Self-Regulatory Organizations; Boston Stock Exchange Clearing Corporation; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To Amend the By-Laws of Nasdaq, Inc., 838-841 [2015-33305]

Download as PDF 838 Federal Register / Vol. 81, No. 4 / Thursday, January 7, 2016 / Notices BURDEN HOURS Estimated number of respondents = ........................................................................ Estimated number of annual responses per respondent = ...................................... Estimated annual reporting burden per response = ................................................. 20 11 80 20 9 80 20 28 13 20 5 80 BURDEN HOURS Estimated total annual reporting burden =. 17,600 (20 respondents × 11 annual responses per respondent × 80 hours per respondent). The Commission may not conduct or sponsor a collection of information unless it displays a currently valid control number. No person shall be subject to any penalty for failing to comply with a collection of information subject to the PRA that does not display a valid OMB control number. The public may view background documentation for this information collection at the following Web site, www.reginfo.gov. Persons submitting comments on the collection of information requirements should direct them to (i) the Office of Management and Budget, Attention: Desk Officer for the Securities and Exchange Commission, Office of Information and Regulatory Affairs, Washington, DC 20503, and (ii) Pamela Dyson, Director/ Chief Information Officer, Securities and Exchange Commission, c/o Remi Pavlik-Simon, 100 F Street NE., Washington DC, 20549, or send an email to: PRA_Mailbox@sec.gov. Comments should reference SEC File No. 270–247. Comments must be submitted to OMB within 30 days of this notice. Dated: December 30, 2015. Jill M. Peterson, Assistant Secretary. [FR Doc. 2015–33216 Filed 1–6–16; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–76806; File No. SR– BSECC–2015–002) rmajette on DSK2TPTVN1PROD with NOTICES Self-Regulatory Organizations; Boston Stock Exchange Clearing Corporation; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To Amend the By-Laws of Nasdaq, Inc. December 31, 2015. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on December 1 15 2 17 U.S.C. 78s(b)(1). CFR 240.19b–4. VerDate Sep<11>2014 14:27 Jan 06, 2016 Jkt 238001 14,400 (20 respondents × 9 annual responses per respondent × 80 hours per respondent). 7,280 (20 respondents × 28 annual responses per respondent × 13 hours per respondent). 21, 2015, Boston Stock Exchange Clearing Corporation (‘‘BSECC’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by BSECC. On December 29, 2015, BSECC filed Amendment No. 1 to the proposal.3 The Commission is publishing this notice to solicit comments on the proposed rule change, as modified by Amendment No. 1, from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change BSECC is filing this proposed rule change with respect to amendments of the By-Laws (the ‘‘By-Laws’’) of its parent corporation, Nasdaq, Inc. (‘‘Nasdaq’’ or the ‘‘Company’’), to revise the requirements regarding Director classifications. This Amendment No. 1 to SR–BSECC–2015–002 amends and replaces the original filing in its entirety. The proposed amendments will be implemented on a date designated by the Company following approval by the Commission. The text of the proposed rule change is available on BSECC’s Web site at http:// nasdaqomxbx.cchwallstreet.com, at the principal office of BSECC, 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, BSECC 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. BSECC has prepared 3 Amendment No. 1 amends and replaces the original filing in its entirety. In Amendment No. 1, BSECC, among other things, clarified the operation of the current and proposed provisions of the ByLaws of Nasdaq, Inc. and how the proposed rule change would operate in conjunction with the Listing Rules of The NASDAQ Stock Market. See infra, note 5. PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 8,000 (20 respondents × 5 annual responses per respondent × 80 hours per respondent). summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Company is proposing amendments to certain provisions of its By-Laws that relate to Director 4 classifications.5 Specifically, the Company proposes to revise Section 4.3 of the By-Laws to state that it may, rather than shall, include at least one, but no more than two, Issuer Directors on its Board. In addition, the Company proposes to revise Section 4.7 of the ByLaws to clarify the procedures when a Director’s classification changes between annual meetings of stockholders. i. Section 4.3 Currently, the Company’s By-Laws require that all of the Company’s Directors be classified as: (i) Industry 4 ‘‘Director’’ means a member of the Company’s Board of Directors. See