[Federal Register Volume 82, Number 226 (Monday, November 27, 2017)]
[Notices]
[Pages 56085-56088]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-25465]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82119; File No. SR-CBOE-2017-072]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change Relating to Its Nominating and 
Governance Committee and Regulatory Oversight and Compliance Committee

November 20, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on November 15, 2017, Cboe Exchange, Inc. (the ``Exchange'' or 
``Cboe Options'') filed with the Securities and Exchange Commission 
(the ``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 its governance documents and rules 
with respect to changes relating to its director nomination and 
committee appointment process, its Nominating and Governance Committee 
and its Regulatory Oversight and Compliance Committee.
    The text of the proposed rule change is also available on the 
Exchange's Web site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the 
Secretary, 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its Bylaws, Certificate and Rules. 
Specifically the Exchange proposes to eliminate its Nominating and 
Governance Committee (``N&G Committee''), as well as amend the process 
by which (i) directors are elected, (ii) committee appointments are 
made and (iii) vacancies are filled. Additionally, the Exchange 
proposes to amend the name of the Regulatory Oversight and Compliance 
Committee (``ROCC'') and make other technical, non-substantive changes.
Elimination of Nominating and Governance Committee
(a) Nomination of Directors
    By way of background, Section 4.3 of the Bylaws provides, among 
other things, that the Exchange N&G Committee shall consist of at least 
five directors that are majority Non-Industry Directors and are 
appointed by the Board on the recommendation of the N&G Committee. 
Section 4.3 of the Bylaws also provides that the N&G Committee shall 
have the authority to nominate individuals for election as directors of 
the Corporation and such other duties as prescribed by resolution of 
the Board.\3\ Additionally, if the N&G Committee has two or more 
Industry Directors, those Industry Directors shall act as the 
Representative Director Nominating Body, which body is responsible for 
the nomination of the Representative Directors. If however, there are 
less than two Industry Directors on the N&G Committee, then the Trading 
Permit Holder Subcommittee of the Advisory Board

[[Page 56086]]

