Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by NYSE Arca, Inc. Amending NYSE Arca Rule 3.3(a) and Section 401(a) of the Exchange's Bylaws to Eliminate the Exchange's Audit Committee, Compensation Committee, and Regulatory Oversight Committee, 26304-26309 [2010-11094]
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26304
Federal Register / Vol. 75, No. 90 / Tuesday, May 11, 2010 / Notices
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Number SR–CBOE–2010–035 on the
subject line.
SECURITIES AND EXCHANGE
COMMISSION
Paper Comments
The Exchange neither solicited nor
received comments on the proposal.
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
[Release No. 34–62032; File No. SR–
NYSEArca-2010–31]
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the proposed rule change
does not (i) significantly affect the
protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 6 and Rule 19b–4(f)(6)
thereunder.7 A proposed rule change
filed under Rule 19b–4(f)(6) 8 normally
does not become operative prior to 30
days after the date of filing. However,
pursuant to Rule 19b–4(f)(6)(iii),9 the
Commission may designate a shorter
time if such action is consistent with the
protection of investors and the public
interest. CBOE has asked the
Commission to waive the 30-day
operative delay so that the proposal may
become operative immediately upon
filing. Because the proposed rule change
will harmonize the CBOE rules
pertaining to guarantees and profit
sharing, confirmations to customers,
and options communications with the
comparable FINRA rules pursuant to the
17d–2 Agreement, the Commission
finds that it is consistent with the
protection of investors and the public
interest to waive the 30-day operative
delay, and hereby grants such waiver.10
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:
All submissions should refer to File
Number SR–CBOE–2010–035. 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 Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of such filing
also will be available for inspection and
copying at the principal office of CBOE.
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–CBOE–2010–035 and
should be submitted on or before June
1, 2010.
emcdonald on DSK2BSOYB1PROD with 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
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–11096 Filed 5–10–10; 8:45 am]
6 15
7 17
BILLING CODE 8010–01–P
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
8 Id.
9 17
CFR 240.19b–4(f)(6)(iii).
purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule change’s impact on efficiency,
competition, and capital formation. 15 U.S.C. 78c(f).
10 For
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Self-Regulatory Organizations; Notice
of Filing of Proposed Rule Change by
NYSE Arca, Inc. Amending NYSE Arca
Rule 3.3(a) and Section 401(a) of the
Exchange’s Bylaws to Eliminate the
Exchange’s Audit Committee,
Compensation Committee, and
Regulatory Oversight Committee
May 4, 2010.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1, and Rule 19b–4 2 thereunder,
notice is hereby given that on April 20,
2010, NYSE Arca, Inc. (‘‘Exchange’’ or
‘‘NYSE Arca’’) 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 self-regulatory
organization. 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 Exchange proposes to amend
NYSE Arca Rule 3.3 to eliminate its
audit committee (the ‘‘NYSE Arca Audit
Committee’’), its compensation
committee (the ‘‘NYSE Arca
Compensation Committee’’) and its
regulatory oversight committee (‘‘ROC’’)
as committees of the board of directors
of the Exchange. References to those
board committees will also be deleted
from Section 4.01(a) of the Exchange’s
Bylaws. The formal responsibilities of
the NYSE Arca Audit Committee and
the NYSE Arca Compensation
Committee will, following elimination,
be exercised by the committees of the
board of directors of the Exchange’s
ultimate parent company, NYSE
Euronext. The formal responsibilities of
the ROC will be exercised by the board
of directors of NYSE Regulation, Inc.
(‘‘NYSER’’) in part, pursuant to the terms
of a regulatory services agreement with
the Exchange, and the board of directors
of the Exchange in other respects.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://www.nyse.com, at the principal
office of the Exchange, on the
Commission’s Web site at https://
www.sec.gov, and at the Commission’s
Public Reference Room.
1 15
11 17
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2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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Federal Register / Vol. 75, No. 90 / Tuesday, May 11, 2010 / Notices
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
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of these statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant aspects of such
statements.
emcdonald on DSK2BSOYB1PROD with NOTICES
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to delete
NYSE Arca Rule 3.3(a)(3) and the NYSE
Arca Audit Committee provided for
therein, thereby making the audit
committee of the NYSE Euronext board
(the ‘‘NYSE Euronext Audit Committee’’)
the sole committee responsible for all
Exchange-related audit functions.
Similarly, the Exchange proposes to
delete NYSE Arca Rule 3.3(a)(4) and the
NYSE Arca Compensation Committee
provided for therein, thereby making the
human resources and compensation
committee of the NYSE Euronext board
(the ‘‘NYSE Euronext Human Resources
and Compensation Committee’’) the sole
committee responsible for all Exchangerelated compensation functions. Finally,
the Exchange proposes to delete NYSE
Arca Rule 3.3(a)(2) and the ROC
provided for therein, with the board of
directors of NYSER and the board of
directors of the Exchange each
exercising some portion of the former
responsibilities of the ROC related to
ensuring (i) the independence of
Exchange regulation, (ii) adequate
resources for the Exchange to properly
fulfill its SRO regulatory obligations and
(iii) that Exchange management fully
supports the execution of the regulatory
process. NYSER performs regulatory
responsibilities on behalf of the
Exchange pursuant to the terms of a
regulatory services agreement (‘‘RSA’’)
between NYSER and the Exchange. As
described in more detail below, the
Exchange board receives reports on
regulatory matters from NYSER and
from the Exchange’s Chief Regulatory
Officer (‘‘CRO’’), and the Exchange will
still retain ultimate legal responsibility
for the performance of its regulatory
obligations as well as the ability to take
action as required to meet that
responsibility. References to the three
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aforementioned NYSE Arca board
committees will also be deleted from
Section 4.01(a) of the Exchange’s
Bylaws.
Background
Since the demutualization of the New
York Stock Exchange LLC (‘‘NYSE’’) in
2006 in connection with the merger of
New York Stock Exchange, Inc. and
Archipelago Holdings, Inc.
(‘‘Archipelago’’), the audit and
compensation functions of NYSE have
been carried out at the parent holding
company level.3 This principle was
extended in 2007 with the merger of
NYSE Group, Inc. (‘‘NYSE Group’’) and
Euronext, N.V. to form NYSE Euronext
(the ‘‘NYSE–Euronext Merger’’). As
noted in the Commission’s order
approving the NYSE–Euronext Merger,4
upon consummation, the board of
directors of NYSE Euronext (the
‘‘Company’) was expected to have an
audit committee, a human resource and
compensation committee, and a
nominating and governance committee,
each consisting solely of directors
meeting the independence requirements
of the Company.5 The order further
stated that these committees also would
perform relevant functions for NYSE
Group, NYSE, NYSE Market, Inc., NYSE
Regulation, Inc., Archipelago, NYSE
Arca Equities, Inc., and the Exchange, as
well as other subsidiaries of the
Company, except that the board of
directors of NYSE Regulation, Inc.
would continue to have its own
compensation committee and
nominating and governance committee.6
In addition, on October 1, 2008, the
American Stock Exchange LLC (‘‘Amex’’)
was acquired by the Company. In
connection with the merger, the Amex
self-regulatory organization ultimately
became known as NYSE Amex LLC
(‘‘NYSE Amex’’). In its order approving
the acquisition,7 the Commission again
noted that, ‘‘Amex expects that the
committees of the NYSE Euronext board
of directors will perform for NYSE
[Amex] the board committee functions
3 See Securities Exchange Act Release No. 53382
(February 27, 2006), 71 FR 11251 (March 6, 2006)
(SR–NYSE–2005–77) (order approving NYSE’s
business combination with Archipelago Holdings,
Inc.) at 11257.
