Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing of Proposed Rule Change To Amend the Restated Certificate of Incorporation and By-Laws of NASDAQ OMX BX, Inc., 23459-23462 [E9-11609]

Download as PDF Federal Register / Vol. 74, No. 95 / Tuesday, May 19, 2009 / Notices Premium Products, retire a pilot program capping fees for use of the Exchange’s Facilitation Mechanism and eliminate a volume-based fee rebate for Electronic Access Members. Those changes became operative on May 1, 2009. In SR–ISE–2009–21, the Exchange adopted the term ‘Singly Listed Indexes’ on its Schedule of fees. The Exchange now proposes to make a clarifying change by identifying the ‘Singly Listed Indexes’ on its fee schedule with the ticker symbols for those products. The Exchange also proposes to adopt the term ‘Singly Listed ETFs’ on its fee schedule and identify those products by their ticker symbols. Finally, the Exchange proposes to revert back to identifying by ticker symbols those products to which the Exchange’s Payment for Order Flow fee does not apply. (b) Basis—The Exchange believes that the proposed rule change is consistent with the objectives of Section 6 of the Act,3 in general, and furthers the objectives of Section 6(b)(4),4 in particular, in that it is designed to provide for the equitable allocation of reasonable dues, fees and other charges among its members and other persons using its facilities. B. Self-Regulatory Organization’s Statement on Burden on Competition The proposed rule change does not impose any burden on competition that is 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 The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any unsolicited written comments from members or other interested parties. mstockstill on PROD1PC66 with NOTICES III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3) of the Act 5 and Rule 19b–4(f)(2) 6 thereunder. At any time within 60 days of the filing of such proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public 3 15 U.S.C. 78f. U.S.C. 78f(b)(4). 5 15 U.S.C. 78s(b)(3)(A). 6 17 CFR 19b–4(f)(2). [sic] 4 15 VerDate Nov<24>2008 16:48 May 18, 2009 Jkt 217001 interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposal is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–ISE–2009–26 on the subject line. 23459 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.7 Florence E. Harmon, Deputy Secretary. [FR Doc. E9–11617 Filed 5–18–09; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–59908; File No. SR–BX– 2009–021] Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing of Proposed Rule Change To Amend the Restated Certificate of Incorporation and By-Laws of NASDAQ OMX BX, Inc. May 12, 2009. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 • Send paper comments in triplicate notice is hereby given that, on April 29, to Elizabeth M. Murphy, Secretary, 2009, NASDAQ OMX BX, Inc. (‘‘BX’’ or Securities and Exchange Commission, ‘‘Exchange’’) filed with the Securities 100 F Street, NE., Washington, DC and Exchange Commission 20549–1090. (‘‘Commission’’) the proposed rule change as described in Items I, II, and All submissions should refer to File III below, which Items have been Number SR–ISE–2009–26. This file prepared by the Exchange. The number should be included on the subject line if e-mail is used. To help the Commission is publishing this notice to solicit comments on the proposed rule Commission process and review your change from interested persons. comments more efficiently, please use only one method. The Commission will I. Self-Regulatory Organization’s post all comments on the Commission’s Statement of the Terms of Substance of Internet Web site (https://www.sec.gov/ the Proposed Rule Change rules/sro.shtml). Copies of the BX is filing this proposed rule change submission, all subsequent with regard to proposed changes to its amendments, all written statements Restated Certificate of Incorporation and with respect to the proposed rule By-Laws. The proposed rule change will change that are filed with the be implemented as soon as practicable Commission, and all written following approval by the Commission. communications relating to the The text of the proposed rule change is proposed rule change between the Commission and any person, other than available at https:// nasdaqomxbx.cchwallstreet.com, at those that may be withheld from the BX’s principal office, and at the public in accordance with the Commission’s Public Reference Room. provisions of 5 U.S.C. 552, will be available for inspection and copying in II. Self-Regulatory Organization’s the Commission’s Public Reference Statement of the Purpose of, and Room, 100 F Street, NE., Washington, Statutory Basis for, the Proposed Rule DC 20549, on official business days Change between the hours of 10 a.m. and 3 p.m. In its filing with the Commission, BX Copies of such filing also will be included statements concerning the available for inspection and copying at purpose of and basis for the proposed the principal office of ISE. All rule change and discussed any comments received will be posted comments it received on the proposed without change; the Commission does rule change. The text of these statements not edit personal identifying may be examined at the places specified information from submissions. You in Item IV below. BX has prepared should submit only information that summaries, set forth in Sections A, B, you wish to make available publicly. All submissions should refer to File 7 17 CFR 200.30–3(a)(12). Number SR–ISE–2009–26 and should be 1 15 U.S.C. 78s(b)(1). submitted on or before June 9, 2009. 