Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of Proposed Rule Change To Amend Its Limited Liability Agreement, 23761-23764 [E9-11740]

Download as PDF Federal Register / Vol. 74, No. 96 / Wednesday, May 20, 2009 / Notices 23), as modified by Amendment Nos. 1 and 2, be, and it hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.22 Florence E. Harmon, Deputy Secretary. [FR Doc. E9–11739 Filed 5–19–09; 8:45 am] BILLING CODE 8010–01–P A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change SECURITIES AND EXCHANGE COMMISSION [Release No. 34–59907 File No. SR– NASDAQ–2009–042] 1. Purpose Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of Proposed Rule Change To Amend Its Limited Liability Agreement May 12, 2009. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’ or ‘‘Exchange Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that, on April 29, 2009, The NASDAQ Stock Market LLC (‘‘NASDAQ Exchange’’ 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. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The NASDAQ Exchange is filing this proposed rule change with regard to proposed changes to its Limited Liability Company Agreement (the ‘‘Agreement’’).3 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:// www.cchwallstreet.com/nasdaq, at the NASDAQ Exchange’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, the NASDAQ Exchange included statements 22 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 The Agreement includes and incorporates an exhibit designated as the By-Laws of the NASDAQ Exchange (the ‘‘By-Laws’’). Under applicable Delaware law, the By-Laws are considered part of the Agreement. 1 15 VerDate Nov<24>2008 15:27 May 19, 2009 Jkt 217001 concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The NASDAQ Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. On July 24, 2008, NASDAQ OMX acquired the Philadelphia Stock Exchange, Inc. (renamed NASDAQ OMX PHLX, Inc. (‘‘PHLX’’)), and on August 29, 2008, NASDAQ OMX acquired the Boston Stock Exchange, Incorporated (renamed NASDAQ OMX BX, Inc. (‘‘BX’’)). Following those acquisitions, the NASDAQ Exchange, PHLX, and BX have 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, the NASDAQ Exchange 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, the NASDAQ Exchange and the other exchanges have reviewed the board structures established by NYSE Euronext and its exchange subsidiaries. In Securities Exchange Act Release No. 55293,4 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 4 Securities Exchange Act Release No. 55293 (February 14, 2007), 72 FR 8033 (February 22, 2007) (SR–NYSE–2006–120). PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 23761 Group,5 the Exchange,6 NYSE Market,7 NYSE Regulation,8 Archipelago,9 NYSE Arca,10 and NYSE Arca Equities,11 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.’’ The NASDAQ Exchange 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 the NASDAQ Exchange 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 12 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, 5 NYSE Group, Inc., the former public holding company of NYSE Euronext’s U.S. exchanges. 6 New York Stock Exchange LLC (‘‘NYSE’’), a registered national securities exchange. 7 NYSE Market, Inc., a subsidiary of NYSE to which it has delegated certain operational authority. 8 NYSE Regulation, Inc., a subsidiary of NYSE to which it has delegated certain operational authority. 9 Archipelago Holdings, Inc., formerly the public holding company of the entities now known as NYSE Arca, Inc. and NYSE Arca Equities, Inc. 10 NYSE Arca, Inc., a registered national securities exchange. 11 NYSE Arca Equities, Inc., a subsidiary of NYSE Arca to which it has delegated certain operational authority. 12 15 U.S.C. 78j–1(m). E:\FR\FM\20MYN1.SGM 20MYN1 23762 Federal Register / Vol. 74, No. 96 / Wednesday, May 20, 2009 / Notices 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 Exchange. As described in the current By-Laws, 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.13 The NASDAQ Exchange 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 NASDAQ Exchange Board to maintain its own independent oversight over the NASDAQ Exchange’s controls and internal audit matters relating to the NASDAQ Exchange’s operations. In this regard, the NASDAQ Exchange notes that its regulatory oversight committee currently has broad authority to oversee the adequacy and effectiveness of the NASDAQ Exchange’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 Audit Department (‘‘Department’’),14 which performs internal audit functions for all NASDAQ OMX subsidiaries, to report to the NASDAQ Exchange regulatory oversight committee on all internal audit matters relating to the NASDAQ Exchange. This practice will be formally reflected in the Department’s written procedures. In addition, to ensure that the NASDAQ Exchange Board retains authority to direct the Department’s activities with respect to the NASDAQ Exchange, the Department’s written procedures will be amended to stipulate that the NASDAQ Exchange 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 NASDAQ Exchange regulatory oversight committee and the NASDAQ OMX audit committee. The NASDAQ Exchange 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 the NASDAQ Exchange 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 Chief Executive Officer of the NASDAQ Exchange is also an ‘‘executive officer’’ of NASDAQ OMX within the meaning of NASDAQ Exchange Rule 4350. 