Justia Agencies And Commissions Securities And Exchange Commission Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change Concerning the Consolidation of the Governance Committee and Nominating Committee into a Single Committee, Changes to the Nominating Process for Directors, and Increasing the Number of Public Directors on The Options Clearing Corporation's Board of Directors, 31166-31171 [2014-12522]

Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change Concerning the Consolidation of the Governance Committee and Nominating Committee into a Single Committee, Changes to the Nominating Process for Directors, and Increasing the Number of Public Directors on The Options Clearing Corporation's Board of Directors, 31166-31171 [2014-12522]

Download as PDF 31166 Federal Register / Vol. 79, No. 104 / Friday, May 30, 2014 / Notices 19(b)(3)(A) 7 of the Act and subparagraph (f)(6) of Rule 19b–4 thereunder.8 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) 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 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: mstockstill on DSK4VPTVN1PROD with NOTICES 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–2014–37 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, Station Place, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–Phlx–2014–37. 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 the 7 15 8 17 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). VerDate Mar<15>2010 18:23 May 29, 2014 Jkt 232001 filing also will be available for inspection and copying at the principal office of Phlx. 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–2014–37 and should be submitted on or before June 20, 2014. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.9 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–12525 Filed 5–29–14; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–72242; File No. SR–OCC– 2014–09] Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change Concerning the Consolidation of the Governance Committee and Nominating Committee into a Single Committee, Changes to the Nominating Process for Directors, and Increasing the Number of Public Directors on The Options Clearing Corporation’s Board of Directors May 23, 2014. 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 May 13, 2014, The Options Clearing Corporation (‘‘OCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by OCC.3 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Clearing Agency’s Statement of the Terms of Substance of the Proposed Rule Change This proposed rule change would amend OCC’s By-Laws regarding its 9 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 OCC also filed the proposed change as an advance notice under Section 806(e)(1) of Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act titled the Payment, Clearing, and Settlement Supervision Act of 2010 (‘‘Payment, Clearing and Settlement Supervision Act’’). 12 U.S.C. 5465(e)(1). See AN–OCC–2014– 802. 1 15 PO 00000 Frm 00089 Fmt 4703 Sfmt 4703 Nominating Committee (‘‘NC’’) and the Charter for OCC’s Governance Committee (‘‘GC’’) to consolidate the two Committees into a single Governance and Nominating Committee (‘‘GNC’’), make changes to OCC’s nomination process for Directors and increase the number of Public Directors on OCC’s Board of Directors. Conforming amendments to these changes are also proposed to OCC’s Stockholders Agreement, Board of Directors Charter and Fitness Standards for Directors. II. Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, OCC 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. OCC has prepared summaries, set forth in sections (A), (B), and (C) below, of the most significant aspects of these statements. (A) Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose OCC is proposing to amend its ByLaws and Governance Committee Charter to combine the current NC and GC to establish a single GNC, make changes concerning OCC’s nomination process for Directors and to increase the number of Public Directors on OCC’s Board of Directors (‘‘Board’’). The proposed modifications are based on recommendations from the GC in the course of carrying out its mandate of reviewing the overall corporate governance of OCC and recommending improvements to the structure of OCC’s Board. In part, the GC’s recommendations stem from suggestions of an outside consultant that was retained to review and report on OCC’s governance structure in relationship to industry governance practices. To conform to these proposed changes OCC is also proposing to make certain edits to its Stockholders Agreement, Board of Directors Charter and Fitness Standards for Directors. Currently, the GC operates pursuant to its own Charter.4 The NC is not a Board level Committee and does not operate pursuant to a charter, however, provisions in Article III of OCC’s By4 Securities Exchange Act Release Nos. 71030 (Dec. 11, 2013), 78 FR 7612 (Dec. 16, 2013) (SR– OCC–2013–18); 71083 (Dec. 16, 2013), 78 FR 77182 (Dec. 20, 2013) (SR–OCC–2013–807). E:\FR\FM\30MYN1.SGM 30MYN1 Federal Register / Vol. 79, No. 104 / Friday, May 30, 2014 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES Laws prescribe certain aspects of the NC’s structure and operation. OCC is proposing to apply to the GNC many of the existing provisions of the relevant By-Laws and GC Charter that apply to the NC and GC. Where OCC is proposing amendments to the existing By-Laws and GC Charter, they are discussed below. Certain provisions of Article III govern the role the NC plays in nominating persons as Member Directors 5 on OCC’s Board as well as the composition and structure of the NC itself. The NC is required to endeavor to achieve balanced representation in its Member Director and Non-Director Member nominees, giving due consideration to business activities and geographic distribution. Presently, the NC is composed of seven total members: One Public Director and six Non-Director Members.6 The Public Director member, who is nominated by the Executive Chairman with the approval of a majority of the Board, generally serves a three year term, unless he or she ceases to be a Public Director. The six Non-Director Members nominated by the NC and selected by OCC’s stockholders are divided into two equal classes of three members, and the classes serve staggered two year terms.7 By comparison, the GC Charter requires the current GC to have not fewer than five directors and to include at least one Public Director, at least one Exchange Director, and at least one Member Director. It also provides that no Management Directors may serve on the Committee. OCC’s Board currently has 19 members consisting of nine Member Directors, five Exchange Directors, three Public Directors, who under Article III, Section 6A of OCC’s By-Laws, may not be affiliated with any national securities exchange or national securities association or any broker or dealer in securities, and OCC’s Executive Chairman and President, who are Management Directors. Based on recommendations from the GC in the 5 Under Article III, Section 2 every Member Director must be either a Clearing Member or a representative of a Clearing Member Organization. 6 Under Sections 4 and 5 of Article III, a NonDirector Member of the NC must be a representative of a Clearing Member and no person associated with the same Clearing Member Organization as a member of the NC may be nominated by the NC for a position as a Member Director on the Board of Directors or a Non-Director Member of the NC for the ensuing year. 7 This tiered structure eliminated the complete turnover of the members of the NC each year and fostered greater continuity among its elected members. Securities Exchange Act Release No. 29437 (July 12, 1991), 56 FR 33319 (July 19, 1991) (SR–OCC–91–11). VerDate Mar<15>2010 18:23 May 29, 2014 Jkt 232001 course of review of OCC’s overall corporate governance, OCC is proposing certain amendments detailed below to merge OCC’s NC, GC and their related responsibilities into a single GNC and increase the number of Public Directors from three to five. a. Proposed Amendments Common to the By-Laws and Other OCC Governance Documents Certain of the proposed changes would amend the existing By-Laws as well as other governance documents of OCC. For example, conforming edits would be made throughout the By-Laws and GC Charter to delete NC and GC references and in many cases those references would be replaced with references to the GNC. 31167 limit structure and nominations process that currently applies to the NC and its Non-Director Members and Public Director, and references to Non-Director Members would be removed from the By-Laws. Section II.A. of the GC Charter would also be amended to reflect this structure for GNC nominations and appointments. (3) Number of Public Directors and Member Directors OCC is proposing to amend its ByLaws to increase the number of Public Directors on its Board from three to five and to make certain other changes related to the overall composition of the Board and the classification and term of office of Public Directors. The proposed change in the number of Public Directors from three to five would (1) GNC Composition reconstitute OCC’s Board with a total of The new GNC would be composed of 21 directors. OCC continues to believe a minimum of three total members: At that, as indicated in OCC’s initial 1992 least one Public Director, at least one proposal to add Public Directors to its Exchange Director and at least one Board,8 Public Directors broaden the Member Director. To reflect this change, mix of viewpoints and business OCC