Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Amending NYSE Arca Equities Rule 5.3(k)(4) To Comply With the Requirements of Securities and Exchange Commission Rule 10C-1, 62587-62592 [2012-25221]
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Federal Register / Vol. 77, No. 199 / Monday, October 15, 2012 / Notices
In establishing the fees for the Amex
Options Products, the Exchange
considered the competitiveness of the
market for data and all of the
implications of that competition. The
Exchange believes that it has considered
all relevant factors and has not
considered irrelevant factors in order to
establish fair, reasonable, and not
unreasonably discriminatory fees and an
equitable allocation of fees among all
users. The existence of numerous
alternatives to the Exchange’s product,
including real-time consolidated data,
free delayed consolidated data, and
proprietary data from other sources,
ensures that the Exchange cannot set
unreasonable fees, or fees that are
unreasonably discriminatory, when
vendors and subscribers can elect these
alternatives. Accordingly, the Exchange
believes that the acceptance of data feed
products in the marketplace
demonstrates the consistency of these
fees with applicable statutory standards.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective
upon filing pursuant to Section
19(b)(3)(A) 30 of the Act and
subparagraph (f)(2) of Rule 19b–4 31
thereunder, because it establishes a due,
fee, or other charge imposed by NYSE
MKT.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
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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 email to rulecomments@sec.gov. Please include File
Number SR–NYSEMKT–2012–49 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.
All submissions should refer to File
Number SR–NYSEMKT–2012–49. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (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
10:00 a.m. and 3:00 p.m. Copies of such
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–
NYSEMKT–2012–49 and should be
submitted on or before November 5,
2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–25220 Filed 10–12–12; 8:45 am]
BILLING CODE 8011–01–P
30 15
31 17
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68006; File No. SR–
NYSEArca–2012–105]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change Amending NYSE Arca
Equities Rule 5.3(k)(4) To Comply With
the Requirements of Securities and
Exchange Commission Rule 10C–1
October 9, 2012.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on
September 25, 2012, NYSE Arca, Inc.
(the ‘‘Exchange’’ or ‘‘NYSE Arca’’) filed
with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘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 the Substance
of the Proposed Rule Change
The Exchange proposes to amend
NYSE Arca Equities Rule 5.3(k)(4) to
comply with the requirements of
Securities and Exchange Commission
(‘‘Commission’’ or ‘‘SEC’’) Rule 10C–1.4
The text of the proposed rule change is
available on the Exchange’s Web site at
www.nyse.com, at the principal office of
the Exchange, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and the
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 those 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 parts of such
statements.
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
4 17 CFR 240.10C–1.
2 15
CFR 200.30–3(a)(12).
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Federal Register / Vol. 77, No. 199 / Monday, October 15, 2012 / Notices
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
NYSE Arca, through its wholly-owned
corporation, NYSE Arca Equities,
proposes to amend NYSE Arca Equities
Rule 5.3(k)(4) to comply with the
requirements of SEC Rule 10C–1.
The proposed changes to NYSE Arca
Equities Rule 5.3(k)(4) will become
operative on July 1, 2013. Consequently,
the existing text of these sections will
remain in the NYSE Arca Equities
Rulebook until June 30, 2013 and will
be removed immediately thereafter.5
Upon approval of this filing, the
amended provisions of those sections
will be included in the Rulebook with
introductory text indicating that the
revised text does not become operative
until July 1, 2013
Section 952 of the Dodd-Frank Wall
Street Reform and Consumer Protection
Act of 2010 (the ‘‘Dodd-Frank Act’’) 6
added Section 10C to the Securities
Exchange Act of 1934.7 Section 10C
requires the Commission to adopt rules
directing the national securities
exchanges and national securities
associations to prohibit the listing of
any equity security of an issuer that is
not in compliance with Section 10C’s
compensation committee and
compensation adviser requirements. On
June 20, 2012, to comply with the
requirements of Section 10C, the
Commission adopted new Rule 10C–1,
which directs the national securities
exchanges to adopt listing rules
effectuating the compensation
committee and compensation adviser
requirements of Section 10C.8
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Compensation Committee Director
Independence Requirement
In adopting independence
requirements for compensation
committee members, 10C–1(b)(1)(ii) 9
requires the exchanges to consider
relevant factors including, but not
limited to: (i) The source of the
director’s compensation, including any
consulting, advisory or other
compensatory fees paid by the listed
company; and (ii) whether the director
has an affiliate relationship with the
company, a subsidiary of the company
or an affiliate of a subsidiary of the
5 The Commission notes that the Exchange will
have to comply with Section 19(b) of the Act.
6 Public Law 111–203, 124 Stat. 1900 (2010).
7 15 U.S.C. 78j–3.
8 There are currently no issuers listed on the
Exchange that would be subject to the proposed
rules.
9 17 CFR 240.10C–1(b)(1)(ii).
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company. Rule 10C–1(a)(4) 10 requires
that the rule filing submitted to the SEC
by each exchange in connection with
the adoption of the rules required by
Rule 10C–1 must include a review of
whether and how the proposed listing
standards satisfy the requirements of the
final rule; a discussion of the exchange’s
consideration of factors relevant to
compensation committee independence;
and the definition of independence
applicable to compensation committee
members that the exchange proposes to
adopt or retain in light of such review.
The Exchange’s director
independence standards are set forth in
NYSE Arca Equities Rule 5.3(k)(1). That
section provides that no director
qualifies as independent unless the
board of directors affirmatively
determines that the director has no
material relationship with the listed
company, either directly or as a partner,
shareholder or officer of an organization
that has a relationship with the
company. In addition, NYSE Arca
Equities Rule 5.3(k)(1) provides that a
director may not be deemed to be
independent if such director has a
relationship with the listed company
which violates any one of five ‘‘bright
line’’ tests.11
10 17
CFR 240.10C–1(a)(4).
Arca Equities Rule 5.3(k)(1) provides that
the following categories of directors may not be
deemed independent: (A) A director who is or has
been within the last three years, an employee of the
listed company, or whose immediate family
member is or has been within the last three years
an executive officer of the listed company; (B) (i)
A director or a director who has an immediate
family member who is a current partner of a firm
that is the company’s internal or external auditor;
(ii) A director who is a current employee of such
a firm; (iii) A director who has an immediate family
member who is a current employee of such a firm
and who participates in the firm’s audit, assurance
or tax compliance (but not tax planning) practice;
or (iv) A director or a director who has an
immediate family member who was within the last
three years (but is no longer) a partner or employee
of such a firm and personally worked on the listed
company’s audit within that time; (C) A director or
a director who has an immediate family member
who is, or in the past three years has been, part of
an interlocking directorate in which an executive
officer of the listed company serves or served on the
compensation committee of another company that
concurrently employs or employed the director; (D)
A director who is an executive officer or an
employee, or whose immediate family member is an
executive officer, of a company that makes
payments to, or receives payments from, the listed
company for property or services in an amount
which, in any single fiscal year, exceeds the greater
of $200,000 or 5% of such other company’s
consolidated gross revenues, is not ‘‘independent’’
until three years after falling below such threshold;
(E) A director who received, or whose immediate
family member is an executive officer who received,
during any twelve-month period within the last
three years, more than $100,000 in direct
compensation from the listed company, other than
director and committee fees and pension or other
forms of deferred compensation for prior service
(provided such compensation is not contingent in
11 NYSE
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The provisions of NYSE Arca Equities
Rule 5.3(k)(1) as currently in effect will
continue to be applicable to
independence determinations in
relation to compensation committee
service, as compensation committee
members will be required to be
independent under the Exchange’s
general board independence standards
set forth in NYSE Arca Equities Rule
5.3(k)(1), in addition to the
independence requirements proposed
specifically for compensation committee
service.