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 13 Similarly, BX is proposing elimination of its audit committee (SR–BX–2009–021 (April 29, 2009)). PHLX expects to file a similar proposed rule change in the near future. 14 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. VerDate Nov<24>2008 15:27 May 19, 2009 Jkt 217001 PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 independent directors or a compensation committee comprised solely of independent directors. Accordingly, the NASDAQ OMX board of directors and/or its compensation committee is legally required to establish the compensation for this individual. To the extent that policies, programs, and practices must also be established for any NASDAQ Exchange officers or employees who are not also NASDAQ OMX officers or employees, the NASDAQ Exchange Board will perform such actions without the use of a compensation committee (but subject to the recusal of Staff Directors).15 Moreover, as already provided in the Agreement, 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. The NASDAQ Exchange is also proposing to amend Article III, Section 6 to allow the NASDAQ Exchange Board to eliminate its arbitration and mediation committee, provided that, as is currently the case, the NASDAQ Exchange’s arbitration and mediation program is operated by the Financial Industry Regulatory Authority (‘‘FINRA’’) in accordance with FINRA rules pursuant to a regulatory services agreement.16 As provided in the Agreement, the arbitration and mediation committee is to advise the Board on the development and maintenance of an equitable and efficient system of dispute resolution that will equally serve the needs of 15 Staff Directors are directors of the NASDAQ Exchange that are also serving as officers. Since the NASDAQ Exchange 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 NASDAQ Exchange 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 the NASDAQ Exchange. 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 The NASDAQ Exchange and FINRA are parties to a Regulatory Services Agreement (‘‘RSA’’) that is dated June 28, 2000 but that did not become operative until July 1, 2006, when the NASDAQ Exchange first began to operate as a national securities exchange. Under the RSA, FINRA provides a comprehensive dispute resolution program for NASDAQ members. Prior to July 1, 2006, The Nasdaq Stock Market, Inc., which was the predecessor of the NASDAQ Exchange, operated a market as a facility of the National Association of Securities Dealers, Inc. (‘‘NASD’’), FINRA’s predecessor. Accordingly, neither the NASDAQ Exchange nor its predecessor market has ever operated a dispute resolution program that was not administered by FINRA or NASD. E:\FR\FM\20MYN1.SGM 20MYN1 Federal Register / Vol. 74, No. 96 / Wednesday, May 20, 2009 / Notices public investors and NASDAQ Exchange members, to monitor rules and procedures governing the conduct of dispute resolution, and to have such other powers and authority as are necessary to effectuate the purposes of the NASDAQ Exchange rules. However, because the NASDAQ Exchange’s arbitration and mediation program is operated by FINRA in accordance with FINRA rules, there is no meaningful role for a committee to advise the Board with respect to the operation of the program or the development of rules, nor have the NASDAQ Exchange rules provided the committee with any specific administrative power or authority. Rather, any information needed by the Board or NASDAQ Exchange staff to evaluate the effectiveness of FINRA’s administration of the program is obtained through the NASDAQ Exchange’s oversight of FINRA’s performance through its authority under its regulatory services agreement to obtain reports from FINRA and to conduct audits. Accordingly, the NASDAQ Exchange has concluded that the committee may reasonably be eliminated. However, the Agreement will continue to provide for the establishment of such a committee in the event that the NASDAQ Exchange later opts to establish an arbitration or mediation program that is not operated by FINRA in accordance with FINRA rules. In such an event, the committee would play a role in advising the Board in the manner currently described in the Agreement. The NASDAQ Exchange is also proposing to make minor changes to its rules governing the selection of Member Representative