would eliminate in Section 4 of expertise that is represented on the Article III the requirement for six NonBoard. Accordingly, OCC believes that Director Members, add requirements for the input and expertise of two more at least one Member Director and one Public Directors will further benefit Exchange Director, and modify the OCC in the administration of its affairs current requirement for one Public in respect of the markets that it serves, Director to instead require that there and in the discharge of its obligations as must be at least one Public Director. The a systemically important financial proposed composition for the GNC market utility. In addition, the decision already mirrors the existing composition to add two more Public Directors is specified in the GC Charter. Therefore, consistent with the principles discussed no changes are proposed to the current in the Commission’s recent release on GC Charter in that respect, other than standards for covered clearing the elimination of the requirements that agencies.9 In particular, the additional the GNC have no fewer than five Public Directors would facilitate OCC’s directors. That limitation would be compliance with the public interest eliminated with the goal of providing requirements of Section 17A of the Act and allow OCC to balance potentially the Board with greater flexibility to competing viewpoints of various determine the optimal size and stakeholders in its decision making. composition of the GNC, so long as the The proposed changes would remove composition also facilitates diverse a provision that currently is designed representation by satisfying the under certain conditions to proposed requirement for at least one automatically adjust the number of GNC representative from each of the Member Directors serving on the Board. Member Director, Exchange Director Article III, Section 1 requires that if the and Public Director categories. aggregate number of Exchange Directors (2) GNC Member Appointment Process and Public Directors equals at least and Term Limits nine, the total number of Member The members of the GNC would be Directors must be automatically increased to always exceed that number appointed annually by the Board from by one. This provision would be among certain Board members removed to provide the Board with recommended by the GNC after greater flexibility to be able to determine consultation with OCC’s Executive its optimal composition. OCC also Chairman, and GNC Members would proposes to make corresponding serve at the pleasure of the Board. The changes to Article III, Section 3 under GNC’s Chairman (‘‘GNC Chair’’) would be designated from among the GNC’s 8 Securities Exchange Act Release No. 30328 Public Directors. Provisions (January 31, 1992), 57 FR 4784 (February 7, 1992) implementing these changes would be (SR–OCC–1992–02). added to Section 4 of Article III to 9 Securities Exchange Act Release No. 71699 (March 12, 2014), 79 FR 16866 (March 26, 2014). entirely supplant the class and term PO 00000 Frm 00090 Fmt 4703 Sfmt 4703 E:\FR\FM\30MYN1.SGM 30MYN1 31168 Federal Register / Vol. 79, No. 104 / Friday, May 30, 2014 / Notices which it would remove provisions that provide for the classification and term of office of Member Directors where the number of Member Directors increases based on the provision in Article III, Section 1 that OCC proposes to delete. The proposed changes also remove a provision that reduces the number of Member Directors if the number is above nine and exceeds the sum of the number of Exchange Directors and the number of Public Directors by more than one, because as a result of the deletion of the above provision in Article III, Section 1, the number of Member Directors would be fixed at nine. OCC is also proposing certain amendments to its Stockholders Agreement, Board of Directors Charter and Fitness Standards for Directors, Clearing Members and Others. In each case, conforming changes would be made to recognize the merger of the Nominating Committee and Governance Committee into the GNC as a standing Committee of the Board and reflect the role it would play in OCC’s director nomination process. The proposed modifications to the Board Charter and Fitness Standards would reflect the increase in the number of Public Directors serving on the Board from three to five and the removal of the provision that currently is designed under certain conditions to automatically adjust the number of Member Directors serving on the Board. The criteria specified in the Fitness Standards for Directors, Clearing Members and Others for use in considering Member Director nominees would also be revised for consistency with the criteria proposed to be added to Article III, Section 5 designed to achieve balanced Board representation. The Stockholders Agreement also contains proposed amendments to replace the term Chairman with Executive Chairman. This parallels a separate proposed amendment by OCC to implement this change in its By-Laws and Rules, but a consolidated amendment to the Stockholders Agreement is proposed for ease of administration. mstockstill on DSK4VPTVN1PROD with NOTICES b. Proposed Amendments to By-Laws Only 18:23 May 29, 2014 Jkt 232001 (1) Balanced Representation The NC’s responsibility to endeavor to achieve balanced representation among Clearing Members on the Board would be carried over to the GNC. The proposed amendments would also add more detailed guidance for the GNC concerning how to achieve balanced Board representation. Specifically, the GNC would be required to assure that not all of the Member Directors represent the Clearing Member Organizations having the largest volume of business with OCC during the prior year and that the mix of Member Directors includes Clearing Member Organizations primarily engaged in agency trading on behalf of retail customers or individual investors. (2) Nomination and Election Process In place of the existing structure under which the NC nominates candidates to be Non-Director Members, who are not also required to be Board members, the Board would appoint members to the GNC from among the Board’s members who are recommended by the GNC. This change requires certain proposed modifications to the nomination and election process currently reflected in Article III, Section 5. Changes are also proposed that would change the deadlines for nominations of Member Directors by both the GNC and Clearing Members, and OCC would preserve the petition process by which Clearing Members may nominate additional candidates for Member Director positions on the Board. In recognition of the elimination of the concept of Non-Director Members, several provisions in Section 5 of Article III addressing the ability of stockholders to elect or nominate NonDirector Members of the NC would be deleted. In relevant part, however, these provisions would be retained to the extent they apply to the ability of stockholders under certain conditions to nominate and elect Member Directors of the Board. (3) Public Directors As explained in more detail below, certain of the proposed changes would require amendments only to OCC’s existing By-Laws. One such example is that Sections 2 and 5 of Article III would be amended to remove prohibitions against representation of the same Clearing Member Organization VerDate Mar<15>2010 on the Board and the NC.10 This barrier would be eliminated since GNC members will be selected from among the members of the Board under the new approach. Proposed changes to Section 6A of Article III would require the GNC to nominate Public Directors for election by OCC’s stockholders and to use OCC’s fitness standards in making such 10 A Clearing Member Organization is a Clearing Member that is a legal entity rather than a natural person. PO 00000 Frm 00091 Fmt 4703 Sfmt 4703 nominations. Presently, OCC’s Executive Chairman makes Public Director nominations with Board approval. Changes are also proposed to help clarify the class structure and term limits of Public Directors that are independent of changes proposed to facilitate the formation of the GNC. These changes would specify that, aside from the Class II Public Director who was elected to the Board at the 2011 annual meeting, two other Public Directors were appointed to the Board prior to its 2013 annual meeting, one designated as a Class I Public Director and the other designated as a Class III Public Director. Generally, the three year terms for Public Directors with staggered expiration for each class would be preserved, however, an exception would be added for the initial Class I and III Public Directors. The proposed changes to Article III, Section 6A would also provide for the classification of the two new Public Directors, who will be first appointed or elected after the 2014 annual meeting. One of the new Public Directors will be designated as a Class I Public Director, and the other will be designated as a Class III Public Director. The proposed changes also establish the times at which the successors of the two new Public Directors will be elected. The successor of the new Public Director that is a Class III Public Director will be elected at the 2015 annual meeting of stockholders, and the successor of the new Public Director that is a Class I Public Director will be elected at the 2016 annual meeting. (4) Disqualifications and Filling Vacancies and Newly Created Directorships The disqualification provisions in Article III, Section 11 would be revised to reflect that any determination to disqualify a director would be effective and result in a vacancy only if the GNC makes a