shall act as the Representative Director Nominating Body.\4\ The N&G 
Committee is bound to accept and nominate the Representative Director 
nominees recommended by the Representative Director Nominating Body or, 
in the event of a petition candidate, the Representative Director 
nominees who receive the most votes pursuant to a Run-off Election.\5\ 
Pursuant to Section 3.1 of the Bylaws, the N&G Committee is also 
responsible for determining whether a director candidate satisfies the 
applicable qualifications for election as a director, and the decision 
of the N&G Committee, subject to review, if any, by the Board, is 
final.
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    \3\ Article Fifth, subparagraph (c) of the Certificate also 
provides that the N&G Committee nominates persons for election as 
directors.
    \4\ See Sections 1.1(k) and 4.3 of the Bylaws. Section 3.2 of 
the Bylaws sets forth a detailed process for the nomination and 
selection of fair representation directors for the Board of 
Directors.
    \5\ See Sections 3.1 and 3.2 of the Bylaws and Article Fifth, 
subparagraph (c) of the Certificate.
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    The Exchange first proposes to eliminate its N&G Committee and 
amend the process by which Directors are nominated and elected. 
Specifically, the Exchange proposes to provide that the sole 
stockholder of the exchange shall nominate and elect directors for 
nomination at the annual meeting of the stockholder, except with 
respect to fair-representation directors (``Representative Directors'') 
as described below. The Exchange notes that another Exchange similarly 
does not maintain an exchange-level nominating committee and instead 
provides that the sole stockholder of the Exchange nominates and elects 
their non-fair representation Directors.\6\ With respect to the 
nomination of Representative Directors, the Exchange proposes to amend 
the definition of ``Representative Director Nominating Body'' and 
provide that if the Board has two or more Industry Directors, excluding 
directors that are exchange employees, those Industry Directors shall 
act as the Representative Director Nominating Body. Additionally, 
similar to today's practice, if there are less than two Industry 
Directors on the Board (excluding directors that are employees of the 
Exchange), then the Trading Permit Holder Subcommittee of the Advisory 
Board shall act as the Representative Director Nominating Body. The 
Bylaws and Certificate will also be amended to provide that the sole 
stockholder is bound to nominate and elect the Representative Directors 
nominees recommended by the Representative Director Nominating Body or, 
in the event of a petition candidate, the Representative Director 
nominees who receive the most votes pursuant to a Run-off Election. 
Lastly, as the N&G Committee is being eliminated, the Exchange proposes 
to amend Section 3.1 of the Bylaws to provide that the Board, instead 
of the N&G Committee, is responsible for determining whether a director 
candidate satisfies the applicable qualifications for election as a 
director, and the decision of the Board, is final. There are no other 
changes with respect to the process for the nomination and selection of 
Representative Directors. The Exchange notes that it believes that the 
proposed changes continue to give Exchange members a voice in the 
Exchange's use of self-regulatory authority.
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    \6\ See Section 3.02 of the Amended and Restated NYSE Arca, Inc. 
Bylaws.
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(b) Committee Appointments
    The N&G Committee is also currently responsible for recommending to 
the Board of Directors appointments to certain Committees. 
Specifically, Section 4.2 and Section 6.1 of the Bylaws provides that 
the members of the Executive Committee and Advisory Board, 
respectively, be recommended by the N&G Committee for approval by the 
Board. Pursuant to Section 4.4 of the Bylaws, members of the ROCC are 
recommended by the Non-Industry Directors on the N&G Committee for 
approval by the Board. Lastly, Exchange Rule 2.1 provides that the N&G 
Committee, with the approval of the Board, appoints the Chairman, Vice 
Chairman (if any) and members of the Business Conduct Committee 
(``BCC'') and fills vacancies on the BCC.
    In light of the elimination of the N&G Committee, the Exchange 
proposes to eliminate references to the N&G Committee with respect to 
committee appointments and transfer the N&G's current authority to the 
Board (or appropriate subcommittee of the Board). Specifically the 
Exchange proposes that members of the Executive Committee and Advisory 
Board be appointed by the Board and members of the ROCC be appointed by 
the Board on the recommendation of the Non-Industry Directors of the 
Board. Additionally, the Exchange proposes that the Board appoint the 
Chairman, Vice Chairman (if any) and members to the BCC and fills 
vacancies on the BCC. The Exchange notes that Boards of other Exchanges 
also have authority to appoint Board and non-Board Committees.\7\
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    \7\ See e.g., Eleventh Amended and Restated Operating Agreement 
of New York Stock Exchange, LLC, Section 2.03(h) and By-Laws of 
Nasdaq Phlx LLC, Section 5-3.
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Filling of Director Vacancies
    Next, the Exchange proposes to amend the process to fill Director 
vacancies. Currently, Sections 3.4 of the Bylaws provides that in the 
event any Industry Director or Non-Industry Director fails to maintain 
the qualifications required for such category of director, his office 
shall become vacant and the vacancy may be filled by the Board with a 
person who qualifies for the category in which the vacancy exists. If a 
director is determined to have requalified, Section 3.4 provides the 
Board, in its sole discretion, may fill an existing vacancy in the 
Board or may increase the size of the Board, as necessary, to appoint 
such director to the Board; provided, however, that the Board shall be 
under no obligation to return such director to the Board.
    Section 3.5 of the Bylaws also provides that a vacancy on the Board 
may be filled by a vote of majority of the Directors then in office, or 
by the sole remaining Director, so long as the elected Director 
qualifies for the position. Additionally, for vacancies of 
Representative Directors, the Representative Director Nominating Body 
will recommend an individual to be elected, or provide a list of 
recommended individuals, and the position shall be filled by the vote 
of a majority of the Directors then in office. Consistent with the 
proposal to have the sole stockholder nominate and elect directors to 
the Board (and to be bound to accept and elect the Representative 
Director Nominating Body's nominee(s)), the Exchange wishes to provide 
that the sole stockholder, instead of the Board, will also have the 
ability to fill the above described Director vacancies.
Regulatory Oversight and Compliance Committee Changes
    The Exchange proposes to change the name of the ``Regulatory 
Oversight and Compliance Committee'' (``ROCC'') to the ``Regulatory 
Oversight Committee'' (``ROC''). The Exchange notes that there may be 
overlap and duplication of reports from the Compliance Department to 
the parent company Audit Committee and the Exchange ROCC. To address 
this issue, going forward, the Cboe Global Markets Audit Committee will 
be the ``go to'' Board committee for reports from the Chief Compliance 
Officer (``CCO'') related to compliance matters. As such, the Exchange 
proposes to drop the reference of ``Compliance'' in ``ROCC'' in the 
Bylaws and Exchange Rule 17.10. The Exchange notes that the reporting 
function of the CCO to the ROC will be

[[Page 56087]]