2 17 CFR 240.19b–4. Paper Comments PO 00000 Frm 00071 Fmt 4703 Sfmt 4703 E:\FR\FM\19MYN1.SGM 19MYN1 23460 Federal Register / Vol. 74, No. 95 / Tuesday, May 19, 2009 / Notices 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 On August 29, 2008, BX was acquired by NASDAQ OMX. Following that acquisition, BX—together with The NASDAQ Stock Market LLC (the ‘‘NASDAQ Exchange’’) and NASDAQ OMX PHLX, Inc. (formerly the Philadelphia Stock Exchange, Inc. and also an exchange subsidiary of NASDAQ OMX, and referred to herein as ‘‘PHLX’’)—has been evaluating means to realize synergies in the operations of these three exchanges while maintaining the separate identity and member representation structures of each. In making this evaluation, BX and its sister exchanges have given consideration to the experiences of their respective boards and have reviewed the governance documents of other exchanges. In particular, BX and the other exchanges have reviewed the board structures established by NYSE Euronext and its exchange subsidiaries. In Securities Exchange Act Release No. 55293,3 the Commission approved a structure in which certain committees of the board of directors of NYSE Euronext, the public holding company, perform functions for exchange subsidiaries, which do not themselves have these committees. Specifically, the Commission’s approval order states that ‘‘the NYSE Euronext board of directors will have an audit committee, a human resource and compensation committee, and a nominating and governance committee. Each of the audit committee, human resource and compensation committee, and nominating and governance committee of the NYSE Euronext board of directors will consist solely of directors meeting the independence requirements of NYSE Euronext. These committees also will perform relevant functions for NYSE Group,4 the Exchange,5 NYSE Market,6 mstockstill on PROD1PC66 with NOTICES 3 Securities Exchange Act Release No. 55293 (February 14, 2007), 72 FR 8033 (February 22, 2007) (SR–NYSE–2006–120). 4 NYSE Group, Inc., the former public holding company of NYSE Euronext’s U.S. exchanges. 5 New York Stock Exchange LLC (‘‘NYSE’’), a registered national securities exchange. 6 NYSE Market, Inc., a subsidiary of NYSE to which it has delegated certain operational authority. VerDate Nov<24>2008 16:48 May 18, 2009 Jkt 217001 NYSE Regulation,7 Archipelago,8 NYSE Arca,9 and NYSE Arca Equities,10 as well as other subsidiaries of NYSE Euronext, except that the board of directors of NYSE Regulation will continue to have its own compensation committee and nominating and governance committee.’’ BX and the other exchanges owned by NASDAQ OMX have also considered the experience of the NASDAQ Exchange in operating as a subsidiary of a public company since 2006. During the period, the board of each of the NASDAQ Exchange and its parent corporation (currently NASDAQ OMX, and formerly The Nasdaq Stock Market, Inc.) has appointed its own audit committee and management compensation committee. However, these committees at the NASDAQ Exchange level have generally found themselves duplicating the work of other committees at the exchange or holding company level. The NASDAQ OMX audit committee has broad authority to review the financial information that will be provided to shareholders and others, systems of internal controls, and audit, financial reporting and legal and compliance processes. Because NASDAQ OMX’s financial statements are prepared on a consolidated basis that includes the financial results of NASDAQ OMX’s subsidiaries, including BX and the other exchange subsidiaries, the NASDAQ OMX audit committee’s purview necessarily includes these subsidiaries. The committee is composed of four or five directors, all of whom must be independent under the standards established by Section 10A(m) of the Act 11 and Rule 4200(a) of the NASDAQ Exchange. All committee members must be able to read and understand financial statements, and at least one member must have past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background that results in the individual’s financial sophistication. By contrast, the audit committee of the NASDAQ Exchange has a more limited role, focused solely on the exchange entity and its subsidiaries that operate as facilities of the NASDAQ 7 NYSE Regulation, Inc., a subsidiary of NYSE to which it has delegated certain operational authority. 8 Archipelago Holdings, Inc., formerly the public holding company of the entities now known as NYSE Arca, Inc. and NYSE Arca Equities, Inc. 9 NYSE Arca, Inc., a registered national securities exchange. 10 NYSE Arca Equities, Inc., a subsidiary of NYSE Arca to which it has delegated certain operational authority. 