Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change, as Modified by Amendment No.1, Amending Sections 303A.00, 303A.02(a) and 303A.05 of the Exchange's Listed Company Manual To Comply With the Requirements of Securities and Exchange Commission Rule 10C-1, 62541-62547 [2012-25278]
Download as PDF
<![CDATA[
Federal Register / Vol. 77, No. 199 / Monday, October 15, 2012 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release Nos. 33–9365; 34–68019; File No.
265–28]
Investor Advisory Committee
Securities and Exchange
Commission.
ACTION: Notice of Telephonic Meeting of
Securities and Exchange Commission
Investor Advisory Committee.
AGENCY:
The Securities and Exchange
Commission Investor Advisory
Committee, established pursuant to
Section 911 of the Dodd-Frank Wall
Street Reform and Consumer Protection
Act of 2010, is providing notice that it
will hold a telephonic meeting on
Friday, October 12, 2012. The meeting
will begin at 12:00 p.m. (EDT) and end
at 1:00 p.m. and will be open to the
public via telephone at 1–866–606–
4717, participant code 3877211. Persons
needing special accommodations to take
part because of a disability should
notify the contact person listed below.
The public is invited to submit written
statements to the Committee. The
agenda for the meeting includes
discussion of and voting on a
recommendation from the Investor as
Purchaser subcommittee regarding the
Jumpstart Our Business Startups Act
(JOBS Act) requirements on general
solicitation and general advertising in
Rule 506 private placements.
DATES: Written statements should be
received on or before October 12, 2012.
ADDRESSES: Written statements may be
submitted by any of the following
methods:
SUMMARY:
Electronic Statements
D Use the Commission’s Internet
submission form (https://www.sec.gov/
rules/other.shtml); or
D Send an email message to rulescomments@sec.gov. Please include File
No. 265–28 on the subject line; or
erowe on DSK2VPTVN1PROD with
Paper Statements
D Send paper statements in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
Stop 1090, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File No.
265–28. This file number should be
included on the subject line if email is
used. To help us process and review
your statement more efficiently, please
use only one method.
Statements also will be available for
Web site viewing and printing in the
Commission’s Public Reference Room,
100 F Street NE., Room 1580,
VerDate Mar<15>2010
15:21 Oct 12, 2012
Jkt 229001
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. All statements
received will be posted without change;
we do not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly.
FOR FURTHER INFORMATION CONTACT: M.
Owen Donley, Chief Counsel, at (202)
551–6322, Office of Investor Education
and Advocacy, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549.
Dated: October 9, 2012.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012–25219 Filed 10–12–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68011; File No. SR–NYSE–
2012–49]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing of Proposed Rule Change, as
Modified by Amendment No.1,
Amending Sections 303A.00,
303A.02(a) and 303A.05 of the
Exchange’s Listed Company Manual
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, New York Stock
Exchange LLC (‘‘NYSE’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II and III
below, which filing was amended and
replaced in its entirety by Amendment
No. 1 thereto on October 1, 2012, and
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
Sections 303A.00, 303A.02(a) and
303A.05 of the Exchange’s Listed
Company Manual (the ‘‘Manual’’) 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.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
This Amendment No. 1 to SR–NYSE–
2012–49 (the ‘‘filing’’) amends and
replaces in its entirety the Filing as
originally submitted on September 25,
2012. Amendment No. 1 corrects a
single error in the rule text in Exhibit 5
as originally filed. The error was in
Section 303A.00 under the heading
‘‘Transition Periods for Compensation
Committee Requirements.’’
The Exchange proposes to amend
Sections 303A.00, 303A.02(a) and
303A.05 of the Manual to comply with
the requirements of SEC Rule 10C–1.
The proposed changes to Sections
303A.00, 303A.02(a) and 303A.05 will
not become operative until July 1, 2013.
Consequently, the existing text of these
sections will remain in the Manual 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
Manual 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
4 17
CFR 240.10C–1.
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.
5 The
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
PO 00000
Frm 00052
Fmt 4703
Sfmt 4703
62541
E:\FR\FM\15OCN1.SGM
15OCN1
62542
Federal Register / Vol. 77, No. 199 / Monday, October 15, 2012 / Notices
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.
Compensation Committee Director
Independence Requirement
In adopting independence
requirements for compensation
committee members, Rule 10C–
1(b)(1)(ii) 8 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) 9 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
Section 303A.02. Section 303A.02(a)
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 (directly or as
a partner, shareholder or officer of an
organization that has a relationship with
the company).10 In addition, Section
8 17
CFR 240.10C–1(b)(1)(ii).
CFR 240.10C–1(a)(4).
10 Commentary to Section 303A.02(a) notes that it
is not possible to anticipate, or explicitly to provide
for, all circumstances that might signal potential
conflicts of interest, or that might bear on the
materiality of a director’s relationship to a listed
company (references to ‘‘listed company’’ would
include any parent or subsidiary in a consolidated
group with the listed company). Accordingly, the
commentary states that it is best that boards making
‘‘independence’’ determinations broadly consider
all relevant facts and circumstances. In particular,
erowe on DSK2VPTVN1PROD with
9 17
VerDate Mar<15>2010
15:21 Oct 12, 2012
Jkt 229001
303A.02(b) 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 Section
303A.02(b) 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 Section 303A.02,
in addition to the independence
requirements proposed specifically for
compensation committee service.
