Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing of Proposed Rule Change with Respect to the Amendment of the By-Laws of its Parent Corporation, The NASDAQ OMX Group, Inc., 77137-77141 [2012-31245]

Download as PDF Federal Register / Vol. 77, No. 250 / Monday, December 31, 2012 / Notices Comments may be submitted by any of the following methods: SECURITIES AND EXCHANGE COMMISSION Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–Phlx–2012–136 on the subject line. [Release No. 34–68514; File No. SR–BX– 2012–075] Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing of Proposed Rule Change with Respect to the Amendment of the By-Laws of its Parent Corporation, The NASDAQ OMX Group, Inc. December 21, 2012. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. mstockstill on DSK4VPTVN1PROD with All submissions should refer to File Number SR–Phlx–2012–136. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–Phlx– 2012–136 and should be submitted on or before January 22, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.32 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–31246 Filed 12–28–12; 8:45 am] 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 December 19, 2012, NASDAQ OMX BX, Inc. (‘‘BX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes a rule change with respect to the amendment of the by-laws of its parent corporation, The NASDAQ OMX Group, Inc. (‘‘NASDAQ OMX’’ or the ‘‘Corporation’’). The text of the proposed rule change is available at https://nasdaqomxbx.cchwallstreet.com/, at BX’s principal office, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose NASDAQ OMX is proposing amendments to provisions of its ByLaws pertaining to the compositional BILLING CODE 8011–01–P U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. CFR 200.30–3(a)(12). VerDate Mar<15>2010 21:28 Dec 28, 2012 Jkt 229001 PO 00000 Frm 00135 Fmt 4703 requirements of the NASDAQ OMX Board. The changes are primarily focused on amending the definition of ‘‘Industry Director’’ (and ‘‘Industry committee member’’) 3 to make the definition less restrictive, but in a manner that BX believes will continue to serve the purpose of ensuring that members and member organizations of Self-Regulatory Subsidiaries 4—the selfregulatory organizations owned by NASDAQ OMX—do not have disproportionate influence on its governance. In making the change, NASDAQ OMX is adapting concepts already approved by the Commission in its review of the Independence Policy of the NYSE Euronext Board of Directors (the ‘‘Independence Policy’’).5 The proposed rule change also makes several other changes to provisions pertaining to the Board’s compositional requirements and categorization of Directors. Definitions The By-Laws require Directors to be assigned to certain defined categories, based on their current and past affiliations.6 Specifically, Directors may be categorized as ‘‘Industry Directors,’’ ‘‘Non-Industry Directors,’’ ‘‘Public Directors,’’ and/or ‘‘Staff Directors.’’ Currently, an Industry Director is defined as a Director who: (1) Is or has served in the prior three years as an officer, director, or employee of a broker or dealer, excluding an outside director or a director not engaged in the dayto-day management of a broker or dealer; (2) Is an officer, director (excluding an outside director), or employee of an entity that owns more than ten percent of the equity 3 The term ‘‘committee member’’ in the By-Laws refers to membership in the committees authorized under Section 4.13 of the By-Laws, such as the Executive Committee and the Audit Committee. Under the By-Laws and the Delaware General Corporation Law, all members of committees with the power and authority to act on behalf of the Board in the management of the business and affairs of NASDAQ OMX must themselves be Directors. Accordingly, the definitions of ‘‘Industry Director’’ and ‘‘Industry committee member’’ are coterminous as applied to any member of these committees. The By-Laws do not presently contemplate any committees with non-Director members. 4 The By-Laws define each of The NASDAQ Stock Market LLC (‘‘NASDAQ’’), BX, NASDAQ OMX PHLX LLC (‘‘Phlx’’), the Boston Stock Exchange Clearing Corporation (‘‘BSECC’’), and the Stock Clearing Corporation of Philadelphia (‘‘SCCP’’) as a ‘‘Self-Regulatory Subsidiary’’. 5 Securities Exchange Act Release No. 51217 (February 16, 2005), 70 FR 9688 (February 28, 2005) (SR–NYSE–2004–54); Securities Exchange Act Release No. 55293 (February 14, 2007), 72 FR 8033 (February 22, 2007) (SR–NYSE–2006–120); Securities Exchange Act Release No. 67564 (August 1, 2012), 77 FR 47161) (SR–NYSE–2012–17; SR– NYSEArca–2012–59; SR–NYSEMKT–2012–07). 6 As discussed above, the categories also govern the classification of members of committees of NASDAQ OMX, as provided for in the By-Laws. 1 15 32 17 77137 Sfmt 4703 E:\FR\FM\31DEN1.SGM 31DEN1 77138 Federal Register / Vol. 77, No. 250 / Monday, December 31, 2012 / Notices of a broker or dealer, and the broker or dealer accounts for more than five percent of the gross revenues received by the consolidated entity; (3) Owns more than five percent of the equity securities of any broker or dealer, whose investments in brokers or dealers exceed ten percent of his or her net worth, or whose ownership interest otherwise permits him or her to be engaged in the dayto-day management of a broker or dealer; (4) Provides professional services to brokers or dealers, and such services constitute 20 percent or more of the professional revenues received by the Director or 20 percent or more of the gross revenues received by the Director’s firm or partnership; (5) Provides professional services to a director, officer, or employee of a broker, dealer, or corporation that owns 50 percent or more of the voting stock of a broker or dealer, and such services relate to the director’s, officer’s, or employee’s professional capacity and constitute 20 percent or more of the professional revenues received by the Director or 20 percent or more of the gross revenues received by the Director’s firm or partnership; or (6) Has a consulting or employment relationship with or provides professional services to the Corporation or any affiliate 7 thereof (including any Self-Regulatory Subsidiary) or to the Financial Industry Regulatory Authority (‘‘FINRA’’) (or any predecessor) or has had any such relationship or provided any such services at any time within the prior three years. mstockstill on DSK4VPTVN1PROD with Thus, the current definition focuses on a Director’s affiliation with any broker-dealer, regardless of whether the broker-dealer is a member or member organization of a Self-Regulatory Subsidiary. The definition also features a three-year ‘‘look-back’’ period during which a Director formerly associated with a broker-dealer would continue to be deemed an Industry Director. In lieu of this definition, NASDAQ OMX is proposing to adopt a definition that focuses on whether a Director is affiliated with a member or a member organization of a Self-Regulatory Subsidiary. Under the revised definition, an Industry Director will be defined as a Director who: (1) Is, or within the last year was, or has an immediate family member 8 who 7 NASDAQ OMX is adding a definition of ‘‘affiliate’’ as follows: ‘‘An ‘affiliate’ of, or a person ‘affiliated’ with, a specified person, is a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified.’’ The definition is identical to the definition of the term in SEC Rule 12b–2, 17 CFR 240.12b–2. 8 NASDAQ OMX is adding a definition of ‘‘immediate family member’’ as follows: ‘‘Immediate family member’ means a person’s spouse, parents, children and siblings, whether by blood, marriage or adoption, or anyone residing in such person’s home.’’ The definition is identical to the definition of ‘‘family member’’ contained in NASDAQ listing standards, as provided in NASDAQ Rule 5605. VerDate Mar<15>2010 21:28 Dec 28, 2012 Jkt 229001 is, or within the last year was, a member of a Self-Regulatory Subsidiary; 9 (2) Is, or within the last year was, employed by a member or a member organization of a Self-Regulatory Subsidiary; 10 (3) Has an immediate family member who is, or within the last year was, an executive officer of a member or a member organization 11 of a SelfRegulatory Subsidiary; (4) Has within the last year received from any member or member organization of a Self-Regulatory Subsidiary more than $100,000 per year in direct compensation, or received from such members or member organizations in the aggregate an amount of direct compensation that in any one year is more than 10 percent of the Director’s annual gross compensation for such year, excluding in each case 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); or (5) Is affiliated, directly or indirectly, with a member or member organization of a Self-Regulatory Subsidiary. NASDAQ OMX believes that the change is warranted to ensure that the definition of Industry Director is appropriately focused on the mitigation of potential conflicts of interest associated with Directors who are currently or were very recently employed by members or member organizations of Self-Regulatory Subsidiaries, or that otherwise have material affiliations with such members or member organizations. The current definition covers individuals who are employed by broker-dealers that are not members of Self-Regulatory Subsidiaries, or who retired from service at a broker-dealer more than one, but less than three years in the past. NASDAQ OMX and the Exchange believe that by deeming such potential Directors to be Industry Directors, the current By-Laws unnecessarily restrict highly qualified individuals with extensive knowledge of the financial 9 This provision would apply to an individual that was a member of Phlx, the only Self-Regulatory Subsidiary that allows natural persons to become members. 10 A broker-dealer that is admitted to membership in Phlx is referred to as a ‘‘member organization;’’ broker-dealers admitted to membership in the other Self-Regulatory Subsidiaries are referred to as ‘‘members.’’ 11 An ‘‘Executive Officer’’ of a member or member organization means those officers covered in Rule 16a–1(f) under the Act, as if the member or member organization were an issuer within the meaning of such Rule. 17 CFR 240.16a–1(f). PO 00000 Frm 00136 Fmt 4703 Sfmt 4703 services industry from serving on the Board. In addition to this change, NASDAQ OMX is also proposing the following additional changes to the definitions applicable to categories of Directors: (1) NASDAQ OMX proposes a new definition of ‘‘Staff Director.’’ Currently, the definition of ‘‘Staff Director’’ is included within the definition of ‘‘Industry Director,’’ and is defined as ‘‘any two officers of the Corporation, selected at the sole discretion of the Board, amongst those officers who may be serving as Directors.’’ By virtue of being designated as Staff Directors, these Directors are not considered to be Industry Directors for purposes of the compositional requirements of the ByLaws. Instead, NASDAQ OMX proposes a separate definition of ‘‘Staff Director’’ as ‘‘an officer of the Corporation that is serving as a Director.’’ 12 As discussed below, however, Section 4.3 of the ByLaws is to be amended to provide that only one Staff Director may serve on the Board, unless the Board consists of ten or more Directors, in which case no more than two Staff Directors may serve. Thus, the change will further restrict the number of possible Staff Directors in instances where the Board is smaller than ten Directors, while retaining the current limit for a larger Board. (2) NASDAQ OMX is adopting a new definition of ‘‘Issuer Director’’ and ‘‘Issuer committee member’’. The ByLaws currently provide that the number of ‘‘Non-Industry Directors’’ (i.e., Directors who are not Industry Directors) must equal or exceed the number of Industry Directors, and shall include at least one ‘‘issuer representative,’’ unless the Board consists of ten or more Directors, in which case it must include at least two issuer representatives. NASDAQ OMX and the Exchange believe that requiring the representation of issuers on the Board is consistent with the goal of promoting a diversity of viewpoints and skills among Directors and the requirement of Section 6(b)(3) of the Act 13 to provide for representation of issuers among the directors of a national securities exchange. The term ‘‘issuer representative’’ is not directly defined in the By-Laws, but is implicitly defined in the definition of ‘‘Non-Industry Director’’ as ‘‘an officer, director, or 12 The definition of ‘‘Industry Director’’ will continue to exclude Staff Directors, who might otherwise be considered Industry Directors by virtue of affiliation with NASDAQ Exchange Services LLC and NASDAQ Options Services, LLC, registered broker-dealers that are members or NASDAQ and BX and member organizations of Phlx. 13 15 U.S.C. 78f(b)(3). E:\FR\FM\31DEN1.SGM 31DEN1 mstockstill on DSK4VPTVN1PROD with Federal Register / Vol. 77, No. 250 / Monday, December 31, 2012 / Notices employee of an issuer of securities listed on a national securities exchange operated by any Self-Regulatory Subsidiary.’’ The new proposed definition is ‘‘a Director (excluding any Staff Director) or committee member who is an officer or employee of an issuer of securities listed on a national securities exchange operated by any Self-Regulatory Subsidiary, excluding any Director or committee member who is a director of such an issuer but is not also an officer or employee of such an issuer.’’ The exclusion of Staff Directors from the definition is necessary because NASDAQ OMX is listed on NASDAQ, but the purposes of the By-Laws in requiring issuer representation to promote a diversity of viewpoints among Directors would not be well served by deeming Staff Directors also to be Issuer Directors. The definition is also being changed to exclude persons who are directors of issuers but not also officers or employees. This change is intended to make it clear that a Director is not barred from being considered a Public Director 14 merely because the Director serves as an independent director of another listed company. (3) The definition of ‘‘Public Director’’ and ‘‘Public committee member’’ is being restated as follows: ‘‘a Director or committee member who (1) Is not an Industry Director or Industry committee member, (2) is not an Issuer Director or Issuer committee member, and (3) has no material business relationship with a member or member organization of a Self-Regulatory Subsidiary, the Corporation or its affiliates, or FINRA.’’ The definition currently covers a person who ‘‘has no material business relationship with a broker or dealer, the Corporation or its affiliates, or FINRA.’’ Thus, the changes make it clear that any Industry Director or Issuer Director would not be considered a Public Director. As noted above, however, an independent director of an issuer of securities listed on NASDAQ could be considered a Public Director. In addition, in keeping with the change to the definition of Industry Director discussed above, the final clause of the definition is being revised to focus on the existence of a material business relationship with a member or member organization of a Self-Regulatory Subsidiary, rather than any broker or dealer. Thus, for example, a Director that had a material business relationship with a non-U.S. broker or dealer that was not a member or a member organization of a Self-Regulatory 14 The definition of Public Director is discussed below. VerDate Mar<15>2010 21:28 Dec 28, 2012 Jkt 229001 Subsidiary might be eligible to be a Public Director. (4) The definition of ‘‘Non-Industry Director’’ or ‘‘Non-Industry committee member’’ is proposed to be amended to cover any ‘‘Director (excluding any Staff Director) or committee member who is (1) A Public Director or Public committee member; (2) an Issuer Director or Issuer committee member; or (3) any other individual who would not be an Industry Director or Industry committee member.’’ The revised definition is generally consistent with the current definition, but reflects the adoption of a definition for ‘‘Issuer Director or Issuer committee member’’. (5) NASDAQ OMX is making conforming changes to the letter designations of paragraphs in Article I of the By-Laws. Qualifications of Directors NASDAQ OMX is proposing to amend Section 4.3 of the By-Laws, which governs the qualifications and compositional requirements of the Board of Directors, to (i) Increase the required number of Public Directors from one to two, (ii) replace the requirement to include at least one issuer representative (or at least two issuer representatives if the Board consists of ten or more Directors) with a requirement to include at least one, but no more than two, Issuer Directors, and (iii) provide that the number of Staff Directors may not exceed one, unless the Board consists of ten or more Directors, in which case the number may not exceed two. The section will continue to require that the number of Non-Industry Directors equals or exceeds the number of Industry Directors. Although these changes will not significantly modify the Board’s compositional requirements, they will continue to ensure a diversity of representation among Industry, Staff, Issuer, and Public Directors, will place more stringent caps on the number of Issuer and Staff Directors, and will increase the requirement for Public Directors. NASDAQ OMX also proposes to make a conforming change to add the term ‘‘Issuer Director’’ to Section 4.8 and Section 4.13(h), which govern the filling of vacancies on the Board and the determination of Directors’ qualifications by NASDAQ OMX’s Secretary. The changes to the compositional requirements imposed specifically by the By-Laws do not alter in any respect the compositional requirements imposed by NASDAQ listing standards on NASDAQ OMX as a public company. Specifically, NASDAQ Rule 5605 requires that the board of directors of a PO 00000 Frm 00137 Fmt 4703 Sfmt 4703 77139 company listed on NASDAQ must have a majority of directors that are ‘‘independent’’ within the meaning of that rule. As provided in NASDAQ Rule 5605(a)(2) with respect to a company listed on NASDAQ (a ‘‘Company’’), ’’ ‘Independent Director’ means a person other than an Executive Officer 15 or employee of the Company or any other individual having a relationship which, in the opinion of the Company’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.’’ The rule goes on to provide that directors having certain defined relationships with a Company may not be considered independent. Thus, while Staff Directors are clearly not independent within the meaning of Rule 5605, other Directors may or may not be considered independent, depending on the specific facts of their relationship to NASDAQ OMX. The proposed rule change does not alter in any respect the obligations of the NASDAQ OMX Board under NASDAQ Rule 5605. Composition of Executive Committee NASDAQ OMX is proposing a minor amendment to the compositional requirements of its Executive Committee. Currently, Section 4.13(d) of the By-Laws provides that the percentage of Public Directors on the Executive Committee must be at least as great as the percentage of Public Directors on the whole Board. As noted above, however, the By-Laws currently require only one Public Director on the whole Board (a requirement that NASDAQ OMX is proposing to raise to two Public Directors). Thus, the ByLaws currently reflect a standard under which voluntary inclusion of additional Public Directors on the full Board translates into a requirement to include ever increasing numbers of Public Directors on the Executive Committee, even though the requirements for the full Board itself may be satisfied with only one Public Director. Accordingly, NASDAQ OMX is proposing to make the requirements consistent by requiring at least two Public Directors on the Executive Committee. Composition of the Audit Committee Earlier this year, the Commission approved changes to the provisions of NASDAQ OMX’s By-Laws pertaining to the composition of the Management Compensation Committee of its Board of Directors. NASDAQ OMX is now proposing comparable changes to the 15 NASDAQ Rule 5605(a)(1) provides that ’’ ‘Executive Officer’ means those officers covered in Rule 16a–1(f) under the Act.’’ 17 CFR 240.16a–1(f). E:\FR\FM\31DEN1.SGM 31DEN1 77140 Federal Register / Vol. 77, No. 250 / Monday, December 31, 2012 / Notices mstockstill on DSK4VPTVN1PROD with compositional requirements of its Audit Committee. Specifically, NASDAQ OMX is proposing to amend Section 4.13(g) to replace a requirement that the Audit Committee be composed of a majority of Non-Industry Directors with a requirement that the number of NonIndustry Directors on the committee equal or exceed the number of Industry Directors. Thus, in the case of a committee composed of four Directors, the current By-Law provides that only one Director may be an Industry Director, while the amended By-Law would allow up to two Directors to be Industry Directors. The proposed compositional requirement for the committee with regard to the balance between Industry Directors and NonIndustry Directors would be the same as that already provided for in the By-Laws with respect to the Executive Committee, the Nominating and Governance Committee, the Management Compensation Committee, and the full Board of Directors. NASDAQ OMX and the Exchange believe that the change will provide greater flexibility to NASDAQ OMX with regard to populating a committee that includes Directors with relevant expertise and that is not excessively large in relation to the size of the full Board of Directors, while continuing to ensure that Directors associated with members and member organizations of the Self-Regulatory Subsidiaries do not exert disproportionate influence of the governance of NASDAQ OMX. As required by Section 10A of the Act,16 SEC Rule 10A–3 thereunder,17 and NASDAQ Rule 5605(c), the committee would continue at all times to be composed solely of Directors who are independent within the meaning of those provisions. 2. Statutory Basis BX believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,18 in general, and with Sections 6(b)(1) and (b)(5) of the Act,19 in particular, in that the proposal enables BX to be so organized and to have the capacity to be able to carry out the purposes of the Act and to comply with and enforce compliance by members and persons associated with members with provisions of the Act, the rules and regulations thereunder, and BX rules, and is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation 16 15 U.S.C. 78j–1. CFR 240.10A–3. 18 15 U.S.C. 78f. 19 15 U.S.C. 78f(b)(1), (5). 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. In particular, BX believes that the change to the definition of Industry Director is warranted to ensure that it is appropriately focused on the mitigation of potential conflicts of interest associated with Directors who are currently or were very recently employed by members or member organizations of Self-Regulatory Subsidiaries, or that otherwise have material affiliations with such members or member organizations, without unnecessarily restricting highly qualified individuals with extensive knowledge of the financial services industry from serving on the Board. BX further believes that the other definitional changes and the changes to the compositional requirements of the NASDAQ OMX Board and the Executive Committee will enhance the clarity of these provisions and promote a diversity of backgrounds and viewpoints on the NASDAQ OMX Board. The Exchange believes that these changes will collectively promote the capacity of the NASDAQ OMX Board to fulfill its responsibilities. With respect to the proposed changes to the Audit Committee’s compositional requirements, BX believes that the change will provide greater flexibility to NASDAQ OMX with regard to populating a committee that includes Directors with relevant expertise and that is not excessively large in relation to the size of the full Board of Directors, while continuing to ensure that Directors associated with members and member organizations of Self-Regulatory Subsidiaries do not exert disproportionate influence of the governance of NASDAQ OMX. The change would not affect NASDAQ OMX’s compliance with Section 10A of the Act,20 SEC Rule 10A–3 thereunder,21 and NASDAQ Rule 5605(c), as the committee would continue at all times to be composed solely of Directors who are independent within the meaning of those provisions. