[Federal Register Volume 81, Number 4 (Thursday, January 7, 2016)]
[Notices]
[Pages 817-819]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-33308]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-76809; File No. SR-NASDAQ-2015-160]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing of Proposed Rule Change, as Modified by Amendment No.
1 Thereto, To Amend the By-Laws of Nasdaq, Inc.
December 31, 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 December 21, 2015, The NASDAQ Stock Market LLC (``NASDAQ'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I and II below, which Items have been prepared by the Exchange.
On December 29, 2015, the Exchange filed Amendment No. 1 to the
proposal.\3\ The Commission is publishing this notice to solicit
comments on the proposed rule change, as modified by Amendment No. 1,
from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Amendment No. 1 amends and replaces the original filing in
its entirety. In Amendment No. 1, the Exchange, among other things,
clarified the operation of the current and proposed provisions of
the By-Laws of Nasdaq, Inc. and how the proposed rule change would
operate in conjunction with the Listing Rules of The NASDAQ Stock
Market. See infra, note 5.
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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 By-Laws (the ``By-Laws'') of its parent corporation,
Nasdaq, Inc. (``Nasdaq'' or the ``Company''), to revise the
requirements regarding Director classifications. This Amendment No. 1
to SR-NASDAQ-2015-160 amends and replaces the original filing in its
entirety. The proposed amendments will be implemented on a date
designated by the Company following approval by the Commission. The
text of the proposed rule change is available on the Exchange's Web
site at http://nasdaq.cchwallstreet.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 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
The Company is proposing amendments to certain provisions of its
By-Laws that relate to Director \4\ classifications.\5\ Specifically,
the Company proposes to revise Section 4.3 of the By-Laws to state that
it may, rather than shall, include at least one, but no more than two,
Issuer Directors on its Board. In addition, the Company proposes to
revise Section 4.7 of the By-Laws to clarify the procedures when a
Director's classification changes between annual meetings of
stockholders.
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\4\ ``Director'' means a member of the Company's Board of
Directors. See Article I(j) of the By-Laws.
\5\ The provisions of the Company's By-Laws that relate to
Director classifications are completely distinct from the Listing
Rules of The NASDAQ Stock Market. Therefore, the proposed amendments
do not affect in any way the Company's obligation, as an issuer
listed on The NASDAQ Stock Market, to comply with the Listing Rules,
and the Company will continue to comply with the Listing Rules,
including provisions relating to corporate governance, following the
effectiveness of the proposed By-Law amendments.
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i. Section 4.3
Currently, the Company's By-Laws require that all of the Company's
Directors be classified as: (i) Industry Directors; \6\ (ii) Non-
Industry Directors,\7\ which are further classified as either Issuer
Directors \8\ or Public Directors; \9\ or (iii) Staff Directors.\10\
Section 4.3 of the By-Laws includes composition requirements for the
Board based on these classifications. Specifically, the number of Non-
Industry Directors on the Board must equal or exceed the number of
Industry Directors. In addition, the Board must include at least two
Public Directors and at least one, but no more than two, Issuer
Directors. Finally, the Board shall
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include no more than one Staff Director, unless the Board consists of
ten or more Directors, in which case, the Board shall include no more
than two Staff Directors.
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\6\ ``Industry Director'' or ``Industry committee member'' means
a Director (excluding any Staff Directors) or committee member who
(1) is, or within the last year was, or has an immediate family
member who is, or within the last year was, a member of a Self-
Regulatory Subsidiary; (2) is, or within the last year was, employed
by a member or a member organization of a Self-Regulatory
Subsidiary; (3) has an immediate family member who is, or within the
last year was, an executive officer of a member or a member
organization of a Self-Regulatory Subsidiary; (4) has within the
last year received from any member or member organization of a Self-
Regulatory Subsidiary more than $100,000 per year in direct
compensation, or received from such members or member organizations
in the aggregate an amount of direct compensation that in any one
year is more than 10 percent of the Director's annual gross
compensation for such year, excluding in each case director and
committee fees and pension or other forms of deferred compensation
for prior service (provided such compensation is not contingent in
any way on continued service); or (5) is affiliated, directly or
indirectly, with a member or member organization of a Self-
Regulatory Subsidiary. See Article I(m) of the By-Laws. A ``Self-
Regulatory Subsidiary'' is any subsidiary of the Company that is a
self-regulatory organization as defined under Section 3(a)(26) of
the Act. See Article I(s) of the By-Laws. Currently, the term
``Self-Regulatory Subsidiary'' encompasses NASDAQ OMX BX, Inc.
(``BX''), the Exchange, NASDAQ OMX PHLX LLC (``Phlx''), Boston Stock
Exchange Clearing Corporation (``BSECC'') and the Stock Clearing
Corporation of Philadelphia (``SCCP'').
\7\ ``Non-Industry Director'' or ``Non-Industry committee
member'' means a Director (excluding any Staff Director) or
committee member who is (1) a Public Director or Public committee
member; (2) an Issuer Director or Issuer committee member; or (3)
any other individual who would not be an Industry Director or
Industry committee member. See Article I(q) of the By-Laws.