The Exchange proposes to amend
Section 303A.02(a) of the Manual to
adopt proposed Section 303A.02(a)(ii),12
which would require that, in
affirmatively determining the
independence of any director who will
serve on the compensation committee of
the Exchange believes that, when assessing the
materiality of a director’s relationship with the
listed company, the board should consider the issue
not merely from the standpoint of the director, but
also from that of persons or organizations with
which the director has an affiliation. The Exchange
does not view the ownership of even a significant
amount of stock, by itself, as a bar to an
independence finding.
11 The following are the ‘‘bright line’’ tests set
forth in Section 303A.02(b): (i) The director is, or
has been within the last three years, an employee
of the listed company, or an immediate family
member is, or has been within the last three years,
an executive officer, of the listed company; (ii) The
director has received, or has an immediate family
member who has received, during any twelvemonth period within the last three years, more than
$120,000 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); (iii) (A) The director is a current
partner or employee of a firm that is the listed
company’s internal or external auditor; (B) the
director has an immediate family member who is
a current partner of such a firm; (C) the director has
an immediate family member who is a current
employee of such a firm and personally works on
the listed company’s audit; or (D) the director or an
immediate family member was within the last three
years a partner or employee of such a firm and
personally worked on the listed company’s audit
within that time; (iv) The director or an immediate
family member is, or has been within the last three
years, employed as an executive officer of another
company where any of the listed company’s present
executive officers at the same time serves or served
on that company’s compensation committee; (v)
The director is a current employee, or an immediate
family member is a current executive officer, of a
company that has made payments to, or received
payments from, the listed company for property or
services in an amount which, in any of the last
three fiscal years, exceeds the greater of $1 million,
or 2% of such other company’s consolidated gross
revenues. For purposes of Sections 303A.01,
303A.03, 303A.04, 303A.05 and 303A.09, a director
of a business development company is considered
to be independent if he or she is not an ‘‘interested
person’’ of the company, as defined in Section
2(a)(19) of the Investment Company Act of 1940.
12 As proposed, the current text of Section
303.02(a) would become Section 303A.02(a)(i).
PO 00000
Frm 00053
Fmt 4703
Sfmt 4703
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 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, commentary to proposed
Section 303A.02(a)(ii) 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 commentary 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
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 Section 303A.02(a)(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’’),13
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.14 Consistent with the
views of commenters on the SEC’s rules
as originally proposed, the Exchange
believes that—rather than adversely
13 Release Nos. 33–9330; 34–67220 (June 20,
2012); 77 FR 38422 (June 27, 2012).
14 See Adopting Release at 38428.
E:\FR\FM\15OCN1.SGM
15OCN1
Federal Register / Vol. 77, No. 199 / Monday, October 15, 2012 / Notices
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 Section
303A.02(b) of the Manual 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, Section
303A.02(a) already requires the board to
consider any other material
relationships between the director and
the listed company or its management
that are not the subject of ‘‘bright line’’
tests in Section 303A.02(b). The
Exchange believes that these
requirements with respect to general
director independence, when combined
with the specific considerations
required by proposed Section
303A.02(a)(ii), represent an appropriate
standard for compensation committee
independence that is consistent with the
requirements of Rule 10C–1.
erowe on DSK2VPTVN1PROD with
Compensation Committee Advisers
Rule 10C–1(b)(2) 15 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:
(i) The compensation committee may,
in its sole discretion, retain or obtain the
advice of a compensation consultant,
independent legal counsel or other
adviser; and
(ii) 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) 16 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
16 17
CFR 240.10C–1(b)(2).
CFR 240.10C–1(b)(3).
VerDate Mar<15>2010
15:21 Oct 12, 2012
The required powers of the
compensation committee under Rule
10C–1(b)(2) and (3) as set forth above
are in significant part already required
by the NYSE’s existing compensation
committee listing standard, as they are
required elements of the compensation
committee charter as set forth in Section
303A.05(b). In the interests of clarity
and emphasis, the Exchange proposes to
adopt the requirements specified in
Rule 10C–1(b)(2) and (3) verbatim as a
proposed new subsection (c) of Section
303A.05. The Exchange proposes to
remove the comparable requirements
currently in Section 303A.05(b)
commentary and replace them with a
provision stating that the compensation
committee charter must provide that the
committee has all of the powers
specified in new subsection (c).
Compensation Adviser Independence
Factors
Rule 10C–1(b)(4) 17 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
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 include in proposed Section
303A.05(c) a provision specifying that,
before engaging an adviser, the
compensation committee must consider
the factors enumerated above. As
proposed, Section 303A.05(c) would not
include any specific 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),18 the Exchange proposes to
include in Section 303A.05(c) an
explicit statement that nothing in
Section 303A.05(c) 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 in [sic] Section
303A.05(c) 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) 19 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
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 amend
Section 303A.00 to adopt this cure
provision period for events of non18 17
17 17
Jkt 229001
PO 00000
CFR 240.10C–1(b)(4).