permissive. The Exchange also notes that the regulatory oversight 
committees of its affiliated exchanges does not use the term 
``Compliance'' in their Committees' name.\8\
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    \8\ See Section 4.4 of the Bylaws of Cboe BYX Exchange, Inc., 
Cboe BZX Exchange, Inc., Cboe EDGA Exchange, Inc. and Cboe EDGX 
Exchange, Inc.
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Technical, Non-Substantive Changes
    Lastly, the Exchange proposes to change the Exchange's name in the 
title and signature line in its Certificate from ``Chicago Board 
Options Exchange, Incorporated'' to ``Cboe Exchange, Inc.'' The 
Exchange notes that it recently changed its legal name, but was unable 
to update the Exchange's name in the title or signature line in its 
Certificate as the name changes were not effective until the Exchange, 
as previously named, filed the proposed changes in Delaware. The 
Exchange had noted in the filing that proposed the name changes that it 
would later amend the Certificate to reflect the new name in the title 
and signature line and the Exchange is seeking to do so now. Pursuant 
to Delaware law, the Exchange is also adding a reference to its 
original name in the introductory paragraph of the Certificate.\9\
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    \9\ See Section 245(c) of the Delaware General Corporation Law 
(DGCL).
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\10\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \11\ requirements that the rules of an exchange be 
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. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \12\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. The Exchange also believes that its proposal is 
consistent with Section 6(b) of the Act in general, and furthers the 
objectives of Section 6(b)(1) of the Act 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 Act and to comply, and to enforce 
compliance by its exchange members and persons associated with its 
exchange members, with the provisions of the Act, the rules and 
regulations thereunder, and the rules of the Exchange. The Exchange 
also believes that this proposal furthers the objectives of Section 
6(b)(3) \13\ of the Act in particular, in that it is designed to assure 
a fair representation of Exchange Members in the selection of its 
directors and administration of its affairs and provide that one or 
more directors would be representative of issuers and investors and not 
be associated with a member of the exchange, broker, or dealer. For 
instance, the proposed changes continue to include a process by which 
Exchange members can directly petition and vote for representation on 
the Board.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ Id.
    \13\ 15 U.S.C. 78f(b)(3).
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    The Exchange believes eliminating the exchange-level N&G Committee 
allows the Exchange to eliminate a board committee whose core 
responsibilities can be adequately handled by its sole stockholder or 
Board, as applicable. The Exchange believes the elimination of this 
board committee will streamline, make more efficient, and improve the 
Exchange's governance structure and allow directors of the Exchange to 
continue to focus their attention on matters within the purview of the 
Exchange's board including its orderly discharge of regulatory duties 
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. The Exchange also notes that 
it is not statutorily required to maintain a standing nominating 
committee. Indeed, another Exchange similarly does not do so and 
instead provides that its sole stockholder nominates and elects its 
non-fair representation directors.\14\ Other Exchanges also provide 
that their Board, without input from a nominating committee, appoint 
members to committees.\15\ The Exchange also believes that since it is 
being proposed that the sole stockholder have the authority to nominate 
(and elect) directors to the Board (and accept and elect Representative 
Director nominees), it is also consistent to transfer the authority to 
fill director vacancies from the Board to the sole stockholder.
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    \14\ See Section 3.02 of the Amended and Restated NYSE Arca, 
Inc. Bylaws.
    \15\ See e.g., Eleventh Amended and Restated Operating Agreement 
of New York Stock Exchange, LLC, Section 2.03(h) and By-Laws of 
Nasdaq Phlx LLC, Section 5-3.
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    The Exchange importantly notes that it is not proposing to amend 
any of the compositional requirements currently set forth in the Bylaws 
and that notwithstanding the proposed changes, existing compositional 
requirements of the Exchange will still be required to be satisfied, 
including the provision relating to the fair representation of members. 
While the delegation of the authority relating to the (i) nomination 
and election of directors, (ii) nominating body for Representative 
Directors, (iii) filling of Director vacancies and (iv) appointment of 
committees is being modified, the substantive practices of the Exchange 
will remain the same. For example, the sole stockholder will be bound 
to nominate and elect the Representative Directors nominees recommended 
by the Representative Director Nominating Body or, in the event of a 
petition candidate, the Representative Director nominees who receive 
the most votes pursuant to a Run-off Election.
    The Exchange believes eliminating the reference to ``Compliance'' 
in the ROCC's name is appropriate and will reduce potential confusion 
given that the CCO is no longer required to (but may) report to the 
ROCC. The Exchange notes that the new name is also consistent with the 
name of the regulatory oversight committee of its affiliated 
exchanges.\16\ Lastly, the Exchange believes updating the Exchange's 
name in the title and signature line of its Certificate and adding a 
reference to its original name in the introductory paragraph of the 
Certificate, allows the Exchange to comply with Delaware law and reduce 
potential confusion. The alleviation of confusion removes impediments 
to, and perfects the mechanism for a free and open market and a 
national market system, and, in general, protects

[[Page 56088]]

investors and the public interest of market participants.
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    \16\ See Section 4.4 of the Bylaws of Cboe BYX Exchange, Inc., 
Cboe BZX Exchange, Inc., Cboe EDGA Exchange, Inc. and Cboe EDGX 
Exchange, Inc.
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    The Exchange believes the proposed changes do not affect the 
meaning, administration, or enforcement of any rules of the Exchange or 
the rights, obligations, or privileges of Exchange members or their 
associated persons is any way.

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

    The Exchange does not believe the proposed rule change will impose 
any burden on competition not necessary or appropriate in furtherance 
of the purposes of the Act. The proposed rule change relates to the 
corporate governance of the Exchange and not the operations of the 
Exchange. This is not a competitive filing and, therefore, imposes no 
burden on competition.

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

    The Exchange neither solicited nor received comments on 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 within such longer period 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 Exchange consents, the Commission will:
    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-CBOE-2017-072 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-CBOE-2017-072. 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 the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change. Persons submitting 
comments are cautioned that we do not redact or edit personal 
identifying information from comment submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-CBOE-2017-072, and should be 
submitted on or before December 12, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-25465 Filed 11-24-17; 8:45 am]
 BILLING CODE 8011-01-P