recommendation for disqualification in addition to an affirmative vote for disqualification by a majority of the whole Board. The ByLaws currently provide that if a Member Director vacancy is filled by the Board, the person filling the vacancy will serve until the next scheduled election for the relevant class of Member Director and a successor is elected. However, if the term for that class of Member Director extends beyond the Board’s next annual meeting the vacancy must be filled by a person who is recommended by the Nominating Committee. Proposed changes to these terms in respect of the GNC would require the Board in all cases to appoint a person who is recommended by the GNC. Similarly, E:\FR\FM\30MYN1.SGM 30MYN1 Federal Register / Vol. 79, No. 104 / Friday, May 30, 2014 / Notices Public Director vacancies would be required to be filled by the Board as generally provided for in Section 6A of Article III, including with regard to candidates being nominated by the GNC using OCC’s fitness standards for directors. Provisions concerning filling vacancies with respect to the NC would be deleted, consistent with its elimination in favor of the GNC. (5) Ministerial Changes The proposed changes to Article III also include certain ministerial changes. A reference to stockholder exchanges in the interpretation and policy to Section 6 would be replaced by the defined term Equity Exchanges, and a reference in Section 14 to notice by telegram would be changed to facsimile to reflect current means of communication. c. Proposed Amendments to the GC Charter Only Certain of the proposed amendments relating to the creation of the GNC would apply only to OCC’s existing GC Charter. These amendments are discussed below. mstockstill on DSK4VPTVN1PROD with NOTICES (1) GNC Purpose The statement of purpose in the GC Charter would be revised to reflect the GNC’s larger scope of responsibilities. The existing GC purpose of reviewing the overall corporate governance of OCC would be maintained, along with language clarifying that this review would be performed on a regular basis and that recommendations concerning Board improvements should be made when necessary. The GNC Charter would also provide that the GNC assists the Board in identifying, screening and reviewing individuals qualified to serve as directors and by recommending candidates to the Board for nomination for election at the annual meeting of stockholders or to fill vacancies. The GNC Charter would also specify that the GNC would develop and recommend to the Board, and oversee the implementation of, a Board Code of Conduct. (2) GNC Membership and Organization The requirement in the GC Charter that the GC hold four meetings annually would be modified to also permit the GNC to call additional meetings as it deems appropriate.11 The GC Charter requirement for regular reporting to the Board on Committee activities by the GC chair or a designee would be revised in favor of placing the reporting responsibility solely on the GNC Chair 11 This would bring the Governance and Nominating Committee Charter in line with the Charters of OCC’s other Board Committees. VerDate Mar<15>2010 18:23 May 29, 2014 Jkt 232001 and requiring the GNC Chair to make timely reports to the Board on important issues discussed at GNC meetings. Taking into consideration certain preestablished guidelines in the GNC Charter, the GNC Chair would also be given responsibility for determining whether minutes should be recorded at any executive session. Aside from this exception for executive sessions, GNC meeting minutes would be required to be recorded. The GNC Charter would also create a position to be filled by an OCC officer who would assist the GNC and liaise between it and OCC’s staff. (3) GNC Authority As in the case of the existing GC, the GNC would have authority to inquire into any matter relevant to its purpose and responsibilities in the course of carrying out its duties. The GNC Charter would further specify that in connection with any such inquiry the GNC would have access to all books, records, facilities and personnel of OCC. Unlike the existing GC Charter, the GNC Charter would not provide express authority for the GNC to rely on members of OCC’s management for assistance. Instead, this relationship between the GNC and OCC’s management would be more specifically addressed through the role of the newly created staff liaison position. Additional revisions to the GC Charter would also establish that the GNC Chair would not have discretion to take unilateral action on behalf of the Committee, even in special circumstances. (4) Board Composition Without limiting the GNC to particular activities, the GNC Charter would specify certain responsibilities meant to guide the GNC in achieving its purposes, including with respect to its role in the development of the Board’s composition. As an overarching goal, the GNC’s Charter would require it to pursue development of a Board comprised of individuals who have a reputation for integrity and represent diverse professional backgrounds as well as a broad spectrum of experience and expertise. The GNC Charter would also prescribe more detailed responsibilities designed to further this goal. For example, the GNC would be required to conduct periodic reviews of the composition of the Board against the goal, including whether the Board reflects the appropriate balance of types of directors, business specialization, technical skills, diversity and other PO 00000 Frm 00092 Fmt 4703 Sfmt 4703 31169 qualities.12 The GNC would be required to recommend policies and procedures to the Board for identifying and reviewing Board nominee candidates, and it would implement and oversee the effectiveness of those policies, including with regard to criteria for Board nominees. Using criteria approved by the Board, the GNC would identify, screen and review persons who it determines are qualified to serve as directors. This process would also extend to incumbent directors concerning any potential re-nomination. In all cases, the GNC would only recommend candidates to the Board for nomination for election after consulting with OCC’s Executive Chairman. In the event that a sitting director offers to resign because of a change in occupation or business association, the GNC would be responsible for reviewing whether continued service is appropriate and making a recommendation of any action, consistent with OCC’s By-Laws and Rules, that should be taken by the Board. The GNC would also undertake periodic reviews of term limits for certain directors and recommend changes to these limits where appropriate. (5) Governance Practices The GNC would have responsibility for reviewing the Board’s Charter for consistency with regulatory requirements, transparency of the governance process and other sound governance practices. Currently, this is a GC function, and certain GC Charter amendments are proposed to help further detail the GNC’s review responsibilities. These include a general responsibility to recommend changes, as the GNC deems appropriate, to the Board concerning Committee Charters. This would include the GNC Charter, which the GNC would be required to review annually.13 In connection with a periodic review of Board Committee structure, the GNC would advise the Board regarding related matters of structure, operations and charters. Furthermore, and in each case after consultation with OCC’s Executive Chairman, the GNC would recommend to the Board for its approval certain directors for Committee service as well as for assignment as Committee chair persons. 12 The GNC would also review director conflicts of interest and the manner in which any such conflicts are to be monitored and resolved. 13 As part of the annual review, the GNC would also submit the GNC Charter to the Board for reapproval, including any changes the GNC deems advisable. E:\FR\FM\30MYN1.SGM 30MYN1 31170 Federal Register / Vol. 79, No. 104 / Friday, May 30, 2014 / Notices d. Fair Representation Requirement for Clearing Agencies Section 17A(b)(3)(C) of the Act requires the rules of a clearing agency to assure fair representation of its shareholders (or members) and participants 14 in the selection of its directors and administration of its affairs.15 The Act does not define fair representation but instead reserves to the Commission the authority to determine whether a clearing agency’s rules give fair voice to participants and shareholders or members in the selection of directors and administration of affairs. On this subject, the Division of Market Regulation’s Announcement of Standards for the Registration of Clearing Agencies provides that a clearing agency’s procedures concerning fair representation are evaluated on a case-by-case basis but that a clearing agency could comply with the standard, including with respect to board nominations, through the use of a nominating committee composed of and selected by participants or their representatives.16 Subsequent Commission guidance in this area also provides that the entity responsible for nominating individuals for membership on the board of directors should be obligated by by-law or rule to make nominations with a view toward assuring fair representation of the interests of shareholders and a crosssection of the community of participants.17 OCC believes for several reasons that the proposed amendments to the ByLaws and GC Charter would continue to assure fair representation of OCC’s shareholders and participants in the selection of its directors and the administration of its affairs. First, as the body responsible for nominating