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not 17 17 VerDate Mar<15>2010 21:28 Dec 28, 2012 20 15 21 17 Jkt 229001 PO 00000 U.S.C. 78j–1. CFR 240.10A–3. Frm 00138 Fmt 4703 Sfmt 4703 necessary or appropriate in furtherance of the purposes [sic] the Act. Specifically, the Exchange believes that the By-Laws of its holding company, NASDAQ OMX, do not directly affect competition between the Exchange and others that provide the same goods and services as the Exchange, since they do not affect the availability or pricing of such goods and services. To the extent that the proposed change to the By-Laws may be construed to have any bearing on competition, the Exchange believes that the change will promote competition between the Exchange and the subsidiaries of NYSE Euronext, since the change will allow NASDAQ OMX to have greater flexibility in the selection of its Directors in a manner similar to the flexibility available to NYSE Euronext under its Independence Policy. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 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 Exchange consents, the Commission shall: (a) by order approve or disapprove such proposed rule change, or (b) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–BX–2012–075 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, E:\FR\FM\31DEN1.SGM 31DEN1 Federal Register / Vol. 77, No. 250 / Monday, December 31, 2012 / Notices 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–BX–2012–075. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street, NE., Washington, DC 20549–1090, 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 offices of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–BX– 2012–075, and should be submitted on or before January 22, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.22 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–31245 Filed 12–28–12; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–68515; File No. SR– NASDAQ–2012–137] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of a Proposed Rule Change and Amendment No. 1 Thereto to Establish the Market Quality Program mstockstill on DSK4VPTVN1PROD with December 21, 2012. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 22 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Mar<15>2010 21:28 Dec 28, 2012 Jkt 229001 notice is hereby given that on December 7, 2012, The NASDAQ Stock Market LLC (‘‘NASDAQ’’ or ‘‘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 Items have been prepared by the Exchange. On December 20, 2012, the Exchange submitted Amendment No. 1 to the proposed rule change, which replaces and supersedes the proposed rule change in its entirety. The Commission is publishing this notice to solicit comments on the proposed rule change, as modified by Amendment No. 1 thereto, from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change NASDAQ is filing with the Commission a proposal to add new Rule 5950 (Market Quality Program) to enable market makers that voluntarily commit to and do in fact enhance the market quality (quoted spread and liquidity) of certain securities listed on the Exchange to qualify for a fee credit pursuant to the Exchange’s Market Quality Program and to exempt the Market Quality Program from Rule 2460 (Payment for Market Making). NASDAQ believes this voluntary program will benefit investors, issuers or companies, and market participants by significantly enhancing the quality of the market and trading in such listed securities. The Market Quality Program set forth in Rule 5950 will be effective for a one year pilot period beginning from the date of implementation of the program. During the pilot, NASDAQ will periodically provide information to the Commission about market quality in respect of the Market Quality Program. The text of the proposed rule change is available from NASDAQ’s Web site at https://nasdaq.cchwallstreet.com/ Filings/, at NASDAQ’s principal office, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, NASDAQ 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. NASDAQ has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. PO 00000 Frm 00139 Fmt 4703 Sfmt 4703 77141 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose This Amendment No.1 to SR– NASDAQ–2012–137 replaces and supercedes [sic] SR–NASDAQ–2012– 137 in its entirety.3 The purpose of the filing is to propose new Rule 5950 to enable Market Makers 4 that enhance the market quality of certain securities listed on the Exchange (known as ‘‘targeted securities’’) and thereby qualify for a fee credit pursuant to the Market Quality Program (‘‘MQP’’ or ‘‘Program’’) and to exempt the Program from Rule 2460. Proposed Rule 5950 will be effective for a one year pilot period. The pilot period will commence when the Market Quality Program is implemented by the Exchange and an MQP Company,5 on behalf of an MQP security, and one or more related Market Makers are accepted into the MQP in respect of a security listed pursuant to the Program (‘‘MQP Security’’).6 The pilot program will, unless extended, end one year after implementation.7 During the pilot, the 3 SR–NASDAQ–2012–137 replaced SR– NASDAQ–2012–043, which was withdrawn by the Exchange. See Securities Exchange Act Release Nos. 66765 (April 6, 2012), 77 FR 22042 (April 12, 2012)(SR–NASDAQ–2012–043)(notice of filing); and 68378 (December 6, 2012), 77 FR 74042 (December 12, 2012)(notice of withdrawal). Attached hereto is Exhibit 4 that reflects the changes made to Exhibit 5. The Commission notes that Exhibit 4 is attached to the filing, not to this Notice. 4 The term ‘‘Market Maker’’ is defined in Rule 5005(a)(24) as a dealer that, with respect to a security, holds itself out (by entering quotations in the NASDAQ Market Center) as being willing to buy and sell such security for its own account on a regular and continuous basis and that is registered as such. 5 The term ‘‘MQP Company’’ is defined in proposed Rule 5950(e)(5) as the trust or company housing the Exchange Traded Fund or, if the Exchange Traded Fund is not a series of a trust or company, then the Exchange Traded Fund itself. MQP Fees for MQP Securities will be paid by the Sponsors associated with the MQP Companies. The term Sponsor means the registered investment adviser that provides investment management services to an MQP Company or any of such adviser’s parents or subsidiaries. 6 The term ‘‘MQP Security’’ is defined in proposed Rule 5950(e)(1) as an Exchange Traded Fund (‘‘ETF’’) security issued by an MQP Company that meets all of the requirements to be listed on NASDAQ pursuant to Rule 5705. For the definition of ETF, see proposed Rule 5950(e)(2). 7 The Exchange believes that, based on discussions with the Financial Industry Regulatory Authority (‘‘FINRA’’), FINRA intends to file an immediately effective rule change that would exempt from FINRA Rule 5250 exchange programs that are approved by the Commission. The Exchange notes that FINRA Rule 5250 does not preclude the Exchange from any action, but precludes FINRA members (not all Exchange E:\FR\FM\31DEN1.SGM Continued 31DEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 77, Number 250 (Monday, December 31, 2012)]
[Notices]
[Pages 77137-77141]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-31245]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68514; File No. SR-BX-2012-075]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing of Proposed Rule Change with Respect to the Amendment of the By-
Laws of its Parent Corporation, The NASDAQ OMX Group, Inc.