Frm 00054
Fmt 4703
Sfmt 4703
62543
19 17
E:\FR\FM\15OCN1.SGM
CFR 240.10C–1(b)(2)(iii).
CFR 240.10C–1(a)(3).
15OCN1
62544
Federal Register / Vol. 77, No. 199 / Monday, October 15, 2012 / Notices
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 committee
continues to have a majority of
independent directors, as this would
ensure that the applicable 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.
Transition Periods
The Adopting Release contemplates
that exchanges may provide transition
periods through the exemptive authority
provided to the exchanges under Rule
10C–1(b)(1)(iii).20 Consistent with the
transition periods approved by the SEC
for inclusion in Section 303A at the
time of its original adoption,21 the
Exchange proposes to amend Section
303A.00 to provide that listed
companies would have until the earlier
of their first annual meeting after
January 15, 2014, or October 31, 2014,
to comply with the new Section
303A.02(a)(ii) compensation committees
independence standards . Existing
compensation committee independence
standards would continue to apply
pending the transition to the new
independence standards. The Exchange
believes that its prior use of a similar
transition period was satisfactory and
that it is reasonable to follow the same
approach in connection with the
proposed changes to the compensation
committee independence standards.
In addition, the Exchange proposes to
continue to apply to the proposed new
compensation committee requirements
the existing transition periods available
to newly-listed companies under
Section 303A.00. Transition periods are
available to: Companies listing in
connection with their initial public
offerings (‘‘IPOs’’) or which did not have
a class of common stock registered
under the Exchange Act prior to the
listing date; 22 companies listing in
connection with a spin-off or carve-out;
Adopting Release at 38444.
Securities Exchange Act Release No. 48745
(November 4, 2003), 68 FR 64154 (November 12,
2003) (SR–NYSE–2002–33).
22 For purposes of Section 303A other than
Sections 303A.06 and 303A.12(b), a company is
considered to be listing in conjunction with an
initial public offering if, immediately prior to
listing, it does not have a class of common stock
registered under the Exchange Act.
transition period as would have been
available to it on the other exchange.
The Exchange proposes to exempt
smaller reporting companies 24 from
compliance with the proposed new
independence requirements with
respect to compensation committee
service. Under SEC Rule 12b–2, a
smaller reporting company is required
to test whether it continues to qualify
for that status as of the last business day
of its second quarter of each fiscal year
(the ‘‘Smaller Reporting Company
Determination Date’’) and ceases as of
the first day of the next fiscal year to be
able to avail itself of the benefits under
SEC rules applicable to smaller
reporting companies. Consequently, the
Exchange proposes to adopt a new
transition provision applicable to
companies that cease to be smaller
reporting companies and become
subject to the compensation committee
independence requirements of proposed
Section 303A.02(a)(ii).25 As proposed, a
company that ceases to be a smaller
reporting company would be required, if
applicable, (I) to have a committee
composed entirely of members that meet
the independence requirements of
proposed Section 303A.02(a)(ii) within
six months of the Smaller Reporting
Company Determination Date and (II) to
comply with Section 303A.05(c)(iv) as
of the Smaller Reporting Company
Determination Date. The Exchange also
proposes to include a new subsection in
Section 303A.00 specifying that smaller
reporting companies are subject to
proposed Section 303A.05(c) with the
exception of proposed Section
303A.05(c)(iv) requirements with
respect to the Compensation
Committee’s consideration of
compensation consultant’s
independence from management. Under
this approach, smaller reporting
companies will effectively be subject to
precisely the same requirements as is
currently the case.
companies listing upon emergence from
bankruptcy; companies previously
registered under Section 12(g) of the
Exchange Act; and companies
previously registered under Section
12(b) of the Exchange Act to the extent
the national securities exchange on
which they were listed did not have the
same requirement; and companies that
cease to qualify as a controlled company
or a foreign private issuer. All of the
foregoing categories of issuers (other
than companies previously registered
under Section 12(b) of the Exchange
Act) would continue to be entitled to a
transition under which the company
must have: At least one independent
member on its compensation committee
by the listing date (or (i) in the case of
an IPO, the earlier of the closing date of
the IPO or five business days from the
listing date, or (ii) in the case of a spinoff or carve-out, by the date the
transaction closes); at least a majority of
independent members on the
compensation committee within 90 days
of the listing date; and a fully
independent compensation committee
within one year of the listing date. A
company that ceases to qualify as a
controlled company would continue to
have a transition under which it must
have at least one independent member
on its compensation committee by the
date its status changed, at least a
majority of independent members on
the compensation committee within 90
days of the date its status changed and
a fully independent compensation
committee within one year of the date
its status changed. A company that
ceases to be a foreign private issuer
would continue to have a transition
under which it must have a fully
independent compensation committee
within six months of the Foreign Private
Issuer Determination Date.23 A company
previously registered under Section
12(b) of the Exchange Act must satisfy
the requirements of Section 303A
within one year of the listing date to the
extent the national securities exchange
on which it was listed did not have the
same requirements; and if the other
exchange had a substantially similar
requirement and the company was
afforded a transition period that had not
expired, the company has the same
General Exemptions
Rule 10C–1(b)(5) 26 provides an
automatic exemption from the
application of the entirety of Rule 10C–
1 for controlled companies and smaller
reporting companies, and Rule 10C–
1(b)(1)(iii)(A) 27 provides an automatic
exemption from the compensation
committee independence requirements
23 Section 303A.00 currently defines the
‘‘Determination Date’’ as the date at the end of a
company’s second fiscal quarter on which it is
required by SEC Rule 240.3b–4 to test its foreign
private issuer status on an annual basis. The
Exchange proposes to change this to the ‘‘Foreign
Private Issuer Determination Date’’ so it is
distinguished from the new ‘‘Smaller Reporting
Company Determination Date’’.