Member Director and Public Director candidates to OCC’s Board, the GNC would be composed of and selected by OCC’s participants and shareholders or their representatives because, along with at least one Public Director, the GNC would be composed of Board members who represent OCC’s Clearing Members and equity exchanges. Furthermore, the GNC would be obligated by OCC’s By-Laws and the GNC Charter to make nominations that serve the interests of shareholders and a cross-section of participants because it would be required to nominate candidates with a view toward: Assuring that the Board consists of, among other things, individuals who have a reputation for integrity and represent diverse professional backgrounds and a broad spectrum of experience and expertise; that not all Member Directors of the Board would represent the largest Clearing Member Organizations; and that the mix of Member Directors on the Board should include representatives of Clearing Member Organizations primarily engaged in agency trading on behalf of retail customers or individual investors. Finally, rather than prescribing pre-set term limits, OCC believes that having GNC members serve at the pleasure of the Board would help foster continuity on the GNC and thereby strengthen the quality of the representation of OCC’s 14 In relevant part, a clearing agency participant is defined in Section 3(a)(24) of the Act as ‘‘any person who uses a clearing agency to clear or settle securities transactions or to transfer, pledge, lend, or hypothecate securities. . .’’ 15 15 U.S.C. 78q–1(b)(3)(C). The statute further provides that one way of establishing that the representation of participants is fair is by affording them a reasonable opportunity to acquire voting stock of the clearing agency in reasonable proportion to their use. 16 Securities Exchange Act Release No. 16900 (June 17, 1980), 45 FR 41 (June 23, 1980) (citing in relevant part Securities Exchange Act Release 14531 (March 6, 1978), 43 FR 10288, 10291 (March 10, 1978) regarding proposed Commission-level standards for clearing agency registration). The Division of Market Regulation is now known as the Division of Trading and Markets. 17 Securities Exchange Act Release No. 20221 (September 23, 1983), 48 FR 45167, 45172 (October 3, 1983) (Depository Trust Co., et. al.; Order). The GNC would develop and recommend to the Board the annual process used by the Board and Board Committees for self-evaluation of their role and performance in the governance of OCC. The GNC would also be responsible for coordinating and providing oversight of that process. Corporate governance principles applicable to OCC would be developed by the GNC for recommendation to the Board, and the GNC would review them at least once a year. mstockstill on DSK4VPTVN1PROD with NOTICES (6) Other Proposed GC Charter Amendments The GNC Charter would require the Committee to regularly evaluate its performance and the performance of its individual members and provide results of such assessments to the Board. It would also require an annual report to be prepared by the GNC and delivered to the Board regarding the GNC’s activities for the preceding year, and the GNC would be required to include a statement that it carried out all of its GNC Charter responsibilities. In addition to such responsibilities, the GNC would generally be empowered to perform any other duties that it deems necessary or appropriate and consistent with the GNC Charter or as may otherwise be further delegated to it by the Board. VerDate Mar<15>2010 18:23 May 29, 2014 Jkt 232001 PO 00000 Frm 00093 Fmt 4703 Sfmt 4703 participants and shareholders in the administration of its affairs. 2. Statutory Basis OCC believes the proposed rule change is consistent with Section 17A(b)(3)(C) of the Act,18 and the rules and regulations thereunder because by creating the GNC and requiring it to in part be composed of and selected by representatives of OCC’s participants and also requiring it to nominate candidates to the Board with a view toward, among other things, assuring diverse professional backgrounds and a broad spectrum of experience and expertise, the proposed changes would help assure fair representation of OCC’s shareholders and participants in the selection of OCC’s directors and the administration of its affairs. OCC also believes the proposed rule change is consistent with Rule 17Ad–22(d)(8) 19 because by, among other things, creating a framework that requires the GNC to be composed of representatives of at least one Member Director, Exchange Director and Public Director, requiring the GNC to endeavor to develop a Board that represents a broad range of skills and experience and increasing the number of Public Directors the proposed changes would help ensure that OCC continues to have clear and transparent governance arrangements that fulfill the public interest requirements of Section 17A of the Act, support the objectives of OCC’s owners and participants and promote the effectiveness of OCC’s risk management procedures. The proposed rule change is not inconsistent with the existing rules of OCC, including any other rules proposed to be amended. (B) Clearing Agency’s Statement on Burden on Competition OCC does not believe that the proposed rule change would impose any burden on competition.20 Changes to the rules of a clearing agency may have an impact on the participants in a clearing agency, their customers, and the markets that the clearing agency serves. This proposed rule change primarily affects certain Clearing Members and participant exchanges, through their respective representative directors, in terms of how they would participate in OCC’s governance process on the Board and Board Committees. For example, OCC believes that the proposed formation of the GNC would help to consolidate and improve the efficiency of Board level action regarding roles and responsibilities that 18 15 U.S.C. 78q–1(b)(3)(C). CFR 240.17Ad–22(d)(8). 20 15 U.S.C. 78q–1(b)(3)(I). 19 17 E:\FR\FM\30MYN1.SGM 30MYN1 Federal Register / Vol. 79, No. 104 / Friday, May 30, 2014 / Notices are related but are currently performed separately by the NC and GC and that adding two Public Directors to the Board would broaden the mix of viewpoints and business expertise that informs the administration of OCC’s affairs with respect to the markets that it serves. These proposed modifications would not disadvantage or favor any particular user in relationship to another user because they relate to the overarching governance structure of OCC that affects all users and does not relate directly to any particular service or particular use of OCC’s facilities. For the foregoing reasons, OCC believes that the proposed rule change is in the public interest, would be consistent with the requirements of the Act applicable to clearing agencies and would not impose a burden on competition. (C) Clearing Agency’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments on the proposed rule change were not and are not intended to be solicited with respect to the proposed rule change and none have been 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 up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove such proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. The proposal shall not take effect until all regulatory actions required with respect to the proposal are completed.21 mstockstill on DSK4VPTVN1PROD with NOTICES 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– OCC–2014–09 on the subject line. also filed the proposed rule change as an advance notice under Section 806(e)(1) of the Payment, Clearing and Settlement Supervision Act. See supra note 3. VerDate Mar<15>2010 18:23 May 29, 2014 Jkt 232001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–72239; File No. SR–BX– 2014–026] Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Routing Fees May 23, 2014. All submissions should refer to File Number SR–OCC–2014–09. 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 the filing also will be available for inspection and copying at the principal office of OCC and on OCC’s Web site: https://www.theocc.com/components/ docs/legal/rules_and_bylaws/sr_occ_14_ 09.pdf. 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–OCC–2014–09 and should be submitted on or before June 20, 2014. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.22 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–12522 Filed 5–29–14; 8:45 am] 21 OCC 31171 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 May 16, 2014, NASDAQ OMX BX, Inc. (‘‘BX’’ 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. 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 proposed to amend Chapter XV, Section 2 entitled ‘‘BX Options Market—Fees and Rebates’’. Specifically, the Exchange is proposing to amend Routing Fees. While the changes proposed herein are effective upon filing, the Exchange has designated that the amendments be operative on June 2, 2014. The text of the proposed rule change is available on the Exchange’s Web site at https://nasdaqomxbx.cchwallstreet. 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 Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. BILLING CODE 8011–01–P 1 15 22 17 PO 00000 CFR 200.30–3(a)(12). Frm 00094 Fmt 4703 Sfmt 4703 2 17 U.S.C. 78s(b)(1). CFR 240.19b–4. E:\FR\FM\30MYN1.SGM 30MYN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 79, Number 104 (Friday, May 30, 2014)]
[Notices]
[Pages 31166-31171]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-12522]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72242; File No. SR-OCC-2014-09]