11 15 U.S.C. 78j–1(m). PO 00000 Frm 00072 Fmt 4703 Sfmt 4703 Exchange. As described in the current By-Laws of the NASDAQ Exchange (which are, in this respect, virtually identical to the current By-Laws of BX), the primary functions of the audit committee are (i) Oversight over financial reporting, (ii) oversight over the systems of internal controls established by management and the Board and the legal and compliance process, (iii) selection and evaluation of independent auditors, and (iv) direction and oversight of the internal audit function. However, to the extent that the committee reviews financial and accounting matters, its activities are duplicative of the activities of the NASDAQ OMX audit committee, which is also charged with providing oversight over financial reporting and independent auditor selection for NASDAQ OMX and all of its subsidiaries, including the NASDAQ Exchange, BX, and PHLX and their subsidiaries. Similarly, the NASDAQ OMX audit committee has general responsibility for oversight over internal controls and direction and oversight over the internal audit function for NASDAQ OMX and all of its subsidiaries. Thus, the responsibilities of the exchanges’ audit committees are fully duplicated by the responsibilities of the NASDAQ OMX audit committee. Accordingly, the NASDAQ Exchange is proposing to allow the elimination of its audit committee by amending Article III, Section 5 of the By-Laws.12 Similarly, drawing upon the model established by NYSE Euronext and the experience of the NASDAQ Exchange, BX is likewise proposing to allow the elimination of its audit committee by amending Section 4.13 of its By-Laws. BX believes, however, that even in light of the NASDAQ OMX audit committee’s overall responsibilities for internal controls and the internal audit function, it is nevertheless important for the BX Board to maintain its own independent oversight over BX’s controls and internal audit matters relating to BX’s operations. In this regard, BX notes that its regulatory oversight committee currently has broad authority to oversee the adequacy and effectiveness of BX’s regulatory and selfregulatory organization responsibilities, and is therefore able to maintain oversight over controls in tandem with the NASDAQ OMX audit committee’s overall control oversight responsibilities. Similarly, it is already the practice of NASDAQ OMX’s Internal 12 SR–NASDAQ–2009–042 (April 29, 2009). PHLX expects to file a similar proposed rule change in the near future. E:\FR\FM\19MYN1.SGM 19MYN1 Federal Register / Vol. 74, No. 95 / Tuesday, May 19, 2009 / Notices mstockstill on PROD1PC66 with NOTICES Audit Department (‘‘Department’’),13 which performs internal audit functions for all NASDAQ OMX subsidiaries, to report to the BX regulatory oversight committee on all internal audit matters relating to BX. This practice will be formally reflected in the Department’s written procedures. In addition, to ensure that the BX Board retains authority to direct the Department’s activities with respect to BX, the Department’s written procedures will be amended to stipulate that the BX regulatory oversight committee may, at any time, direct the Department to conduct an audit of a matter of concern to it and report the results of the audit both to the BX regulatory oversight committee and the NASDAQ OMX audit committee. BX also proposes to amend Section 4.13 of the By-Laws in order to follow the NYSE Euronext model with respect to allowing the elimination of its compensation committee and the performance of its function by the NASDAQ OMX compensation committee and/or subsidiary boards. The NASDAQ OMX By-Laws provide that its compensation committee considers and recommends compensation policies, programs, and practices for employees of NASDAQ OMX. Because many employees performing work for BX are also employees of NASDAQ OMX, its compensation committee already performs these functions for such employees. Moreover, certain of its senior officers are also officers of NASDAQ OMX and other NASDAQ OMX subsidiaries because their responsibilities relate to multiple entities within the NASDAQ OMX corporate structure. Accordingly, NASDAQ OMX pays these individuals and establishes compensation policy for them. Most notably, the former Chief Executive Officer of BX was also an ‘‘executive officer’’ of NASDAQ OMX within the meaning of NASDAQ Exchange Rule 4350.14 Under that rule, the compensation of executive officers of an issuer of securities, such as the common stock of NASDAQ OMX, that is listed on the NASDAQ Exchange, must be determined by, or recommended to the board of directors for determination by, a majority of independent directors or a compensation committee comprised solely of independent directors. 13 See e-mail from John Yetter, Vice President and Deputy General Counsel, NASDAQ OMX Group, Inc., to Christopher W. Chow, Special Counsel, Commission, dated May 5, 2009. 