4 Securities Exchange Act Release No. 55293
(February 14, 2007), 72 FR 8033 (February 22, 2007)
(SR–NYSE–2006–120) (‘‘NYSE Euronext Approval
Order’’).
5 See NYSE Euronext Approval Order, 72 FR at
8036.
6 Id.
7 Securities Exchange Act Release No. 58673
(September 29, 2008), 73 FR 57707 (October 3,
2008) (SR–Amex–2008–62, SR–NYSE–2008–60)
(‘‘NYSE Amex Approval Order’’).
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relating to audit, governance and
compensation.’’ 8
The NYSE Euronext Audit Committee
Will Become the Sole Committee To
Handle All Audit Responsibilities for
the Exchange
Among the various U.S. consolidated
subsidiary corporations of the Company,
only the Exchange has an audit
committee that is separate and apart
from the NYSE Euronext Audit
Committee. Moreover, in practice, the
audit responsibilities of the NYSE Arca
Audit Committee overlap with those of
the NYSE Euronext Audit Committee
because the latter reviews the financial
condition of the Exchange as part of its
audit responsibilities.
Under its charter, the NYSE Euronext
Audit Committee has broad authority to
assist the board of directors of the
Company in its oversight of (a) the
integrity of the Company’s financial
statements and internal controls, (b)
compliance with legal and regulatory
requirements, including the Company’s
ethical standards and policies, (c) the
qualifications, independence and
performance of the Company’s
independent auditor, (d) the process
relating to internal risk management and
control systems, (e) the performance of
the Company’s internal audit function
and its independent auditors, and (f) the
Company’s tax policy. It also prepares
the Audit Committee report to
shareholders for inclusion in the
Company’s annual proxy statement.
Because the Company’s financial
statements are prepared on a
consolidated basis that includes the
financial results of all of the Company’s
subsidiaries, including the Exchange
and any subsidiaries of the Exchange,
the NYSE Euronext Audit Committee’s
purview necessarily includes these
subsidiaries. The committee is
composed of at least three members, all
of whom must meet the independence
and experience requirements of the New
York Stock Exchange and Rule 10A–3
under the Securities Exchange Act of
1934 (the ‘‘Act’’). Each member of the
committee must be financially literate or
become financially literate within a
reasonable time after appointment to the
committee, and at least one member
must have accounting or related
financial management expertise.
By contrast, the NYSE Arca Audit
Committee has a more limited role,
focused solely on the exchange entity
and its subsidiary NYSE Arca Equities,
8 NYSE Amex Approval Order, 73 FR at 57712.
Note 66 following this language reiterates that,
‘‘Each of these NYSE Euronext committees is
composed solely of directors meeting the
independence requirements of NYSE Euronext.’’
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Federal Register / Vol. 75, No. 90 / Tuesday, May 11, 2010 / Notices
Inc. which operates as a facility of the
Exchange. As described in current
Exchange Rule 3.3(a)(3)(B), the primary
functions of that audit committee are (i)
to conduct an annual review with the
independent auditors, to determine the
scope of their examination and the cost
thereof, (ii) to periodically review with
the independent auditors and the
internal auditor the Exchange’s internal
controls and the adequacy of the
internal audit program, (iii) to review
the annual reports submitted both
internally and externally, and take such
action with respect thereto as it may
deem appropriate, and (iv) to
recommend to the board independent
public accountants as auditors of the
Exchange and its subsidiaries. However,
to the extent that the committee
performs these functions, its activities
are duplicative of the activities of the
NYSE Euronext Audit Committee
which, for example, is specifically
responsible under its charter for
appointing, overseeing the work of,
evaluating the qualifications,
performance and independence of, and
determining compensation for, the
independent auditor. That
responsibility also specifically includes
reviewing and pre-approving the scope
and general extent of the auditor’s
services and the estimated fees for those
services. The independent auditor, in
turn, is required to report directly to the
NYSE Euronext Audit Committee.
Similarly, the NYSE Euronext Audit
Committee is responsible under its
charter for assessing the effectiveness of
the internal audit function and
reviewing with management and the
independent auditor any major issues as
to the adequacy of the Company’s
internal risk management and internal
controls. The NYSE Euronext Audit
Committee is also charged with meeting
to review and discuss with management
and the independent auditor the
Company’s annual audited financial
statements, quarterly financial
statements prior to the filing of Form
10–Q, and significant financial reporting
issues and judgments made in
connection with the preparation of the
financial statements. These specific
responsibilities of the NYSE Euronext
Audit Committee, as well as numerous
others in its charter relating to oversight
of both the independent and internal
auditors, financial statement and
disclosure matters, and corporate
oversight, result in the responsibilities
of the NYSE Arca Audit Committee
being fully duplicated by the
responsibilities of the NYSE Euronext
Audit Committee.
To make the practices of the Exchange
consistent with the company-wide
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corporate practices of the Company, the
Exchange is now proposing to delete
NYSE Arca Rule 3.3(a)(3) to eliminate
the NYSE Arca Audit Committee and
thereby formally establish the NYSE
Euronext Audit Committee as the sole
committee responsible for audit
functions with regard to the Exchange.
As has been the case since the creation
of the NYSE Euronext Audit Committee,
it will continue to be composed at all
times of independent directors and will
continue to review the financial
condition of the Exchange as part of its
oversight of the financial processes of
the Company and of each of its
consolidated subsidiaries.
NYSER, a not-for-profit indirect
subsidiary of the Company, has broad
authority to oversee the regulatory
activities of the Exchange and the other
self-regulatory organizations whose
ultimate parent is the Company, through
delegated authority and regulatory
services agreements. It is the practice of
the Company’s Global Risk and Audit
Services Department (‘‘RAS’’), which
performs internal audit functions, to
report to the board of directors of
NYSER (‘‘NYSER Board’’) on all internal
audit matters relating to the Exchange’s
regulatory responsibilities. The
Exchange represents that, to ensure that
NYSER has the appropriate authority to
oversee RAS’s activities with respect to
the Exchange’s regulatory
responsibilities pursuant to the
provisions of the RSA between the
Exchange and NYSER as described
below, RAS’s written procedures will be
amended to stipulate that the NYSER
Board may, at any time, request that
RAS conduct an audit of a matter of
concern to it and report the results of
the audit both to the NYSER Board and
the NYSE Euronext Audit Committee.
The CRO of the Exchange, whose role is
described below in more detail and who
attends meetings of both the NYSER
Board and the Exchange’s board of
directors, would be in attendance at any
meeting of the NYSER Board at which
the results of any such audit would be
reported by RAS. The CRO would
discuss these audit results with each of
the NYSER Board and the Exchange’s
board of directors, as appropriate.