Article I(j) of the By-Laws. 5 The provisions of the Company’s By-Laws that relate to Director classifications are completely distinct from the Listing Rules of The NASDAQ Stock Market. Therefore, the proposed amendments do not affect in any way the Company’s obligation, as an issuer listed on The NASDAQ Stock Market, to comply with the Listing Rules, and the Company will continue to comply with the Listing Rules, including provisions relating to corporate governance, following the effectiveness of the proposed By-Law amendments. E:\FR\FM\07JAN1.SGM 07JAN1 Federal Register / Vol. 81, No. 4 / Thursday, January 7, 2016 / Notices rmajette on DSK2TPTVN1PROD with NOTICES Directors; 6 (ii) Non-Industry Directors,7 which are further classified as either Issuer Directors 8 or Public Directors; 9 or (iii) Staff Directors.10 Section 4.3 of the By-Laws includes composition requirements for the Board based on these classifications. Specifically, the number of Non-Industry Directors on the Board must equal or exceed the number of Industry Directors. In addition, the Board must include at least two Public Directors and at least one, but no more than two, Issuer Directors. Finally, the Board shall include no more than one Staff Director, 6 ‘‘Industry Director’’ or ‘‘Industry committee member’’ means a Director (excluding any Staff Directors) or committee member who (1) is, or within the last year was, or has an immediate family member who is, or within the last year was, a member of a Self-Regulatory Subsidiary; (2) is, or within the last year was, employed by a member or a member organization of a Self-Regulatory Subsidiary; (3) has an immediate family member who is, or within the last year was, an executive officer of a member or a member organization of a Self-Regulatory Subsidiary; (4) has within the last year received from any member or member organization of a Self-Regulatory Subsidiary more than $100,000 per year in direct compensation, or received from such members or member organizations in the aggregate an amount of direct compensation that in any one year is more than 10 percent of the Director’s annual gross compensation for such year, excluding in each case director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service); or (5) is affiliated, directly or indirectly, with a member or member organization of a Self-Regulatory Subsidiary. See Article I(m) of the By-Laws. A ‘‘Self-Regulatory Subsidiary’’ is any subsidiary of the Company that is a self-regulatory organization as defined under Section 3(a)(26) of the Act. See Article I(s) of the By-Laws. Currently, the term ‘‘Self-Regulatory Subsidiary’’ encompasses NASDAQ OMX BX, Inc. (‘‘BX’’), The NASDAQ Stock Market LLC (‘‘NASDAQ’’), NASDAQ OMX PHLX LLC (‘‘Phlx’’), BSECC and the Stock Clearing Corporation of Philadelphia (‘‘SCCP’’). 7 ‘‘Non-Industry Director’’ or ‘‘Non-Industry committee member’’ means a Director (excluding any Staff Director) or committee member who is (1) a Public Director or Public committee member; (2) an Issuer Director or Issuer committee member; or (3) any other individual who would not be an Industry Director or Industry committee member. See Article I(q) of the By-Laws. 8 ‘‘Issuer Director’’ or ‘‘Issuer committee member’’ means a Director (excluding any Staff Director) or committee member who is an officer or employee of an issuer of securities listed on a national securities exchange operated by any Self-Regulatory Subsidiary, excluding any Director or committee member who is a director of such an issuer but is not also an officer or employee of such an issuer. See Article I(o) of the By-Laws. 9 ‘‘Public Director’’ or ‘‘Public committee member’’ means a Director or committee member who (1) is not an Industry Director or Industry committee member, (2) is not an Issuer Director or Issuer committee member, and (3) has no material business relationship with a member or member organization of a Self- Regulatory Subsidiary, the Company or its affiliates, or the Financial Industry Regulatory Authority, Inc. and its affiliates. See Article I(r) of the By-Laws. 10 ‘‘Staff Director’’ means an officer of the Company that is serving as a Director. See Article I(t) of the By-Laws. VerDate Sep<11>2014 14:27 Jan 06, 2016 Jkt 238001 unless the Board consists of ten or more Directors, in which case, the Board shall include no more than two Staff Directors. The Company proposes to amend Section 4.3 of the By-Laws to state that the Board may, rather than shall, include one, but no more than two, Issuer Directors. With this change, the Company intends to give itself the option, but not the requirement, to include one or two Issuer Directors on its Board. Issuer Directors bring to the Board the perspective of an officer or employee of companies listed on The NASDAQ Stock Market. While