how bonds are traded on the platform, 
including the receipt, execution and reporting of bond transactions. 
See Notice, supra note 4, at 37321 n.50.
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    The Exchange notes that ``Chief Executive Officer'' of NYSE 
Regulation is used in these three rules but CRO is used throughout the 
Exchange's rules to designate the same person.\45\ The Exchange, thus, 
proposes to replace references to ``Chief Executive Officer'' of NYSE 
Regulation in Exchange Rules 48, 49 and 86 with either the term ``Chief 
Regulatory Officer'' or ``CRO'', as appropriate.
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    \45\ See, e.g., Exchange Rules 13, 107B, 107C and 128.
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    As noted above, the Commission received one comment letter on the 
proposed rule change.\46\ The commenter states that, with respect to 
the existing system of the Exchange's governance, the proposed rule 
change would replace a structural separation with a functional 
separation, in particular, by terminating the Delegation Agreement and 
establishing a ROC in lieu of NYSE Regulation.\47\ The commenter 
expresses the concern that the Exchange's proposal would not ensure 
sufficient insulation of the Exchange's regulatory function from the 
commercial interests of its holding company.\48\ The commenter 
enumerates the following specific concerns with the proposal: Unlike 
NYSE Regulation, the Exchange is a ``for profit'' entity; NYSE 
Regulation has a board consisting entirely of independent directors; 
NYSE Regulation limits the number of directors from the holding company 
who can sit on its board to less than a majority, while the Board could 
include a super-majority of directors from the holding company; the ROC 
would have little substantive authority and can only ``review'' the 
regulatory budget and ``inquire'' about the adequacy of resources for 
regulatory activities; the ROC would not be sufficiently insulated from 
the business activities of the holding company because the ROC's 
membership could be composed of persons who also are directors of the 
holding company; the CRO position would not be adequately insulated 
from the commercial interests of the holding company; and the CFR would 
not effectively insulate the disciplinary review process from possible 
commercial influences.\49\
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    \46\ See Professor Brown Letter, supra note 5.
    \47\ Id. at 4-5.
    \48\ Id. at 6.
    \49\ Id. at 6-7.
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    The commenter offers a number of suggested revisions to the 
proposed rule change that in his view would strengthen the independence 
of the Exchange's regulatory function: The Board should consist 
entirely of independent directors, other than the Chief Executive 
Officer, and should not include any holding company directors or 
directors of affiliates; the ROC should consist entirely of independent 
directors; the ROC should have greater substantive authority over its 
budget and other critical functions and should have greater authority 
with respect to the CRO and the CRO's compensation; CFR membership 
should be limited to members of the ROC and persons appointed by the 
ROC; and the provision regarding removal of a director ``for cause'' 
should be defined so as to restrict the Board from easily changing the 
ROC's membership.\50\ The commenter suggests that the Delegation 
Agreement could remain in place and the Exchange could seek 
modifications to, rather than replace, the existing governance 
system.\51\
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    \50\ Id. at 8-9.
    \51\ Id. at 8.
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    The Exchange submitted a letter responding to the commenter's 
letter.\52\ The Exchange discusses each of the commenter's issues with 
its proposal and the commenter's recommendations for revision.\53\ With 
respect to the elimination of NYSE Regulation and the creation of a 
ROC, the Exchange states that, as a self-regulatory organization 
(``SRO''), it has always retained the ``ultimate responsibility for the 
fulfillment of its statutory and self-regulatory obligations under the 
Act.'' \54\ With respect to the composition of the ROC, the Exchange 
notes that under the proposal the ROC would be required to be composed 
of at least three members, each of whom would be required to be a 
director of the Exchange that satisfies the independence requirements 
of the Company Director Independence Policy, which, according to the 
Exchange, is virtually identical to the NYSE Regulation Independence 
Policy.\55\ The Exchange further states that its Operating Agreement 
recently was amended to remove the requirement that the Board consist 
of at least a majority of independent directors of the holding 
company.\56\ In addition, the Exchange points out that its proposed ROC 
was modeled on the NASDAQ

[[Page 59842]]