NYSER also provides reports on
regulatory matters at Exchange board
meetings. The Exchange retains the
authority to direct NYSER to request
that RAS conduct such an audit of a
matter of concern to it.
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The NYSE Euronext Human Resources
and Compensation Committee Will
Become the Sole Committee To Handle
All Human Resources and
Compensation Responsibilities for the
Exchange
The Exchange also currently has a
separate Compensation Committee
whose assigned responsibilities with
respect to compensation and personnel
matters overlap with the broader
mandate of the NYSE Euronext Human
Resources and Compensation
Committee. The latter committee is
charged under its charter with
discharging the responsibilities of the
Company’s board of directors relating to
human resources policies and
procedures, executive benefit plans, and
compensation and compensation
disclosure with respect to the Company.
The primary functions of the NYSE
Arca Compensation Committee, as
described in current Exchange Rule
3.3(a)(4)(B), are relatively limited. The
committee is required to (i) review and
approve corporate goals and objectives
relevant to the Exchange CEO’s
compensation, (ii) evaluate the CEO’s
performance in light of those goals and
objectives, (iii) set the CEO’s
compensation level based on this
evaluation, and (iv) make
recommendations to the board of the
Exchange with respect to the design of
incentive compensation and equitybased plans. The first three of these
functions relate to the determination of
the Exchange CEO’s compensation.
However, the Exchange CEO, as an
executive officer of the Company,
already has his/her compensation
established by the Company’s board of
directors, in conjunction with
recommendations from the NYSE
Euronext Human Resources and
Compensation Committee.
Regarding the fourth and last primary
function of the NYSE Arca
Compensation Committee as stated in
Exchange Rule 3.3(a)(4)(B), involving
recommendations to the Exchange board
‘‘with respect to the design of incentive
compensation and equity-based plans,’’
the charter of the NYSE Euronext
Human Resources and Compensation
Committee states that a primary
responsibility of that committee of the
Company is to ‘‘[r]eview and make
recommendations to the Board with
respect to incentive-compensation and
equity based plans that are subject to
Board approval.’’ The direct
responsibility of the NYSE Euronext
Human Resources and Compensation
Committee for making such
recommendations to the board of the
Company is also a requirement for the
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Company as a listed company, as
provided in Section 303A.05 of the
NYSE Listed Company Manual. Because
there is no incentive compensation nor
any equity-based plans for employees
other than as determined at the parent
company level, the NYSE Arca
Compensation Committee is precluded
from exercising its stated function of
making such recommendations to the
Exchange board (which could not act on
any such recommendations in any case).
To make the practices of the Exchange
consistent with the company-wide
corporate practices of the Company, the
Exchange is now proposing to delete
NYSE Arca Rule 3.3(a)(4) to eliminate
the NYSE Arca Compensation
Committee and thereby formally
establish the NYSE Euronext Human
Resources and Compensation
Committee as the sole committee
responsible for human resources and
compensation functions with regard to
the Exchange as anticipated in those
Commission orders referenced herein.
As has been the case since the creation
of the NYSE Euronext Human Resources
and Compensation Committee, it will
continue to be composed at all times of
independent directors and will continue
to address human resources policies and
procedures, executive benefit plans, and
compensation and compensation
disclosure with respect to the Company
and of each of its consolidated
subsidiaries, including the Exchange
(and excepting, with respect to certain
items, NYSE Regulation, Inc.).
emcdonald on DSK2BSOYB1PROD with NOTICES
The NYSER Board and the Board of
Directors of the Exchange Will Each
Exercise a Portion of the Current
Responsibilities of the ROC, and the
Board of Directors of the Exchange Will
Retain Ultimate Legal Responsibility for
the Regulation of Its Permit Holders and
Its Market
The proposed elimination of the ROC
will result in the exercise of the current
formal responsibilities of that position
being divided between the NYSER
Board and the board of directors of the
Exchange as described below. Those
responsibilities are to ensure (i) the
independence of Exchange regulation,
(ii) adequate resources for the Exchange
to properly fulfill its SRO regulatory
obligations and (iii) that Exchange
management fully supports the
execution of the regulatory process. The
Exchange believes that the performance
of its regulatory functions following
elimination of the ROC will closely
parallel the current performance by
NYSE Amex of its regulatory functions
as previously considered and approved
by the Commission.
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In the NYSE Amex Approval Order,
the Commission noted that ‘‘upon the
consummation of the Mergers and the
Related Transactions, NYSE [Amex] will
no longer have a Regulatory Oversight
Committee (‘‘ROC’’). Instead, NYSE
[Amex] will contract with NYSE
Regulation to perform all of its
regulatory functions. The Commission
believes that it is consistent with the
Act for NYSE [Amex] to eliminate its
ROC and instead contract with NYSE
Regulation to perform its regulatory
functions because the governance of
NYSE Regulation will provide a
comparable level of independence that
a ROC would provide.’’ 9 The Exchange
has previously entered into the RSA
with NYSER to perform all of the
Exchange’s regulatory functions on the
Exchange’s behalf. The Financial
Industry Regulatory Authority
(‘‘FINRA’’) performs some of the
regulatory functions contracted out to
NYSER pursuant to a separate multiparty regulatory services agreement with
FINRA. These regulatory contractual
arrangements closely parallel the
regulatory arrangements for NYSE Amex
that the Commission reviewed and
approved in the NYSE Amex Approval
Order.10
Regarding the ROC’s current formal
responsibility to ensure the
independence of Exchange regulation,
the Exchange notes the Commission’s
comment cited in the prior paragraph
that the governance of NYSER will
provide a comparable level of
independence as that of a ROC. The
Exchange represents that the
aforementioned statement in the NYSE
Amex Approval Order will be equally
valid with respect to regulation of the
Exchange because of the very similar
regulatory contractual arrangements.11
9 NYSE
Amex Approval Order, 73 FR at 57717.
id. [‘‘First, NYSE [Amex] will enter into a
regulatory contract with NYSE Regulation * * *
under which NYSE [Amex] will contract with
NYSE Regulation to perform all of NYSE [Amex]’s
regulatory functions on NYSE [Amex]’s behalf.
However, FINRA may perform some of the
regulatory functions contracted out to NYSE
Regulation pursuant to a separate multi-party
regulatory services agreement * * *.
Notwithstanding these regulatory contracts, NYSE
[Amex] will retain ultimate legal responsibility for
the regulation of its members and its market.’’] The
Exchange represents that its contractual
arrangements with NYSER and FINRA with respect
to the performance of its regulatory functions are
fully equivalent to the contractual arrangements
that NYSE Amex has entered into with NYSER and
FINRA as described in this footnote, and that the
Exchange retains ultimate legal responsibility for
the performance of its regulatory functions and the
ability to take action to assure the performance of
those functions.
