Self-Regulatory Organizations; International Securities Exchange, LLC; Order Approving Proposed Rule Change To Amend International Securities Exchange, LLC Amended and Restated Constitution, 17727-17729 [2013-06609]
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Federal Register / Vol. 78, No. 56 / Friday, March 22, 2013 / Notices
delay is consistent with the protection
of investors and the public interest
because such waiver would minimize
confusion among market participants
about how complex orders and stockoptions orders involving mini-options
contracts will trade.13
The Commission believes that
waiving the 30-day operative delay is
consistent with the protection of
investors and the public interest. Such
waiver would allow the Exchange to
implement the proposed rule change
prior to its launch of mini-options
contracts trading on March 22, 2013,
thereby mitigating potential investor
confusion as to how complex orders and
stock options orders involving minioptions contracts will trade. For this
reason, the Commission hereby waives
the 30-day operative delay and
designates the proposed rule change to
be operative upon filing with the
Commission.14
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
change should be approved or
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–
Phlx–2013–34 on the subject line.
srobinson on DSK4SPTVN1PROD with NOTICES
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
13 See
id.
purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
14 For
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All submissions should refer to File
Number SR–Phlx–2013–34. 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 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–Phlx–
2013–34, and should be submitted on or
before April 12, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–06608 Filed 3–21–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69164; File No. SR–ISE–
2013–07]
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Order Approving Proposed Rule
Change To Amend International
Securities Exchange, LLC Amended
and Restated Constitution
March 18, 2013.
I. Introduction
On January 13, 2013, the International
Securities Exchange, LLC (‘‘Exchange’’
or ‘‘ISE’’) filed with the Securities and
Exchange Commission (‘‘Commission’’),
pursuant to Section 19(b)(1) of the
15 17
PO 00000
CFR 200.30–3(a)(12).
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Fmt 4703
Sfmt 4703
17727
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a
proposed rule change to amend its
Amended and Restated Constitution 3
(the ‘‘ISE Constitution’’) to declassify
the Non-Industry Directors of the board
of directors, change the term of the NonIndustry Directors and the Former
Employee Director to a one-year term,
and eliminate the three-term limit for
the Former Employee Director. The
proposed rule change was published for
comment in the Federal Register on
February 1, 2013.4 The Commission
received no comments on the proposal.
This order approves the proposed rule
change.
II. Description of the Proposal
As described more fully in the Notice,
the Exchange’s proposal would amend
the ISE Constitution to: (i) Declassify the
Non-Industry Directors (including the
Public Directors) of the Board; (ii)
change the term of the Non-Industry
Directors (including the Public
Directors) and the Former Employee
Director to a one-year term, subject to
re-election; and (iii) eliminate the threeterm limit for the Former Employee
Director.
Currently, Section 3.2(c) of the ISE
Constitution requires, in part, that both
Non-Industry Directors (including the
Public Directors) 5 and Exchange
Directors 6 be classified into two classes
designated as Class I and Class II
directors, and that all Directors
(including the Former Employee
Director) 7 serve two-year terms, subject
to re-election.
ISE has proposed to amend Section
3.2(c) of the ISE Constitution to: (i)
Remove any reference to Class I
directors or Class II directors for NonIndustry Directors (including Public
Directors); and (ii) state that the NonIndustry Directors (including the Public
Directors) would hold office for a one1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Amended and Restated Constitution of
International Securities Exchange, LLC (last
amended December 28, 2007).
4 See Securities Exchange Act Release No. 68740
(January 28, 2013), 78 FR 7470 (‘‘Notice’’).
5 Section 3.2(b)(iv) of the ISE Constitution
requires that the Board be composed of eight NonIndustry Directors (at least two of which are Public
Directors) elected by the Sole LLC Member.
6 Section 3.2(b)(i)–(iii) of the ISE Constitution
requires that the Board be composed of six
Exchange Directors elected by the holders of
Exchange Rights.
7 Section 3.2(b)(vi) of the ISE Constitution allows
the Sole LLC Member, in its sole and absolute
discretion, elect one additional director who shall
meet the requirements of ‘‘Non- Industry Directors,’’
except that such person was employed by the
Exchange at any time during the three-year period
prior to his or her initial election.
2 17
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Federal Register / Vol. 78, No. 56 / Friday, March 22, 2013 / Notices
year term, subject to annual re-election
for additional terms. In the Notice, ISE
noted that the rule change would not
affect the manner of election of NonIndustry Directors (including the Public
Directors), who would continue to be
elected by the Sole LLC Member at each
annual meeting of the Sole LLC Member
and the holders of Exchange Rights in
accordance with Section 3.2 of the ISE
Constitution.