December 21, 2012.
    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 December 19, 2012, NASDAQ OMX BX, Inc. (``BX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes a rule change with respect to the amendment 
of the by-laws of its parent corporation, The NASDAQ OMX Group, Inc. 
(``NASDAQ OMX'' or the ``Corporation''). The text of the proposed rule 
change is available at https://nasdaqomxbx.cchwallstreet.com/, at BX's 
principal office, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    NASDAQ OMX is proposing amendments to provisions of its By-Laws 
pertaining to the compositional requirements of the NASDAQ OMX Board. 
The changes are primarily focused on amending the definition of 
``Industry Director'' (and ``Industry committee member'') \3\ to make 
the definition less restrictive, but in a manner that BX believes will 
continue to serve the purpose of ensuring that members and member 
organizations of Self-Regulatory Subsidiaries \4\--the self-regulatory 
organizations owned by NASDAQ OMX--do not have disproportionate 
influence on its governance. In making the change, NASDAQ OMX is 
adapting concepts already approved by the Commission in its review of 
the Independence Policy of the NYSE Euronext Board of Directors (the 
``Independence Policy'').\5\ The proposed rule change also makes 
several other changes to provisions pertaining to the Board's 
compositional requirements and categorization of Directors.
---------------------------------------------------------------------------

    \3\ The term ``committee member'' in the By-Laws refers to 
membership in the committees authorized under Section 4.13 of the 
By-Laws, such as the Executive Committee and the Audit Committee. 
Under the By-Laws and the Delaware General Corporation Law, all 
members of committees with the power and authority to act on behalf 
of the Board in the management of the business and affairs of NASDAQ 
OMX must themselves be Directors. Accordingly, the definitions of 
``Industry Director'' and ``Industry committee member'' are 
coterminous as applied to any member of these committees. The By-
Laws do not presently contemplate any committees with non-Director 
members.
    \4\ The By-Laws define each of The NASDAQ Stock Market LLC 
(``NASDAQ''), BX, NASDAQ OMX PHLX LLC (``Phlx''), the Boston Stock 
Exchange Clearing Corporation (``BSECC''), and the Stock Clearing 
Corporation of Philadelphia (``SCCP'') as a ``Self-Regulatory 
Subsidiary''.
    \5\ Securities Exchange Act Release No. 51217 (February 16, 
2005), 70 FR 9688 (February 28, 2005) (SR-NYSE-2004-54); Securities 
Exchange Act Release No. 55293 (February 14, 2007), 72 FR 8033 
(February 22, 2007) (SR-NYSE-2006-120); Securities Exchange Act 
Release No. 67564 (August 1, 2012), 77 FR 47161) (SR-NYSE-2012-17; 
SR-NYSEArca-2012-59; SR-NYSEMKT-2012-07).
---------------------------------------------------------------------------