11 Some of the specific reasons cited by the
Commission in support of its conclusion that
independence of SRO regulation would exist under
NYSE Amex’s contractual arrangements with
10 See
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26307
Further, regarding the ROC’s current
formal responsibility to ensure adequate
resources for the Exchange to properly
fulfill its SRO regulatory obligations, the
Exchange notes the Commission’s
statement in the NYSE Amex Approval
Order that ‘‘NYSE Euronext has agreed
to provide adequate funding to NYSE
Regulation to conduct its regulatory
activities with respect to NYSE, NYSE
Arca and * * * NYSE [Amex].’’ 12 That
funding arrangement led the
Commission to state that ‘‘the
Commission believes that NYSE
Euronext’s commitment to provide
adequate funding to NYSE Regulation to
conduct its regulatory activities is
designed to ensure that NYSE [Amex]
can perform its obligations under the
Act.’’ 13 Because that funding
commitment by NYSE Euronext is also
applicable by its terms to the Exchange,
the Commission’s conclusion in the
preceding sentence regarding adequate
funding of NYSER for the conduct of
regulatory activities is equally valid as
applied to the Exchange’s SRO
regulatory obligations.
As with NYSE Amex, and
notwithstanding these regulatory
agreements, the Exchange retains
ultimate legal responsibility for the
regulation of its permit holders 14 and its
market and has full authority to take
action to assure that its regulatory
responsibilities are met. In addition, the
Exchange board of directors will
directly assume the ROC’s current
formal responsibility to ensure that
Exchange management fully supports
the execution of the regulatory process.
In connection with the foregoing
arrangements, as stated above, the
Exchange retains the authority to direct
NYSER and FINRA to take any action
necessary to fulfill the Exchange’s
statutory and self-regulatory obligations,
and NYSER provides a report on
regulatory matters at each meeting of the
Exchange board. The Exchange board
appoints its CRO who is also an officer
of NYSER and reports to the Chief
Executive Officer of NYSER. The CRO is
also an officer of the Exchange, and in
that capacity is charged with reporting
on regulatory matters to the Exchange
NYSER are that ‘‘all directors on the Board of NYSE
Regulation (other than its CEO) are, and will be,
required to be independent of management of NYSE
Euronext and its subsidiaries, as well as of NYSE,
NYSE Arca, and NYSE [Amex] members and listed
companies.’’ The Commission further noted that, ‘‘In
addition, a majority of the members of the NYSE
Regulation board must be directors that are not also
directors of NYSE Euronext.’’ See id.
12 Id.
13 Id.
14 Permit holders at the Exchange are ‘‘members’’
of the Exchange as that term is defined in Section
3 of the Act.
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Federal Register / Vol. 75, No. 90 / Tuesday, May 11, 2010 / Notices
change is also consistent with, and
furthers the objectives of Section
6(b)(5) 21 of the Act, in that it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and perfect the
mechanisms of a free and open market
and a national market system and, in
general, to protect investors and the
public interest.
More specifically, the Exchange
believes that the proposed rule change
will promote efficiency and just and
equitable principles of trade by
simplifying the corporate structure of
the Exchange through allowing the
Exchange to eliminate two board
committees whose responsibilities
overlap with, and are adequately
handled by, corresponding committees
of the board of directors of the
Exchange’s ultimate parent. This will
allow directors of the Exchange to focus
their attention on matters falling
directly within the purview of the
Exchange’s board. Similarly,
elimination of the ROC will further
simplify the corporate structure of the
Exchange, thereby promoting efficiency,
by aligning the structure relating to the
performance of the regulatory functions
of the Exchange more closely with the
structure of NYSE Amex relating to its
performance of those same functions. As
discussed above, the Commission has
previously determined that the
regulatory structure of NYSE Amex is
consistent with the Act, including
Section 6(b)(1) of the Act.
2. Statutory Basis
The proposed rule change is
consistent with Section 6(b) 18 of the
Act,19 in general, and furthers the
objectives of Section 6(b)(1) 20 of the
Act, which requires a national securities
exchange to be so organized and have
the capacity to carry out the purposes of
the Act and to comply, and to enforce
compliance by its members and persons
associated with its members, with the
provisions of the Act. The proposed rule
emcdonald on DSK2BSOYB1PROD with NOTICES
board. These arrangements also closely
track the current arrangements for NYSE
Amex that were considered by the
Commission in issuing the NYSE Amex
Approval Order 15 and will assure that
the Exchange board receives reports on
regulatory matters that are sufficient to
enable it to take action as necessary in
the performance of its regulatory
responsibilities.
As a consequence of realigning its
regulatory arrangements to closely
match those of NYSE Amex, which
arrangements were previously
considered and approved by the
Commission, the Exchange believes that
the proposed rule change is noncontroversial and presents no new or
novel issues. In the NYSE Amex
Approval Order, the Commission found
that NYSE Amex’s proposed regulatory
structure ‘‘is consistent with the Act,
including Section 6(b)(1) of the Act
* * *’’ and further stated that, ‘‘The
Commission believes that it is
consistent with the Act to allow NYSE
[Amex] to contract with NYSE
Regulation and FINRA to perform its
regulatory functions, including its
examination, enforcement, and
disciplinary functions.’’ 16 The
Commission also determined that NYSE
Amex’s ‘‘proposal to appoint a CRO
reporting to the NYSE [Amex] Board
will further NYSE [Amex]’s ability to
satisfy these self-regulatory obligations
consistent with Section 6(b)(1) of the
Act.’’ 17 Because all of the same elements
will be present in the Exchange’s
regulatory arrangements following the
elimination of the ROC, the Exchange
believes that the proposed rule change
is fully consistent with the Act.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act.
15 See NYSE Amex Approval Order, 73 FR at
57717. [‘‘NYSE [Amex] also will retain the authority
to direct NYSE Regulation, FINRA, or any other
SRO that provides regulatory services to take any
action necessary to fulfill NYSE [Amex]’s statutory
and self-regulatory obligations. In addition, the
NYSE [Amex] Board will appoint a CRO, who will
be an officer of NYSE [Amex] and will report
directly to the NYSE [Amex] Board.’’]
16 NYSE Amex Approval Order, 73 FR at 57717.
17 Id.
18 15 U.S.C. 78f(b).
19 15 U.S.C. 78.
20 15 U.S.C. 78f(b)(1).
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19:22 May 10, 2010
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received with respect to the
proposed rule change.
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
21 15
PO 00000
U.S.C. 78f(b)(5).
Frm 00124
Fmt 4703
Sfmt 4703
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 NYSE consents, the
Commission will:
(A) By order approve such proposed
rule change, or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml; or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NYSEArca–2010–31 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–NYSEArca–2010–31. 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 Web site viewing and
printing in the Commission’s Public
Reference Room, 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
E:\FR\FM\11MYN1.SGM
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Federal Register / Vol. 75, No. 90 / Tuesday, May 11, 2010 / Notices
Commission’s Web site at https://
www.sec.gov.
submissions should refer to File
Number SR–NYSEArca–2010–31 and
should be submitted on or before June
1, 2010.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–11094 Filed 5–10–10; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–62043; File No. SR–BX–
2010–033]
Self-Regulatory Organizations;
NASDAQ OMX BX, Inc.; Notice of Filing
and Immediate Effectiveness of
Proposed Rule Change Relating to the
Options Regulatory Fee
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
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of these statements may be examined at
the places specified in Item IV below.