14 The position of Chief Executive Officer of BX is currently vacant, pending selection of a successor. VerDate Nov<24>2008 16:48 May 18, 2009 Jkt 217001 Accordingly, the NASDAQ OMX board of directors and/or its compensation committee was legally required to establish the compensation for this individual. Although the individual recently resigned his positions with NASDAQ OMX and its subsidiaries in order to pursue another opportunity, it is likely that his successor as Chief Executive Officer of BX will serve in a similar position at NASDAQ OMX and therefore be subject to comparable compensation requirements. To the extent that policies, programs, and practices must also be established for any BX officers or employees who are not also NASDAQ OMX officers or employees, the BX Board will perform such actions without the use of a compensation committee (but subject to the recusal of Staff Directors) 15 unless the persons in question are also employees of Boston Options Exchange Regulation LLC (‘‘BOXR’’). BOXR is the subsidiary of BX that has been delegated responsibility to regulate the market operated by Boston Options Exchange Group LLC (‘‘BOX’’), an options exchange that is a facility of BX but in which neither BX nor any of its affiliates has a financial interest. Section 17 of the By-Laws of BOXR (which are part of its Limited Liability Company Agreement) provides that the compensation of BOXR’s officers shall be determined by the BOXR Board. Because of BOXR’s special status as a regulatory subsidiary, this provision will remain operative following the implementation of the rule change proposed by this filing. Finally, it should be noted that as already provided in the By-Laws, the regulatory oversight committee of the BX Board must be informed about the compensation and promotion or termination of the BX chief regulatory officer and the reasons therefor, to allow it to provide oversight over decisions affecting this key officer.16 15 Staff Directors are directors of BX that are also serving as officers. Since the BX Board would not be responsible for setting the compensation of any Staff Directors who are also officers of NASDAQ OMX, they would be permitted to participate in discussions concerning compensation of BX employees, but would recuse themselves from a vote on the subject to allow the determination to be made by directors that are not officers or employees of BX. If a Staff Director was not also an employee of NASDAQ OMX, that Staff Director would also absent himself or herself from any deliberations regarding his or her compensation. 16 In this filing, BX is also amending its Restated Certificate of Incorporation and By-laws to reflect the name change of The Nasdaq Stock Market, Inc. to The NASDAQ OMX Group, Inc. See Article Fourth of Restated Certificate of Incorporation; Section 9.4 of the By-Laws. PO 00000 Frm 00073 Fmt 4703 Sfmt 4703 23461 2. Statutory Basis BX believes that its proposal is consistent with Section 6(b) of the Act 17 in general, and furthers the objectives of: (1) Section 6(b)(1) of the Act,18 which requires a national securities exchange to be so organized and have the capacity to carry out purposes of the Act and to enforce compliance by its members and persons associated with its members with the provisions of the Act; and (2) Section 6(b)(5) of the Act,19 in that it is 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. Specifically, the proposed rule change will allow BX to eliminate two Board committees whose roles are limited by BX’s status as a wholly owned subsidiary of NASDAQ OMX, thereby allowing directors to focus greater attention on matters falling directly within the purview of the Board, including regulatory quality, market structure, new product initiatives, and review of proposed rule changes. The filing also updates the corporate name of NASDAQ OMX in the Restated Certificate of Incorporation and ByLaws. B. Self-Regulatory Organization’s Statement on Burden on Competition BX does not believe that the proposed rule change will result in any burden on competition that is 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 Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: 17 15 U.S.C. 78f(b). U.S.C. 78(b)(1). 19 15 U.S.C. 78f(b)(5). 18 15 E:\FR\FM\19MYN1.SGM 19MYN1 23462 Federal Register / Vol. 74, No. 95 / Tuesday, May 19, 2009 / Notices (A) By order approve the proposed rule change, or (B) Institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments Number SR–BX–2009–021 and should be submitted on or before June 8, 2009. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.20 Florence E. Harmon, Deputy Secretary. [FR Doc. E9–11609 Filed 5–18–09; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–59906; File No. SR–FINRA– 2009–013] • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–BX–2009–021 on the subject line. Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Granting Approval of Proposed Rule Change To Amend the Tolling Provisions in Rules 12206 and 13206 of the Codes of Arbitration Procedure for Customer and Industry Disputes Paper Comments May 12, 2009. On March 11, 2009, Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) (f/k/a National Association of Securities Dealers, Inc. (‘‘NASD’’)) filed with the Securities and Exchange Commission (‘‘Commission’’) a proposed rule change pursuant to All submissions should refer to File Section 19(b)(1) of the Securities Number SR–BX–2009–021. This file Exchange Act of 1934 (‘‘Act’’),1 and number should be included on the Rule 19b–4 thereunder.2 The proposed subject line if e-mail is used. To help the rule change was published for comment Commission process and review your in the Federal Register on April 7, comments more efficiently, please use 3 only one method. The Commission will 2009. The