\8\ ``Issuer Director'' or ``Issuer committee member'' means a
Director (excluding any Staff Director) or committee member who is
an officer or employee of an issuer of securities listed on a
national securities exchange operated by any Self-Regulatory
Subsidiary, excluding any Director or committee member who is a
director of such an issuer but is not also an officer or employee of
such an issuer. See Article I(o) of the By-Laws.
\9\ ``Public Director'' or ``Public committee member'' means a
Director or committee member who (1) is not an Industry Director or
Industry committee member, (2) is not an Issuer Director or Issuer
committee member, and (3) has no material business relationship with
a member or member organization of a Self- Regulatory Subsidiary,
the Company or its affiliates, or the Financial Industry Regulatory
Authority, Inc. and its affiliates. See Article I(r) of the By-Laws.
\10\ ``Staff Director'' means an officer of the Company that is
serving as a Director. See Article I(t) of the By-Laws.
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The Company proposes to amend Section 4.3 of the By-Laws to state
that the Board may, rather than shall, include one, but no more than
two, Issuer Directors. With this change, the Company intends to give
itself the option, but not the requirement, to include one or two
Issuer Directors on its Board. Issuer Directors bring to the Board the
perspective of an officer or employee of companies listed on The NASDAQ
Stock Market. While the Company highly values the views of its listed
companies, it does not believe that it is strictly necessary to have an
Issuer Director on its own Board to represent those views. Within the
overall governance structure of the Company and its subsidiaries,
issues relating to listed companies are generally the province of
NASDAQ and its Board of Directors, rather than the Company and its
Board of Directors. The Company is a holding company for over 100
subsidiaries that provide both regulated and unregulated products and
services across the globe, while NASDAQ is the Company subsidiary that,
among other things, provides listing services on The NASDAQ Stock
Market. The Company's Board generally focuses on the overall strategic
direction of the Company, while NASDAQ's Board generally focuses on
issues relevant specifically to The NASDAQ Stock Market, including
issues affecting listed companies. Furthermore, NASDAQ's Board includes
issuer representation, as required by its By-Laws.\11\ Finally, if the
Company's Board ever does address issues relating to listed companies,
its Directors are experienced and capable enough to handle those issues
without specifically having an Issuer Director on the Board.\12\
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\11\ See Article III, Section 2 of NASDAQ's By-Laws.
\12\ Currently, three of the Company's eleven Directors are also
directors of companies listed on The NASDAQ Stock Market or another
national securities exchange. These Directors do not qualify as
Issuer Directors because they are not specifically officers or
employees of listed companies; however, as directors of such
companies, they are familiar with corporate governance topics and
other issues confronted by listed companies.
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Therefore, it is not strictly necessary to have an officer or
employee of a listed company on the Company's Board of Directors, and
accordingly, the Company proposes to amend its By-Laws to give itself
the option, but not the requirement, to include an Issuer Director on
its Board.
ii. Section 4.7
As required by Section 4.13(h)(iii) of the By-Laws, the Company's
Corporate Secretary certifies to the Nominating & Governance Committee
of the Company's Board on an annual basis the classification of each
Director following a review of information relating to the
classifications collected from the Directors. This certification
usually occurs in connection with the Company's annual meeting of
stockholders, and at the same time, Directors are elected to serve on
various Board committees, all of which have compositional requirements
relating to the classifications.\13\ However, Directors'
classifications may change from time to time following the annual
meeting due to various changes in personal circumstances (e.g., a
retirement or job change). Directors are required to report to the
Corporate Secretary any change in the information used as the basis of
their classification.\14\
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\13\ See Section 4.13 of the By-Laws.
\14\ See Section 4.13(h)(iii) of the By-Laws.
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Section 4.7 of the By-Laws addresses potential disqualifications of
Directors due to a classification change. Under this section, the term
of office of a Director shall terminate immediately upon a
determination by the Board, by a majority vote of the remaining
Directors, that: (a) The Director no longer satisfies the
classification for which the Director was elected; and (b) the
Director's continued service would violate the Board compositional
requirements. Section 4.7 also states that if a Director position
becomes vacant because of such disqualification, and the remaining term
of office is not more than six months, the By-Laws do not require an
immediate replacement.