24 As defined in SEC Rule 12b–2 and Item 10(f)
of Regulation S–K.
25 A company that is otherwise exempt from the
requirement to have an independent compensation
committee when it ceases to be a smaller reporting
company would not, of course, be subject to a
transition period. See discussion infra.
26 17 CFR 240.10C–1(b)(5).
27 17 CFR 240.10C–1(b)(1)(iii)(A).
20 See
erowe on DSK2VPTVN1PROD with
21 See
VerDate Mar<15>2010
15:21 Oct 12, 2012
Jkt 229001
PO 00000
Frm 00055
Fmt 4703
Sfmt 4703
E:\FR\FM\15OCN1.SGM
15OCN1
erowe on DSK2VPTVN1PROD with
Federal Register / Vol. 77, No. 199 / Monday, October 15, 2012 / Notices
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.
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
NYSE’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,
passive business organizations in the
form of trusts (such as royalty trusts),
derivatives and special purpose
securities (such as those described in
Sections 703.19 and 703.20 of the
Manual), 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.
Section 303A.00 currently provides
that foreign private issuers are permitted
to follow home country practice in lieu
of compliance with the Exchange’s
compensation committee listing
standard. The Exchange proposes to
VerDate Mar<15>2010
15:21 Oct 12, 2012
Jkt 229001
follow this approach by granting a
general exemption, pursuant to the
discretion granted to the Exchange by
Rule 10C–1(b)(5)(i),28 from the proposed
new compensation committee
requirements to foreign private issuers
that follow home country practice. The
Exchange notes that Section 303A.11
requires foreign private issuers to
disclose any significant ways in which
their corporate governance practices
differ from those followed by domestic
companies under NYSE listing
standards. Foreign private issuers that
are required to file an annual report on
Form 20–F with the SEC must include
their statement of significant differences
in that annual report. All other foreign
private issuers may either (i) include the
statement of significant differences in an
annual report filed with the SEC or (ii)
make the statement of significant
differences available on or through the
listed company’s Web site. 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 303A.11
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 Section 303A.05(c). 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
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) 29 of the Exchange Act
in general, and furthers the objectives of
Section 6(b)(5) of the Exchange Act,30 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
standards 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 NYSE 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
29 15
28 17
PO 00000
CFR 240.10C–1(b)(5)(i).
Frm 00056
Fmt 4703
Sfmt 4703
62545
30 15
E:\FR\FM\15OCN1.SGM
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
15OCN1
62546
Federal Register / Vol. 77, No. 199 / Monday, October 15, 2012 / Notices
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.
erowe on DSK2VPTVN1PROD with
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.31 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.
The Exchange does not believe that it
is appropriate to consider board
31 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.
VerDate Mar<15>2010
15:21 Oct 12, 2012
Jkt 229001
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’s existing director
independence requirements require the
board to consider relationships between
the director and any member of
management in making its affirmative
independence determinations.
Commentary included in Section
303A.02(a) makes this explicit by stating
that when the board is making an
affirmative independence determination
‘‘the concern is independence from
management.’’ 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. Section
303A.02(a) notes that ‘‘[I]t is not
possible to anticipate, or explicitly to
provide for, all circumstances that might
signal potential conflicts of interest, or
that might bear on the materiality of a
director’s relationship to a listed
company’’ and that the board should
therefore ‘‘broadly consider all relevant
facts and circumstances’’ when making
affirmative independence
determinations. 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 listing
standards a statement that a single factor
may be sufficiently material to render a
director non-independent, as this is
clearly the intention of the listing
standards as drafted. Section 303A.02(a)
PO 00000
Frm 00057
Fmt 4703
Sfmt 4703
in its current form and in its proposed
amended form requires the board to
consider the materiality of each separate
relationship between the director and
the listed company or its management.
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
and the Exchange’s own rules generally
incorporate those requirements by
reference where applicable. 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
E:\FR\FM\15OCN1.SGM
15OCN1
Federal Register / Vol. 77, No. 199 / Monday, October 15, 2012 / Notices
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68018; File No. SR–BX–
2012–063]
• 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–NYSE–2012–49 on the
subject line.