Commission received five comments on the proposed rule post all comments on the Commission’s change.4 This order approves the Internet Web site (https://www.sec.gov/ proposed rule change. rules/sro.shtml). Copies of the submission, all subsequent I. Description of the Proposed Rule amendments, all written statements Change with respect to the proposed rule FINRA proposed to amend the tolling change that are filed with the provisions in Rules 12206 and 13206 of Commission, and all written the Code of Arbitration Procedure for communications relating to the Customer Disputes (‘‘Customer Code’’) proposed rule change between the and for Industry Disputes (‘‘Industry Commission and any person, other than Code’’), respectively, to clarify that the those that may be withheld from the rules toll the applicable statutes of public in accordance with the provisions of 5 U.S.C. 552, will be 20 17 CFR 200.30–3(a)(12). available for inspection and copying in 1 15 U.S.C. 78s(b)(1). the Commission’s Public Reference 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 59672 Room, 100 F Street, NE., Washington, (April 1, 2009), 74 FR 15806 (April 7, 2009). DC 20549, on official business days 4 See letters from: (1) Seth E. Lipner, Professor of between the hours of 10 a.m. and 3 p.m. of Business, Baruch College, Copies of the filing also will be available Law, Zicklin School(‘‘Lipner letter’’); (2) Joseph M. dated April 3, 2009 for inspection and copying at the Licare, St. John’s University School of Law, Securities Arbitration Clinic, to Elizabeth M. principal office of the Exchange. All Murphy, Secretary, Commission, dated April 28, comments received will be posted 2009 (‘‘Securities Arbitration Clinic letter’’); (3) without change; the Commission does Brian N. Smiley, Esquire, President, Public not edit personal identifying Investors Arbitration Bar Association, to Elizabeth M. Murphy, Secretary, Commission, dated April 28, information from submissions. You 2009 (‘‘PIABA letter’’); (4) Steven B. Caruso, should submit only information that you wish to make available publicly. All Maddox Hargett & Caruso, P.C., dated April 29, 2009 (‘‘Caruso letter’’); and 5) Scot Bernstein, dated submissions should refer to File May 1, 2009 (‘‘Bernstein letter’’). mstockstill on PROD1PC66 with NOTICES • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. VerDate Nov<24>2008 16:48 May 18, 2009 Jkt 217001 PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 limitation when a person files an arbitration claim with FINRA. Currently, Rule 12206, the ‘‘eligibility rule,’’ provides that, ‘‘no claim shall be eligible for submission to arbitration under the Code where six years have elapsed from the occurrence or event giving rise to the claim.’’ 5 The eligibility rule does not extend applicable statutes of limitation, but Rule 12206(c) does provide that, ‘‘where permitted by applicable law, when a claimant files a statement of claim in arbitration, any time limits for the filing of the claim in court will be tolled while FINRA retains jurisdiction of the claim.’’ 6 This means that, where permitted by applicable law, state statutes of limitation will be tolled (i.e., temporarily suspended) when a person files an arbitration claim with FINRA. For many years, FINRA has interpreted the rule to mean that any applicable statutes of limitation would be tolled in all cases when a person files an arbitration claim with FINRA. In Friedman v. Wheat First Securities, Inc., however, the court found that the phrase ‘‘where permitted by applicable law,’’ means that state or federal law, as applicable, must permit tolling expressly, or the period will not be tolled.7 In light of the court’s interpretation of the phrase and the negative effect it could have on investors’ arbitration claims, FINRA proposed to remove the phrase, ‘‘where permitted by applicable law,’’ from Rules 12206(c) and 13206(c) to make tolling automatic as part of the arbitration agreement. The Friedman court granted the defendant’s request to dismiss the plaintiff’s complaint on statute of limitations grounds. In arguing against dismissal, the plaintiff sought to rely on old Rule 10307(a) 8 of the Code of Arbitration Procedure, which was updated and is currently designated as Rules 12206(c) and 13206(c) of the Customer Code and Industry Code, respectively, to support his position that 5 FINRA describes the eligibility rule using the rule number from the Customer Code for simplicity. However, the proposal also applies to the identical eligibility rule of the Industry Code. See Rule 13206. 6 See also Rule 13206(c) of the Industry Code. 7 64 F. Supp. 2d 338 (S.D.N.Y. 1999). The case involved claims under Section 10(b) of the Act. 8 Rule 10307(a) (Tolling of Time Limitation(s) for the Institution of Legal Proceedings and Extension of Time Limitation(s) for Submission to Arbitration) states in relevant part that: Where permitted by applicable law, the time limitations which would otherwise run or accrue for the institution of legal proceedings shall be tolled where a duly executed Submission Agreement is filed by the Claimant(s). The tolling shall continue for such period as the Association shall retain jurisdiction upon the matter submitted. E:\FR\FM\19MYN1.SGM 19MYN1