Self-Regulatory Organizations; The Options Clearing Corporation; 
Notice of Filing of Proposed Rule Change Concerning the Consolidation 
of the Governance Committee and Nominating Committee into a Single 
Committee, Changes to the Nominating Process for Directors, and 
Increasing the Number of Public Directors on The Options Clearing 
Corporation's Board of Directors

May 23, 2014.
    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 May 13, 2014, The Options Clearing Corporation (``OCC'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I and II below, which Items have been 
prepared by OCC.\3\ The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ OCC also filed the proposed change as an advance notice 
under Section 806(e)(1) of Title VIII of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act titled the Payment, Clearing, and 
Settlement Supervision Act of 2010 (``Payment, Clearing and 
Settlement Supervision Act''). 12 U.S.C. 5465(e)(1). See AN-OCC-
2014-802.
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I. Clearing Agency's Statement of the Terms of Substance of the 
Proposed Rule Change

    This proposed rule change would amend OCC's By-Laws regarding its 
Nominating Committee (``NC'') and the Charter for OCC's Governance 
Committee (``GC'') to consolidate the two Committees into a single 
Governance and Nominating Committee (``GNC''), make changes to OCC's 
nomination process for Directors and increase the number of Public 
Directors on OCC's Board of Directors. Conforming amendments to these 
changes are also proposed to OCC's Stockholders Agreement, Board of 
Directors Charter and Fitness Standards for Directors.

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

    In its filing with the Commission, OCC 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. OCC has prepared summaries, set forth in sections (A), 
(B), and (C) below, of the most significant aspects of these 
statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis 
for, the Proposed Rule Change

1. Purpose
    OCC is proposing to amend its By-Laws and Governance Committee 
Charter to combine the current NC and GC to establish a single GNC, 
make changes concerning OCC's nomination process for Directors and to 
increase the number of Public Directors on OCC's Board of Directors 
(``Board''). The proposed modifications are based on recommendations 
from the GC in the course of carrying out its mandate of reviewing the 
overall corporate governance of OCC and recommending improvements to 
the structure of OCC's Board. In part, the GC's recommendations stem 
from suggestions of an outside consultant that was retained to review 
and report on OCC's governance structure in relationship to industry 
governance practices. To conform to these proposed changes OCC is also 
proposing to make certain edits to its Stockholders Agreement, Board of 
Directors Charter and Fitness Standards for Directors.
    Currently, the GC operates pursuant to its own Charter.\4\ The NC 
is not a Board level Committee and does not operate pursuant to a 
charter, however, provisions in Article III of OCC's By-

[[Page 31167]]

Laws prescribe certain aspects of the NC's structure and operation. OCC 
is proposing to apply to the GNC many of the existing provisions of the 
relevant By-Laws and GC Charter that apply to the NC and GC. Where OCC 
is proposing amendments to the existing By-Laws and GC Charter, they 
are discussed below.
---------------------------------------------------------------------------

    \4\ Securities Exchange Act Release Nos. 71030 (Dec. 11, 2013), 
78 FR 7612 (Dec. 16, 2013) (SR-OCC-2013-18); 71083 (Dec. 16, 2013), 
78 FR 77182 (Dec. 20, 2013) (SR-OCC-2013-807).
---------------------------------------------------------------------------

    Certain provisions of Article III govern the role the NC plays in 
nominating persons as Member Directors \5\ on OCC's Board as well as 
the composition and structure of the NC itself. The NC is required to 
endeavor to achieve balanced representation in its Member Director and 
Non-Director Member nominees, giving due consideration to business 
activities and geographic distribution.
---------------------------------------------------------------------------

    \5\ Under Article III, Section 2 every Member Director must be 
either a Clearing Member or a representative of a Clearing Member 
Organization.
---------------------------------------------------------------------------

    Presently, the NC is composed of seven total members: One Public 
Director and six Non-Director Members.\6\ The Public Director member, 
who is nominated by the Executive Chairman with the approval of a 
majority of the Board, generally serves a three year term, unless he or 
she ceases to be a Public Director. The six Non-Director Members 
nominated by the NC and selected by OCC's stockholders are divided into 
two equal classes of three members, and the classes serve staggered two 
year terms.\7\ By comparison, the GC Charter requires the current GC to 
have not fewer than five directors and to include at least one Public 
Director, at least one Exchange Director, and at least one Member 
Director. It also provides that no Management Directors may serve on 
the Committee.
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    \6\ Under Sections 4 and 5 of Article III, a Non-Director Member 
of the NC must be a representative of a Clearing Member and no 
person associated with the same Clearing Member Organization as a 
member of the NC may be nominated by the NC for a position as a 
Member Director on the Board of Directors or a Non-Director Member 
of the NC for the ensuing year.
    \7\ This tiered structure eliminated the complete turnover of 
the members of the NC each year and fostered greater continuity 
among its elected members. Securities Exchange Act Release No. 29437 
(July 12, 1991), 56 FR 33319 (July 19, 1991) (SR-OCC-91-11).
---------------------------------------------------------------------------

    OCC's Board currently has 19 members consisting of nine Member 
Directors, five Exchange Directors, three Public Directors, who under 
Article III, Section 6A of OCC's By-Laws, may not be affiliated with 
any national securities exchange or national securities association or 
any broker or dealer in securities, and OCC's Executive Chairman and 
President, who are Management Directors. Based on recommendations from 
the GC in the course of review of OCC's overall corporate governance, 
OCC is proposing certain amendments detailed below to merge OCC's NC, 
GC and their related responsibilities into a single GNC and increase 
the number of Public Directors from three to five.
a. Proposed Amendments Common to the By-Laws and Other OCC Governance 
Documents
    Certain of the proposed changes would amend the existing By-Laws as 
well as other governance documents of OCC. For example, conforming 
edits would be made throughout the By-Laws and GC Charter to delete NC 
and GC references and in many cases those references would be replaced 
with references to the GNC.
(1) GNC Composition
    The new GNC would be composed of a minimum of three total members: 
At least one Public Director, at least one Exchange Director and at 
least one Member Director. To reflect this change, OCC would eliminate 
in Section 4 of Article III the requirement for six Non-Director 
Members, add requirements for at least one Member Director and one 
Exchange Director, and modify the current requirement for one Public 
Director to instead require that there must be at least one Public 
Director. The proposed composition for the GNC already mirrors the 
existing composition specified in the GC Charter. Therefore, no changes 
are proposed to the current GC Charter in that respect, other than the 
elimination of the requirements that the GNC have no fewer than five 
directors. That limitation would be eliminated with the goal of 
providing the Board with greater flexibility to determine the optimal 
size and composition of the GNC, so long as the composition also 
facilitates diverse representation by satisfying the proposed 
requirement for at least one GNC representative from each of the Member 
Director, Exchange Director and Public Director categories.
(2) GNC Member Appointment Process and Term Limits
    The members of the GNC would be appointed annually by the Board 
from among certain Board members recommended by the GNC after 
consultation with OCC's Executive Chairman, and GNC Members would serve 
at the pleasure of the Board. The GNC's Chairman (``GNC Chair'') would 
be designated from among the GNC's Public Directors. Provisions 
implementing these changes would be added to Section 4 of Article III 
to entirely supplant the class and term limit structure and nominations 
process that currently applies to the NC and its Non-Director Members 
and Public Director, and references to Non-Director Members would be 
removed from the By-Laws. Section II.A. of the GC Charter would also be 
amended to reflect this structure for GNC nominations and appointments.
(3) Number of Public Directors and Member Directors
    OCC is proposing to amend its By-Laws to increase the number of 
Public Directors on its Board from three to five and to make certain 
other changes related to the overall composition of the Board and the 
classification and term of office of Public Directors. The proposed 
change in the number of Public Directors from three to five would 
reconstitute OCC's Board with a total of 21 directors. OCC continues to 
believe that, as indicated in OCC's initial 1992 proposal to add Public 
Directors to its Board,\8\ Public Directors broaden the mix of 
viewpoints and business expertise that is represented on the Board. 
Accordingly, OCC believes that the input and expertise of two more 
Public Directors will further benefit OCC in the administration of its 
affairs in respect of the markets that it serves, and in the discharge 
of its obligations as a systemically important financial market 
utility. In addition, the decision to add two more Public Directors is 
consistent with the principles discussed in the Commission's recent 
release on standards for covered clearing agencies.\9\ In particular, 
the additional Public Directors would facilitate OCC's compliance with 
the public interest requirements of Section 17A of the Act and allow 
OCC to balance potentially competing viewpoints of various stakeholders 
in its decision making.
---------------------------------------------------------------------------