The Exchange proposes to amend
NYSE Arca Equities Rule 5.3(k)(4) to
require that, in affirmatively
determining the independence of any
director who will serve on the
compensation committee of the listed
company’s board of directors, the board
of directors must consider all factors
specifically relevant to determining
whether a director has a relationship to
the listed company which is material to
that director’s ability to be independent
from management, in connection with
the duties of a compensation committee
member including, but not limited to,
the two factors that are set forth in
proposed NYSE Arca Equities Rule
5.3(k)(4) and are explicitly enumerated
in Rule 10C–1(b)(ii). When considering
the sources of a director’s compensation
in determining his independence for
purposes of compensation committee
service, NYSE Arca Equities Rule
5.3(k)(4) as amended provides that the
board should consider whether the
director receives compensation from
any person or entity that would impair
his ability to make independent
judgments about the listed company’s
executive compensation. Similarly,
when considering any affiliate
relationship a director has with the
company, a subsidiary of the company,
or an affiliate of a subsidiary of the
company, in determining his
independence for purposes of
compensation committee service, the
proposed amended rule text provides
that the board should consider whether
the affiliate relationship places the
director under the direct or indirect
control of the listed company or its
senior management, or creates a direct
relationship between the director and
members of senior management, in each
case of a nature that would impair his
ability to make independent judgments
any way on continued service); (F) In the case of
an investment company, in lieu of paragraphs (A)–
(E) above, a director who is an ‘‘interested person’’
of the company as defined in section 2(a)(19) of the
Investment Company Act of 1940, other than in his
or her capacity as a member of the board of
directors or any board committee.
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Federal Register / Vol. 77, No. 199 / Monday, October 15, 2012 / Notices
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about the listed company’s executive
compensation.
The Exchange does not propose to
adopt any specific numerical tests with
respect to the factors specified in
proposed NYSE Arca Equities Rule
5.3(k)(4)(ii) or to adopt a requirement to
consider any other specific factors. In
particular, the Exchange does not intend
to adopt an absolute prohibition on a
board making an affirmative finding that
a director is independent solely on the
basis that the director or any of the
director’s affiliates are shareholders
owning more than some specified
percentage of the listed company. In the
adopting release for Rule 10C–1 (the
‘‘Adopting Release’’),12 the SEC
recognized that the exchanges might
determine that not all affiliate
relationships would adversely affect a
director’s ability to be independent from
management.13 Consistent with the
views of commenters on the SEC’s rules
as originally proposed, the Exchange
believes that—rather than adversely
affecting a director’s ability to be
independent from management as a
compensation committee member—
share ownership in the listed company
aligns the director’s interests with those
of unaffiliated shareholders, as their
stock ownership gives them the same
economic interest in ensuring that the
listed company’s executive
compensation is not excessive.
The Exchange believes that its
existing ‘‘bright line’’ independence
standards as set forth in NYSE Arca
Equities Rule 5.3(k)(1) are sufficiently
broad to encompass the types of
relationships which would generally be
material to a director’s independence for
compensation committee service. In
addition to these ‘‘bright line’’ tests,
NYSE Arca Equities Rule 5.3(k)(1) also
already requires the board to consider
any relationship that would be material
to the independence of a director. The
Exchange believes that these
requirements with respect to general
director independence, when combined
with the specific considerations
required by proposed NYSE Arca
Equities Rule 5.3(k)(4)(ii), represent an
appropriate standard for compensation
committee independence that is
consistent with the requirements of Rule
10C–1.
Compensation Committee Advisers
Rule 10C–1(b)(2) 14 requires exchange
rules to mandate that compensation
committees must have broad authority
12 Release Nos. 33–9330; 34–67220 (June 20,
2012); 77 FR 38422 (June 27, 2012).
13 See Adopting Release at 38428.
14 17 CFR 240.10C–1(b)(2).
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to engage advisers to assist in their
performance of the committee’s
functions. Specifically, exchange rules
must mandate that:
(a) The compensation committee may,
in its sole discretion, retain or obtain the
advice of a compensation consultant,
independent legal counsel or other
adviser; and
(b) The compensation committee shall
be directly responsible for the
appointment, compensation and
oversight of the work of any
compensation consultant, independent
legal counsel and other adviser retained
by the compensation committee.
Rule 10C–1(b)(3) 15 requires exchange
rules to mandate that the listed
company must provide for appropriate
funding, as determined by the
compensation committee, for payment
of reasonable compensation to a
compensation consultant, independent
legal counsel or any other adviser
retained by the compensation
committee.
The Exchange proposes to adopt the
requirements specified in Rule 10C–
1(b)(2) and (3) verbatim as new
subsection (iv) to NYSE Arca Equities
Rule 5.3(k)(4).
Compensation Adviser Independence
Factors
Rule 10C–1(b)(4) 16 provides that the
compensation committee of a listed
issuer may select a compensation
consultant, legal counsel or other
adviser to the compensation committee
only after taking into consideration the
following factors, as well as any other
factors identified by the relevant
national securities exchange or national
securities association in its listing
standards:
(i) The provision of other services to
the listed company by the person that
employs the compensation consultant,
legal counsel or other adviser;
(ii) The amount of fees received from
the listed company by the person that
employs the compensation consultant,
legal counsel or other adviser, as a
percentage of the total revenue of the
person that employs the compensation
consultant, legal counsel or other
adviser;
(iii) The policies and procedures of
the person that employs the
compensation consultant, legal counsel
or other adviser that are designed to
prevent conflicts of interest;
(iv) Any business or personal
relationship of the compensation
consultant, legal counsel or other
15 17
16 17
PO 00000
CFR 240.10C–1(b)(3).
CFR 240.10C–1(b)(4).
Frm 00100
Fmt 4703
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62589
adviser with a member of the
compensation committee;
(v) Any stock of the listed company
owned by the compensation consultant,
legal counsel or other adviser; and
(vi) Any business or personal
relationship of the compensation
consultant, legal counsel, other adviser
or the person employing the adviser
with an executive officer of the listed
company.
Accordingly, the Exchange proposes
to add as new subsection (v) to NYSE
Arca Equities Rule 5.3(k)(4) a provision
specifying that, before engaging an
adviser, the compensation committee
must consider the factors enumerated
above. As proposed, NYSE Arca
Equities Rule 5.3(k)(4)(v) would not
include any additional factors for
consideration, as the Exchange believes
that the list included in Rule 10C–
1(b)(4) is very comprehensive and the
proposed listing standard would also
require the compensation committee to
consider any other factors that would be
relevant to the adviser’s independence
from management.