Similarly, ISE has proposed to modify
the term of the Former Employee
Director so that any such director shall
hold office for a one-year term, subject
to re-election, and to make conforming
technical changes to the applicable parts
of Section 3.2(c).
Finally, the proposal would eliminate
the three-term limit for the Former
Employee Director.8 In the Notice, ISE
observed that, with these modifications,
the Former Employee Director would
qualify to become a Non-Industry
Director after serving on the Board of
Directors for three years as he or she
would no longer have been employed by
the Exchange in the previous three-year
period after his or her initial election.
As such, according to ISE, there would
no longer be a need for the three-term
limit.
According to ISE, the declassification
of the Non-Industry Directors, and the
institution of a one-year term for NonIndustry Directors and the Former
Employee Director, subject to reelection, would allow the Exchange to
align its Board structure in accordance
with corporate governance best
practices guidelines that advocate the
repeal of classified or staggered boards
and the institution of annual elections
of directors. The best practices cited by
ISE include, but are not limited to, the
Institutional Shareholder Services Proxy
Voting Guidelines, the CalPERS Core
Principles of Accountable Corporate
Governance, the TIAA–CREF Policy
Statement on Corporate Governance,
and the AFI–CIO Proxy Voting
Guidelines. Although ISE has only one
shareholder, as opposed to many
shareholders in a public company, the
Exchange nonetheless stated its belief
that adherence to the aforementioned
corporate governance best practices
guidelines would be beneficial to the
Exchange in that they would provide for
flexibility, transparency, and
accountability for the sole shareholder
8 Section 3.2(e)(iv) of the Constitution provides
that a Former Employee Director may not serve on
the Board of Directors for more than three
consecutive terms. Any such director may be
eligible for election as a director following a twoyear hiatus from service on the Board of Directors,
provided, that he or she meets the director
qualifications pursuant to Section 3.2(b).
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and, ultimately, for the members of the
Exchange and the customers of the
Exchange members. According to ISE,
the proposed modifications to the ISE
Constitution would provide ISE with
the most flexibility to structure the
board of directors in a way that is most
effective for: (i) Attracting and keeping
Non-Industry Directors and the Former
Employee Director who provide
valuable insight and knowledge to the
Board; (ii) providing the Sole LLC
Member with the ability to evaluate and
hold accountable Non-Industry
Directors and the Former Employee
Director on an annual basis; and (iii)
removing an underperforming, inactive,
or ineffective Non-Industry Director or
Former Employee Director who may be
detrimental to the enhancement of longterm corporate value.
In the Notice, ISE noted, however,
that it was not proposing any changes to
the current requirements in the ISE
Constitution that specify that Exchange
Directors serve two-year terms in a
classified manner. The Exchange stated
its belief that the current structure
continues to be an effective and
practical mechanism for ensuring
continuity and fair representation of the
Exchange’s membership on the Board.
ISE further noted that Exchange
Directors represent the membership of
the Exchange on the Board of Directors.
Due to the connection between the
Exchange’s business and each Exchange
Director’s underlying business, ISE also
stated that it believes that Exchange
Directors provide a very different
perspective from the Non-Industry
Directors and the Former Employee
Director. Specifically, according to ISE,
Exchange Directors not only have an
interest in seeing certain Exchange
initiatives through to implementation,
but are uniquely positioned to offer
valuable feedback on such initiatives
directly to the Board of Directors. Given
the regulatory nature of the Exchange’s
business and the extended period of
time necessary to see initiatives through
to implementation, the Exchange stated
that a term longer than one year is
necessary for Exchange Directors to
achieve the full benefit of participation
of the Board. The Exchange also noted
that the classified structure of the
Exchange Directors allows for a more
consistent representation of the
Exchange’s membership on the Board of
Directors. By never having a whole slate
of new Exchange Directors join the
Board at the same time, the Exchange
stated its belief that the classified
structure allows incumbent Exchange
Directors to provide leadership and
PO 00000
Frm 00102
Fmt 4703
Sfmt 4703
continuity to new Exchange Directors
and the Board of Directors, as a whole.