Definitions

    The By-Laws require Directors to be assigned to certain defined 
categories, based on their current and past affiliations.\6\ 
Specifically, Directors may be categorized as ``Industry Directors,'' 
``Non-Industry Directors,'' ``Public Directors,'' and/or ``Staff 
Directors.'' Currently, an Industry Director is defined as a Director 
who:

    \6\ As discussed above, the categories also govern the 
classification of members of committees of NASDAQ OMX, as provided 
for in the By-Laws.
---------------------------------------------------------------------------

    (1) Is or has served in the prior three years as an officer, 
director, or employee of a broker or dealer, excluding an outside 
director or a director not engaged in the day-to-day management of a 
broker or dealer;
    (2) Is an officer, director (excluding an outside director), or 
employee of an entity that owns more than ten percent of the equity

[[Page 77138]]

of a broker or dealer, and the broker or dealer accounts for more 
than five percent of the gross revenues received by the consolidated 
entity;
    (3) Owns more than five percent of the equity securities of any 
broker or dealer, whose investments in brokers or dealers exceed ten 
percent of his or her net worth, or whose ownership interest 
otherwise permits him or her to be engaged in the day-to-day 
management of a broker or dealer;
    (4) Provides professional services to brokers or dealers, and 
such services constitute 20 percent or more of the professional 
revenues received by the Director or 20 percent or more of the gross 
revenues received by the Director's firm or partnership;
    (5) Provides professional services to a director, officer, or 
employee of a broker, dealer, or corporation that owns 50 percent or 
more of the voting stock of a broker or dealer, and such services 
relate to the director's, officer's, or employee's professional 
capacity and constitute 20 percent or more of the professional 
revenues received by the Director or 20 percent or more of the gross 
revenues received by the Director's firm or partnership; or
    (6) Has a consulting or employment relationship with or provides 
professional services to the Corporation or any affiliate \7\ 
thereof (including any Self-Regulatory Subsidiary) or to the 
Financial Industry Regulatory Authority (``FINRA'') (or any 
predecessor) or has had any such relationship or provided any such 
services at any time within the prior three years.

    \7\ NASDAQ OMX is adding a definition of ``affiliate'' as 
follows: ``An `affiliate' of, or a person `affiliated' with, a 
specified person, is a person that directly, or indirectly through 
one or more intermediaries, controls, or is controlled by, or is 
under common control with, the person specified.'' The definition is 
identical to the definition of the term in SEC Rule 12b-2, 17 CFR 
240.12b-2.
---------------------------------------------------------------------------

    Thus, the current definition focuses on a Director's affiliation 
with any broker-dealer, regardless of whether the broker-dealer is a 
member or member organization of a Self-Regulatory Subsidiary. The 
definition also features a three-year ``look-back'' period during which 
a Director formerly associated with a broker-dealer would continue to 
be deemed an Industry Director. In lieu of this definition, NASDAQ OMX 
is proposing to adopt a definition that focuses on whether a Director 
is affiliated with a member or a member organization of a Self-
Regulatory Subsidiary. Under the revised definition, an Industry 
Director will be defined as a Director who:
    (1) Is, or within the last year was, or has an immediate family 
member \8\ who is, or within the last year was, a member of a Self-
Regulatory Subsidiary; \9\
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    \8\ NASDAQ OMX is adding a definition of ``immediate family 
member'' as follows: ``Immediate family member' means a person's 
spouse, parents, children and siblings, whether by blood, marriage 
or adoption, or anyone residing in such person's home.'' The 
definition is identical to the definition of ``family member'' 
contained in NASDAQ listing standards, as provided in NASDAQ Rule 
5605.
    \9\ This provision would apply to an individual that was a 
member of Phlx, the only Self-Regulatory Subsidiary that allows 
natural persons to become members.
---------------------------------------------------------------------------

    (2) Is, or within the last year was, employed by a member or a 
member organization of a Self-Regulatory Subsidiary; \10\
---------------------------------------------------------------------------

    \10\ A broker-dealer that is admitted to membership in Phlx is 
referred to as a ``member organization;'' broker-dealers admitted to 
membership in the other Self-Regulatory Subsidiaries are referred to 
as ``members.''
---------------------------------------------------------------------------

    (3) Has an immediate family member who is, or within the last year 
was, an executive officer of a member or a member organization \11\ of 
a Self-Regulatory Subsidiary;
---------------------------------------------------------------------------

    \11\ An ``Executive Officer'' of a member or member organization 
means those officers covered in Rule 16a-1(f) under the Act, as if 
the member or member organization were an issuer within the meaning 
of such Rule. 17 CFR 240.16a-1(f).
---------------------------------------------------------------------------

    (4) Has within the last year received from any member or member 
organization of a Self-Regulatory Subsidiary more than $100,000 per 
year in direct compensation, or received from such members or member 
organizations in the aggregate an amount of direct compensation that in 
any one year is more than 10 percent of the Director's annual gross 
compensation for such year, excluding in each case 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); or
    (5) Is affiliated, directly or indirectly, with a member or member 
organization of a Self-Regulatory Subsidiary.
    NASDAQ OMX believes that the change is warranted to ensure that the 
definition of Industry Director is appropriately focused on the 
mitigation of potential conflicts of interest associated with Directors 
who are currently or were very recently employed by members or member 
organizations of Self-Regulatory Subsidiaries, or that otherwise have 
material affiliations with such members or member organizations. The 
current definition covers individuals who are employed by broker-
dealers that are not members of Self-Regulatory Subsidiaries, or who 
retired from service at a broker-dealer more than one, but less than 
three years in the past. NASDAQ OMX and the Exchange believe that by 
deeming such potential Directors to be Industry Directors, the current 
By-Laws unnecessarily restrict highly qualified individuals with 
extensive knowledge of the financial services industry from serving on 
the Board.
    In addition to this change, NASDAQ OMX is also proposing the 
following additional changes to the definitions applicable to 
categories of Directors:
    (1) NASDAQ OMX proposes a new definition of ``Staff Director.'' 
Currently, the definition of ``Staff Director'' is included within the 
definition of ``Industry Director,'' and is defined as ``any two 
officers of the Corporation, selected at the sole discretion of the 
Board, amongst those officers who may be serving as Directors.'' By 
virtue of being designated as Staff Directors, these Directors are not 
considered to be Industry Directors for purposes of the compositional 
requirements of the By-Laws. Instead, NASDAQ OMX proposes a separate 
definition of ``Staff Director'' as ``an officer of the Corporation 
that is serving as a Director.'' \12\ As discussed below, however, 
Section 4.3 of the By-Laws is to be amended to provide that only one 
Staff Director may serve on the Board, unless the Board consists of ten 
or more Directors, in which case no more than two Staff Directors may 
serve. Thus, the change will further restrict the number of possible 
Staff Directors in instances where the Board is smaller than ten 
Directors, while retaining the current limit for a larger Board.
---------------------------------------------------------------------------