ROC and has the same powers and its responsibilities are substantially 
similar to the ROCs of other SROs.\57\ The Exchange also notes that the 
proposal ``clearly provides that the CRO would report to the ROC'' \58\ 
and, given that fact, the ROC ``clearly has the power to retain or 
dismiss the CRO, only it must do so in consultation with the Exchange's 
Chief Executive Officer as part of the process of establishing goals, 
assessing performance, and recommending the CRO's compensation.'' \59\
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    \52\ See NYSE Response Letter, supra note 6.
    \53\ Id.
    \54\ Id.
    \55\ Id.
    \56\ Id. at 7 (citing Securities Exchange Act Release No. 75105 
(June 4, 2015), 80 FR 33005 (June 10, 2015)).
    \57\ Id. at 8.
    \58\ Id.
    \59\ Id. at 9.
---------------------------------------------------------------------------

    The Exchange also addresses the commenter's suggested revisions to 
the Exchange's proposal. As an initial matter, the Exchange states that 
the commenter ``has not provided any credible reason why the current 
structure should remain or why the Exchange's Proposal is not 
consistent with the requirements of the Act.'' \60\ The Exchange does 
not believe that directors that meet its independence standards are 
less independent because they also serve as directors of ICE or ICE 
affiliates.\61\ The Exchange further states that it ``rejects the 
proposition that directors of NYSE Regulation are inherently more 
independent than independent directors of ICE that serve as independent 
directors of the Exchange.'' \62\ Regarding the commenter's suggestions 
about the ROC, the Exchange reiterated its position that the proposed 
ROC and its authority is consistent with prior exchanges' provisions 
relating to ROCs that were found by the Commission to be consistent 
with the Act.\63\ Regarding the commenter's suggestion that the CFR be 
limited to members of the ROC and members appointed by the ROC, the 
Exchange states its view that the requirement that members of the CFR 
be independent directors of the Exchange is sufficient to ensure the 
integrity of the disciplinary appeals process.\64\ With respect to the 
commenter's suggestion that the proposal permitting removal of a ROC 
member ``for cause'' be revised to limit the Board's ability to easily 
change the ROC's membership, the Exchange notes that at least one SRO 
does not require ``cause'' as a basis for removing a ROC member.\65\
---------------------------------------------------------------------------

    \60\ Id. at 10.
    \61\ Id.
    \62\ Id.
    \63\ Id. at 10-11.
    \64\ Id. at 11.
    \65\ Id.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\66\ In 
particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(1) of the Act, which requires an 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 Act, the rules and 
regulations thereunder, and the rules of the exchange.\67\ The 
Commission finds that the proposal also is consistent with the 
requirements of Section 6(b)(3) of the Act, which provides that the 
rules of an exchange must assure a fair representation of its members 
in the selection of its directors and administration of its affairs and 
provide that one or more directors shall be representative of issuers 
and investors and not be associated with a member of the exchange, 
broker, or dealer.\68\ In addition, the Commission finds that the 
proposal is consistent with Section 6(b)(5) of the Act, which requires 
that the rules of the exchange be designed, among other things, 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 a national market system, 
and, in general, to protect investors and the public interest.\69\ 
Finally, the Commission finds that the proposal is consistent with 
Section 6(b)(6) of the Act, which requires that the rules of the 
exchange provide that its members and persons associated with its 
members shall be appropriately disciplined for violation of the 
provisions of the Act, the rules or regulations thereunder, or the 
rules of the exchange.\70\
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    \66\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \67\ 15 U.S.C. 78f(b)(1).
    \68\ 15 U.S.C. 78f(b)(3).
    \69\ 15 U.S.C. 78f(b)(5).
    \70\ 15 U.S.C. 78f(b)(6).
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    As noted above, the commenter expresses the concern that the 
Exchange's proposal would not ensure sufficient insulation of the 
Exchange's regulatory function from the commercial interests of its 
holding company.\71\ The commenter also questions the adequacy of the 
independence of the directors of the Exchange's Board.\72\ In response, 
the Exchange states that the commenter has not provided an adequate 
reason why the Exchange's current structure should remain or why the 
proposal is not consistent with the requirements of the Act.\73\
---------------------------------------------------------------------------