As to implementation, under the
Exchange’s proposal, the
declassification changes to the Board of
Directors would be implemented
through a process in which each current
Non-Industry Director (including the
Public Directors) will serve out the
remainder of his or her two-year term,
and any subsequent election or reelection of a Non-Industry Director
(including any Public Director) vacancy
will be for a one-year term. ISE noted
that this process would result in all
Non-Industry directors being
declassified at the conclusion of the
Exchange’s 2014 annual meeting.
III. Discussion and Commission
Findings
After careful review, the Commission
finds that the proposed rule change is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a national
securities exchange.9 In particular, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(1) of the Act,10 which requires,
among other things, that an exchange be
so organized and have the capacity to be
able to carry out the purposes of the Act
and (subject to any rule or order of the
Commission pursuant to Section 17(d)
or 19(g)(2) of the Exchange Act) to
enforce compliance by its members and
persons associated with its members
with the provisions of the Exchange Act,
the rules and regulations thereunder,
and the rules of the Exchange and
consistent with Section 6(b)(5) of the
Act,11 which requires that the rules of
an exchange be designed, among other
things, to promote just and equitable
principles of trade, to prevent
fraudulent and manipulative acts, to
remove impediments to and to perfect
the mechanism for a free and open
market and a national market system,
and, in general, to protect investors and
the public interest.
ISE has proposed, in part, to
declassify the Non-Industry Directors
(including the Public Directors) of the
ISE board. The Commission finds the
declassification of the Non-Industry
Director members (including the Public
Directors) of the ISE board in the
manner proposed to be consistent with
other self-regulatory organization
9 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
10 15 U.S.C. 78f(b)(1).
11 15 U.S.C. 78f(b)(5).
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Federal Register / Vol. 78, No. 56 / Friday, March 22, 2013 / Notices
governance structures that were
approved by the Commission.12
Moreover, ISE has proposed, in part,
to change the term of the Non-Industry
Directors (including the Public
Directors) and the Former Employee
Director to a one-year term, subject to
re-election. The Commission finds the
one-year term for Non-Industry
Directors (including the Public
Directors) and for the Former Employee
Director to be consistent with the Act.
The Commission notes that the
elimination of the term limit for the
Former Employee Director will have no
practical effect on board composition at
ISE. As proposed, an ISE director who
serves as the Former Employee Director
for three years will have been, by
definition, a former employee of ISE for
those three years, and could thereby
meet the requirements to serve as a NonIndustry Director. The Commission
finds the elimination of this term limit
to be consistent with the Act.
Finally, the Commission notes that
ISE will not be making any other
changes to its governance structure
other than those specifically described
in this filing. Under the proposed rule
change, the ISE Constitution would
continue to provide that eight of the
members of the Exchange’s board of
directors—out of a maximum total of 16
members—must be non-industry
representatives. This proposed balance
with respect to the composition of the
Exchange’s Board is consistent with
other self-regulatory organization
governance structures that were
approved by the Commission,13 and the
Commission continues to believe that
this board composition is consistent
with the Act.
IV. Conclusion
srobinson on DSK4SPTVN1PROD with NOTICES
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,14 that the
proposed rule change (SR–ISE–2013–07)
be, and it hereby is, approved.
12 See Securities Exchange Act Nos. 56955
(December 13, 2007); 72 FR 71979, 71981 fn. 33
(December 19, 2007) (File No. SR–ISE–2007–101)
(approving declassification the board for ISE’s
parent, International Securities Exchange Holdings,
Inc.); 51741 (May 25, 2005); 70 FR 31558 (June 1,
2005) (File No. SR–NASD–2005–054) (approving
declassification of the board for NASD).
13 See, e.g., Securities Exchange Act Release No.
54494 (September 25, 2006), 71 FR 58023 (October
2, 2006) (File No. SR–CHX–2006–23). See also
Securities Exchange Act Release No. 56211 (August
6, 2007); 72 FR 45287 (August 13, 2007) (File No.
SR–ISE–2007–34).
14 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–06609 Filed 3–21–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69153; File No. SR–ISE–
2013–23]
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Notice of Filing and Immediate
Effectiveness of Proposed Rule
Change To Amend Its Rules Related to
Mini Options Traded on the Exchange
March 15, 2013.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on March 13,
2013, the International Securities
Exchange, LLC (the ‘‘Exchange’’ or the
‘‘ISE’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
the proposed rule change as described
in Items I and II, 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 to amend its
rules related to Mini Options traded on
the Exchange. The text of the proposed
rule change is available on the
Exchange’s Web site www.ise.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
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
self-regulatory organization has
prepared summaries, set forth in
Sections A, B and C below, of the most
significant aspects of such statements.