The self-regulatory organization has
prepared summaries, set forth in
Sections A, B, and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
May 5, 2010.
1. Purpose
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 30,
2010, NASDAQ OMX BX, Inc. (the
‘‘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 self-regulatory
organization. The Exchange filed the
proposed rule change pursuant to
Section 19(b)(3)(A)(ii) of the Act,3 and
Rule 19b-4(f)(2) thereunder,4 which
renders the proposal effective upon
filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
from interested persons.
The Exchange charges an Options
Regulatory Fee (‘‘ORF’’) of $0.0030 per
contract to each BOX Options
Participant for all options transactions
executed or cleared by the BOX Options
Participant that are cleared by the
Options Clearing Corporation (‘‘OCC’’) in
the customer range, excluding Linkage
orders, regardless of the exchange on
which the transaction occurs.5 The ORF
is collected indirectly from BOX
Options Participants through their
clearing firms by OCC on behalf of the
Exchange.
There is presently a minimum onecent ($0.01) ORF charged per trade. The
Exchange proposes to eliminate this
minimum charge from its fee schedule
and that this fee change be operative on
May 3, 2010.
emcdonald on DSK2BSOYB1PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
NASDAQ OMX BX, Inc. (the
‘‘Exchange’’) proposes to amend the Fee
Schedule of the Boston Options
Exchange Group, LLC (‘‘BOX’’) to
eliminate the minimum one-cent
Options Regulatory Fee charged per
trade. The text of the proposed rule
change is available from the principal
office of the Exchange, at the
Commission’s Public Reference Room,
on the Exchange’s Internet Web site at
https://nasdaqomxbx.cchwallstreet.com/
NASDAQOMXBX/Filings/, and on the
22 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(ii).
4 17 CFR 240.19b–4(f)(2).
1 15
VerDate Mar<15>2010
19:22 May 10, 2010
Jkt 220001
2. Statutory Basis
The Exchange believes that the
proposal is consistent with the
requirements of Section 6(b) of the Act,6
in general, and Section 6(b)(4) of the
Act,7 in particular, in that it provides for
the equitable allocation of reasonable
dues, fees, and other charges among its
members and issuers and other persons
using its facilities. In particular, the
Exchange believes that this proposal
will align the calculation of the ORF
5 The ORF was established in January 2010. See
Securities Exchange Act Release No. 61388 (January
20, 2010), 75 FR 4431 (January 27, 2010) (SR–BX–
2010–001) (Notice of Filings and Immediate
Effectiveness of Proposed Rule Change Relating to
Registered Representative Fee and Options
Regulatory Fee).
6 15 U.S.C. 78f(b).
7 15 U.S.C. 78f(b)(4).
PO 00000
Frm 00125
Fmt 4703
Sfmt 4703
26309
with that of other options exchanges 8
while also simplifying the Exchange’s
administration of the ORF.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will 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 neither solicited
nor received comments on the proposed
rule change.
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)(A)(ii) of the Exchange Act 9 and
Rule 19b-4(f)(2) 10 thereunder, because it
establishes or changes a due, fee, or
other charge applicable only to a
member.
At any time within 60 days of the
filing of the proposed rule change, the
Commission may summarily abrogate
the rule change if it appears to the
Commission that the action is necessary
or appropriate in the public interest, for
the protection of investors, or would
otherwise further 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 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 rulecomments@sec.gov. Please include File
Number SR–BX–2010–033 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.
8 See Securities Exchange Act Release Nos. 61529
(February 17, 2010), 75 FR 8421 (February 24, 2010)
(SR–PHLX–2010–17) and 61641 (March 3, 2010) 75
FR 11220 (March 10, 2010) (SR–CBOE–2010–20).
9 15 U.S.C. 78s(b)(3)(A)(ii).
10 17 CFR 240.19b–4(f)(2).
E:\FR\FM\11MYN1.SGM
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]]>Agencies
[Federal Register Volume 75, Number 90 (Tuesday, May 11, 2010)]
[Notices]
[Pages 26304-26309]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-11094]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62032; File No. SR-NYSEArca-2010-31]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by NYSE Arca, Inc. Amending NYSE Arca Rule 3.3(a) and Section
401(a) of the Exchange's Bylaws to Eliminate the Exchange's Audit
Committee, Compensation Committee, and Regulatory Oversight Committee
May 4, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\, and Rule 19b-4 \2\ thereunder, notice is hereby given
that on April 20, 2010, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'')
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 self-regulatory organization. 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
The Exchange proposes to amend NYSE Arca Rule 3.3 to eliminate its
audit committee (the ``NYSE Arca Audit Committee''), its compensation
committee (the ``NYSE Arca Compensation Committee'') and its regulatory
oversight committee (``ROC'') as committees of the board of directors
of the Exchange. References to those board committees will also be
deleted from Section 4.01(a) of the Exchange's Bylaws. The formal
responsibilities of the NYSE Arca Audit Committee and the NYSE Arca
Compensation Committee will, following elimination, be exercised by the
committees of the board of directors of the Exchange's ultimate parent
company, NYSE Euronext. The formal responsibilities of the ROC will be
exercised by the board of directors of NYSE Regulation, Inc.
(``NYSER'') in part, pursuant to the terms of a regulatory services
agreement with the Exchange, and the board of directors of the Exchange
in other respects.
The text of the proposed rule change is available on the Exchange's
Web site at https://www.nyse.com, at the principal office of the
Exchange, on the Commission's Web site at https://www.sec.gov, and at
the Commission's Public Reference Room.
[[Page 26305]]
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 self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to delete NYSE Arca Rule 3.3(a)(3) and the
NYSE Arca Audit Committee provided for therein, thereby making the
audit committee of the NYSE Euronext board (the ``NYSE Euronext Audit
Committee'') the sole committee responsible for all Exchange-related
audit functions. Similarly, the Exchange proposes to delete NYSE Arca
Rule 3.3(a)(4) and the NYSE Arca Compensation Committee provided for
therein, thereby making the human resources and compensation committee
of the NYSE Euronext board (the ``NYSE Euronext Human Resources and
Compensation Committee'') the sole committee responsible for all
Exchange-related compensation functions. Finally, the Exchange proposes
to delete NYSE Arca Rule 3.3(a)(2) and the ROC provided for therein,
with the board of directors of NYSER and the board of directors of the
Exchange each exercising some portion of the former responsibilities of
the ROC related to ensuring (i) the independence of Exchange
regulation, (ii) adequate resources for the Exchange to properly
fulfill its SRO regulatory obligations and (iii) that Exchange
management fully supports the execution of the regulatory process.
NYSER performs regulatory responsibilities on behalf of the Exchange
pursuant to the terms of a regulatory services agreement (``RSA'')
between NYSER and the Exchange. As described in more detail below, the
Exchange board receives reports on regulatory matters from NYSER and
from the Exchange's Chief Regulatory Officer (``CRO''), and the
Exchange will still retain ultimate legal responsibility for the
performance of its regulatory obligations as well as the ability to
take action as required to meet that responsibility. References to the
three aforementioned NYSE Arca board committees will also be deleted
from Section 4.01(a) of the Exchange's Bylaws.