Directors. Under the Agreement, twenty percent of the NASDAQ Exchange’s directors are selected through a process in which the NASDAQ Exchange member nominating committee nominates a slate of candidates but members also have the opportunity to nominate alternative candidates. If no alternative candidates are duly nominated by members, the candidates recommended by the member nominating committee are elected. Alternatively, if alternative candidates are nominated, there is a ‘‘Contested Election’’ in which members cast ballots in order to determine who fills the vacancies. In connection with its acquisition by NASDAQ OMX, BX recently adopted a similar process.17 When Commission staff reviewed the applicable BX filing, staff required that BX adopt a provision providing that a 17 Securities Exchange Act Release No. 58324 (August 7, 2008), 73 FR 46936 (August 12, 2008) (SR–BSE–2008–02, –23, –25, SR–BSECC–2001–01). VerDate Nov<24>2008 15:27 May 19, 2009 Jkt 217001 member, either alone or together with its affiliates, may not cast votes representing more than twenty percent of the votes cast for a candidate, and any votes cast by the member, either alone or together with its affiliates, in excess of the twenty percent limit shall be disregarded. The NASDAQ Exchange proposes to amend Article II, Section 2 of the By-Laws to adopt a similar limitation. Similarly, Commission staff suggested that BX adopt clarifications to the definition of ‘‘Voting Date,’’ which is analogous to the definition of ‘‘Election Date’’ in the Agreement. The NASDAQ Exchange is now amending Article I of the By-Laws to provide that an Election Date is selected by the Board on an annual basis, but that members only cast votes on such date if there is a Contested Election. Finally, the NASDAQ Exchange is updating the Agreement to reflect the name change of The Nasdaq Stock Market, Inc. to The NASDAQ OMX Group, Inc.;18 the name change of National Association of Securities Dealers, Inc. to FINRA;19 to correct typographical errors in the definition of ‘‘Industry member’’ in Article I of the By-Laws and in Section 6 of the Agreement; and to redesignate the Agreement as the ‘‘Second Amended Limited Liability Company Agreement of The NASDAQ Stock Market LLC.’’ 20 2. Statutory Basis The NASDAQ Exchange believes that its proposal is consistent with Section 6(b) of the Act 21 in general, and furthers the objectives of: (1) Section 6(b)(1) of the Act,22 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,23 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 the elimination of two Board committees whose roles are limited by the NASDAQ 18 See Preamble, Signature Page, and Schedule A and B of the Agreement; Article I of the By-Laws. 19 See Article I of the By-Laws. 20 See Preamble and Signature Page of the Agreement; Preamble of the By-Laws. 21 15 U.S.C. 78f(b). 22 15 U.S.C. 78(b)(1). 23 15 U.S.C. 78f(b)(5). PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 23763 Exchange’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 allows the elimination of the NASDAQ Exchange arbitration and mediation committee, whose role is considerably limited by the NASDAQ Exchange’s use of FINRA to manage its arbitration and mediation program. The filing also adopts improvements to the process for selection of Member Representative Directors, to limit the influence of a group of affiliated members over an election. Finally, the filing adopts clarifications, updates terminology, and corrects typographical errors in several provisions of the Agreement. B. Self-Regulatory Organization’s Statement on Burden on Competition The NASDAQ Exchange 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: (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: E:\FR\FM\20MYN1.SGM 20MYN1 23764 Federal Register / Vol. 74, No. 96 / Wednesday, May 20, 2009 / Notices 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–NASDAQ–2009–042 on the subject line. SOCIAL SECURITY ADMINISTRATION Agency Information Collection Activities: Proposed Request and Comment Request The Social Security Administration (SSA) publishes a list of information collection packages requiring clearance by the Office of Management and Paper Comments Budget (OMB) in compliance with • Send paper comments in triplicate Public Law (Pub. L.) 104–13, the to Elizabeth M. Murphy, Secretary, Paperwork Reduction Act of 1995, Securities and Exchange Commission, effective October 1, 1995. This notice 100 F Street, NE., Washington, DC includes revisions and extensions of 20549–1090. OMB-approved information collections All submissions should refer to File and a new collection. Number SR–NASDAQ–2009–042. This SSA is soliciting comments on the file number should be included on the accuracy of the agency’s burden subject line if e-mail is used. To help the estimate; the need for the information; Commission process and review your its practical utility; ways to enhance