    \71\ See Professor Brown Letter, supra note 5, at 6.
    \72\ Id.
    \73\ See NYSE Response Letter, supra note 6, at 10.
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    As a preliminary matter, the Commission notes that several concerns 
raised by the commenter relate to the fact that the Exchange is part of 
a holding company structure. In that regard, the commenter suggests 
that the replacement of NYSE Regulation with the ROC would not provide 
sufficient insulation of the Exchange's regulatory functions from the 
commercial interests of the holding company.\74\ The Commission notes 
that, although the Exchange may be part of a holding company structure, 
the Exchange is obligated to satisfy its self-regulatory obligations 
under the Act and rules and regulations thereunder.\75\ The Commission 
believes that the regulatory structure proposed by the Exchange is 
consistent with the Act and the rules and regulations thereunder, and 
is substantially similar to regulatory structures that were approved by 
the Commission for other exchanges.\76\ In addition, contrary to the 
commenter's understanding that the Operating Agreement ``requires that 
the Board consist of at least a majority of independent directors from 
the holding company,'' \77\ the Operating Agreement no longer contains 
such a requirement pursuant to amendments to the Operating Agreement 
that recently were approved by the Commission.\78\ The Commission notes 
that the Operating Agreement also requires that the Board consist of a 
majority of directors that satisfy the Company Director Independence 
Policy.\79\
---------------------------------------------------------------------------

    \74\ See Professor Brown Letter, supra note 5, at 6-7.
    \75\ The Commission previously has stated that there is no 
``overriding regulatory reason to require exchanges to be not-for-
profit membership organizations.'' See Securities Exchange Act 
Release No. 40760 (December 8, 1998), 63 FR 70844, 70880 (December 
22, 1988) (``Regulation ATS Adopting Release''). In the Regulation 
ATS Adopting Release, the Commission also noted that ``it is 
possible for a for-profit exchange to meet the standards set forth 
in Section 6(b) of the Exchange Act.'' Id.
    \76\ See NASDAQ Approval Order, NYSE MKT Approval Order and NYSE 
Arca Approval Order, supra notes 8 and 9.
    \77\ See Professor Brown Letter, supra note 5, at 6.
    \78\ See Securities Exchange Act Release No. 75105 (June 4, 
2015), 80 FR 33005 (June 10, 2015).
    \79\ NYSE's Operating Agreement, Section 2.03(a)(i).
---------------------------------------------------------------------------

    The commenter expresses the view that the ROC would not have 
sufficient substantive authority over the

[[Page 59843]]

Exchange's regulatory program.\80\ In response, the Exchange states 
that the ROC was modeled on the NASDAQ ROC and has the same powers, 
including the power to review the regulatory budget and inquire about 
available regulatory resources.\81\ The Commission believes that the 
Exchange's proposal to establish a ROC, as an independent committee of 
the Exchange to oversee the adequacy and effectiveness of the 
Exchange's regulatory operations, should help the Exchange to fulfill 
its statutory obligation to comply, and to enforce compliance by its 
members and persons associated with its members, with the Act, the 
rules and regulations thereunder, and the rules of the Exchange.\82\ In 
addition, the Commission believes that the composition of the ROC, 
which would consist of at least three members of the Board that satisfy 
the Company Director Independence Policy, should help ensure the 
independence of the regulatory function of the ROC. The Commission also 
believes that the Exchange's proposal to make conforming changes to 
various Exchange Rules to reflect the creation of the ROC is 
appropriate.\83\ The Commission therefore finds that the proposed 
provisions relating to the ROC and its composition are consistent with 
the Act, including Sections 6(b)(1) and 6(b)(5) of the Act.
---------------------------------------------------------------------------

    \80\ See Professor Brown Letter, supra note 5, at 7.
    \81\ See NYSE Response Letter, supra note 6, at 8.
    \82\ The Commission notes that, under proposed Section 
2.03(h)(ii) of the Operating Agreement, the responsibilities, 
enumerated functions, and authority of the ROC are substantially 
similar to those of other exchanges. See NASDAQ Approval Order, NYSE 
MKT Approval Order and NYSE Arca Approval Order, supra notes 8 and 
9.
    \83\ See Notice, supra note 4, at 37317-18.
---------------------------------------------------------------------------