Self-Regulatory Organizations;
NASDAQ OMX BX, Inc.; Notice of Filing
of Proposed Rule Change To Modify
the Listing Rules for Compensation
Committees To Comply With Rule
10C–1 under the Exchange Act and
Make Other Related Changes
Paper Comments
October 9, 2012.
• 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–NYSE–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 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–NYSE–2012–49, and
should be submitted on or before
November 5, 2012.
erowe on DSK2VPTVN1PROD with
Electronic Comments
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
September 25, 2012, NASDAQ OMX
BX, Inc. (‘‘BX’’ or 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 BX. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–25278 Filed 10–12–12; 8:45 am]
BILLING CODE 8011–01–P
32 17
CFR 200.30–3(a)(12).
VerDate Mar<15>2010
15:21 Oct 12, 2012
Jkt 229001
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
BX proposes to modify the listing
rules for compensation committees to
comply with Rule 10C–1 under the
Exchange Act and make other related
changes. The text of the proposed rule
change is available on BX’s Web site at
https://nasdaqomxbx.cchwallstreet.com,
at BX’s principal office, and at the
Commission’s Public Reference Room.
BX will implement the proposed rule
upon approval. Proposed BX Venture
Market Listing Rule 5605(d)(3), which
requires compensation committees to
have the specific responsibilities and
authority necessary to comply with Rule
10C–1(b)(2), (3) and (4)(i)–(vi) under the
Exchange Act, shall be effective
immediately.3 To the extent a Company
does not have a compensation
committee, the provisions of this rule
shall apply to the Independent Directors
who determine, or recommend to the
board for determination, the
compensation of the chief executive
officer and all other Executive Officers
of the Company.
Companies must comply with the
remaining provisions of the amended
listing rules by the earlier of: (1) Their
second annual meeting held after the
date of approval of this proposal; or (2)
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 The Commission notes that this portion of the
proposed rule, proposed BX Venture Market Listing
Rule 5605(d)(3), will be effective upon approval by
the Commission.
2 17
PO 00000
Frm 00058
Fmt 4703
Sfmt 4703
62547
December 31, 2014. Until a Company is
required to comply with the amended
listed rules, it must continue to comply
with BX’s existing listing rules.
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, BX
included statements concerning the
purpose of and basis for the proposed
rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. BX has prepared
summaries, set forth in Sections A, B,
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
Section 952 of the Dodd-Frank Wall
Street Reform and Consumer Protection
Act of 2010 (the ‘‘Dodd-Frank Act’’) 4
added Section 10C to the Exchange
Act.5 Section 10C required the
Commission to direct the national
securities exchanges, including BX, and
national securities associations to
prohibit the listing of any equity
security of an issuer, with certain
exemptions, that does not comply with
Section 10C’s requirements relating to
compensation committees and advisers.
To effect this requirement, the
Commission has adopted Rule 10C–1
under the Exchange Act, which became
effective on July 27, 2012. Rule 10C–1
requires each national securities
exchange and national securities
association to provide to the
Commission, no later than September
25, 2012, proposed rules or rule
amendments that comply with the
requirements of Rule 10C–1.6
Rule 10C–1 generally requires that:
• Each member of the compensation
committee of a listed issuer must be an
independent member of the board of
directors;
• in determining independence
requirements for compensation
committee members, exchanges must
consider relevant factors, including, but
not limited to:
• the source of compensation of a
member, including any consulting,
advisory or other compensatory fee paid
by the issuer to such member; and
4 Public
Law 111–203, 124 Stat. 1376 (2010).
U.S.C. 78j–3.
6 See 17 CFR 240.10C–1(a)(4)(i).
5 15
E:\FR\FM\15OCN1.SGM
15OCN1
]]>Agencies
[Federal Register Volume 77, Number 199 (Monday, October 15, 2012)]
[Notices]
[Pages 62541-62547]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-25278]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68011; File No. SR-NYSE-2012-49]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change, as Modified by Amendment
No.1, Amending Sections 303A.00, 303A.02(a) and 303A.05 of the
Exchange's Listed Company Manual 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, New York Stock Exchange LLC (``NYSE''
or the ``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II and III below, which filing was amended and replaced in its
entirety by Amendment No. 1 thereto on October 1, 2012, and 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 Sections 303A.00, 303A.02(a) and
303A.05 of the Exchange's Listed Company Manual (the ``Manual'') 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.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
This Amendment No. 1 to SR-NYSE-2012-49 (the ``filing'') amends and
replaces in its entirety the Filing as originally submitted on
September 25, 2012. Amendment No. 1 corrects a single error in the rule
text in Exhibit 5 as originally filed. The error was in Section 303A.00
under the heading ``Transition Periods for Compensation Committee
Requirements.''
The Exchange proposes to amend Sections 303A.00, 303A.02(a) and
303A.05 of the Manual to comply with the requirements of SEC Rule 10C-
1.
The proposed changes to Sections 303A.00, 303A.02(a) and 303A.05
will not become operative until July 1, 2013. Consequently, the
existing text of these sections will remain in the Manual 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 Manual 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
[[Page 62542]]
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.
---------------------------------------------------------------------------
\6\ Public Law 111-203, 124 Stat. 1900 (2010).
\7\ 15 U.S.C. 78j-3.