15 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
PO 00000
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Fmt 4703
Sfmt 4703
17729
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
ISE proposes to amend its rules
related to Mini Options traded on the
Exchange. Mini Options overlie 10
equity or ETF shares, rather than the
standard 100 shares.3 Mini Options are
currently approved on the following five
(5) underlying securities: SPDR S&P 500
ETF (‘‘SPY’’), Apple Inc. (‘‘AAPL’’),
SPDR Gold Trust (‘‘GLD’’), Google Inc.
(‘‘GOOG’’), and Amazon.com, Inc.
(‘‘AMZN’’).
The purpose of this proposed rule
change is to adopt new Supplementary
Material .13(d) to ISE Rule 504 to codify
the minimum contract threshold
requirement for the execution of Mini
Options in the Exchange’s Block Order
Mechanism and Solicited Order
Mechanism. The Block Order
Mechanism is a process by which a
Member can obtain liquidity for the
execution of block-size orders.4 Blocksize orders are orders for fifty (50) or
more contracts.5 The Solicited Order
Mechanism is a process by which an
Electronic Access Member can attempt
to execute orders of 500 or more
contracts it represents as agent against
contra orders that it solicited.6 The
minimum contract threshold required
for the Block Order Mechanism and the
Solicited Order Mechanism applies to
option contracts that overlie 100 shares
and therefore does not currently apply
to Mini Options.
This proposed rule change also
proposes to adopt a minimum contract
threshold for the execution of a
Qualified Contingent Cross Order in
Mini Options. A Qualified Contingent
Cross Order is an order to buy or sell at
least 1000 contracts that is identified as
being part of a qualified contingent
trade coupled with a contra-side order
to buy or sell an equal number of
contracts.7 Again, the minimum
contract threshold required for the
execution of a Qualified Contingent
Cross order applies to option contracts
that overlie 100 shares and therefore
does not currently apply to Mini
Options.
3 Mini Options were approved for trading on
September 28, 2012. See Securities Exchange Act
Release No. 67948 (September 28, 2012), 77 FR
60735 (October 4, 2012) (Approving SR–ISE–2012–
58). The Exchange expects to begin trading Mini
Options on March 18, 2013.
4 See ISE Rule 716(c).
5 See ISE Rule 716(a).
6 See ISE Rule 716(e).
7 See ISE Rule 715(j).
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Agencies
[Federal Register Volume 78, Number 56 (Friday, March 22, 2013)]
[Notices]
[Pages 17727-17729]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-06609]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69164; File No. SR-ISE-2013-07]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Order Approving Proposed Rule Change To Amend International
Securities Exchange, LLC Amended and Restated Constitution
March 18, 2013.
I. Introduction
On January 13, 2013, the International Securities Exchange, LLC
(``Exchange'' or ``ISE'') filed with the Securities and Exchange
Commission (``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend its Amended and Restated
Constitution \3\ (the ``ISE Constitution'') to declassify the Non-
Industry Directors of the board of directors, change the term of the
Non-Industry Directors and the Former Employee Director to a one-year
term, and eliminate the three-term limit for the Former Employee
Director. The proposed rule change was published for comment in the
Federal Register on February 1, 2013.\4\ The Commission received no
comments on the proposal. This order approves the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Amended and Restated Constitution of International
Securities Exchange, LLC (last amended December 28, 2007).
\4\ See Securities Exchange Act Release No. 68740 (January 28,
2013), 78 FR 7470 (``Notice'').
---------------------------------------------------------------------------
II. Description of the Proposal
As described more fully in the Notice, the Exchange's proposal
would amend the ISE Constitution to: (i) Declassify the Non-Industry
Directors (including the Public Directors) of the Board; (ii) change
the term of the Non-Industry Directors (including the Public Directors)
and the Former Employee Director to a one-year term, subject to re-
election; and (iii) eliminate the three-term limit for the Former
Employee Director.
Currently, Section 3.2(c) of the ISE Constitution requires, in
part, that both Non-Industry Directors (including the Public Directors)
\5\ and Exchange Directors \6\ be classified into two classes
designated as Class I and Class II directors, and that all Directors
(including the Former Employee Director) \7\ serve two-year terms,
subject to re-election.
---------------------------------------------------------------------------
\5\ Section 3.2(b)(iv) of the ISE Constitution requires that the
Board be composed of eight Non-Industry Directors (at least two of
which are Public Directors) elected by the Sole LLC Member.