Background
Since the demutualization of the New York Stock Exchange LLC
(``NYSE'') in 2006 in connection with the merger of New York Stock
Exchange, Inc. and Archipelago Holdings, Inc. (``Archipelago''), the
audit and compensation functions of NYSE have been carried out at the
parent holding company level.\3\ This principle was extended in 2007
with the merger of NYSE Group, Inc. (``NYSE Group'') and Euronext, N.V.
to form NYSE Euronext (the ``NYSE-Euronext Merger''). As noted in the
Commission's order approving the NYSE-Euronext Merger,\4\ upon
consummation, the board of directors of NYSE Euronext (the ``Company')
was expected to have an audit committee, a human resource and
compensation committee, and a nominating and governance committee, each
consisting solely of directors meeting the independence requirements of
the Company.\5\ The order further stated that these committees also
would perform relevant functions for NYSE Group, NYSE, NYSE Market,
Inc., NYSE Regulation, Inc., Archipelago, NYSE Arca Equities, Inc., and
the Exchange, as well as other subsidiaries of the Company, except that
the board of directors of NYSE Regulation, Inc. would continue to have
its own compensation committee and nominating and governance
committee.\6\
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 53382 (February 27,
2006), 71 FR 11251 (March 6, 2006) (SR-NYSE-2005-77) (order
approving NYSE's business combination with Archipelago Holdings,
Inc.) at 11257.
\4\ Securities Exchange Act Release No. 55293 (February 14,
2007), 72 FR 8033 (February 22, 2007) (SR-NYSE-2006-120) (``NYSE
Euronext Approval Order'').
\5\ See NYSE Euronext Approval Order, 72 FR at 8036.
\6\ Id.
---------------------------------------------------------------------------
In addition, on October 1, 2008, the American Stock Exchange LLC
(``Amex'') was acquired by the Company. In connection with the merger,
the Amex self-regulatory organization ultimately became known as NYSE
Amex LLC (``NYSE Amex''). In its order approving the acquisition,\7\
the Commission again noted that, ``Amex expects that the committees of
the NYSE Euronext board of directors will perform for NYSE [Amex] the
board committee functions relating to audit, governance and
compensation.'' \8\
---------------------------------------------------------------------------
\7\ Securities Exchange Act Release No. 58673 (September 29,
2008), 73 FR 57707 (October 3, 2008) (SR-Amex-2008-62, SR-NYSE-2008-
60) (``NYSE Amex Approval Order'').
\8\ NYSE Amex Approval Order, 73 FR at 57712. Note 66 following
this language reiterates that, ``Each of these NYSE Euronext
committees is composed solely of directors meeting the independence
requirements of NYSE Euronext.''
---------------------------------------------------------------------------
The NYSE Euronext Audit Committee Will Become the Sole Committee To
Handle All Audit Responsibilities for the Exchange
Among the various U.S. consolidated subsidiary corporations of the
Company, only the Exchange has an audit committee that is separate and
apart from the NYSE Euronext Audit Committee. Moreover, in practice,
the audit responsibilities of the NYSE Arca Audit Committee overlap
with those of the NYSE Euronext Audit Committee because the latter
reviews the financial condition of the Exchange as part of its audit
responsibilities.
Under its charter, the NYSE Euronext Audit Committee has broad
authority to assist the board of directors of the Company in its
oversight of (a) the integrity of the Company's financial statements
and internal controls, (b) compliance with legal and regulatory
requirements, including the Company's ethical standards and policies,
(c) the qualifications, independence and performance of the Company's
independent auditor, (d) the process relating to internal risk
management and control systems, (e) the performance of the Company's
internal audit function and its independent auditors, and (f) the
Company's tax policy. It also prepares the Audit Committee report to
shareholders for inclusion in the Company's annual proxy statement.
Because the Company's financial statements are prepared on a
consolidated basis that includes the financial results of all of the
Company's subsidiaries, including the Exchange and any subsidiaries of
the Exchange, the NYSE Euronext Audit Committee's purview necessarily
includes these subsidiaries. The committee is composed of at least
three members, all of whom must meet the independence and experience
requirements of the New York Stock Exchange and Rule 10A-3 under the
Securities Exchange Act of 1934 (the ``Act''). Each member of the
committee must be financially literate or become financially literate
within a reasonable time after appointment to the committee, and at
least one member must have accounting or related financial management
expertise.
By contrast, the NYSE Arca Audit Committee has a more limited role,
focused solely on the exchange entity and its subsidiary NYSE Arca
Equities,
[[Page 26306]]
Inc. which operates as a facility of the Exchange. As described in
current Exchange Rule 3.3(a)(3)(B), the primary functions of that audit
committee are (i) to conduct an annual review with the independent
auditors, to determine the scope of their examination and the cost
thereof, (ii) to periodically review with the independent auditors and
the internal auditor the Exchange's internal controls and the adequacy
of the internal audit program, (iii) to review the annual reports
submitted both internally and externally, and take such action with
respect thereto as it may deem appropriate, and (iv) to recommend to
the board independent public accountants as auditors of the Exchange
and its subsidiaries. However, to the extent that the committee
performs these functions, its activities are duplicative of the
activities of the NYSE Euronext Audit Committee which, for example, is
specifically responsible under its charter for appointing, overseeing
the work of, evaluating the qualifications, performance and
independence of, and determining compensation for, the independent
auditor. That responsibility also specifically includes reviewing and
pre-approving the scope and general extent of the auditor's services
and the estimated fees for those services. The independent auditor, in
turn, is required to report directly to the NYSE Euronext Audit
Committee.
Similarly, the NYSE Euronext Audit Committee is responsible under
its charter for assessing the effectiveness of the internal audit
function and reviewing with management and the independent auditor any
major issues as to the adequacy of the Company's internal risk
management and internal controls. The NYSE Euronext Audit Committee is
also charged with meeting to review and discuss with management and the
independent auditor the Company's annual audited financial statements,
quarterly financial statements prior to the filing of Form 10-Q, and
significant financial reporting issues and judgments made in connection
with the preparation of the financial statements. These specific
responsibilities of the NYSE Euronext Audit Committee, as well as
numerous others in its charter relating to oversight of both the
independent and internal auditors, financial statement and disclosure
matters, and corporate oversight, result in the responsibilities of the
NYSE Arca Audit Committee being fully duplicated by the
responsibilities of the NYSE Euronext Audit Committee.
To make the practices of the Exchange consistent with the company-
wide corporate practices of the Company, the Exchange is now proposing
to delete NYSE Arca Rule 3.3(a)(3) to eliminate the NYSE Arca Audit
Committee and thereby formally establish the NYSE Euronext Audit
Committee as the sole committee responsible for audit functions with
regard to the Exchange. As has been the case since the creation of the
NYSE Euronext Audit Committee, it will continue to be composed at all
times of independent directors and will continue to review the
financial condition of the Exchange as part of its oversight of the
financial processes of the Company and of each of its consolidated
subsidiaries.