its comments more efficiently, please use quality, utility, and clarity; and ways to only one method. The Commission will minimize the burden on respondents, post all comments on the Commission’s including the use of automated Internet Web site (https://www.sec.gov/ collection techniques or other forms of rules/sro.shtml). Copies of the information technology. Mail, e-mail, or submission, all subsequent fax your comments and amendments, all written statements recommendations on the information with respect to the proposed rule collection(s) to the OMB Desk Officer change that are filed with the and the SSA Reports Clearance Officer Commission, and all written to the addresses or fax numbers shown communications relating to the below. proposed rule change between the (OMB), Commission and any person, other than Office of Management and Budget, those that may be withheld from the Attn: Desk Officer for SSA, public in accordance with the Fax: 202–395–6974, provisions of 5 U.S.C. 552, will be E-mail address: available for inspection and copying in OIRA_Submission@omb.eop.gov. the Commission’s Public Reference (SSA), Room, 100 F Street, NE., Washington, Social Security Administration, DC 20549, on official business days DCBFM, between the hours of 10 a.m. and 3 p.m. Attn: Reports Clearance Officer, Copies of the filing also will be available 1332 Annex Building, for inspection and copying at the 6401 Security Blvd., principal office of the Exchange. All Baltimore, MD 21235, comments received will be posted Fax: 410–965–6400, without change; the Commission does E-mail address: OPLM.RCO@ssa.gov. not edit personal identifying I. The information collection below is information from submissions. You pending at SSA. SSA will submit it to should submit only information that OMB within 60 days from the date of you wish to make available publicly. All this notice. To be sure we consider your submissions should refer to File comments, we must receive them no Number SR–NASDAQ–2009–042 and later than July 20, 2009. Individuals can should be submitted on or before June obtain copies of the collection 10, 2009. instrument by calling the SSA Reports For the Commission, by the Division of Clearance Officer at 410–965–3758 or by Trading and Markets, pursuant to delegated writing to the e-mail address we list 24 authority. above. Florence E. Harmon, 1. Questionnaire about Special Deputy Secretary. Veterans Benefits—0960–NEW. SSA [FR Doc. E9–11740 Filed 5–19–09; 8:45 am] will use the information collected on the SSA–2010 to determine continuing BILLING CODE 8010–01–P eligibility for Special Veterans Benefits 24 17 CFR 200.30–3(a)(12). and to determine how much (if any) of VerDate Nov<24>2008 15:27 May 19, 2009 Jkt 217001 PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 a foreign pension may be used to reduce or increase the amount of Social Security Special Veterans retirement benefits. The respondents will complete the SSA–2010 biannually so SSA can determine if benefits should be increased, decreased, suspended, or terminated, based on the data collected. The respondents are beneficiaries receiving Social Security Special Veterans retirement benefits. Type of Request: Request for a new information collection. Number of Respondents: 2,500. Frequency of Response: 1. Average Burden per Response: 20 minutes. Estimated Annual Burden: 833 hours. 2. Request for Reconsideration— Disability Cessation—20 CFR 404.909, 416.1409—0960–0349. Claimants or their representatives use Form SSA– 789–U4 to request that SSA reconsider a determination and to indicate whether they wish to appear at a disability hearing. The claimants can also use this form to submit any additional information/evidence for use in the reconsidered determination and to indicate if they will need an interpreter for the hearing. SSA will use the information on the completed form either to arrange for a hearing or to prepare a decision based on the evidence of record. The respondents are applicants or claimants for Social Security benefits or Supplemental Security Income (SSI) payments. Type of Request: Extension of an OMB-approved information collection. Number of Respondents: 30,000. Frequency of Response: 1. Average Burden per Response: 13 minutes. Estimated Annual Burden: 6,500 hours. 3. Function Report Adult—Third Party—20 CFR 404.1512 & 416.912— 0960–0635. Disability Determination Services (DDS) use the information from the SSA–3380–BK to determine eligibility for SSI and Social Security Disability Insurance (SSDI) claims. The information is an evidentiary source DDSs evaluators use to determine eligibility for SSI and SSDI claims. The respondents are third parties familiar with the functional limitations (or lack thereof) of claimants who apply for Social Security benefits and SSI disability payments. Type of Request: Revision of an OMBapproved information collection. E:\FR\FM\20MYN1.SGM 20MYN1