    \12\ The definition of ``Industry Director'' will continue to 
exclude Staff Directors, who might otherwise be considered Industry 
Directors by virtue of affiliation with NASDAQ Exchange Services LLC 
and NASDAQ Options Services, LLC, registered broker-dealers that are 
members or NASDAQ and BX and member organizations of Phlx.
---------------------------------------------------------------------------

    (2) NASDAQ OMX is adopting a new definition of ``Issuer Director'' 
and ``Issuer committee member''. The By-Laws currently provide that the 
number of ``Non-Industry Directors'' (i.e., Directors who are not 
Industry Directors) must equal or exceed the number of Industry 
Directors, and shall include at least one ``issuer representative,'' 
unless the Board consists of ten or more Directors, in which case it 
must include at least two issuer representatives. NASDAQ OMX and the 
Exchange believe that requiring the representation of issuers on the 
Board is consistent with the goal of promoting a diversity of 
viewpoints and skills among Directors and the requirement of Section 
6(b)(3) of the Act \13\ to provide for representation of issuers among 
the directors of a national securities exchange. The term ``issuer 
representative'' is not directly defined in the By-Laws, but is 
implicitly defined in the definition of ``Non-Industry Director'' as 
``an officer, director, or

[[Page 77139]]

employee of an issuer of securities listed on a national securities 
exchange operated by any Self-Regulatory Subsidiary.'' The new proposed 
definition is ``a Director (excluding any Staff Director) or committee 
member who is an officer or employee of an issuer of securities listed 
on a national securities exchange operated by any Self-Regulatory 
Subsidiary, excluding any Director or committee member who is a 
director of such an issuer but is not also an officer or employee of 
such an issuer.'' The exclusion of Staff Directors from the definition 
is necessary because NASDAQ OMX is listed on NASDAQ, but the purposes 
of the By-Laws in requiring issuer representation to promote a 
diversity of viewpoints among Directors would not be well served by 
deeming Staff Directors also to be Issuer Directors. The definition is 
also being changed to exclude persons who are directors of issuers but 
not also officers or employees. This change is intended to make it 
clear that a Director is not barred from being considered a Public 
Director \14\ merely because the Director serves as an independent 
director of another listed company.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f(b)(3).
    \14\ The definition of Public Director is discussed below.
---------------------------------------------------------------------------

    (3) The definition of ``Public Director'' and ``Public committee 
member'' is being restated as follows: ``a Director or committee member 
who (1) Is not an Industry Director or Industry committee member, (2) 
is not an Issuer Director or Issuer committee member, and (3) has no 
material business relationship with a member or member organization of 
a Self-Regulatory Subsidiary, the Corporation or its affiliates, or 
FINRA.'' The definition currently covers a person who ``has no material 
business relationship with a broker or dealer, the Corporation or its 
affiliates, or FINRA.'' Thus, the changes make it clear that any 
Industry Director or Issuer Director would not be considered a Public 
Director. As noted above, however, an independent director of an issuer 
of securities listed on NASDAQ could be considered a Public Director. 
In addition, in keeping with the change to the definition of Industry 
Director discussed above, the final clause of the definition is being 
revised to focus on the existence of a material business relationship 
with a member or member organization of a Self-Regulatory Subsidiary, 
rather than any broker or dealer. Thus, for example, a Director that 
had a material business relationship with a non-U.S. broker or dealer 
that was not a member or a member organization of a Self-Regulatory 
Subsidiary might be eligible to be a Public Director.
    (4) The definition of ``Non-Industry Director'' or ``Non-Industry 
committee member'' is proposed to be amended to cover any ``Director 
(excluding any Staff Director) or committee member who is (1) A Public 
Director or Public committee member; (2) an Issuer Director or Issuer 
committee member; or (3) any other individual who would not be an 
Industry Director or Industry committee member.'' The revised 
definition is generally consistent with the current definition, but 
reflects the adoption of a definition for ``Issuer Director or Issuer 
committee member''.
    (5) NASDAQ OMX is making conforming changes to the letter 
designations of paragraphs in Article I of the By-Laws.

Qualifications of Directors

    NASDAQ OMX is proposing to amend Section 4.3 of the By-Laws, which 
governs the qualifications and compositional requirements of the Board 
of Directors, to (i) Increase the required number of Public Directors 
from one to two, (ii) replace the requirement to include at least one 
issuer representative (or at least two issuer representatives if the 
Board consists of ten or more Directors) with a requirement to include 
at least one, but no more than two, Issuer Directors, and (iii) provide 
that the number of Staff Directors may not exceed one, unless the Board 
consists of ten or more Directors, in which case the number may not 
exceed two. The section will continue to require that the number of 
Non-Industry Directors equals or exceeds the number of Industry 
Directors. Although these changes will not significantly modify the 
Board's compositional requirements, they will continue to ensure a 
diversity of representation among Industry, Staff, Issuer, and Public 
Directors, will place more stringent caps on the number of Issuer and 
Staff Directors, and will increase the requirement for Public 
Directors. NASDAQ OMX also proposes to make a conforming change to add 
the term ``Issuer Director'' to Section 4.8 and Section 4.13(h), which 
govern the filling of vacancies on the Board and the determination of 
Directors' qualifications by NASDAQ OMX's Secretary.
    The changes to the compositional requirements imposed specifically 
by the By-Laws do not alter in any respect the compositional 
requirements imposed by NASDAQ listing standards on NASDAQ OMX as a 
public company. Specifically, NASDAQ Rule 5605 requires that the board 
of directors of a company listed on NASDAQ must have a majority of 
directors that are ``independent'' within the meaning of that rule. As 
provided in NASDAQ Rule 5605(a)(2) with respect to a company listed on 
NASDAQ (a ``Company''), '' `Independent Director' means a person other 
than an Executive Officer \15\ or employee of the Company or any other 
individual having a relationship which, in the opinion of the Company's 
board of directors, would interfere with the exercise of independent 
judgment in carrying out the responsibilities of a director.'' The rule 
goes on to provide that directors having certain defined relationships 
with a Company may not be considered independent. Thus, while Staff 
Directors are clearly not independent within the meaning of Rule 5605, 
other Directors may or may not be considered independent, depending on 
the specific facts of their relationship to NASDAQ OMX. The proposed 
rule change does not alter in any respect the obligations of the NASDAQ 
OMX Board under NASDAQ Rule 5605.
---------------------------------------------------------------------------