Consistent with Rule 10C–
1(b)(2)(iii),17 the Exchange proposes to
include as new Commentary .04 to
NYSE Arca Equities Rule 5.3(k)(4) an
explicit statement that nothing in NYSE
Arca Equities Rule 5.3(k)(4)(ii) shall be
construed: (A) To require the
Compensation Committee to implement
or act consistently with the advice or
recommendations of the compensation
consultant, independent legal counsel
or other adviser to the compensation
committee; or (B) to affect the ability or
obligation of the Compensation
Committee to exercise its own judgment
in fulfillment of the duties of the
Compensation Committee (or, if
applicable, the independent directors).
In addition, as provided by Rule 10C–
1(b)(4), proposed new Commentary .05
to NYSE Arca Equities Rule 5.3(k)(4)
would specify that the compensation
committee need not engage in an
analysis of the independence factors
before consulting with or obtaining
advice from in-house legal counsel.
Cure Periods
Rule 10C–1(a)(3) 18 requires that
exchange rules must include
appropriate procedures for a listed
issuer to have a reasonable opportunity
to cure any non-compliance with the
provisions of exchange rules adopted as
required by Rule 10C–1. In addition,
Rule 10C–1(a)(3) states that such rules
may provide that if a member of a
compensation committee ceases to be
17 17
18 17
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CFR 240.10C–1(b)(2)(iii).
CFR 240.10C–1(a)(3).
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Federal Register / Vol. 77, No. 199 / Monday, October 15, 2012 / Notices
independent in accordance with the
requirements of Rule 10C–1 for reasons
outside the member’s reasonable
control, that person, with notice by the
issuer to the exchange, may remain a
compensation committee member of the
listed issuer until the earlier of the next
annual meeting or one year from the
occurrence of the event that caused the
member to be no longer independent.
The Exchange proposes to adopt, as a
third paragraph in new subsection (ii) to
NYSE Arca Equities Rule 5.3(k)(4), this
cure provision period for events of noncompliance with the proposed
compensation committee independence
requirements that are outside of the
director’s reasonable control. However,
the Exchange proposes to modify this
cure provision by limiting its use to
circumstances where the compensation
committee continues to have a majority
of independent directors, as this would
ensure that the compensation committee
could not take any action without the
agreement of one or more independent
directors. The Exchange believes that
this requirement addresses any actual or
apparent conflict of interest which may
arise due to the continued service of a
non-independent director on the
compensation committee.
General Exemptions
Rule 10C–1(b)(5) 19 provides an
automatic exemption from the
application of the entirety of Rule 10C–
1 for controlled companies and smaller
reporting companies,20 and Rule 10C–
1(b)(1)(iii)(A) 21 provides an automatic
exemption from the compensation
committee independence requirements
for limited partnerships, companies in
bankruptcy, open-end management
investment companies registered under
the Investment Company Act of 1940
19 17
CFR 240.10C–1(b)(5).
‘‘smaller reporting company’’ is defined in
SEC Rule 12b–2 and in Regulation S–K, Item
10(f)(1). Proposed Commentary .02 to NYSE
Equities Rule 5.3(k)(4) will state that smaller
reporting companies must comply with NYSE
Equities Rule 5.3(k)(4), except that they need not
comply with NYSE Equities Rule 5.3(k)(4)(ii) and
(v). Proposed Commentary .02 will also include a
transition period applicable to a company that
ceases to be a smaller reporting company. Under
SEC Rule 12b–2, a company tests its status as a
smaller reporting company on an annual basis at
the end of its most recently completed second fiscal
quarter (hereinafter, for purposes of this subsection,
the ‘‘Smaller Reporting Company Determination
Date’’). To the extent a smaller reporting company
ceases to qualify as such under SEC rules,
Commentary .02 will provide that such company is
required, if applicable, to: (I) Have a compensation
committee of which all of the members meet the
independence standard of Rule 5.3(k)(4)(ii) within
six months of the Smaller Reporting Company
Determination Date; and (II) comply with Rule
5.3(k)(4)(v) as of the Smaller Reporting Company
Determination Date.
21 17 CFR 240.10C–1(b)(1)(iii)(A).
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20 A
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(‘‘1940 Act’’). Rule 10C–1(b)(1)(iii)(A)
also exempts from the compensation
committee independence requirements
any foreign private issuer that discloses
in its annual report filed with the SEC
the reasons that the foreign private
issuer does not have an independent
compensation committee.
Pursuant to the general exemptive
authority granted in Rule 10C–1(b)(5)(i),
the Exchange proposes to exempt from
all of the proposed requirements each
category of issuer that qualifies for a
general or specific exemption under
Rule 10C–1(b)(1)(iii)(A). The Exchange
also proposes to provide a general
exemption from all of the requirements
to all of the other categories of issuers
that are currently exempt from the
Exchange’s existing compensation
committee requirements. Thus, as
proposed, controlled companies, limited
partnerships and companies in
bankruptcy, closed-end and open-end
funds registered under the 1940 Act,
asset backed issuers and other passive
business organizations (such as royalty
trusts), derivatives and special purpose
securities, and issuers whose only listed
equity security is a preferred stock,
would be exempt. The Exchange notes
that these categories of issuers typically:
(i) Are externally managed and do not
directly employ executives (e.g., limited
partnerships that are managed by their
general partner or closed-end funds
managed by an external investment
adviser); (ii) do not by their nature have
employees (e.g., passive business
organizations in the form of trusts or
issuers of derivative or special purpose
securities); or (iii) have executive
compensation policy set by a body other
than the board (e.g., bankrupt
companies have their executive
compensation determined by the
bankruptcy court). In light of these
structural reasons why these categories
of issuers generally do not have
compensation committees, the Exchange
believes that it would be a significant
and unnecessarily burdensome
alteration in their governance structures
to require them to comply with the
proposed new requirements and that it
is appropriate to grant them an
exemption.
The Exchange proposes to adopt as
new Commentary .03 to NYSE Arca
Equities 5.3(k)(4) a general exemption
from the application of the rule for
foreign private issuers. Foreign private
issuers are currently exempt from the
existing compensation committee
requirement pursuant to NYSE Arca
Equities Rule 5.3(n). The Exchange
proposes to follow this approach by
granting a general exemption, pursuant
to the discretion granted to the
PO 00000
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Exchange by Rule 10C–1(b)(5)(i),22 from
the proposed new compensation
committee requirements to foreign
private issuers that follow home country
practice. The Exchange notes that NYSE
Arca Equities Rule 5.3(n) requires
foreign private issuers to disclose any
significant ways in which their
corporate governance practices differ
from those followed by domestic
companies under Exchange listing
standards. Listed foreign private issuers
may provide this disclosure either on
their Web site (provided it is in the
English language and accessible from
the United States) and/or in their annual
report as distributed to shareholders in
the United States (again, in the English
language). If the disclosure is only made
available on the Web site, the annual
report must so state and provide the
Web address at which the information
may be obtained. As any foreign private
issuer availing itself of the proposed
exemption would have to disclose that
fact in its statement of significant
differences, the Exchange does not
propose to require those companies to
comply with the disclosure requirement
of Rule 10C–1(b)(1)(iii)(A). While
Section 110 [sic] does not require a
statement as to why a company does not
comply with an applicable requirement
in the manner provided by Rule 10C–
1(b)(1)(iii)(A), the Exchange does not
believe that this is a significant
difference, as the explanation
companies would likely provide for not
having an independent compensation
committee would simply be that they
were not required to do so by home
country law.