NYSER, a not-for-profit indirect subsidiary of the Company, has
broad authority to oversee the regulatory activities of the Exchange
and the other self-regulatory organizations whose ultimate parent is
the Company, through delegated authority and regulatory services
agreements. It is the practice of the Company's Global Risk and Audit
Services Department (``RAS''), which performs internal audit functions,
to report to the board of directors of NYSER (``NYSER Board'') on all
internal audit matters relating to the Exchange's regulatory
responsibilities. The Exchange represents that, to ensure that NYSER
has the appropriate authority to oversee RAS's activities with respect
to the Exchange's regulatory responsibilities pursuant to the
provisions of the RSA between the Exchange and NYSER as described
below, RAS's written procedures will be amended to stipulate that the
NYSER Board may, at any time, request that RAS conduct an audit of a
matter of concern to it and report the results of the audit both to the
NYSER Board and the NYSE Euronext Audit Committee. The CRO of the
Exchange, whose role is described below in more detail and who attends
meetings of both the NYSER Board and the Exchange's board of directors,
would be in attendance at any meeting of the NYSER Board at which the
results of any such audit would be reported by RAS. The CRO would
discuss these audit results with each of the NYSER Board and the
Exchange's board of directors, as appropriate. NYSER also provides
reports on regulatory matters at Exchange board meetings. The Exchange
retains the authority to direct NYSER to request that RAS conduct such
an audit of a matter of concern to it.
The NYSE Euronext Human Resources and Compensation Committee Will
Become the Sole Committee To Handle All Human Resources and
Compensation Responsibilities for the Exchange
The Exchange also currently has a separate Compensation Committee
whose assigned responsibilities with respect to compensation and
personnel matters overlap with the broader mandate of the NYSE Euronext
Human Resources and Compensation Committee. The latter committee is
charged under its charter with discharging the responsibilities of the
Company's board of directors relating to human resources policies and
procedures, executive benefit plans, and compensation and compensation
disclosure with respect to the Company.
The primary functions of the NYSE Arca Compensation Committee, as
described in current Exchange Rule 3.3(a)(4)(B), are relatively
limited. The committee is required to (i) review and approve corporate
goals and objectives relevant to the Exchange CEO's compensation, (ii)
evaluate the CEO's performance in light of those goals and objectives,
(iii) set the CEO's compensation level based on this evaluation, and
(iv) make recommendations to the board of the Exchange with respect to
the design of incentive compensation and equity-based plans. The first
three of these functions relate to the determination of the Exchange
CEO's compensation. However, the Exchange CEO, as an executive officer
of the Company, already has his/her compensation established by the
Company's board of directors, in conjunction with recommendations from
the NYSE Euronext Human Resources and Compensation Committee.
Regarding the fourth and last primary function of the NYSE Arca
Compensation Committee as stated in Exchange Rule 3.3(a)(4)(B),
involving recommendations to the Exchange board ``with respect to the
design of incentive compensation and equity-based plans,'' the charter
of the NYSE Euronext Human Resources and Compensation Committee states
that a primary responsibility of that committee of the Company is to
``[r]eview and make recommendations to the Board with respect to
incentive-compensation and equity based plans that are subject to Board
approval.'' The direct responsibility of the NYSE Euronext Human
Resources and Compensation Committee for making such recommendations to
the board of the Company is also a requirement for the
[[Page 26307]]
Company as a listed company, as provided in Section 303A.05 of the NYSE
Listed Company Manual. Because there is no incentive compensation nor
any equity-based plans for employees other than as determined at the
parent company level, the NYSE Arca Compensation Committee is precluded
from exercising its stated function of making such recommendations to
the Exchange board (which could not act on any such recommendations in
any case).
To make the practices of the Exchange consistent with the company-
wide corporate practices of the Company, the Exchange is now proposing
to delete NYSE Arca Rule 3.3(a)(4) to eliminate the NYSE Arca
Compensation Committee and thereby formally establish the NYSE Euronext
Human Resources and Compensation Committee as the sole committee
responsible for human resources and compensation functions with regard
to the Exchange as anticipated in those Commission orders referenced
herein. As has been the case since the creation of the NYSE Euronext
Human Resources and Compensation Committee, it will continue to be
composed at all times of independent directors and will continue to
address human resources policies and procedures, executive benefit
plans, and compensation and compensation disclosure with respect to the
Company and of each of its consolidated subsidiaries, including the
Exchange (and excepting, with respect to certain items, NYSE
Regulation, Inc.).
The NYSER Board and the Board of Directors of the Exchange Will Each
Exercise a Portion of the Current Responsibilities of the ROC, and the
Board of Directors of the Exchange Will Retain Ultimate Legal
Responsibility for the Regulation of Its Permit Holders and Its Market
The proposed elimination of the ROC will result in the exercise of
the current formal responsibilities of that position being divided
between the NYSER Board and the board of directors of the Exchange as
described below. Those responsibilities are to ensure (i) the
independence of Exchange regulation, (ii) adequate resources for the
Exchange to properly fulfill its SRO regulatory obligations and (iii)
that Exchange management fully supports the execution of the regulatory
process. The Exchange believes that the performance of its regulatory
functions following elimination of the ROC will closely parallel the
current performance by NYSE Amex of its regulatory functions as
previously considered and approved by the Commission.
In the NYSE Amex Approval Order, the Commission noted that ``upon
the consummation of the Mergers and the Related Transactions, NYSE
[Amex] will no longer have a Regulatory Oversight Committee (``ROC'').
Instead, NYSE [Amex] will contract with NYSE Regulation to perform all
of its regulatory functions. The Commission believes that it is
consistent with the Act for NYSE [Amex] to eliminate its ROC and
instead contract with NYSE Regulation to perform its regulatory
functions because the governance of NYSE Regulation will provide a
comparable level of independence that a ROC would provide.'' \9\ The
Exchange has previously entered into the RSA with NYSER to perform all
of the Exchange's regulatory functions on the Exchange's behalf. The
Financial Industry Regulatory Authority (``FINRA'') performs some of
the regulatory functions contracted out to NYSER pursuant to a separate
multi-party regulatory services agreement with FINRA. These regulatory
contractual arrangements closely parallel the regulatory arrangements
for NYSE Amex that the Commission reviewed and approved in the NYSE
Amex Approval Order.\10\
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\9\ NYSE Amex Approval Order, 73 FR at 57717.
\10\ See id. [``First, NYSE [Amex] will enter into a regulatory
contract with NYSE Regulation * * * under which NYSE [Amex] will
contract with NYSE Regulation to perform all of NYSE [Amex]'s
regulatory functions on NYSE [Amex]'s behalf. However, FINRA may
perform some of the regulatory functions contracted out to NYSE
Regulation pursuant to a separate multi-party regulatory services
agreement * * *. Notwithstanding these regulatory contracts, NYSE
[Amex] will retain ultimate legal responsibility for the regulation
of its members and its market.''] The Exchange represents that its
contractual arrangements with NYSER and FINRA with respect to the
performance of its regulatory functions are fully equivalent to the
contractual arrangements that NYSE Amex has entered into with NYSER
and FINRA as described in this footnote, and that the Exchange
retains ultimate legal responsibility for the performance of its
regulatory functions and the ability to take action to assure the
performance of those functions.