    \15\ NASDAQ Rule 5605(a)(1) provides that '' `Executive Officer' 
means those officers covered in Rule 16a-1(f) under the Act.'' 17 
CFR 240.16a-1(f).
---------------------------------------------------------------------------

Composition of Executive Committee

    NASDAQ OMX is proposing a minor amendment to the compositional 
requirements of its Executive Committee. Currently, Section 4.13(d) of 
the By-Laws provides that the percentage of Public Directors on the 
Executive Committee must be at least as great as the percentage of 
Public Directors on the whole Board. As noted above, however, the By-
Laws currently require only one Public Director on the whole Board (a 
requirement that NASDAQ OMX is proposing to raise to two Public 
Directors). Thus, the By-Laws currently reflect a standard under which 
voluntary inclusion of additional Public Directors on the full Board 
translates into a requirement to include ever increasing numbers of 
Public Directors on the Executive Committee, even though the 
requirements for the full Board itself may be satisfied with only one 
Public Director. Accordingly, NASDAQ OMX is proposing to make the 
requirements consistent by requiring at least two Public Directors on 
the Executive Committee.

Composition of the Audit Committee

    Earlier this year, the Commission approved changes to the 
provisions of NASDAQ OMX's By-Laws pertaining to the composition of the 
Management Compensation Committee of its Board of Directors. NASDAQ OMX 
is now proposing comparable changes to the

[[Page 77140]]

compositional requirements of its Audit Committee. Specifically, NASDAQ 
OMX is proposing to amend Section 4.13(g) to replace a requirement that 
the Audit Committee be composed of a majority of Non-Industry Directors 
with a requirement that the number of Non-Industry Directors on the 
committee equal or exceed the number of Industry Directors. Thus, in 
the case of a committee composed of four Directors, the current By-Law 
provides that only one Director may be an Industry Director, while the 
amended By-Law would allow up to two Directors to be Industry 
Directors. The proposed compositional requirement for the committee 
with regard to the balance between Industry Directors and Non-Industry 
Directors would be the same as that already provided for in the By-Laws 
with respect to the Executive Committee, the Nominating and Governance 
Committee, the Management Compensation Committee, and the full Board of 
Directors.
    NASDAQ OMX and the Exchange believe that the change will provide 
greater flexibility to NASDAQ OMX with regard to populating a committee 
that includes Directors with relevant expertise and that is not 
excessively large in relation to the size of the full Board of 
Directors, while continuing to ensure that Directors associated with 
members and member organizations of the Self-Regulatory Subsidiaries do 
not exert disproportionate influence of the governance of NASDAQ OMX. 
As required by Section 10A of the Act,\16\ SEC Rule 10A-3 
thereunder,\17\ and NASDAQ Rule 5605(c), the committee would continue 
at all times to be composed solely of Directors who are independent 
within the meaning of those provisions.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78j-1.
    \17\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

2. Statutory Basis
    BX believes that the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\18\ in general, and with Sections 
6(b)(1) and (b)(5) of the Act,\19\ in particular, in that the proposal 
enables BX to be so organized and to have the capacity to be able to 
carry out the purposes of the Act and to comply with and enforce 
compliance by members and persons associated with members with 
provisions of the Act, the rules and regulations thereunder, and BX 
rules, and is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in 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.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78f.
    \19\ 15 U.S.C. 78f(b)(1), (5).
---------------------------------------------------------------------------

    In particular, BX believes that the change to the definition of 
Industry Director is warranted to ensure that it is appropriately 
focused on the mitigation of potential conflicts of interest associated 
with Directors who are currently or were very recently employed by 
members or member organizations of Self-Regulatory Subsidiaries, or 
that otherwise have material affiliations with such members or member 
organizations, without unnecessarily restricting highly qualified 
individuals with extensive knowledge of the financial services industry 
from serving on the Board. BX further believes that the other 
definitional changes and the changes to the compositional requirements 
of the NASDAQ OMX Board and the Executive Committee will enhance the 
clarity of these provisions and promote a diversity of backgrounds and 
viewpoints on the NASDAQ OMX Board. The Exchange believes that these 
changes will collectively promote the capacity of the NASDAQ OMX Board 
to fulfill its responsibilities.
    With respect to the proposed changes to the Audit Committee's 
compositional requirements, BX believes that the change will provide 
greater flexibility to NASDAQ OMX with regard to populating a committee 
that includes Directors with relevant expertise and that is not 
excessively large in relation to the size of the full Board of 
Directors, while continuing to ensure that Directors associated with 
members and member organizations of Self-Regulatory Subsidiaries do not 
exert disproportionate influence of the governance of NASDAQ OMX. The 
change would not affect NASDAQ OMX's compliance with Section 10A of the 
Act,\20\ SEC Rule 10A-3 thereunder,\21\ and NASDAQ Rule 5605(c), as the 
committee would continue at all times to be composed solely of 
Directors who are independent within the meaning of those provisions.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78j-1.
    \21\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes [sic] the Act. Specifically, the Exchange 
believes that the By-Laws of its holding company, NASDAQ OMX, do not 
directly affect competition between the Exchange and others that 
provide the same goods and services as the Exchange, since they do not 
affect the availability or pricing of such goods and services. To the 
extent that the proposed change to the By-Laws may be construed to have 
any bearing on competition, the Exchange believes that the change will 
promote competition between the Exchange and the subsidiaries of NYSE 
Euronext, since the change will allow NASDAQ OMX to have greater 
flexibility in the selection of its Directors in a manner similar to 
the flexibility available to NYSE Euronext under its Independence 
Policy.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments were neither solicited nor received.

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

    Within 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 Exchange consents, the Commission shall: (a) by order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-BX-2012-075 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission,

[[Page 77141]]

100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-BX-2012-075. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549-1090, 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 offices of the 
Exchange. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-BX-
2012-075, and should be submitted on or before January 22, 2013.
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    \22\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-31245 Filed 12-28-12; 8:45 am]
BILLING CODE 8011-01-P

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