The Exchange currently does not
require issuers whose only listed
security is a preferred stock to comply
with NYSE Arca Equities Rule 5.3(k)(4).
The Exchange proposes to grant these
issuers a general exemption from
compliance with the proposed amended
rule. The Exchange believes this
approach is appropriate because holders
of listed preferred stock have
significantly greater protections with
respect to their rights to receive
dividends and a liquidation preference
upon dissolution of the issuer, and
preferred stocks are typically regarded
by investors as a fixed income
investment comparable to debt
securities, the issuers of which are
exempt from compliance with Rule
10C–1.
2. Statutory Basis
The Exchange believes that the
proposed rule change in relation to the
Exchange’s compensation committee
22 17
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Federal Register / Vol. 77, No. 199 / Monday, October 15, 2012 / Notices
requirements and the proposed
compensation consultant independence
requirements are consistent with
Section 10C of the Exchange Act and
Rule 10C–1 thereunder in that they
comply with the requirements of Rule
10C–1 with respect to the adoption by
national securities exchanges of
compensation committee listing
standards. The Exchange believes that
the proposed rule change is consistent
with Section 6(b) 23 of the Exchange Act
in general, and furthers the objectives of
Section 6(b)(5) of the Exchange Act,24 in
particular in that it is designed to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest.
The Exchange believes that the
proposed amendments to its
compensation committee listing
standard are consistent with the
protection of investors and the public
interest in that they strengthen the
independence requirements for
compensation committee membership,
provide additional authority to
compensation committees and require
compensation committees to consider
the independence of compensation
consultants.
The Exchange believes that the
general exemptions from the proposed
requirements that it is granting to
foreign private issuers and smaller
reporting companies are consistent with
Section 10C and Rule 10C–1, for the
reasons stated above in the ‘‘Purpose’’
section, including because (i) Rule 10C–
1(b)(5)(ii) explicitly exempts smaller
reporting companies and (ii) foreign
private issuers will comply with their
home country law and, if they avail
themselves of the exemption, will be
required to disclose that fact under
existing Exchange listing requirements.
The Exchange believes it is an
appropriate use of its exemptive
authority under Rule 10C–1(b)(5)(i), and
that it is not unfairly discriminatory
under Section 6(b)(5) of the Act, to
provide general exemptions under the
proposed rules to issuers whose only
listed class of equity securities on the
Exchange is a preferred stock, as holders
of listed preferred stock have
significantly greater protections with
respect to their rights to receive
23 15
24 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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15:21 Oct 12, 2012
Jkt 229001
dividends and a liquidation preference
upon dissolution of the issuer, and
preferred stocks are typically regarded
by investors as a fixed income
investment comparable to debt
securities, the issuers of which are
exempt from compliance with Rule
10C–1. The Exchange believes that it is
an appropriate use of its exemptive
authority under Rule 10C–1(b)(5)(i), and
that it is not unfairly discriminatory
under Section 6(b)(5) of the Act, to
provide general exemptions under the
proposed rules for all of the other
categories of issuers that are not
currently subject to the Exchange’s
compensation committee requirement,
for the structural reasons discussed in
the ‘‘Purpose’’ section and because it
would be a significant and
unnecessarily burdensome alteration in
their governance structures to require
them to comply with the proposed new
requirements.
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 not solicited
written comments on the proposed rule
change. The Exchange has received two
comment letters on the proposed rule
change.25 One commenter made the
following points: (i) The Exchange
should specify that the relevant factors
for consideration with respect to
compensation committee independence
should include a consideration of fees
received for service on the board itself;
(ii) the relevant factors should explicitly
include consideration of the personal
and business relationships between
directors and officers; (iii) the additional
factors to be considered for
compensation committee independence
should be considered as a part of
general board independence
determinations; and (iv) the listing
standards should specify that, while the
factors must be considered in their
totality, a single factor can result in the
loss of board independence.
25 Both of these letters were addressed to NYSE
Regulation, Inc. Neither author indicated that the
comments related to just one of the three national
securities exchanges owned by NYSE Euronext.
Therefore, the Exchange is addressing those
comments to the extent they are applicable to its
existing rules and the proposed amendments.
PO 00000
Frm 00102
Fmt 4703
Sfmt 4703
62591
The Exchange does not believe that it
is appropriate to consider board
compensation as part of the
compensation committee independence
determination with respect to
individual directors. Non-executive
directors devote considerable time to
the affairs of the companies on whose
boards they sit and eligible candidates
would be difficult to find if board and
committee service were unpaid in
nature. Consequently, independent
directors of listed companies are almost
invariably paid for their board and
committee service. As all independent
directors are almost certainly going to
receive board compensation from the
company and do so on terms
determined by the board as a whole, the
Exchange does not believe that an
analysis of the board compensation of
individual directors is a meaningful
consideration in determining their
independence for purposes of
compensation committee service.
The Exchange interprets its existing
director independence requirements as
requiring the board to consider
relationships between the director and
any member of management in making
its affirmative independence
determinations. Consequently, the
Exchange does not believe that any
further clarification of this requirement
is necessary.
The Exchange does not believe that it
is necessary to explicitly require that the
additional independence considerations
for compensation committee service
should be a part of the board’s general
independence determinations for all
independent directors. NYSE Arca
Equities Rule 5.3(k)(1) provides that the
board must affirmatively determine that
the director has no material relationship
with the listed company, either directly
or as a partner, shareholder or officer of
an organization that has a relationship
with the company. As such, the
Exchange believes that, where
appropriate, listed company boards
should already be including in their
general independence determinations
factors including those being added to
the compensation committee
independence determination.
The Exchange does not believe it is
necessary to include in the rule a
statement that a single factor may be
sufficiently material to render a director
non-independent, as this is clearly the
intention of the rule as drafted. NYSE
Arca Equities Rule 5.3(k)(1) in its
current form and proposed NYSE Arca
Equities Rule 5.3(k)(4) require the board
to consider the materiality of each
separate relationship between the
director and the listed company or its
management.
E:\FR\FM\15OCN1.SGM
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62592
Federal Register / Vol. 77, No. 199 / Monday, October 15, 2012 / Notices
The second commenter proposed that
the Exchange should require companies
to make a public disclosure with respect
to the factors considered by the
compensation committee in reviewing
the independence of compensation
consultants, legal counsel and other
compensation advisers. This commenter
also proposed that the Exchange should
require with respect to outside counsel
hired by the compensation committee
the same disclosure as is required by
Item 407(e)(3)(iv) of Regulation S–K
with respect to the nature of any conflict
that arises from the engagement of a
compensation consultant identified in
the proxy statement. The Exchange does
not believe that it is necessary to
establish additional disclosure
requirements of this nature. Item 407 of
Regulation S–K contains extensive
disclosure requirements with respect to
a listed company’s corporate
governance. Moreover, with respect to
disclosure of any conflicts of interest
that may arise with respect to outside
counsel hired by the compensation
committee, the Exchange believes that
the rigorous conflict of interest
requirements applicable to attorneys
adequately address such concerns, and
the Exchange is mindful that requiring
additional public disclosures regarding
outside counsel could require a listed
company to disclose information that
otherwise may be protected by attorneyclient privilege.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (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 or disapprove
the proposed rule change, or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
erowe on DSK2VPTVN1PROD with
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:
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15:21 Oct 12, 2012
Jkt 229001
Electronic Comments
SOCIAL SECURITY ADMINISTRATION
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–NYSEArca–2012–105 on
the subject line.