Agencies

[Federal Register Volume 74, Number 95 (Tuesday, May 19, 2009)]
[Notices]
[Pages 23459-23462]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-11609]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59908; File No. SR-BX-2009-021]


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

May 12, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on April 29, 2009, NASDAQ OMX BX, Inc. (``BX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    BX is filing this proposed rule change with regard to proposed 
changes to its Restated Certificate of Incorporation and By-Laws. The 
proposed rule change will be implemented as soon as practicable 
following approval by the Commission. The text of the proposed rule 
change is available at https://nasdaqomxbx.cchwallstreet.com, at BX's 
principal office, 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, BX 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. BX has prepared summaries, set forth in Sections A, B,

[[Page 23460]]

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
    On August 29, 2008, BX was acquired by NASDAQ OMX. Following that 
acquisition, BX--together with The NASDAQ Stock Market LLC (the 
``NASDAQ Exchange'') and NASDAQ OMX PHLX, Inc. (formerly the 
Philadelphia Stock Exchange, Inc. and also an exchange subsidiary of 
NASDAQ OMX, and referred to herein as ``PHLX'')--has been evaluating 
means to realize synergies in the operations of these three exchanges 
while maintaining the separate identity and member representation 
structures of each.
    In making this evaluation, BX and its sister exchanges have given 
consideration to the experiences of their respective boards and have 
reviewed the governance documents of other exchanges. In particular, BX 
and the other exchanges have reviewed the board structures established 
by NYSE Euronext and its exchange subsidiaries. In Securities Exchange 
Act Release No. 55293,\3\ the Commission approved a structure in which 
certain committees of the board of directors of NYSE Euronext, the 
public holding company, perform functions for exchange subsidiaries, 
which do not themselves have these committees. Specifically, the 
Commission's approval order states that ``the NYSE Euronext board of 
directors will have an audit committee, a human resource and 
compensation committee, and a nominating and governance committee. Each 
of the audit committee, human resource and compensation committee, and 
nominating and governance committee of the NYSE Euronext board of 
directors will consist solely of directors meeting the independence 
requirements of NYSE Euronext. These committees also will perform 
relevant functions for NYSE Group,\4\ the Exchange,\5\ NYSE Market,\6\ 
NYSE Regulation,\7\ Archipelago,\8\ NYSE Arca,\9\ and NYSE Arca 
Equities,\10\ as well as other subsidiaries of NYSE Euronext, except 
that the board of directors of NYSE Regulation will continue to have 
its own compensation committee and nominating and governance 
committee.''
---------------------------------------------------------------------------

    \3\ Securities Exchange Act Release No. 55293 (February 14, 
2007), 72 FR 8033 (February 22, 2007) (SR-NYSE-2006-120).
    \4\ NYSE Group, Inc., the former public holding company of NYSE 
Euronext's U.S. exchanges.
    \5\ New York Stock Exchange LLC (``NYSE''), a registered 
national securities exchange.
    \6\ NYSE Market, Inc., a subsidiary of NYSE to which it has 
delegated certain operational authority.
    \7\ NYSE Regulation, Inc., a subsidiary of NYSE to which it has 
delegated certain operational authority.
    \8\ Archipelago Holdings, Inc., formerly the public holding 
company of the entities now known as NYSE Arca, Inc. and NYSE Arca 
Equities, Inc.
    \9\ NYSE Arca, Inc., a registered national securities exchange.
    \10\ NYSE Arca Equities, Inc., a subsidiary of NYSE Arca to 
which it has delegated certain operational authority.
---------------------------------------------------------------------------