The Company has observed two potential weaknesses relating to the
disqualification procedures as currently drafted. First, Section 4.7 of
the By-Laws does not address a situation where a Director's
classification has changed, but the Board believes that it is in the
best interests of the Company and its stockholders for such Director to
remain on the Board. Second, the By-Laws could be read to contemplate
that the Company must immediately cure any deficiencies in Board or
committee composition that may occur because of a change in a Director
or committee member's classification because otherwise the Board would
not meet all of the compositional requirements set forth in Section 4.3
of the By-Laws.\15\ It would be extremely disruptive to the Board, its
committees and the Company to add, remove, disqualify or replace a
Director between annual meetings of stockholders simply because the
Director no longer has the same classification he or she had at the
time of the annual meeting. In addition, the selection of nominees to
the Company's Board is an extremely complex process, managed by the
Board's Nominating & Governance Committee, that takes almost the full
year between annual meetings of stockholders. The Nominating &
Governance Committee considers possible candidates suggested by Board
members, industry groups, stockholders, senior management and/or a
third-party search firm engaged from time-to-time to assist in
identifying and evaluating qualified candidates. In evaluating
candidates for nomination to the Board, the Nominating & Governance
Committee reviews the skills, qualifications, characteristics and
experience desired for the Board as a whole and for its individual
members, with the objective of having a Board that reflects diverse
backgrounds and senior level experience in the areas of global
business, finance, legal and regulatory, technology and marketing. The
Nominating & Governance Committee evaluates each individual candidate
in the context of the Board as a whole, with the objective of
maintaining a group of Directors that can further the success of
Nasdaq's business, while representing the interests of stockholders,
employees and the communities in which the company operates. Because
the nominee selection process is so long and complex, the Board cannot
act quickly to replace a Director whose classification has changed, and
it is not in the best interests of the Company's stockholders for the
Board to be forced to take such an action when the Director otherwise
provides valuable service to the Board.
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\15\ But see Kurz v. Holbrook, 989 A.2d 140, 156-57 (Del.Ch.
2010) (holding that a by-law cannot disqualify a director who was
duly qualified at the time of election during the middle of his or
her term), rev'd on other grounds sub nom Crown EMAK P'ners, LLC v.
Kurz, 992 A.2d 377 (Del. 2010); see also Klaassen v. Allegro
Development Corp., 2013 WL 5739680, at *23 (Del. Ch. Oct. 11, 2013)
(noting that director qualifications are applied at the front-end of
the director's term when such director is elected and qualified),
aff'd 106 A.3d 1035 (Del. 2014).
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The Company therefore proposes to amend Section 4.7 of the By-Laws
to provide that the Board may elect to defer until the next annual
meeting of stockholders a determination regarding a change in a
Director's classification and such Director's continued service on the
Board.\16\ Further, if the Board
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makes such an election, neither the Board nor any committee shall be
deemed to be in violation of Section 4.3 of the By-Laws, which relates
to Board composition, or Section 4.13 of the By-Laws, which relates to
committee composition. This will give the Board the option to retain
Directors whose classification has changed, but whose continued service
is otherwise beneficial to the Board, the Company and its stockholders.
This also will prevent the significant disruption that would occur if
the Board had to replace a Director between annual meetings of
stockholders and allow the Board to continue to make informed,
deliberate decisions regarding Director nominees, rather than force it
to act quickly in a way that is not in the best interest of the
Company's stockholders.
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\16\ The intent of the amendment is to allow the Board a
deferral until the next annual meeting when it can nominate a slate
of directors with classifications sufficient to satisfy the
requirements of Section 4.3 of the By-Laws for election by the
Company's stockholders. Assuming due election of the Board's
nominees, the Board therefore will comply with Section 4.3 of the
By-Laws immediately after the next annual meeting.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\17\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\18\ 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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\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(5).
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First, the Company is proposing an amendment to Section 4.3 of the
By-Laws to state that it may, rather than shall, include at least one,
but no more than two, Issuer Directors on its Board. The Exchange
believes that this change will protect investors and the public
interest by allowing the Company's Nominating & Governance Committee to
select nominees for the Company's Board based on the overall strategic
needs of the Board, the Company and its stockholders without forcing
the Board to fill one slot with an officer or director of a listed
company (i.e., an Issuer Director). The Exchange notes that the Company
would still have the option to include Issuer Directors on the Board,
and the Exchange believes the views of listed companies are well-
represented on the Board without the explicit participation of an
Issuer Director.\19\
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\19\ See note 12, supra.
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Second, the Company is proposing an amendment to Section 4.7 of the
By-Laws to provide that the Board may elect to defer until the next
annual meeting of stockholders a determination regarding a change in a
Director's classification and such Director's continued service on the
Board. Further, if the Board makes such an election, neither the Board
nor any committee shall be deemed to be in violation of Section 4.3 of
the By-Laws, which relates to Board composition, or Section 4.13 of the
By-Laws, which relates to committee composition. The Exchange believes
that this change will protect investors and the public interest by
clarifying the disqualification provisions in the Company's By-Laws,
which are currently ambiguous. In addition, the change will prevent the
significant disruption that would occur if the Board were forced to
replace an otherwise valuable director between annual meetings.
B. Self-Regulatory Organization's Statement on Burden on Competition
Because the proposed rule change relates to the governance of the
Company 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 up to 90 days of such
date (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 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-NASDAQ-2015-160 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-NASDAQ-2015-160. 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-NASDAQ-2015-
160, and should be submitted on or before January 28, 2016.
For the Commission, by the Division of Trading and Markets, pursuant
to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-33308 Filed 1-6-16; 8:45 am]
BILLING CODE 8011-01-P