Agency Information Collection
Activities: Proposed Request
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–2012–105. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (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 10:00 a.m.
and 3:00 p.m. Copies of such filing also
will be available for inspection and
copying at the principal office and the
Internet Web site 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–NYSEArca–2012–105, and
should be submitted on or before
November 5, 2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–25221 Filed 10–12–12; 8:45 am]
BILLING CODE 8011–01–P
26 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00103
Fmt 4703
Sfmt 4703
The Social Security Administration
(SSA) publishes a list of information
collection packages requiring clearance
by the Office of Management and
Budget (OMB) in compliance with
Public Law 104–13, the Paperwork
Reduction Act of 1995, effective October
1, 1995. This notice includes revisions
to OMB-approved information
collections.
SSA is soliciting comments on the
accuracy of the agency’s burden
estimate; the need for the information;
its practical utility; ways to enhance its
quality, utility, and clarity; and ways to
minimize burden on respondents,
including the use of automated
collection techniques or other forms of
information technology. Mail, email, or
fax your comments and
recommendations on the information
collection(s) to the OMB Desk Officer
and SSA Reports Clearance Officer at
the following addresses or fax numbers.
(OMB)
Office of Management and Budget,
Attn: Desk Officer for SSA, Fax: 202–
395–6974, Email address:
OIRA_Submission@omb.eop.gov.
(SSA)
Social Security Administration,
DCRDP, Attn: Reports Clearance
Director, 107 Altmeyer Building, 6401
Security Blvd., Baltimore, MD 21235,
Fax: 410–966–2830, Email address:
OR.Reports.Clearance@ssa.gov.
The information collections below are
pending at SSA. SSA will submit them
to OMB within 60 days from the date of
this notice. To be sure we consider your
comments, we must receive them no
later than December 14, 2012.
Individuals can obtain copies of the
collection instruments by writing to the
above email address.
1. Physician’s/Medical Officer’s
Statement of Patient’s Capability to
Manage Benefits—20 CFR 404.2015 and
416.615—0960–0024. SSA appoints a
representative payee in cases where we
determine beneficiaries are not capable
of managing their own benefits. In those
instances, we require medical evidence
to determine the beneficiaries’
capability of managing or directing their
benefit payments. SSA collects medical
evidence on Form SSA–787 to (1)
determine beneficiaries’ capability or
inability to handle their own benefits,
and (2) assist in determining the
beneficiaries’ need for a representative
payee. The respondents are the
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]]>Agencies
[Federal Register Volume 77, Number 199 (Monday, October 15, 2012)]
[Notices]
[Pages 62587-62592]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-25221]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68006; File No. SR-NYSEArca-2012-105]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Amending NYSE Arca Equities Rule 5.3(k)(4) To
Comply With the Requirements of Securities and Exchange Commission Rule
10C-1
October 9, 2012.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that on September 25, 2012, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission
(``SEC'' or ``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\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange proposes to amend NYSE Arca Equities Rule 5.3(k)(4) to
comply with the requirements of Securities and Exchange Commission
(``Commission'' or ``SEC'') Rule 10C-1.\4\ The text of the proposed
rule change is available on the Exchange's Web site at www.nyse.com, at
the principal office of the Exchange, and at the Commission's Public
Reference Room.
---------------------------------------------------------------------------
\4\ 17 CFR 240.10C-1.
---------------------------------------------------------------------------
II. Self-Regulatory Organization's Statement of the Purpose of, and the
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 those 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 parts of such statements.
[[Page 62588]]
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
NYSE Arca, through its wholly-owned corporation, NYSE Arca
Equities, proposes to amend NYSE Arca Equities Rule 5.3(k)(4) to comply
with the requirements of SEC Rule 10C-1.
The proposed changes to NYSE Arca Equities Rule 5.3(k)(4) will
become operative on July 1, 2013. Consequently, the existing text of
these sections will remain in the NYSE Arca Equities Rulebook until
June 30, 2013 and will be removed immediately thereafter.\5\ Upon
approval of this filing, the amended provisions of those sections will
be included in the Rulebook with introductory text indicating that the
revised text does not become operative until July 1, 2013
---------------------------------------------------------------------------
\5\ The Commission notes that the Exchange will have to comply
with Section 19(b) of the Act.
---------------------------------------------------------------------------
Section 952 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 (the ``Dodd-Frank Act'') \6\ added Section 10C
to the Securities Exchange Act of 1934.\7\ Section 10C requires the
Commission to adopt rules directing the national securities exchanges
and national securities associations to prohibit the listing of any
equity security of an issuer that is not in compliance with Section
10C's compensation committee and compensation adviser requirements. On
June 20, 2012, to comply with the requirements of Section 10C, the
Commission adopted new Rule 10C-1, which directs the national
securities exchanges to adopt listing rules effectuating the
compensation committee and compensation adviser requirements of Section
10C.\8\
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\6\ Public Law 111-203, 124 Stat. 1900 (2010).
\7\ 15 U.S.C. 78j-3.
\8\ There are currently no issuers listed on the Exchange that
would be subject to the proposed rules.
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Compensation Committee Director Independence Requirement
In adopting independence requirements for compensation committee
members, 10C-1(b)(1)(ii) \9\ requires the exchanges to consider
relevant factors including, but not limited to: (i) The source of the
director's compensation, including any consulting, advisory or other
compensatory fees paid by the listed company; and (ii) whether the
director has an affiliate relationship with the company, a subsidiary
of the company or an affiliate of a subsidiary of the company. Rule
10C-1(a)(4) \10\ requires that the rule filing submitted to the SEC by
each exchange in connection with the adoption of the rules required by
Rule 10C-1 must include a review of whether and how the proposed
listing standards satisfy the requirements of the final rule; a
discussion of the exchange's consideration of factors relevant to
compensation committee independence; and the definition of independence
applicable to compensation committee members that the exchange proposes
to adopt or retain in light of such review.
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\9\ 17 CFR 240.10C-1(b)(1)(ii).
\10\ 17 CFR 240.10C-1(a)(4).
---------------------------------------------------------------------------
The Exchange's director independence standards are set forth in
NYSE Arca Equities Rule 5.3(k)(1). That section provides that no
director qualifies as independent unless the board of directors
affirmatively determines that the director has no material relationship
with the listed company, either directly or as a partner, shareholder
or officer of an organization that has a relationship with the company.