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Regarding the ROC's current formal responsibility to ensure the
independence of Exchange regulation, the Exchange notes the
Commission's comment cited in the prior paragraph that the governance
of NYSER will provide a comparable level of independence as that of a
ROC. The Exchange represents that the aforementioned statement in the
NYSE Amex Approval Order will be equally valid with respect to
regulation of the Exchange because of the very similar regulatory
contractual arrangements.\11\ Further, regarding the ROC's current
formal responsibility to ensure adequate resources for the Exchange to
properly fulfill its SRO regulatory obligations, the Exchange notes the
Commission's statement in the NYSE Amex Approval Order that ``NYSE
Euronext has agreed to provide adequate funding to NYSE Regulation to
conduct its regulatory activities with respect to NYSE, NYSE Arca and *
* * NYSE [Amex].'' \12\ That funding arrangement led the Commission to
state that ``the Commission believes that NYSE Euronext's commitment to
provide adequate funding to NYSE Regulation to conduct its regulatory
activities is designed to ensure that NYSE [Amex] can perform its
obligations under the Act.'' \13\ Because that funding commitment by
NYSE Euronext is also applicable by its terms to the Exchange, the
Commission's conclusion in the preceding sentence regarding adequate
funding of NYSER for the conduct of regulatory activities is equally
valid as applied to the Exchange's SRO regulatory obligations.
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\11\ Some of the specific reasons cited by the Commission in
support of its conclusion that independence of SRO regulation would
exist under NYSE Amex's contractual arrangements with NYSER are that
``all directors on the Board of NYSE Regulation (other than its CEO)
are, and will be, required to be independent of management of NYSE
Euronext and its subsidiaries, as well as of NYSE, NYSE Arca, and
NYSE [Amex] members and listed companies.'' The Commission further
noted that, ``In addition, a majority of the members of the NYSE
Regulation board must be directors that are not also directors of
NYSE Euronext.'' See id.
\12\ Id.
\13\ Id.
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As with NYSE Amex, and notwithstanding these regulatory agreements,
the Exchange retains ultimate legal responsibility for the regulation
of its permit holders \14\ and its market and has full authority to
take action to assure that its regulatory responsibilities are met. In
addition, the Exchange board of directors will directly assume the
ROC's current formal responsibility to ensure that Exchange management
fully supports the execution of the regulatory process.
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\14\ Permit holders at the Exchange are ``members'' of the
Exchange as that term is defined in Section 3 of the Act.
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In connection with the foregoing arrangements, as stated above, the
Exchange retains the authority to direct NYSER and FINRA to take any
action necessary to fulfill the Exchange's statutory and self-
regulatory obligations, and NYSER provides a report on regulatory
matters at each meeting of the Exchange board. The Exchange board
appoints its CRO who is also an officer of NYSER and reports to the
Chief Executive Officer of NYSER. The CRO is also an officer of the
Exchange, and in that capacity is charged with reporting on regulatory
matters to the Exchange
[[Page 26308]]
board. These arrangements also closely track the current arrangements
for NYSE Amex that were considered by the Commission in issuing the
NYSE Amex Approval Order \15\ and will assure that the Exchange board
receives reports on regulatory matters that are sufficient to enable it
to take action as necessary in the performance of its regulatory
responsibilities.
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\15\ See NYSE Amex Approval Order, 73 FR at 57717. [``NYSE
[Amex] also will retain the authority to direct NYSE Regulation,
FINRA, or any other SRO that provides regulatory services to take
any action necessary to fulfill NYSE [Amex]'s statutory and self-
regulatory obligations. In addition, the NYSE [Amex] Board will
appoint a CRO, who will be an officer of NYSE [Amex] and will report
directly to the NYSE [Amex] Board.'']
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As a consequence of realigning its regulatory arrangements to
closely match those of NYSE Amex, which arrangements were previously
considered and approved by the Commission, the Exchange believes that
the proposed rule change is non-controversial and presents no new or
novel issues. In the NYSE Amex Approval Order, the Commission found
that NYSE Amex's proposed regulatory structure ``is consistent with the
Act, including Section 6(b)(1) of the Act * * *'' and further stated
that, ``The Commission believes that it is consistent with the Act to
allow NYSE [Amex] to contract with NYSE Regulation and FINRA to perform
its regulatory functions, including its examination, enforcement, and
disciplinary functions.'' \16\ The Commission also determined that NYSE
Amex's ``proposal to appoint a CRO reporting to the NYSE [Amex] Board
will further NYSE [Amex]'s ability to satisfy these self-regulatory
obligations consistent with Section 6(b)(1) of the Act.'' \17\ Because
all of the same elements will be present in the Exchange's regulatory
arrangements following the elimination of the ROC, the Exchange
believes that the proposed rule change is fully consistent with the
Act.
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\16\ NYSE Amex Approval Order, 73 FR at 57717.
\17\ Id.
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2. Statutory Basis
The proposed rule change is consistent with Section 6(b) \18\ of
the Act,\19\ in general, and furthers the objectives of Section 6(b)(1)
\20\ of the Act, which requires a national securities exchange to be so
organized and have the capacity to carry out the purposes of the Act
and to comply, and to enforce compliance by its members and persons
associated with its members, with the provisions of the Act. The
proposed rule change is also consistent with, and furthers the
objectives of Section 6(b)(5) \21\ of the Act, in that it is designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in facilitating transactions in
securities, to remove impediments to and perfect the mechanisms of a
free and open market and a national market system and, in general, to
protect investors and the public interest.
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\18\ 15 U.S.C. 78f(b).
\19\ 15 U.S.C. 78.
\20\ 15 U.S.C. 78f(b)(1).
\21\ 15 U.S.C. 78f(b)(5).
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More specifically, the Exchange believes that the proposed rule
change will promote efficiency and just and equitable principles of
trade by simplifying the corporate structure of the Exchange through
allowing the Exchange to eliminate two board committees whose
responsibilities overlap with, and are adequately handled by,
corresponding committees of the board of directors of the Exchange's
ultimate parent. This will allow directors of the Exchange to focus
their attention on matters falling directly within the purview of the
Exchange's board. Similarly, elimination of the ROC will further
simplify the corporate structure of the Exchange, thereby promoting
efficiency, by aligning the structure relating to the performance of
the regulatory functions of the Exchange more closely with the
structure of NYSE Amex relating to its performance of those same
functions. As discussed above, the Commission has previously determined
that the regulatory structure of NYSE Amex is consistent with the Act,
including Section 6(b)(1) of the Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received with respect
to the proposed rule change.
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 NYSE consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml; or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NYSEArca-2010-31 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-NYSEArca-2010-31. 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 Web site
viewing and printing in the Commission's Public Reference Room, 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
[[Page 26309]]
submissions should refer to File Number SR-NYSEArca-2010-31 and should
be submitted on or before June 1, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-11094 Filed 5-10-10; 8:45 am]
BILLING CODE 8010-01-P