Agencies

[Federal Register Volume 74, Number 96 (Wednesday, May 20, 2009)]
[Notices]
[Pages 23761-23764]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-11740]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59907 File No. SR-NASDAQ-2009-042]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Amend Its Limited Liability 
Agreement

May 12, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that, on April 29, 2009, The NASDAQ Stock Market LLC 
(``NASDAQ Exchange'' 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NASDAQ Exchange is filing this proposed rule change with regard 
to proposed changes to its Limited Liability Company Agreement (the 
``Agreement'').\3\ 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://www.cchwallstreet.com/nasdaq, at the NASDAQ Exchange's principal office, and at the 
Commission's Public Reference Room.
---------------------------------------------------------------------------

    \3\ The Agreement includes and incorporates an exhibit 
designated as the By-Laws of the NASDAQ Exchange (the ``By-Laws''). 
Under applicable Delaware law, the By-Laws are considered part of 
the Agreement.
---------------------------------------------------------------------------

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 NASDAQ 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 those statements may be examined at the places 
specified in Item IV below. The NASDAQ 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
    On July 24, 2008, NASDAQ OMX acquired the Philadelphia Stock 
Exchange, Inc. (renamed NASDAQ OMX PHLX, Inc. (``PHLX'')), and on 
August 29, 2008, NASDAQ OMX acquired the Boston Stock Exchange, 
Incorporated (renamed NASDAQ OMX BX, Inc. (``BX'')). Following those 
acquisitions, the NASDAQ Exchange, PHLX, and BX have 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, the NASDAQ Exchange 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, the NASDAQ Exchange and the other exchanges 
have reviewed the board structures established by NYSE Euronext and its 
exchange subsidiaries. In Securities Exchange Act Release No. 55293,\4\ 
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,\5\ the Exchange,\6\ NYSE Market,\7\ NYSE Regulation,\8\ 
Archipelago,\9\ NYSE Arca,\10\ and NYSE Arca Equities,\11\ 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.''
---------------------------------------------------------------------------

    \4\ Securities Exchange Act Release No. 55293 (February 14, 
2007), 72 FR 8033 (February 22, 2007) (SR-NYSE-2006-120).
    \5\ NYSE Group, Inc., the former public holding company of NYSE 
Euronext's U.S. exchanges.
    \6\ New York Stock Exchange LLC (``NYSE''), a registered 
national securities exchange.
    \7\ NYSE Market, Inc., a subsidiary of NYSE to which it has 
delegated certain operational authority.
    \8\ NYSE Regulation, Inc., a subsidiary of NYSE to which it has 
delegated certain operational authority.
    \9\ Archipelago Holdings, Inc., formerly the public holding 
company of the entities now known as NYSE Arca, Inc. and NYSE Arca 
Equities, Inc.
    \10\ NYSE Arca, Inc., a registered national securities exchange.
    \11\ NYSE Arca Equities, Inc., a subsidiary of NYSE Arca to 
which it has delegated certain operational authority.
---------------------------------------------------------------------------

    The NASDAQ Exchange 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 the NASDAQ Exchange 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 \12\ 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,