In addition, NYSE Arca Equities Rule 5.3(k)(1) provides that a director
may not be deemed to be independent if such director has a relationship
with the listed company which violates any one of five ``bright line''
tests.\11\
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\11\ NYSE Arca Equities Rule 5.3(k)(1) provides that the
following categories of directors may not be deemed independent: (A)
A director who is or has been within the last three years, an
employee of the listed company, or whose immediate family member is
or has been within the last three years an executive officer of the
listed company; (B) (i) A director or a director who has an
immediate family member who is a current partner of a firm that is
the company's internal or external auditor; (ii) A director who is a
current employee of such a firm; (iii) A director who has an
immediate family member who is a current employee of such a firm and
who participates in the firm's audit, assurance or tax compliance
(but not tax planning) practice; or (iv) A director or a director
who has an immediate family member who was within the last three
years (but is no longer) a partner or employee of such a firm and
personally worked on the listed company's audit within that time;
(C) A director or a director who has an immediate family member who
is, or in the past three years has been, part of an interlocking
directorate in which an executive officer of the listed company
serves or served on the compensation committee of another company
that concurrently employs or employed the director; (D) A director
who is an executive officer or an employee, or whose immediate
family member is an executive officer, of a company that makes
payments to, or receives payments from, the listed company for
property or services in an amount which, in any single fiscal year,
exceeds the greater of $200,000 or 5% of such other company's
consolidated gross revenues, is not ``independent'' until three
years after falling below such threshold; (E) A director who
received, or whose immediate family member is an executive officer
who received, during any twelve-month period within the last three
years, more than $100,000 in direct compensation from the listed
company, other than director and committee fees and pension or other
forms of deferred compensation for prior service (provided such
compensation is not contingent in any way on continued service); (F)
In the case of an investment company, in lieu of paragraphs (A)-(E)
above, a director who is an ``interested person'' of the company as
defined in section 2(a)(19) of the Investment Company Act of 1940,
other than in his or her capacity as a member of the board of
directors or any board committee.
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The provisions of NYSE Arca Equities Rule 5.3(k)(1) as currently in
effect will continue to be applicable to independence determinations in
relation to compensation committee service, as compensation committee
members will be required to be independent under the Exchange's general
board independence standards set forth in NYSE Arca Equities Rule
5.3(k)(1), in addition to the independence requirements proposed
specifically for compensation committee service.
The Exchange proposes to amend NYSE Arca Equities Rule 5.3(k)(4) to
require that, in affirmatively determining the independence of any
director who will serve on the compensation committee of the listed
company's board of directors, the board of directors must consider all
factors specifically relevant to determining whether a director has a
relationship to the listed company which is material to that director's
ability to be independent from management, in connection with the
duties of a compensation committee member including, but not limited
to, the two factors that are set forth in proposed NYSE Arca Equities
Rule 5.3(k)(4) and are explicitly enumerated in Rule 10C-1(b)(ii). When
considering the sources of a director's compensation in determining his
independence for purposes of compensation committee service, NYSE Arca
Equities Rule 5.3(k)(4) as amended provides that the board should
consider whether the director receives compensation from any person or
entity that would impair his ability to make independent judgments
about the listed company's executive compensation. Similarly, when
considering any affiliate relationship a director has with the company,
a subsidiary of the company, or an affiliate of a subsidiary of the
company, in determining his independence for purposes of compensation
committee service, the proposed amended rule text provides that the
board should consider whether the affiliate relationship places the
director under the direct or indirect control of the listed company or
its senior management, or creates a direct relationship between the
director and members of senior management, in each case of a nature
that would impair his ability to make independent judgments
[[Page 62589]]
about the listed company's executive compensation.
The Exchange does not propose to adopt any specific numerical tests
with respect to the factors specified in proposed NYSE Arca Equities
Rule 5.3(k)(4)(ii) or to adopt a requirement to consider any other
specific factors. In particular, the Exchange does not intend to adopt
an absolute prohibition on a board making an affirmative finding that a
director is independent solely on the basis that the director or any of
the director's affiliates are shareholders owning more than some
specified percentage of the listed company. In the adopting release for
Rule 10C-1 (the ``Adopting Release''),\12\ the SEC recognized that the
exchanges might determine that not all affiliate relationships would
adversely affect a director's ability to be independent from
management.\13\ Consistent with the views of commenters on the SEC's
rules as originally proposed, the Exchange believes that--rather than
adversely affecting a director's ability to be independent from
management as a compensation committee member--share ownership in the
listed company aligns the director's interests with those of
unaffiliated shareholders, as their stock ownership gives them the same
economic interest in ensuring that the listed company's executive
compensation is not excessive.
---------------------------------------------------------------------------
\12\ Release Nos. 33-9330; 34-67220 (June 20, 2012); 77 FR 38422
(June 27, 2012).
\13\ See Adopting Release at 38428.
---------------------------------------------------------------------------
The Exchange believes that its existing ``bright line''
independence standards as set forth in NYSE Arca Equities Rule
5.3(k)(1) are sufficiently broad to encompass the types of
relationships which would generally be material to a director's
independence for compensation committee service. In addition to these
``bright line'' tests, NYSE Arca Equities Rule 5.3(k)(1) also already
requires the board to consider any relationship that would be material
to the independence of a director. The Exchange believes that these
requirements with respect to general director independence, when
combined with the specific considerations required by proposed NYSE
Arca Equities Rule 5.3(k)(4)(ii), represent an appropriate standard for
compensation committee independence that is consistent with the
requirements of Rule 10C-1.
Compensation Committee Advisers
Rule 10C-1(b)(2) \14\ requires exchange rules to mandate that
compensation committees must have broad authority to engage advisers to
assist in their performance of the committee's functions. Specifically,
exchange rules must mandate that:
---------------------------------------------------------------------------
\14\ 17 CFR 240.10C-1(b)(2).
---------------------------------------------------------------------------
(a) The compensation committee may, in its sole discretion, retain
or obtain the advice of a compensation consultant, independent legal
counsel or other adviser; and
(b) The compensation committee shall be directly responsible for
the appointment, compensation and oversight of the work of any
compensation consultant, independent legal counsel and other adviser
retained by the compensation committee.
Rule 10C-1(b)(3) \15\ requires exchange rules to mandate that the
listed company must provide for appropriate funding, as determined by
the compensation committee, for payment of reasonable compensation to a
compensation consultant, independent legal counsel or any other adviser
retained by the compensation committee.
---------------------------------------------------------------------------
\15\ 17 CFR 240.10C-1(b)(3).
---------------------------------------------------------------------------
The Exchange proposes to adopt the requirements specified in Rule
10C-1(b)(2) and (3) verbatim as new subsection (iv) to NYSE Arca
Equities Rule 5.3(k)(4).
Compensation Adviser Independence Factors
Rule 10C-1(b)(4) \16\ provides that the compensation committee of a
listed issuer may select a compensation consultant, legal counsel or
other adviser to the compensation committee only after taking into
consideration the following factors, as well as any other factors
identified by the relevant national securities exchange or national
securities association in its listing standards:
---------------------------------------------------------------------------
\16\ 17 CFR 240.10C-1(b)(4).
---------------------------------------------------------------------------
(i) The provision of other services to the listed company by the
person that employs the compensation consultant, legal counsel or other
adviser;
(ii) The amount of fees received from the listed company by the
person that employs the compensation consultant, legal counsel or other
adviser, as a percentage of the total revenue of the person that
employs the compensation consultant, legal counsel or other adviser;
(iii) The policies and procedures of the person that employs the
compensation consultant, legal counsel or other adviser that are
designed to prevent conflicts of interest;
(iv) Any business or personal relationship of the compensation
consultant, legal counsel or other adviser with a member of the
compensation committee;
(v) Any stock of the listed company owned by the compensation
consultant, legal counsel or other adviser; and
(vi) Any business or personal relationship of the compensation
consultant, legal counsel, other adviser or the person employing the
adviser with an executive officer of the listed company.