---------------------------------------------------------------------------
Compensation Committee Director Independence Requirement
In adopting independence requirements for compensation committee
members, Rule 10C-1(b)(1)(ii) \8\ 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) \9\ 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.
---------------------------------------------------------------------------
\8\ 17 CFR 240.10C-1(b)(1)(ii).
\9\ 17 CFR 240.10C-1(a)(4).
---------------------------------------------------------------------------
The Exchange's director independence standards are set forth in
Section 303A.02. Section 303A.02(a) 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 (directly or as a partner, shareholder or officer of an
organization that has a relationship with the company).\10\ In
addition, Section 303A.02(b) 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\
Section 303A.02(b) 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
Section 303A.02, in addition to the independence requirements proposed
specifically for compensation committee service.
---------------------------------------------------------------------------
\10\ Commentary to Section 303A.02(a) notes that it is not
possible to anticipate, or explicitly to provide for, all
circumstances that might signal potential conflicts of interest, or
that might bear on the materiality of a director's relationship to a
listed company (references to ``listed company'' would include any
parent or subsidiary in a consolidated group with the listed
company). Accordingly, the commentary states that it is best that
boards making ``independence'' determinations broadly consider all
relevant facts and circumstances. In particular, the Exchange
believes that, when assessing the materiality of a director's
relationship with the listed company, the board should consider the
issue not merely from the standpoint of the director, but also from
that of persons or organizations with which the director has an
affiliation. The Exchange does not view the ownership of even a
significant amount of stock, by itself, as a bar to an independence
finding.
\11\ The following are the ``bright line'' tests set forth in
Section 303A.02(b): (i) The director is, or has been within the last
three years, an employee of the listed company, or an immediate
family member is, or has been within the last three years, an
executive officer, of the listed company; (ii) The director has
received, or has an immediate family member who has received, during
any twelve-month period within the last three years, more than
$120,000 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); (iii) (A) The director
is a current partner or employee of a firm that is the listed
company's internal or external auditor; (B) the director has an
immediate family member who is a current partner of such a firm; (C)
the director has an immediate family member who is a current
employee of such a firm and personally works on the listed company's
audit; or (D) the director or an immediate family member was within
the last three years a partner or employee of such a firm and
personally worked on the listed company's audit within that time;
(iv) The director or an immediate family member is, or has been
within the last three years, employed as an executive officer of
another company where any of the listed company's present executive
officers at the same time serves or served on that company's
compensation committee; (v) The director is a current employee, or
an immediate family member is a current executive officer, of a
company that has made payments to, or received payments from, the
listed company for property or services in an amount which, in any
of the last three fiscal years, exceeds the greater of $1 million,
or 2% of such other company's consolidated gross revenues. For
purposes of Sections 303A.01, 303A.03, 303A.04, 303A.05 and 303A.09,
a director of a business development company is considered to be
independent if he or she is not an ``interested person'' of the
company, as defined in Section 2(a)(19) of the Investment Company
Act of 1940.
---------------------------------------------------------------------------
The Exchange proposes to amend Section 303A.02(a) of the Manual to
adopt proposed Section 303A.02(a)(ii),\12\ which would 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 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, commentary
to proposed Section 303A.02(a)(ii) 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 commentary 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 about the
listed company's executive compensation.
---------------------------------------------------------------------------
\12\ As proposed, the current text of Section 303.02(a) would
become Section 303A.02(a)(i).
---------------------------------------------------------------------------
The Exchange does not propose to adopt any specific numerical tests
with respect to the factors specified in proposed Section
303A.02(a)(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''),\13\ 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.\14\ Consistent with the views of commenters on the SEC's
rules as originally proposed, the Exchange believes that--rather than
adversely
[[Page 62543]]
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.
---------------------------------------------------------------------------
\13\ Release Nos. 33-9330; 34-67220 (June 20, 2012); 77 FR 38422
(June 27, 2012).
\14\ See Adopting Release at 38428.
---------------------------------------------------------------------------
The Exchange believes that its existing ``bright line''
independence standards as set forth in Section 303A.02(b) of the Manual
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, Section 303A.02(a) already
requires the board to consider any other material relationships between
the director and the listed company or its management that are not the
subject of ``bright line'' tests in Section 303A.02(b). The Exchange
believes that these requirements with respect to general director
independence, when combined with the specific considerations required
by proposed Section 303A.02(a)(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) \15\ 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:
---------------------------------------------------------------------------
\15\ 17 CFR 240.10C-1(b)(2).
---------------------------------------------------------------------------
(i) The compensation committee may, in its sole discretion, retain
or obtain the advice of a compensation consultant, independent legal
counsel or other adviser; and
(ii) 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) \16\ 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.
---------------------------------------------------------------------------
\16\ 17 CFR 240.10C-1(b)(3).