[[Page 23762]]

or any other comparable experience or background that results in the 
individual's financial sophistication.
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    \12\ 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, 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.\13\
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    \13\ Similarly, BX is proposing elimination of its audit 
committee (SR-BX-2009-021 (April 29, 2009)). PHLX expects to file a 
similar proposed rule change in the near future.
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    The NASDAQ Exchange 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 NASDAQ Exchange Board to maintain its own independent oversight 
over the NASDAQ Exchange's controls and internal audit matters relating 
to the NASDAQ Exchange's operations. In this regard, the NASDAQ 
Exchange notes that its regulatory oversight committee currently has 
broad authority to oversee the adequacy and effectiveness of the NASDAQ 
Exchange'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 Audit Department 
(``Department''),\14\ which performs internal audit functions for all 
NASDAQ OMX subsidiaries, to report to the NASDAQ Exchange regulatory 
oversight committee on all internal audit matters relating to the 
NASDAQ Exchange. This practice will be formally reflected in the 
Department's written procedures. In addition, to ensure that the NASDAQ 
Exchange Board retains authority to direct the Department's activities 
with respect to the NASDAQ Exchange, the Department's written 
procedures will be amended to stipulate that the NASDAQ Exchange 
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 NASDAQ Exchange regulatory oversight committee 
and the NASDAQ OMX audit committee.
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    \14\ 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.
---------------------------------------------------------------------------

    The NASDAQ Exchange 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 the NASDAQ Exchange 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 Chief 
Executive Officer of the NASDAQ Exchange is also an ``executive 
officer'' of NASDAQ OMX within the meaning of NASDAQ Exchange Rule 
4350. 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 is legally required to establish the 
compensation for this individual.
    To the extent that policies, programs, and practices must also be 
established for any NASDAQ Exchange officers or employees who are not 
also NASDAQ OMX officers or employees, the NASDAQ Exchange Board will 
perform such actions without the use of a compensation committee (but 
subject to the recusal of Staff Directors).\15\ Moreover, as already 
provided in the Agreement, 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.
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    \15\ Staff Directors are directors of the NASDAQ Exchange that 
are also serving as officers. Since the NASDAQ Exchange 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 
NASDAQ Exchange 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 the NASDAQ Exchange. 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.
---------------------------------------------------------------------------

    The NASDAQ Exchange is also proposing to amend Article III, Section 
6 to allow the NASDAQ Exchange Board to eliminate its arbitration and 
mediation committee, provided that, as is currently the case, the 
NASDAQ Exchange's arbitration and mediation program is operated by the 
Financial Industry Regulatory Authority (``FINRA'') in accordance with 
FINRA rules pursuant to a regulatory services agreement.\16\ As 
provided in the Agreement, the arbitration and mediation committee is 
to advise the Board on the development and maintenance of an equitable 
and efficient system of dispute resolution that will equally serve the 
needs of

[[Page 23763]]

public investors and NASDAQ Exchange members, to monitor rules and 
procedures governing the conduct of dispute resolution, and to have 
such other powers and authority as are necessary to effectuate the 
purposes of the NASDAQ Exchange rules. However, because the NASDAQ 
Exchange's arbitration and mediation program is operated by FINRA in 
accordance with FINRA rules, there is no meaningful role for a 
committee to advise the Board with respect to the operation of the 
program or the development of rules, nor have the NASDAQ Exchange rules 
provided the committee with any specific administrative power or 
authority. Rather, any information needed by the Board or NASDAQ 
Exchange staff to evaluate the effectiveness of FINRA's administration 
of the program is obtained through the NASDAQ Exchange's oversight of 
FINRA's performance through its authority under its regulatory services 
agreement to obtain reports from FINRA and to conduct audits. 
Accordingly, the NASDAQ Exchange has concluded that the committee may 
reasonably be eliminated. However, the Agreement will continue to 
provide for the establishment of such a committee in the event that the 
NASDAQ Exchange later opts to establish an arbitration or mediation 
program that is not operated by FINRA in accordance with FINRA rules. 
In such an event, the committee would play a role in advising the Board 
in the manner currently described in the Agreement.
---------------------------------------------------------------------------

    \16\ The NASDAQ Exchange and FINRA are parties to a Regulatory 
Services Agreement (``RSA'') that is dated June 28, 2000 but that 
did not become operative until July 1, 2006, when the NASDAQ 
Exchange first began to operate as a national securities exchange. 
Under the RSA, FINRA provides a comprehensive dispute resolution 
program for NASDAQ members. Prior to July 1, 2006, The Nasdaq Stock 
Market, Inc., which was the predecessor of the NASDAQ Exchange, 
operated a market as a facility of the National Association of 
Securities Dealers, Inc. (``NASD''), FINRA's predecessor. 
Accordingly, neither the NASDAQ Exchange nor its predecessor market 
has ever operated a dispute resolution program that was not 
administered by FINRA or NASD.
---------------------------------------------------------------------------