    \8\ Securities Exchange Act Release No. 30328 (January 31, 
1992), 57 FR 4784 (February 7, 1992) (SR-OCC-1992-02).
    \9\ Securities Exchange Act Release No. 71699 (March 12, 2014), 
79 FR 16866 (March 26, 2014).
---------------------------------------------------------------------------

    The proposed changes would remove a provision that currently is 
designed under certain conditions to automatically adjust the number of 
Member Directors serving on the Board. Article III, Section 1 requires 
that if the aggregate number of Exchange Directors and Public Directors 
equals at least nine, the total number of Member Directors must be 
automatically increased to always exceed that number by one. This 
provision would be removed to provide the Board with greater 
flexibility to be able to determine its optimal composition. OCC also 
proposes to make corresponding changes to Article III, Section 3 under

[[Page 31168]]

which it would remove provisions that provide for the classification 
and term of office of Member Directors where the number of Member 
Directors increases based on the provision in Article III, Section 1 
that OCC proposes to delete. The proposed changes also remove a 
provision that reduces the number of Member Directors if the number is 
above nine and exceeds the sum of the number of Exchange Directors and 
the number of Public Directors by more than one, because as a result of 
the deletion of the above provision in Article III, Section 1, the 
number of Member Directors would be fixed at nine.
    OCC is also proposing certain amendments to its Stockholders 
Agreement, Board of Directors Charter and Fitness Standards for 
Directors, Clearing Members and Others. In each case, conforming 
changes would be made to recognize the merger of the Nominating 
Committee and Governance Committee into the GNC as a standing Committee 
of the Board and reflect the role it would play in OCC's director 
nomination process. The proposed modifications to the Board Charter and 
Fitness Standards would reflect the increase in the number of Public 
Directors serving on the Board from three to five and the removal of 
the provision that currently is designed under certain conditions to 
automatically adjust the number of Member Directors serving on the 
Board. The criteria specified in the Fitness Standards for Directors, 
Clearing Members and Others for use in considering Member Director 
nominees would also be revised for consistency with the criteria 
proposed to be added to Article III, Section 5 designed to achieve 
balanced Board representation.
    The Stockholders Agreement also contains proposed amendments to 
replace the term Chairman with Executive Chairman. This parallels a 
separate proposed amendment by OCC to implement this change in its By-
Laws and Rules, but a consolidated amendment to the Stockholders 
Agreement is proposed for ease of administration.
b. Proposed Amendments to By-Laws Only
    As explained in more detail below, certain of the proposed changes 
would require amendments only to OCC's existing By-Laws. One such 
example is that Sections 2 and 5 of Article III would be amended to 
remove prohibitions against representation of the same Clearing Member 
Organization on the Board and the NC.\10\ This barrier would be 
eliminated since GNC members will be selected from among the members of 
the Board under the new approach.
---------------------------------------------------------------------------

    \10\ A Clearing Member Organization is a Clearing Member that is 
a legal entity rather than a natural person.
---------------------------------------------------------------------------

(1) Balanced Representation
    The NC's responsibility to endeavor to achieve balanced 
representation among Clearing Members on the Board would be carried 
over to the GNC. The proposed amendments would also add more detailed 
guidance for the GNC concerning how to achieve balanced Board 
representation. Specifically, the GNC would be required to assure that 
not all of the Member Directors represent the Clearing Member 
Organizations having the largest volume of business with OCC during the 
prior year and that the mix of Member Directors includes Clearing 
Member Organizations primarily engaged in agency trading on behalf of 
retail customers or individual investors.
(2) Nomination and Election Process
    In place of the existing structure under which the NC nominates 
candidates to be Non-Director Members, who are not also required to be 
Board members, the Board would appoint members to the GNC from among 
the Board's members who are recommended by the GNC. This change 
requires certain proposed modifications to the nomination and election 
process currently reflected in Article III, Section 5. Changes are also 
proposed that would change the deadlines for nominations of Member 
Directors by both the GNC and Clearing Members, and OCC would preserve 
the petition process by which Clearing Members may nominate additional 
candidates for Member Director positions on the Board. In recognition 
of the elimination of the concept of Non-Director Members, several 
provisions in Section 5 of Article III addressing the ability of 
stockholders to elect or nominate Non-Director Members of the NC would 
be deleted. In relevant part, however, these provisions would be 
retained to the extent they apply to the ability of stockholders under 
certain conditions to nominate and elect Member Directors of the Board.
(3) Public Directors
    Proposed changes to Section 6A of Article III would require the GNC 
to nominate Public Directors for election by OCC's stockholders and to 
use OCC's fitness standards in making such nominations. Presently, 
OCC's Executive Chairman makes Public Director nominations with Board 
approval. Changes are also proposed to help clarify the class structure 
and term limits of Public Directors that are independent of changes 
proposed to facilitate the formation of the GNC. These changes would 
specify that, aside from the Class II Public Director who was elected 
to the Board at the 2011 annual meeting, two other Public Directors 
were appointed to the Board prior to its 2013 annual meeting, one 
designated as a Class I Public Director and the other designated as a 
Class III Public Director. Generally, the three year terms for Public 
Directors with staggered expiration for each class would be preserved, 
however, an exception would be added for the initial Class I and III 
Public Directors.
    The proposed changes to Article III, Section 6A would also provide 
for the classification of the two new Public Directors, who will be 
first appointed or elected after the 2014 annual meeting. One of the 
new Public Directors will be designated as a Class I Public Director, 
and the other will be designated as a Class III Public Director. The 
proposed changes also establish the times at which the successors of 
the two new Public Directors will be elected. The successor of the new 
Public Director that is a Class III Public Director will be elected at 
the 2015 annual meeting of stockholders, and the successor of the new 
Public Director that is a Class I Public Director will be elected at 
the 2016 annual meeting.
(4) Disqualifications and Filling Vacancies and Newly Created 
Directorships
    The disqualification provisions in Article III, Section 11 would be 
revised to reflect that any determination to disqualify a director 
would be effective and result in a vacancy only if the GNC makes a 
recommendation for disqualification in addition to an affirmative vote 
for disqualification by a majority of the whole Board. The By-Laws 
currently provide that if a Member Director vacancy is filled by the 
Board, the person filling the vacancy will serve until the next 
scheduled election for the relevant class of Member Director and a 
successor is elected. However, if the term for that class of Member 
Director extends beyond the Board's next annual meeting the vacancy 
must be filled by a person who is recommended by the Nominating 
Committee. Proposed changes to these terms in respect of the GNC would 
require the Board in all cases to appoint a person who is recommended 
by the GNC. Similarly,