    BX and the other exchanges owned by NASDAQ OMX have also considered 
the experience of the NASDAQ Exchange in operating as a subsidiary of a 
public company since 2006. During the period, the board of each of the 
NASDAQ Exchange and its parent corporation (currently NASDAQ OMX, and 
formerly The Nasdaq Stock Market, Inc.) has appointed its own audit 
committee and management compensation committee. However, these 
committees at the NASDAQ Exchange level have generally found themselves 
duplicating the work of other committees at the exchange or holding 
company level. The NASDAQ OMX audit committee has broad authority to 
review the financial information that will be provided to shareholders 
and others, systems of internal controls, and audit, financial 
reporting and legal and compliance processes. Because NASDAQ OMX's 
financial statements are prepared on a consolidated basis that includes 
the financial results of NASDAQ OMX's subsidiaries, including BX and 
the other exchange subsidiaries, the NASDAQ OMX audit committee's 
purview necessarily includes these subsidiaries. The committee is 
composed of four or five directors, all of whom must be independent 
under the standards established by Section 10A(m) of the Act \11\ and 
Rule 4200(a) of the NASDAQ Exchange. All committee members must be able 
to read and understand financial statements, and at least one member 
must have past employment experience in finance or accounting, 
requisite professional certification in accounting, or any other 
comparable experience or background that results in the individual's 
financial sophistication.
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    \11\ 15 U.S.C. 78j-1(m).
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    By contrast, the audit committee of the NASDAQ Exchange has a more 
limited role, focused solely on the exchange entity and its 
subsidiaries that operate as facilities of the NASDAQ Exchange. As 
described in the current By-Laws of the NASDAQ Exchange (which are, in 
this respect, virtually identical to the current By-Laws of BX), the 
primary functions of the audit committee are (i) Oversight over 
financial reporting, (ii) oversight over the systems of internal 
controls established by management and the Board and the legal and 
compliance process, (iii) selection and evaluation of independent 
auditors, and (iv) direction and oversight of the internal audit 
function. However, to the extent that the committee reviews financial 
and accounting matters, its activities are duplicative of the 
activities of the NASDAQ OMX audit committee, which is also charged 
with providing oversight over financial reporting and independent 
auditor selection for NASDAQ OMX and all of its subsidiaries, including 
the NASDAQ Exchange, BX, and PHLX and their subsidiaries. Similarly, 
the NASDAQ OMX audit committee has general responsibility for oversight 
over internal controls and direction and oversight over the internal 
audit function for NASDAQ OMX and all of its subsidiaries. Thus, the 
responsibilities of the exchanges' audit committees are fully 
duplicated by the responsibilities of the NASDAQ OMX audit committee. 
Accordingly, the NASDAQ Exchange is proposing to allow the elimination 
of its audit committee by amending Article III, Section 5 of the By-
Laws.\12\ Similarly, drawing upon the model established by NYSE 
Euronext and the experience of the NASDAQ Exchange, BX is likewise 
proposing to allow the elimination of its audit committee by amending 
Section 4.13 of its By-Laws.
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    \12\ SR-NASDAQ-2009-042 (April 29, 2009). PHLX expects to file a 
similar proposed rule change in the near future.
---------------------------------------------------------------------------

    BX believes, however, that even in light of the NASDAQ OMX audit 
committee's overall responsibilities for internal controls and the 
internal audit function, it is nevertheless important for the BX Board 
to maintain its own independent oversight over BX's controls and 
internal audit matters relating to BX's operations. In this regard, BX 
notes that its regulatory oversight committee currently has broad 
authority to oversee the adequacy and effectiveness of BX's regulatory 
and self-regulatory organization responsibilities, and is therefore 
able to maintain oversight over controls in tandem with the NASDAQ OMX 
audit committee's overall control oversight responsibilities. 
Similarly, it is already the practice of NASDAQ OMX's Internal

[[Page 23461]]