\6\ Section 3.2(b)(i)-(iii) of the ISE Constitution requires
that the Board be composed of six Exchange Directors elected by the
holders of Exchange Rights.
\7\ Section 3.2(b)(vi) of the ISE Constitution allows the Sole
LLC Member, in its sole and absolute discretion, elect one
additional director who shall meet the requirements of ``Non-
Industry Directors,'' except that such person was employed by the
Exchange at any time during the three-year period prior to his or
her initial election.
---------------------------------------------------------------------------
ISE has proposed to amend Section 3.2(c) of the ISE Constitution
to: (i) Remove any reference to Class I directors or Class II directors
for Non-Industry Directors (including Public Directors); and (ii) state
that the Non-Industry Directors (including the Public Directors) would
hold office for a one-
[[Page 17728]]
year term, subject to annual re-election for additional terms. In the
Notice, ISE noted that the rule change would not affect the manner of
election of Non-Industry Directors (including the Public Directors),
who would continue to be elected by the Sole LLC Member at each annual
meeting of the Sole LLC Member and the holders of Exchange Rights in
accordance with Section 3.2 of the ISE Constitution.
Similarly, ISE has proposed to modify the term of the Former
Employee Director so that any such director shall hold office for a
one-year term, subject to re-election, and to make conforming technical
changes to the applicable parts of Section 3.2(c).
Finally, the proposal would eliminate the three-term limit for the
Former Employee Director.\8\ In the Notice, ISE observed that, with
these modifications, the Former Employee Director would qualify to
become a Non-Industry Director after serving on the Board of Directors
for three years as he or she would no longer have been employed by the
Exchange in the previous three-year period after his or her initial
election. As such, according to ISE, there would no longer be a need
for the three-term limit.
---------------------------------------------------------------------------
\8\ Section 3.2(e)(iv) of the Constitution provides that a
Former Employee Director may not serve on the Board of Directors for
more than three consecutive terms. Any such director may be eligible
for election as a director following a two-year hiatus from service
on the Board of Directors, provided, that he or she meets the
director qualifications pursuant to Section 3.2(b).
---------------------------------------------------------------------------
According to ISE, the declassification of the Non-Industry
Directors, and the institution of a one-year term for Non-Industry
Directors and the Former Employee Director, subject to re-election,
would allow the Exchange to align its Board structure in accordance
with corporate governance best practices guidelines that advocate the
repeal of classified or staggered boards and the institution of annual
elections of directors. The best practices cited by ISE include, but
are not limited to, the Institutional Shareholder Services Proxy Voting
Guidelines, the CalPERS Core Principles of Accountable Corporate
Governance, the TIAA-CREF Policy Statement on Corporate Governance, and
the AFI-CIO Proxy Voting Guidelines. Although ISE has only one
shareholder, as opposed to many shareholders in a public company, the
Exchange nonetheless stated its belief that adherence to the
aforementioned corporate governance best practices guidelines would be
beneficial to the Exchange in that they would provide for flexibility,
transparency, and accountability for the sole shareholder and,
ultimately, for the members of the Exchange and the customers of the
Exchange members. According to ISE, the proposed modifications to the
ISE Constitution would provide ISE with the most flexibility to
structure the board of directors in a way that is most effective for:
(i) Attracting and keeping Non-Industry Directors and the Former
Employee Director who provide valuable insight and knowledge to the
Board; (ii) providing the Sole LLC Member with the ability to evaluate
and hold accountable Non-Industry Directors and the Former Employee
Director on an annual basis; and (iii) removing an underperforming,
inactive, or ineffective Non-Industry Director or Former Employee
Director who may be detrimental to the enhancement of long-term
corporate value.
In the Notice, ISE noted, however, that it was not proposing any
changes to the current requirements in the ISE Constitution that
specify that Exchange Directors serve two-year terms in a classified
manner. The Exchange stated its belief that the current structure
continues to be an effective and practical mechanism for ensuring
continuity and fair representation of the Exchange's membership on the
Board. ISE further noted that Exchange Directors represent the
membership of the Exchange on the Board of Directors. Due to the
connection between the Exchange's business and each Exchange Director's
underlying business, ISE also stated that it believes that Exchange
Directors provide a very different perspective from the Non-Industry
Directors and the Former Employee Director. Specifically, according to
ISE, Exchange Directors not only have an interest in seeing certain
Exchange initiatives through to implementation, but are uniquely
positioned to offer valuable feedback on such initiatives directly to
the Board of Directors. Given the regulatory nature of the Exchange's
business and the extended period of time necessary to see initiatives
through to implementation, the Exchange stated that a term longer than
one year is necessary for Exchange Directors to achieve the full
benefit of participation of the Board. The Exchange also noted that the
classified structure of the Exchange Directors allows for a more
consistent representation of the Exchange's membership on the Board of
Directors. By never having a whole slate of new Exchange Directors join
the Board at the same time, the Exchange stated its belief that the
classified structure allows incumbent Exchange Directors to provide
leadership and continuity to new Exchange Directors and the Board of
Directors, as a whole.