[[Page 31169]]

Public Director vacancies would be required to be filled by the Board 
as generally provided for in Section 6A of Article III, including with 
regard to candidates being nominated by the GNC using OCC's fitness 
standards for directors. Provisions concerning filling vacancies with 
respect to the NC would be deleted, consistent with its elimination in 
favor of the GNC.
(5) Ministerial Changes
    The proposed changes to Article III also include certain 
ministerial changes. A reference to stockholder exchanges in the 
interpretation and policy to Section 6 would be replaced by the defined 
term Equity Exchanges, and a reference in Section 14 to notice by 
telegram would be changed to facsimile to reflect current means of 
communication.
c. Proposed Amendments to the GC Charter Only
    Certain of the proposed amendments relating to the creation of the 
GNC would apply only to OCC's existing GC Charter. These amendments are 
discussed below.
(1) GNC Purpose
    The statement of purpose in the GC Charter would be revised to 
reflect the GNC's larger scope of responsibilities. The existing GC 
purpose of reviewing the overall corporate governance of OCC would be 
maintained, along with language clarifying that this review would be 
performed on a regular basis and that recommendations concerning Board 
improvements should be made when necessary. The GNC Charter would also 
provide that the GNC assists the Board in identifying, screening and 
reviewing individuals qualified to serve as directors and by 
recommending candidates to the Board for nomination for election at the 
annual meeting of stockholders or to fill vacancies. The GNC Charter 
would also specify that the GNC would develop and recommend to the 
Board, and oversee the implementation of, a Board Code of Conduct.
(2) GNC Membership and Organization
    The requirement in the GC Charter that the GC hold four meetings 
annually would be modified to also permit the GNC to call additional 
meetings as it deems appropriate.\11\ The GC Charter requirement for 
regular reporting to the Board on Committee activities by the GC chair 
or a designee would be revised in favor of placing the reporting 
responsibility solely on the GNC Chair and requiring the GNC Chair to 
make timely reports to the Board on important issues discussed at GNC 
meetings. Taking into consideration certain pre-established guidelines 
in the GNC Charter, the GNC Chair would also be given responsibility 
for determining whether minutes should be recorded at any executive 
session. Aside from this exception for executive sessions, GNC meeting 
minutes would be required to be recorded. The GNC Charter would also 
create a position to be filled by an OCC officer who would assist the 
GNC and liaise between it and OCC's staff.
---------------------------------------------------------------------------

    \11\ This would bring the Governance and Nominating Committee 
Charter in line with the Charters of OCC's other Board Committees.
---------------------------------------------------------------------------

(3) GNC Authority
    As in the case of the existing GC, the GNC would have authority to 
inquire into any matter relevant to its purpose and responsibilities in 
the course of carrying out its duties. The GNC Charter would further 
specify that in connection with any such inquiry the GNC would have 
access to all books, records, facilities and personnel of OCC. Unlike 
the existing GC Charter, the GNC Charter would not provide express 
authority for the GNC to rely on members of OCC's management for 
assistance. Instead, this relationship between the GNC and OCC's 
management would be more specifically addressed through the role of the 
newly created staff liaison position. Additional revisions to the GC 
Charter would also establish that the GNC Chair would not have 
discretion to take unilateral action on behalf of the Committee, even 
in special circumstances.
(4) Board Composition
    Without limiting the GNC to particular activities, the GNC Charter 
would specify certain responsibilities meant to guide the GNC in 
achieving its purposes, including with respect to its role in the 
development of the Board's composition. As an overarching goal, the 
GNC's Charter would require it to pursue development of a Board 
comprised of individuals who have a reputation for integrity and 
represent diverse professional backgrounds as well as a broad spectrum 
of experience and expertise. The GNC Charter would also prescribe more 
detailed responsibilities designed to further this goal. For example, 
the GNC would be required to conduct periodic reviews of the 
composition of the Board against the goal, including whether the Board 
reflects the appropriate balance of types of directors, business 
specialization, technical skills, diversity and other qualities.\12\ 
The GNC would be required to recommend policies and procedures to the 
Board for identifying and reviewing Board nominee candidates, and it 
would implement and oversee the effectiveness of those policies, 
including with regard to criteria for Board nominees. Using criteria 
approved by the Board, the GNC would identify, screen and review 
persons who it determines are qualified to serve as directors. This 
process would also extend to incumbent directors concerning any 
potential re-nomination. In all cases, the GNC would only recommend 
candidates to the Board for nomination for election after consulting 
with OCC's Executive Chairman. In the event that a sitting director 
offers to resign because of a change in occupation or business 
association, the GNC would be responsible for reviewing whether 
continued service is appropriate and making a recommendation of any 
action, consistent with OCC's By-Laws and Rules, that should be taken 
by the Board. The GNC would also undertake periodic reviews of term 
limits for certain directors and recommend changes to these limits 
where appropriate.
---------------------------------------------------------------------------

    \12\ The GNC would also review director conflicts of interest 
and the manner in which any such conflicts are to be monitored and 
resolved.
---------------------------------------------------------------------------

(5) Governance Practices
    The GNC would have responsibility for reviewing the Board's Charter 
for consistency with regulatory requirements, transparency of the 
governance process and other sound governance practices. Currently, 
this is a GC function, and certain GC Charter amendments are proposed 
to help further detail the GNC's review responsibilities. These include 
a general responsibility to recommend changes, as the GNC deems 
appropriate, to the Board concerning Committee Charters. This would 
include the GNC Charter, which the GNC would be required to review 
annually.\13\ In connection with a periodic review of Board Committee 
structure, the GNC would advise the Board regarding related matters of 
structure, operations and charters. Furthermore, and in each case after 
consultation with OCC's Executive Chairman, the GNC would recommend to 
the Board for its approval certain directors for Committee service as 
well as for assignment as Committee chair persons.
---------------------------------------------------------------------------

    \13\ As part of the annual review, the GNC would also submit the 
GNC Charter to the Board for re-approval, including any changes the 
GNC deems advisable.