    The NASDAQ Exchange is also proposing to make minor changes to its 
rules governing the selection of Member Representative Directors. Under 
the Agreement, twenty percent of the NASDAQ Exchange's directors are 
selected through a process in which the NASDAQ Exchange member 
nominating committee nominates a slate of candidates but members also 
have the opportunity to nominate alternative candidates. If no 
alternative candidates are duly nominated by members, the candidates 
recommended by the member nominating committee are elected. 
Alternatively, if alternative candidates are nominated, there is a 
``Contested Election'' in which members cast ballots in order to 
determine who fills the vacancies. In connection with its acquisition 
by NASDAQ OMX, BX recently adopted a similar process.\17\ When 
Commission staff reviewed the applicable BX filing, staff required that 
BX adopt a provision providing that a member, either alone or together 
with its affiliates, may not cast votes representing more than twenty 
percent of the votes cast for a candidate, and any votes cast by the 
member, either alone or together with its affiliates, in excess of the 
twenty percent limit shall be disregarded. The NASDAQ Exchange proposes 
to amend Article II, Section 2 of the By-Laws to adopt a similar 
limitation. Similarly, Commission staff suggested that BX adopt 
clarifications to the definition of ``Voting Date,'' which is analogous 
to the definition of ``Election Date'' in the Agreement. The NASDAQ 
Exchange is now amending Article I of the By-Laws to provide that an 
Election Date is selected by the Board on an annual basis, but that 
members only cast votes on such date if there is a Contested Election.
---------------------------------------------------------------------------

    \17\ Securities Exchange Act Release No. 58324 (August 7, 2008), 
73 FR 46936 (August 12, 2008) (SR-BSE-2008-02, -23, -25, SR-BSECC-
2001-01).
---------------------------------------------------------------------------

    Finally, the NASDAQ Exchange is updating the Agreement to reflect 
the name change of The Nasdaq Stock Market, Inc. to The NASDAQ OMX 
Group, Inc.;\18\ the name change of National Association of Securities 
Dealers, Inc. to FINRA;\19\ to correct typographical errors in the 
definition of ``Industry member'' in Article I of the By-Laws and in 
Section 6 of the Agreement; and to redesignate the Agreement as the 
``Second Amended Limited Liability Company Agreement of The NASDAQ 
Stock Market LLC.'' \20\
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    \18\ See Preamble, Signature Page, and Schedule A and B of the 
Agreement; Article I of the By-Laws.
    \19\ See Article I of the By-Laws.
    \20\ See Preamble and Signature Page of the Agreement; Preamble 
of the By-Laws.
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2. Statutory Basis
    The NASDAQ Exchange believes that its proposal is consistent with 
Section 6(b) of the Act \21\ in general, and furthers the objectives 
of: (1) Section 6(b)(1) of the Act,\22\ 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,\23\ 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 the 
elimination of two Board committees whose roles are limited by the 
NASDAQ Exchange'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 allows the elimination of the 
NASDAQ Exchange arbitration and mediation committee, whose role is 
considerably limited by the NASDAQ Exchange's use of FINRA to manage 
its arbitration and mediation program. The filing also adopts 
improvements to the process for selection of Member Representative 
Directors, to limit the influence of a group of affiliated members over 
an election. Finally, the filing adopts clarifications, updates 
terminology, and corrects typographical errors in several provisions of 
the Agreement.
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    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78(b)(1).
    \23\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    The NASDAQ Exchange 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:
    (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:

[[Page 23764]]

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-NASDAQ-2009-042 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-NASDAQ-2009-042. 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-NASDAQ-2009-042 and should 
be submitted on or before June 10, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
Florence E. Harmon,
Deputy Secretary.
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    \24\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E9-11740 Filed 5-19-09; 8:45 am]
BILLING CODE 8010-01-P
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