---------------------------------------------------------------------------
The required powers of the compensation committee under Rule 10C-
1(b)(2) and (3) as set forth above are in significant part already
required by the NYSE's existing compensation committee listing
standard, as they are required elements of the compensation committee
charter as set forth in Section 303A.05(b). In the interests of clarity
and emphasis, the Exchange proposes to adopt the requirements specified
in Rule 10C-1(b)(2) and (3) verbatim as a proposed new subsection (c)
of Section 303A.05. The Exchange proposes to remove the comparable
requirements currently in Section 303A.05(b) commentary and replace
them with a provision stating that the compensation committee charter
must provide that the committee has all of the powers specified in new
subsection (c).
Compensation Adviser Independence Factors
Rule 10C-1(b)(4) \17\ 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:
---------------------------------------------------------------------------
\17\ 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 include in proposed Section
303A.05(c) a provision specifying that, before engaging an adviser, the
compensation committee must consider the factors enumerated above. As
proposed, Section 303A.05(c) would not include any specific 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),\18\ the Exchange proposes to
include in Section 303A.05(c) an explicit statement that nothing in
Section 303A.05(c) 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 in [sic] Section
303A.05(c) 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.
---------------------------------------------------------------------------
\18\ 17 CFR 240.10C-1(b)(2)(iii).
---------------------------------------------------------------------------
Cure Periods
Rule 10C-1(a)(3) \19\ 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 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 amend Section 303A.00 to adopt this cure provision period
for events of non-
[[Page 62544]]
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 committee continues to have
a majority of independent directors, as this would ensure that the
applicable 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.
---------------------------------------------------------------------------
\19\ 17 CFR 240.10C-1(a)(3).
---------------------------------------------------------------------------
Transition Periods
The Adopting Release contemplates that exchanges may provide
transition periods through the exemptive authority provided to the
exchanges under Rule 10C-1(b)(1)(iii).\20\ Consistent with the
transition periods approved by the SEC for inclusion in Section 303A at
the time of its original adoption,\21\ the Exchange proposes to amend
Section 303A.00 to provide that listed companies would have until the
earlier of their first annual meeting after January 15, 2014, or
October 31, 2014, to comply with the new Section 303A.02(a)(ii)
compensation committees independence standards . Existing compensation
committee independence standards would continue to apply pending the
transition to the new independence standards. The Exchange believes
that its prior use of a similar transition period was satisfactory and
that it is reasonable to follow the same approach in connection with
the proposed changes to the compensation committee independence
standards.
---------------------------------------------------------------------------
\20\ See Adopting Release at 38444.
\21\ See Securities Exchange Act Release No. 48745 (November 4,
2003), 68 FR 64154 (November 12, 2003) (SR-NYSE-2002-33).
---------------------------------------------------------------------------
In addition, the Exchange proposes to continue to apply to the
proposed new compensation committee requirements the existing
transition periods available to newly-listed companies under Section
303A.00. Transition periods are available to: Companies listing in
connection with their initial public offerings (``IPOs'') or which did
not have a class of common stock registered under the Exchange Act
prior to the listing date; \22\ companies listing in connection with a
spin-off or carve-out; companies listing upon emergence from
bankruptcy; companies previously registered under Section 12(g) of the
Exchange Act; and companies previously registered under Section 12(b)
of the Exchange Act to the extent the national securities exchange on
which they were listed did not have the same requirement; and companies
that cease to qualify as a controlled company or a foreign private
issuer. All of the foregoing categories of issuers (other than
companies previously registered under Section 12(b) of the Exchange
Act) would continue to be entitled to a transition under which the
company must have: At least one independent member on its compensation
committee by the listing date (or (i) in the case of an IPO, the
earlier of the closing date of the IPO or five business days from the
listing date, or (ii) in the case of a spin-off or carve-out, by the
date the transaction closes); at least a majority of independent
members on the compensation committee within 90 days of the listing
date; and a fully independent compensation committee within one year of
the listing date. A company that ceases to qualify as a controlled
company would continue to have a transition under which it must have at
least one independent member on its compensation committee by the date
its status changed, at least a majority of independent members on the
compensation committee within 90 days of the date its status changed
and a fully independent compensation committee within one year of the
date its status changed. A company that ceases to be a foreign private
issuer would continue to have a transition under which it must have a
fully independent compensation committee within six months of the
Foreign Private Issuer Determination Date.\23\ A company previously
registered under Section 12(b) of the Exchange Act must satisfy the
requirements of Section 303A within one year of the listing date to the
extent the national securities exchange on which it was listed did not
have the same requirements; and if the other exchange had a
substantially similar requirement and the company was afforded a
transition period that had not expired, the company has the same
transition period as would have been available to it on the other
exchange.
---------------------------------------------------------------------------
\22\ For purposes of Section 303A other than Sections 303A.06
and 303A.12(b), a company is considered to be listing in conjunction
with an initial public offering if, immediately prior to listing, it
does not have a class of common stock registered under the Exchange
Act.
\23\ Section 303A.00 currently defines the ``Determination
Date'' as the date at the end of a company's second fiscal quarter
on which it is required by SEC Rule 240.3b-4 to test its foreign
private issuer status on an annual basis. The Exchange proposes to
change this to the ``Foreign Private Issuer Determination Date'' so
it is distinguished from the new ``Smaller Reporting Company
Determination Date''.