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[[Page 31170]]

    The GNC would develop and recommend to the Board the annual process 
used by the Board and Board Committees for self-evaluation of their 
role and performance in the governance of OCC. The GNC would also be 
responsible for coordinating and providing oversight of that process. 
Corporate governance principles applicable to OCC would be developed by 
the GNC for recommendation to the Board, and the GNC would review them 
at least once a year.
(6) Other Proposed GC Charter Amendments
    The GNC Charter would require the Committee to regularly evaluate 
its performance and the performance of its individual members and 
provide results of such assessments to the Board. It would also require 
an annual report to be prepared by the GNC and delivered to the Board 
regarding the GNC's activities for the preceding year, and the GNC 
would be required to include a statement that it carried out all of its 
GNC Charter responsibilities. In addition to such responsibilities, the 
GNC would generally be empowered to perform any other duties that it 
deems necessary or appropriate and consistent with the GNC Charter or 
as may otherwise be further delegated to it by the Board.
d. Fair Representation Requirement for Clearing Agencies
    Section 17A(b)(3)(C) of the Act requires the rules of a clearing 
agency to assure fair representation of its shareholders (or members) 
and participants \14\ in the selection of its directors and 
administration of its affairs.\15\ The Act does not define fair 
representation but instead reserves to the Commission the authority to 
determine whether a clearing agency's rules give fair voice to 
participants and shareholders or members in the selection of directors 
and administration of affairs. On this subject, the Division of Market 
Regulation's Announcement of Standards for the Registration of Clearing 
Agencies provides that a clearing agency's procedures concerning fair 
representation are evaluated on a case-by-case basis but that a 
clearing agency could comply with the standard, including with respect 
to board nominations, through the use of a nominating committee 
composed of and selected by participants or their representatives.\16\ 
Subsequent Commission guidance in this area also provides that the 
entity responsible for nominating individuals for membership on the 
board of directors should be obligated by by-law or rule to make 
nominations with a view toward assuring fair representation of the 
interests of shareholders and a cross-section of the community of 
participants.\17\
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    \14\ In relevant part, a clearing agency participant is defined 
in Section 3(a)(24) of the Act as ``any person who uses a clearing 
agency to clear or settle securities transactions or to transfer, 
pledge, lend, or hypothecate securities. . .''
    \15\ 15 U.S.C. 78q-1(b)(3)(C). The statute further provides that 
one way of establishing that the representation of participants is 
fair is by affording them a reasonable opportunity to acquire voting 
stock of the clearing agency in reasonable proportion to their use.
    \16\ Securities Exchange Act Release No. 16900 (June 17, 1980), 
45 FR 41 (June 23, 1980) (citing in relevant part Securities 
Exchange Act Release 14531 (March 6, 1978), 43 FR 10288, 10291 
(March 10, 1978) regarding proposed Commission-level standards for 
clearing agency registration). The Division of Market Regulation is 
now known as the Division of Trading and Markets.
    \17\ Securities Exchange Act Release No. 20221 (September 23, 
1983), 48 FR 45167, 45172 (October 3, 1983) (Depository Trust Co., 
et. al.; Order).
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    OCC believes for several reasons that the proposed amendments to 
the By-Laws and GC Charter would continue to assure fair representation 
of OCC's shareholders and participants in the selection of its 
directors and the administration of its affairs. First, as the body 
responsible for nominating Member Director and Public Director 
candidates to OCC's Board, the GNC would be composed of and selected by 
OCC's participants and shareholders or their representatives because, 
along with at least one Public Director, the GNC would be composed of 
Board members who represent OCC's Clearing Members and equity 
exchanges. Furthermore, the GNC would be obligated by OCC's By-Laws and 
the GNC Charter to make nominations that serve the interests of 
shareholders and a cross-section of participants because it would be 
required to nominate candidates with a view toward: Assuring that the 
Board consists of, among other things, individuals who have a 
reputation for integrity and represent diverse professional backgrounds 
and a broad spectrum of experience and expertise; that not all Member 
Directors of the Board would represent the largest Clearing Member 
Organizations; and that the mix of Member Directors on the Board should 
include representatives of Clearing Member Organizations primarily 
engaged in agency trading on behalf of retail customers or individual 
investors. Finally, rather than prescribing pre-set term limits, OCC 
believes that having GNC members serve at the pleasure of the Board 
would help foster continuity on the GNC and thereby strengthen the 
quality of the representation of OCC's participants and shareholders in 
the administration of its affairs.
2. Statutory Basis
    OCC believes the proposed rule change is consistent with Section 
17A(b)(3)(C) of the Act,\18\ and the rules and regulations thereunder 
because by creating the GNC and requiring it to in part be composed of 
and selected by representatives of OCC's participants and also 
requiring it to nominate candidates to the Board with a view toward, 
among other things, assuring diverse professional backgrounds and a 
broad spectrum of experience and expertise, the proposed changes would 
help assure fair representation of OCC's shareholders and participants 
in the selection of OCC's directors and the administration of its 
affairs. OCC also believes the proposed rule change is consistent with 
Rule 17Ad-22(d)(8) \19\ because by, among other things, creating a 
framework that requires the GNC to be composed of representatives of at 
least one Member Director, Exchange Director and Public Director, 
requiring the GNC to endeavor to develop a Board that represents a 
broad range of skills and experience and increasing the number of 
Public Directors the proposed changes would help ensure that OCC 
continues to have clear and transparent governance arrangements that 
fulfill the public interest requirements of Section 17A of the Act, 
support the objectives of OCC's owners and participants and promote the 
effectiveness of OCC's risk management procedures. The proposed rule 
change is not inconsistent with the existing rules of OCC, including 
any other rules proposed to be amended.
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    \18\ 15 U.S.C. 78q-1(b)(3)(C).
    \19\ 17 CFR 240.17Ad-22(d)(8).
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(B) Clearing Agency's Statement on Burden on Competition

    OCC does not believe that the proposed rule change would impose any 
burden on competition.\20\ Changes to the rules of a clearing agency 
may have an impact on the participants in a clearing agency, their 
customers, and the markets that the clearing agency serves. This 
proposed rule change primarily affects certain Clearing Members and 
participant exchanges, through their respective representative 
directors, in terms of how they would participate in OCC's governance 
process on the Board and Board Committees. For example, OCC believes 
that the proposed formation of the GNC would help to consolidate and 
improve the efficiency of Board level action regarding roles and 
responsibilities that

[[Page 31171]]

are related but are currently performed separately by the NC and GC and 
that adding two Public Directors to the Board would broaden the mix of 
viewpoints and business expertise that informs the administration of 
OCC's affairs with respect to the markets that it serves. These 
proposed modifications would not disadvantage or favor any particular 
user in relationship to another user because they relate to the 
overarching governance structure of OCC that affects all users and does 
not relate directly to any particular service or particular use of 
OCC's facilities.
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    \20\ 15 U.S.C. 78q-1(b)(3)(I).
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    For the foregoing reasons, OCC believes that the proposed rule 
change is in the public interest, would be consistent with the 
requirements of the Act applicable to clearing agencies and would not 
impose a burden on competition.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change 
Received From Members, Participants, or Others

    Written comments on the proposed rule change were not and are not 
intended to be solicited with respect to the proposed rule change and 
none have been 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 up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.
    The proposal shall not take effect until all regulatory actions 
required with respect to the proposal are completed.\21\
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    \21\ OCC also filed the proposed rule change as an advance 
notice under Section 806(e)(1) of the Payment, Clearing and 
Settlement Supervision Act. See supra note 3.
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml ); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-OCC-2014-09 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-OCC-2014-09. 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 the filing also will be available for 
inspection and copying at the principal office of OCC and on OCC's Web 
site: https://www.theocc.com/components/docs/legal/rules_and_bylaws/sr_occ_14_09.pdf.
    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-OCC-2014-09 
and should be submitted on or before June 20, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-12522 Filed 5-29-14; 8:45 am]
BILLING CODE 8011-01-P

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