Accordingly, the Exchange proposes to add as new subsection (v) to
NYSE Arca Equities Rule 5.3(k)(4) a provision specifying that, before
engaging an adviser, the compensation committee must consider the
factors enumerated above. As proposed, NYSE Arca Equities Rule
5.3(k)(4)(v) would not include any additional factors for
consideration, as the Exchange believes that the list included in Rule
10C-1(b)(4) is very comprehensive and the proposed listing standard
would also require the compensation committee to consider any other
factors that would be relevant to the adviser's independence from
management.
Consistent with Rule 10C-1(b)(2)(iii),\17\ the Exchange proposes to
include as new Commentary .04 to NYSE Arca Equities Rule 5.3(k)(4) an
explicit statement that nothing in NYSE Arca Equities Rule
5.3(k)(4)(ii) shall be construed: (A) To require the Compensation
Committee to implement or act consistently with the advice or
recommendations of the compensation consultant, independent legal
counsel or other adviser to the compensation committee; or (B) to
affect the ability or obligation of the Compensation Committee to
exercise its own judgment in fulfillment of the duties of the
Compensation Committee (or, if applicable, the independent directors).
In addition, as provided by Rule 10C-1(b)(4), proposed new Commentary
.05 to NYSE Arca Equities Rule 5.3(k)(4) would specify that the
compensation committee need not engage in an analysis of the
independence factors before consulting with or obtaining advice from
in-house legal counsel.
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\17\ 17 CFR 240.10C-1(b)(2)(iii).
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Cure Periods
Rule 10C-1(a)(3) \18\ requires that exchange rules must include
appropriate procedures for a listed issuer to have a reasonable
opportunity to cure any non-compliance with the provisions of exchange
rules adopted as required by Rule 10C-1. In addition, Rule 10C-1(a)(3)
states that such rules may provide that if a member of a compensation
committee ceases to be
[[Page 62590]]
independent in accordance with the requirements of Rule 10C-1 for
reasons outside the member's reasonable control, that person, with
notice by the issuer to the exchange, may remain a compensation
committee member of the listed issuer until the earlier of the next
annual meeting or one year from the occurrence of the event that caused
the member to be no longer independent. The Exchange proposes to adopt,
as a third paragraph in new subsection (ii) to NYSE Arca Equities Rule
5.3(k)(4), this cure provision period for events of non-compliance with
the proposed compensation committee independence requirements that are
outside of the director's reasonable control. However, the Exchange
proposes to modify this cure provision by limiting its use to
circumstances where the compensation committee continues to have a
majority of independent directors, as this would ensure that the
compensation committee could not take any action without the agreement
of one or more independent directors. The Exchange believes that this
requirement addresses any actual or apparent conflict of interest which
may arise due to the continued service of a non-independent director on
the compensation committee.
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\18\ 17 CFR 240.10C-1(a)(3).
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General Exemptions
Rule 10C-1(b)(5) \19\ provides an automatic exemption from the
application of the entirety of Rule 10C-1 for controlled companies and
smaller reporting companies,\20\ and Rule 10C-1(b)(1)(iii)(A) \21\
provides an automatic exemption from the compensation committee
independence requirements for limited partnerships, companies in
bankruptcy, open-end management investment companies registered under
the Investment Company Act of 1940 (``1940 Act''). Rule 10C-
1(b)(1)(iii)(A) also exempts from the compensation committee
independence requirements any foreign private issuer that discloses in
its annual report filed with the SEC the reasons that the foreign
private issuer does not have an independent compensation committee.
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\19\ 17 CFR 240.10C-1(b)(5).
\20\ A ``smaller reporting company'' is defined in SEC Rule 12b-
2 and in Regulation S-K, Item 10(f)(1). Proposed Commentary .02 to
NYSE Equities Rule 5.3(k)(4) will state that smaller reporting
companies must comply with NYSE Equities Rule 5.3(k)(4), except that
they need not comply with NYSE Equities Rule 5.3(k)(4)(ii) and (v).
Proposed Commentary .02 will also include a transition period
applicable to a company that ceases to be a smaller reporting
company. Under SEC Rule 12b-2, a company tests its status as a
smaller reporting company on an annual basis at the end of its most
recently completed second fiscal quarter (hereinafter, for purposes
of this subsection, the ``Smaller Reporting Company Determination
Date''). To the extent a smaller reporting company ceases to qualify
as such under SEC rules, Commentary .02 will provide that such
company is required, if applicable, to: (I) Have a compensation
committee of which all of the members meet the independence standard
of Rule 5.3(k)(4)(ii) within six months of the Smaller Reporting
Company Determination Date; and (II) comply with Rule 5.3(k)(4)(v)
as of the Smaller Reporting Company Determination Date.
\21\ 17 CFR 240.10C-1(b)(1)(iii)(A).
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Pursuant to the general exemptive authority granted in Rule 10C-
1(b)(5)(i), the Exchange proposes to exempt from all of the proposed
requirements each category of issuer that qualifies for a general or
specific exemption under Rule 10C-1(b)(1)(iii)(A). The Exchange also
proposes to provide a general exemption from all of the requirements to
all of the other categories of issuers that are currently exempt from
the Exchange's existing compensation committee requirements. Thus, as
proposed, controlled companies, limited partnerships and companies in
bankruptcy, closed-end and open-end funds registered under the 1940
Act, asset backed issuers and other passive business organizations
(such as royalty trusts), derivatives and special purpose securities,
and issuers whose only listed equity security is a preferred stock,
would be exempt. The Exchange notes that these categories of issuers
typically: (i) Are externally managed and do not directly employ
executives (e.g., limited partnerships that are managed by their
general partner or closed-end funds managed by an external investment
adviser); (ii) do not by their nature have employees (e.g., passive
business organizations in the form of trusts or issuers of derivative
or special purpose securities); or (iii) have executive compensation
policy set by a body other than the board (e.g., bankrupt companies
have their executive compensation determined by the bankruptcy court).
In light of these structural reasons why these categories of issuers
generally do not have compensation committees, the Exchange believes
that it would be a significant and unnecessarily burdensome alteration
in their governance structures to require them to comply with the
proposed new requirements and that it is appropriate to grant them an
exemption.
The Exchange proposes to adopt as new Commentary .03 to NYSE Arca
Equities 5.3(k)(4) a general exemption from the application of the rule
for foreign private issuers. Foreign private issuers are currently
exempt from the existing compensation committee requirement pursuant to
NYSE Arca Equities Rule 5.3(n). The Exchange proposes to follow this
approach by granting a general exemption, pursuant to the discretion
granted to the Exchange by Rule 10C-1(b)(5)(i),\22\ from the proposed
new compensation committee requirements to foreign private issuers that
follow home country practice. The Exchange notes that NYSE Arca
Equities Rule 5.3(n) requires foreign private issuers to disclose any
significant ways in which their corporate governance practices differ
from those followed by domestic companies under Exchange listing
standards. Listed foreign private issuers may provide this disclosure
either on their Web site (provided it is in the English language and
accessible from the United States) and/or in their annual report as
distributed to shareholders in the United States (again, in the English
language). If the disclosure is only made available on the Web site,
the annual report must so state and provide the Web address at which
the information may be obtained. As any foreign private issuer availing
itself of the proposed exemption would have to disclose that fact in
its statement of significant differences, the Exchange does not propose
to require those companies to comply with the disclosure requirement of
Rule 10C-1(b)(1)(iii)(A). While Section 110 [sic] does not require a
statement as to why a company does not comply with an applicable
requirement in the manner provided by Rule 10C-1(b)(1)(iii)(A), the
Exchange does not believe that this is a significant difference, as the
explanation companies would likely provide for not having an
independent compensation committee would simply be that they were not
required to do so by home country law.