As to implementation, under the Exchange's proposal, the
declassification changes to the Board of Directors would be implemented
through a process in which each current Non-Industry Director
(including the Public Directors) will serve out the remainder of his or
her two-year term, and any subsequent election or re-election of a Non-
Industry Director (including any Public Director) vacancy will be for a
one-year term. ISE noted that this process would result in all Non-
Industry directors being declassified at the conclusion of the
Exchange's 2014 annual meeting.
III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange.\9\
In particular, the Commission finds that the proposed rule change is
consistent with Section 6(b)(1) of the Act,\10\ which requires, among
other things, that an exchange be so organized and have the capacity to
be able to carry out the purposes of the Act and (subject to any rule
or order of the Commission pursuant to Section 17(d) or 19(g)(2) of the
Exchange Act) to enforce compliance by its members and persons
associated with its members with the provisions of the Exchange Act,
the rules and regulations thereunder, and the rules of the Exchange and
consistent with Section 6(b)(5) of the Act,\11\ which requires that the
rules of an exchange be designed, among other things, to promote just
and equitable principles of trade, to prevent fraudulent and
manipulative acts, to remove impediments to and to perfect the
mechanism for a free and open market and a national market system, and,
in general, to protect investors and the public interest.
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\9\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\10\ 15 U.S.C. 78f(b)(1).
\11\ 15 U.S.C. 78f(b)(5).
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ISE has proposed, in part, to declassify the Non-Industry Directors
(including the Public Directors) of the ISE board. The Commission finds
the declassification of the Non-Industry Director members (including
the Public Directors) of the ISE board in the manner proposed to be
consistent with other self-regulatory organization
[[Page 17729]]
governance structures that were approved by the Commission.\12\
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\12\ See Securities Exchange Act Nos. 56955 (December 13, 2007);
72 FR 71979, 71981 fn. 33 (December 19, 2007) (File No. SR-ISE-2007-
101) (approving declassification the board for ISE's parent,
International Securities Exchange Holdings, Inc.); 51741 (May 25,
2005); 70 FR 31558 (June 1, 2005) (File No. SR-NASD-2005-054)
(approving declassification of the board for NASD).
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Moreover, ISE has proposed, in part, to change the term of the Non-
Industry Directors (including the Public Directors) and the Former
Employee Director to a one-year term, subject to re-election. The
Commission finds the one-year term for Non-Industry Directors
(including the Public Directors) and for the Former Employee Director
to be consistent with the Act.
The Commission notes that the elimination of the term limit for the
Former Employee Director will have no practical effect on board
composition at ISE. As proposed, an ISE director who serves as the
Former Employee Director for three years will have been, by definition,
a former employee of ISE for those three years, and could thereby meet
the requirements to serve as a Non-Industry Director. The Commission
finds the elimination of this term limit to be consistent with the Act.
Finally, the Commission notes that ISE will not be making any other
changes to its governance structure other than those specifically
described in this filing. Under the proposed rule change, the ISE
Constitution would continue to provide that eight of the members of the
Exchange's board of directors--out of a maximum total of 16 members--
must be non-industry representatives. This proposed balance with
respect to the composition of the Exchange's Board is consistent with
other self-regulatory organization governance structures that were
approved by the Commission,\13\ and the Commission continues to believe
that this board composition is consistent with the Act.
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\13\ See, e.g., Securities Exchange Act Release No. 54494
(September 25, 2006), 71 FR 58023 (October 2, 2006) (File No. SR-
CHX-2006-23). See also Securities Exchange Act Release No. 56211
(August 6, 2007); 72 FR 45287 (August 13, 2007) (File No. SR-ISE-
2007-34).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\14\ that the proposed rule change (SR-ISE-2013-07) be, and it
hereby is, approved.
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\14\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-06609 Filed 3-21-13; 8:45 am]
BILLING CODE 8011-01-P