---------------------------------------------------------------------------
The Exchange proposes to exempt smaller reporting companies \24\
from compliance with the proposed new independence requirements with
respect to compensation committee service. Under SEC Rule 12b-2, a
smaller reporting company is required to test whether it continues to
qualify for that status as of the last business day of its second
quarter of each fiscal year (the ``Smaller Reporting Company
Determination Date'') and ceases as of the first day of the next fiscal
year to be able to avail itself of the benefits under SEC rules
applicable to smaller reporting companies. Consequently, the Exchange
proposes to adopt a new transition provision applicable to companies
that cease to be smaller reporting companies and become subject to the
compensation committee independence requirements of proposed Section
303A.02(a)(ii).\25\ As proposed, a company that ceases to be a smaller
reporting company would be required, if applicable, (I) to have a
committee composed entirely of members that meet the independence
requirements of proposed Section 303A.02(a)(ii) within six months of
the Smaller Reporting Company Determination Date and (II) to comply
with Section 303A.05(c)(iv) as of the Smaller Reporting Company
Determination Date. The Exchange also proposes to include a new
subsection in Section 303A.00 specifying that smaller reporting
companies are subject to proposed Section 303A.05(c) with the exception
of proposed Section 303A.05(c)(iv) requirements with respect to the
Compensation Committee's consideration of compensation consultant's
independence from management. Under this approach, smaller reporting
companies will effectively be subject to precisely the same
requirements as is currently the case.
---------------------------------------------------------------------------
\24\ As defined in SEC Rule 12b-2 and Item 10(f) of Regulation
S-K.
\25\ A company that is otherwise exempt from the requirement to
have an independent compensation committee when it ceases to be a
smaller reporting company would not, of course, be subject to a
transition period. See discussion infra.
---------------------------------------------------------------------------
General Exemptions
Rule 10C-1(b)(5) \26\ provides an automatic exemption from the
application of the entirety of Rule 10C-1 for controlled companies and
smaller reporting companies, and Rule 10C-1(b)(1)(iii)(A) \27\ provides
an automatic exemption from the compensation committee independence
requirements
[[Page 62545]]
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.
---------------------------------------------------------------------------
\26\ 17 CFR 240.10C-1(b)(5).
\27\ 17 CFR 240.10C-1(b)(1)(iii)(A).
---------------------------------------------------------------------------
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 NYSE'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, passive business organizations in the form of trusts (such as
royalty trusts), derivatives and special purpose securities (such as
those described in Sections 703.19 and 703.20 of the Manual), 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.
Section 303A.00 currently provides that foreign private issuers are
permitted to follow home country practice in lieu of compliance with
the Exchange's compensation committee listing standard. 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),\28\ from the proposed new compensation committee
requirements to foreign private issuers that follow home country
practice. The Exchange notes that Section 303A.11 requires foreign
private issuers to disclose any significant ways in which their
corporate governance practices differ from those followed by domestic
companies under NYSE listing standards. Foreign private issuers that
are required to file an annual report on Form 20-F with the SEC must
include their statement of significant differences in that annual
report. All other foreign private issuers may either (i) include the
statement of significant differences in an annual report filed with the
SEC or (ii) make the statement of significant differences available on
or through the listed company's Web site. 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 303A.11 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.
---------------------------------------------------------------------------
\28\ 17 CFR 240.10C-1(b)(5)(i).
---------------------------------------------------------------------------
The Exchange currently does not require issuers whose only listed
security is a preferred stock to comply with Section 303A.05(c). 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 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) \29\ of the Exchange Act in general, and
furthers the objectives of Section 6(b)(5) of the Exchange Act,\30\ 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.
---------------------------------------------------------------------------
\29\ 15 U.S.C. 78f(b).
\30\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the proposed amendments to its
compensation committee listing standards 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 NYSE 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
[[Page 62546]]
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.\31\ 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.
---------------------------------------------------------------------------
\31\ 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.
---------------------------------------------------------------------------
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's existing director independence requirements require
the board to consider relationships between the director and any member
of management in making its affirmative independence determinations.
Commentary included in Section 303A.02(a) makes this explicit by
stating that when the board is making an affirmative independence
determination ``the concern is independence from management.''
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. Section
303A.02(a) notes that ``[I]t is not possible to anticipate, or
explicitly to provide for, all circumstances that might signal
potential conflicts of interest, or that might bear on the materiality
of a director's relationship to a listed company'' and that the board
should therefore ``broadly consider all relevant facts and
circumstances'' when making affirmative independence determinations. 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
listing standards a statement that a single factor may be sufficiently
material to render a director non-independent, as this is clearly the
intention of the listing standards as drafted. Section 303A.02(a) in
its current form and in its proposed amended form requires the board to
consider the materiality of each separate relationship between the
director and the listed company or its management.
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 and the Exchange's
own rules generally incorporate those requirements by reference where
applicable. 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
[[Page 62547]]
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-NYSE-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 20549-1090.
All submissions should refer to File Number SR-NYSE-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 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-NYSE-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\
---------------------------------------------------------------------------
\32\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-25278 Filed 10-12-12; 8:45 am]
BILLING CODE 8011-01-P