Audit Department (``Department''),\13\ which performs internal audit 
functions for all NASDAQ OMX subsidiaries, to report to the BX 
regulatory oversight committee on all internal audit matters relating 
to BX. This practice will be formally reflected in the Department's 
written procedures. In addition, to ensure that the BX Board retains 
authority to direct the Department's activities with respect to BX, the 
Department's written procedures will be amended to stipulate that the 
BX regulatory oversight committee may, at any time, direct the 
Department to conduct an audit of a matter of concern to it and report 
the results of the audit both to the BX regulatory oversight committee 
and the NASDAQ OMX audit committee.
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    \13\ See e-mail from John Yetter, Vice President and Deputy 
General Counsel, NASDAQ OMX Group, Inc., to Christopher W. Chow, 
Special Counsel, Commission, dated May 5, 2009.
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    BX also proposes to amend Section 4.13 of the By-Laws in order to 
follow the NYSE Euronext model with respect to allowing the elimination 
of its compensation committee and the performance of its function by 
the NASDAQ OMX compensation committee and/or subsidiary boards. The 
NASDAQ OMX By-Laws provide that its compensation committee considers 
and recommends compensation policies, programs, and practices for 
employees of NASDAQ OMX. Because many employees performing work for BX 
are also employees of NASDAQ OMX, its compensation committee already 
performs these functions for such employees. Moreover, certain of its 
senior officers are also officers of NASDAQ OMX and other NASDAQ OMX 
subsidiaries because their responsibilities relate to multiple entities 
within the NASDAQ OMX corporate structure. Accordingly, NASDAQ OMX pays 
these individuals and establishes compensation policy for them. Most 
notably, the former Chief Executive Officer of BX was also an 
``executive officer'' of NASDAQ OMX within the meaning of NASDAQ 
Exchange Rule 4350.\14\ Under that rule, the compensation of executive 
officers of an issuer of securities, such as the common stock of NASDAQ 
OMX, that is listed on the NASDAQ Exchange, must be determined by, or 
recommended to the board of directors for determination by, a majority 
of independent directors or a compensation committee comprised solely 
of independent directors. Accordingly, the NASDAQ OMX board of 
directors and/or its compensation committee was legally required to 
establish the compensation for this individual. Although the individual 
recently resigned his positions with NASDAQ OMX and its subsidiaries in 
order to pursue another opportunity, it is likely that his successor as 
Chief Executive Officer of BX will serve in a similar position at 
NASDAQ OMX and therefore be subject to comparable compensation 
requirements.
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    \14\ The position of Chief Executive Officer of BX is currently 
vacant, pending selection of a successor.
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    To the extent that policies, programs, and practices must also be 
established for any BX officers or employees who are not also NASDAQ 
OMX officers or employees, the BX Board will perform such actions 
without the use of a compensation committee (but subject to the recusal 
of Staff Directors) \15\ unless the persons in question are also 
employees of Boston Options Exchange Regulation LLC (``BOXR''). BOXR is 
the subsidiary of BX that has been delegated responsibility to regulate 
the market operated by Boston Options Exchange Group LLC (``BOX''), an 
options exchange that is a facility of BX but in which neither BX nor 
any of its affiliates has a financial interest. Section 17 of the By-
Laws of BOXR (which are part of its Limited Liability Company 
Agreement) provides that the compensation of BOXR's officers shall be 
determined by the BOXR Board. Because of BOXR's special status as a 
regulatory subsidiary, this provision will remain operative following 
the implementation of the rule change proposed by this filing. Finally, 
it should be noted that as already provided in the By-Laws, the 
regulatory oversight committee of the BX Board must be informed about 
the compensation and promotion or termination of the BX chief 
regulatory officer and the reasons therefor, to allow it to provide 
oversight over decisions affecting this key officer.\16\
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    \15\ Staff Directors are directors of BX that are also serving 
as officers. Since the BX Board would not be responsible for setting 
the compensation of any Staff Directors who are also officers of 
NASDAQ OMX, they would be permitted to participate in discussions 
concerning compensation of BX employees, but would recuse themselves 
from a vote on the subject to allow the determination to be made by 
directors that are not officers or employees of BX. If a Staff 
Director was not also an employee of NASDAQ OMX, that Staff Director 
would also absent himself or herself from any deliberations 
regarding his or her compensation.
    \16\ In this filing, BX is also amending its Restated 
Certificate of Incorporation and By-laws to reflect the name change 
of The Nasdaq Stock Market, Inc. to The NASDAQ OMX Group, Inc. See 
Article Fourth of Restated Certificate of Incorporation; Section 9.4 
of the By-Laws.
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2. Statutory Basis
    BX believes that its proposal is consistent with Section 6(b) of 
the Act \17\ in general, and furthers the objectives of: (1) Section 
6(b)(1) of the Act,\18\ which requires a national securities exchange 
to be so organized and have the capacity to carry out purposes of the 
Act and to enforce compliance by its members and persons associated 
with its members with the provisions of the Act; and (2) Section 
6(b)(5) of the Act,\19\ in that it is 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. 
Specifically, the proposed rule change will allow BX to eliminate two 
Board committees whose roles are limited by BX's status as a wholly 
owned subsidiary of NASDAQ OMX, thereby allowing directors to focus 
greater attention on matters falling directly within the purview of the 
Board, including regulatory quality, market structure, new product 
initiatives, and review of proposed rule changes. The filing also 
updates the corporate name of NASDAQ OMX in the Restated Certificate of 
Incorporation and By-Laws.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78(b)(1).
    \19\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    BX does not believe that the proposed rule change will result in 
any burden on competition that is 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

    Written comments were neither solicited nor received.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:

[[Page 23462]]

    (A) By order approve the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-BX-2009-021 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-BX-2009-021. This file 
number should be included on the subject line if e-mail 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 (https://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 inspection and 
copying in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 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; 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-BX-2009-021 and should be 
submitted on or before June 8, 2009.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-11609 Filed 5-18-09; 8:45 am]
BILLING CODE 8010-01-P
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