    The commenter also raises a concern about the proposed functional 
separation, rather than the existing structural separation, between the 
Exchange's regulatory and market functions that would result from the 
Exchange's proposal to terminate the Delegation Agreement and delete 
Exchange Rule 20.\84\ In response, the Exchange states that the 
Commission's prior approval of its current regulatory structure would 
not preclude alternative regulatory structures, such as a functional 
separation, that also would be consistent with the Act.\85\ The 
Commission believes that the Exchange's proposal to re-integrate its 
regulatory and market functions into the Exchange, rather than to 
continue to have certain regulatory and market duties performed by its 
subsidiaries, NYSE Regulation and NYSE Market, respectively, is 
consistent with the Act, and thus it is appropriate for the Exchange to 
terminate the Delegation Agreement and delete Exchange Rule 20, 
particularly in light of the Exchange's proposal to establish a ROC. 
The Commission notes that under the Delegation Agreement, the Exchange 
ultimately was responsible for fulfilling the self-regulatory 
obligations delegated to NYSE Regulation and NYSE Market (DE).\86\ 
Thus, upon termination of the Delegation Agreement and deletion of 
Exchange Rule 20, the Exchange's regulatory responsibilities would 
remain unchanged; the major difference would be that the Exchange 
itself would directly carry out the regulatory responsibilities and 
market operations previously performed by its subsidiaries. The 
Commission also finds that it is consistent with the Act for the 
Exchange to make conforming changes to Exchange Rules to reflect the 
termination of the Delegation Agreement and deletion of Exchange Rule 
20.\87\
---------------------------------------------------------------------------

    \84\ See Professor Brown Letter, supra note 5, at 6.
    \85\ See NYSE Response Letter, supra note 6, at 4.
    \86\ See Delegation Agreement, Section I.
    \87\ See Notice, supra note 4, at 37318-19.
---------------------------------------------------------------------------

    The commenter further states that the CFR would not effectively 
insulate the disciplinary review process from the possibility of 
commercial influences and expresses concern about the composition of 
the CFR.\88\ In response, the Exchange states that the CFR would be 
appointed annually by the Board as a subcommittee of the ROC and would 
be comprised of both Exchange directors who satisfy the Company 
Director Independence Policy as well as member participants.\89\ 
According to the Exchange, the CFR's mandate would include acting in an 
advisory capacity to the Board with respect to disciplinary matters, 
the listing and delisting of securities, regulatory programs, and 
rulemaking and regulatory rules, including trading rules.\90\ The 
Commission believes that the Exchange's proposal to establish a CFR is 
appropriate and would provide for the fair representation of members in 
the administration of the Exchange's affairs, and also would help 
enable the Exchange to ensure that members and persons associated with 
its members shall be appropriately disciplined for violations of the 
provisions of the Act, the rules or regulations thereunder, or the 
rules of the Exchange.\91\ The Commission therefore finds that the 
proposed provisions relating to the CFR are consistent with the Act, 
including Sections 6(b)(3) and 6(b)(6) thereunder.\92\
---------------------------------------------------------------------------

    \88\ See Professor Brown Letter, supra note 5, at 7.
    \89\ See NYSE Response Letter, supra note 6, at 4.
    \90\ Id.
    \91\ 15 U.S.C. 78f(b)(3) and 15 U.S.C. 78(b)(6).
    \92\ Id.
---------------------------------------------------------------------------

    The Commission believes that the Exchange's proposal to create the 
NYSE DCRC as a committee of the Board that would recommend to the ICE 
NGC the Non-Affiliated Director candidates to serve on the Board, in 
place of the NYSE Regulation DCRC and the NYSE Market DCRC, provides an 
appropriate process for the nomination of Exchange members to serve on 
the Board. The Commission believes that the composition of the NYSE 
DCRC, along with the provision in the Operating Agreement that would 
allow members to directly nominate Non-Affiliated Director candidates 
through a petition process,\93\ and the requirement that NYSE Group, 
Inc. must appoint or elect as the Non-Affiliated Directors those 
candidates nominated by the ICE NGC (or designate as Non-Affiliated 
Directors the candidates that emerge from the petition and voting 
process), should help to ensure the fair representation of members in 
the selection of the Exchange's directors. Thus the Commission finds 
that the proposal to establish the NYSE DCRC is consistent with the 
Act, including Section 6(b)(3) thereunder.\94\
---------------------------------------------------------------------------

    \93\ NYSE's Operating Agreement, Section 2.03(a)(iv).
    \94\ 15 U.S.C. 78f(b)(3).
---------------------------------------------------------------------------

    Finally, the Commission believes that it is consistent with the Act 
for the Exchange to make conforming revisions to various Exchange Rules 
to reflect the proposed changes to its governance structure. In this 
regard, the Commission believes that it is appropriate for the Exchange 
to delete the organizational documents of NYSE Regulation and NYSE 
Market (DE) and to replace references to the Chief Executive Officer of 
NYSE Regulation with references to the CRO in Exchange Rules 48, 49, 
and 86.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (SR-NYSE-2015-27) is approved.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\95\
---------------------------------------------------------------------------

    \95\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-24971 Filed 10-1-15; 8:45 am]
 BILLING CODE 8011-01-P