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\22\ 17 CFR 240.10C-1(b)(5)(i).
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The Exchange currently does not require issuers whose only listed
security is a preferred stock to comply with NYSE Arca Equities Rule
5.3(k)(4). The Exchange proposes to grant these issuers a general
exemption from compliance with the proposed amended rule. The Exchange
believes this approach is appropriate because holders of listed
preferred stock have significantly greater protections with respect to
their rights to receive dividends and a liquidation preference upon
dissolution of the issuer, and preferred stocks are typically regarded
by investors as a fixed income investment comparable to debt
securities, the issuers of which are exempt from compliance with Rule
10C-1.
2. Statutory Basis
The Exchange believes that the proposed rule change in relation to
the Exchange's compensation committee
[[Page 62591]]
requirements and the proposed compensation consultant independence
requirements are consistent with Section 10C of the Exchange Act and
Rule 10C-1 thereunder in that they comply with the requirements of Rule
10C-1 with respect to the adoption by national securities exchanges of
compensation committee listing standards. The Exchange believes that
the proposed rule change is consistent with Section 6(b) \23\ of the
Exchange Act in general, and furthers the objectives of Section 6(b)(5)
of the Exchange Act,\24\ in particular in that it is designed to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest.
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\23\ 15 U.S.C. 78f(b).
\24\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed amendments to its
compensation committee listing standard are consistent with the
protection of investors and the public interest in that they strengthen
the independence requirements for compensation committee membership,
provide additional authority to compensation committees and require
compensation committees to consider the independence of compensation
consultants.
The Exchange believes that the general exemptions from the proposed
requirements that it is granting to foreign private issuers and smaller
reporting companies are consistent with Section 10C and Rule 10C-1, for
the reasons stated above in the ``Purpose'' section, including because
(i) Rule 10C-1(b)(5)(ii) explicitly exempts smaller reporting companies
and (ii) foreign private issuers will comply with their home country
law and, if they avail themselves of the exemption, will be required to
disclose that fact under existing Exchange listing requirements. The
Exchange believes it is an appropriate use of its exemptive authority
under Rule 10C-1(b)(5)(i), and that it is not unfairly discriminatory
under Section 6(b)(5) of the Act, to provide general exemptions under
the proposed rules to issuers whose only listed class of equity
securities on the Exchange is a preferred stock, as holders of listed
preferred stock have significantly greater protections with respect to
their rights to receive dividends and a liquidation preference upon
dissolution of the issuer, and preferred stocks are typically regarded
by investors as a fixed income investment comparable to debt
securities, the issuers of which are exempt from compliance with Rule
10C-1. The Exchange believes that it is an appropriate use of its
exemptive authority under Rule 10C-1(b)(5)(i), and that it is not
unfairly discriminatory under Section 6(b)(5) of the Act, to provide
general exemptions under the proposed rules for all of the other
categories of issuers that are not currently subject to the Exchange's
compensation committee requirement, for the structural reasons
discussed in the ``Purpose'' section and because it would be a
significant and unnecessarily burdensome alteration in their governance
structures to require them to comply with the proposed new
requirements.
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 not solicited written comments on the proposed
rule change. The Exchange has received two comment letters on the
proposed rule change.\25\ One commenter made the following points: (i)
The Exchange should specify that the relevant factors for consideration
with respect to compensation committee independence should include a
consideration of fees received for service on the board itself; (ii)
the relevant factors should explicitly include consideration of the
personal and business relationships between directors and officers;
(iii) the additional factors to be considered for compensation
committee independence should be considered as a part of general board
independence determinations; and (iv) the listing standards should
specify that, while the factors must be considered in their totality, a
single factor can result in the loss of board independence.
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\25\ Both of these letters were addressed to NYSE Regulation,
Inc. Neither author indicated that the comments related to just one
of the three national securities exchanges owned by NYSE Euronext.
Therefore, the Exchange is addressing those comments to the extent
they are applicable to its existing rules and the proposed
amendments.
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The Exchange does not believe that it is appropriate to consider
board compensation as part of the compensation committee independence
determination with respect to individual directors. Non-executive
directors devote considerable time to the affairs of the companies on
whose boards they sit and eligible candidates would be difficult to
find if board and committee service were unpaid in nature.
Consequently, independent directors of listed companies are almost
invariably paid for their board and committee service. As all
independent directors are almost certainly going to receive board
compensation from the company and do so on terms determined by the
board as a whole, the Exchange does not believe that an analysis of the
board compensation of individual directors is a meaningful
consideration in determining their independence for purposes of
compensation committee service.
The Exchange interprets its existing director independence
requirements as requiring the board to consider relationships between
the director and any member of management in making its affirmative
independence determinations. Consequently, the Exchange does not
believe that any further clarification of this requirement is
necessary.
The Exchange does not believe that it is necessary to explicitly
require that the additional independence considerations for
compensation committee service should be a part of the board's general
independence determinations for all independent directors. NYSE Arca
Equities Rule 5.3(k)(1) provides that the board must affirmatively
determine that the director has no material relationship with the
listed company, either directly or as a partner, shareholder or officer
of an organization that has a relationship with the company. As such,
the Exchange believes that, where appropriate, listed company boards
should already be including in their general independence
determinations factors including those being added to the compensation
committee independence determination.
The Exchange does not believe it is necessary to include in the
rule a statement that a single factor may be sufficiently material to
render a director non-independent, as this is clearly the intention of
the rule as drafted. NYSE Arca Equities Rule 5.3(k)(1) in its current
form and proposed NYSE Arca Equities Rule 5.3(k)(4) require the board
to consider the materiality of each separate relationship between the
director and the listed company or its management.
[[Page 62592]]
The second commenter proposed that the Exchange should require
companies to make a public disclosure with respect to the factors
considered by the compensation committee in reviewing the independence
of compensation consultants, legal counsel and other compensation
advisers. This commenter also proposed that the Exchange should require
with respect to outside counsel hired by the compensation committee the
same disclosure as is required by Item 407(e)(3)(iv) of Regulation S-K
with respect to the nature of any conflict that arises from the
engagement of a compensation consultant identified in the proxy
statement. The Exchange does not believe that it is necessary to
establish additional disclosure requirements of this nature. Item 407
of Regulation S-K contains extensive disclosure requirements with
respect to a listed company's corporate governance. Moreover, with
respect to disclosure of any conflicts of interest that may arise with
respect to outside counsel hired by the compensation committee, the
Exchange believes that the rigorous conflict of interest requirements
applicable to attorneys adequately address such concerns, and the
Exchange is mindful that requiring additional public disclosures
regarding outside counsel could require a listed company to disclose
information that otherwise may be protected by attorney-client
privilege.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (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 or disapprove the proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSEArca-2012-105 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-2012-105. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (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 10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for inspection and copying at the
principal office and the Internet Web site 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-NYSEArca-2012-105, and
should be submitted on or before November 5, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-25221 Filed 10-12-12; 8:45 am]
BILLING CODE 8011-01-P