the Company highly values the views of its listed companies, it does not believe that it is strictly necessary to have an Issuer Director on its own Board to represent those views. Within the overall governance structure of the Company and its subsidiaries, issues relating to listed companies are generally the province of NASDAQ and its Board of Directors, rather than the Company and its Board of Directors. The Company is a holding company for over 100 subsidiaries that provide both regulated and unregulated products and services across the globe, while NASDAQ is the Company subsidiary that, among other things, provides listing services on The NASDAQ Stock Market. The Company’s Board generally focuses on the overall strategic direction of the Company, while NASDAQ’s Board generally focuses on issues relevant specifically to The NASDAQ Stock Market, including issues affecting listed companies. Furthermore, NASDAQ’s Board includes issuer representation, as required by its ByLaws.11 Finally, if the Company’s Board ever does address issues relating to listed companies, its Directors are experienced and capable enough to handle those issues without specifically having an Issuer Director on the Board.12 Therefore, it is not strictly necessary to have an officer or employee of a listed company on the Company’s Board of Directors, and accordingly, the Company proposes to amend its ByLaws to give itself the option, but not the requirement, to include an Issuer Director on its Board. 11 See Article III, Section 2 of NASDAQ’s ByLaws. 12 Currently, three of the Company’s eleven Directors are also directors of companies listed on The NASDAQ Stock Market or another national securities exchange. These Directors do not qualify as Issuer Directors because they are not specifically officers or employees of listed companies; however, as directors of such companies, they are familiar with corporate governance topics and other issues confronted by listed companies. PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 839 ii. Section 4.7 As required by Section 4.13(h)(iii) of the By-Laws, the Company’s Corporate Secretary certifies to the Nominating & Governance Committee of the Company’s Board on an annual basis the classification of each Director following a review of information relating to the classifications collected from the Directors. This certification usually occurs in connection with the Company’s annual meeting of stockholders, and at the same time, Directors are elected to serve on various Board committees, all of which have compositional requirements relating to the classifications.13 However, Directors’ classifications may change from time to time following the annual meeting due to various changes in personal circumstances (e.g., a retirement or job change). Directors are required to report to the Corporate Secretary any change in the information used as the basis of their classification.14 Section 4.7 of the By-Laws addresses potential disqualifications of Directors due to a classification change. Under this section, the term of office of a Director shall terminate immediately upon a determination by the Board, by a majority vote of the remaining Directors, that: (a) The Director no longer satisfies the classification for which the Director was elected; and (b) the Director’s continued service would violate the Board compositional requirements. Section 4.7 also states that if a Director position becomes vacant because of such disqualification, and the remaining term of office is not more than six months, the By-Laws do not require an immediate replacement. The Company has observed two potential weaknesses relating to the disqualification procedures as currently drafted. First, Section 4.7 of the ByLaws does not address a situation where a Director’s classification has changed, but the Board believes that it is in the best interests of the Company and its stockholders for such Director to remain on the Board. Second, the By-Laws could be read to contemplate that the Company must immediately cure any deficiencies in Board or committee composition that may occur because of a change in a Director or committee member’s classification because otherwise the Board would not meet all of the compositional requirements set forth in Section 4.3 of the By-Laws.15 It 13 See Section 4.13 of the By-Laws. Section 4.13(h)(iii) of the By-Laws. 15 But see Kurz v. Holbrook, 989 A.2d 140, 156– 57 (Del.Ch. 2010) (holding that a by-law cannot 14 See E:\FR\FM\07JAN1.SGM Continued 07JAN1 840 Federal Register / Vol. 81, No. 4 / Thursday, January 7, 2016 / Notices rmajette on DSK2TPTVN1PROD with NOTICES would be extremely disruptive to the Board, its committees and the Company to add, remove, disqualify or replace a Director between annual meetings of stockholders simply because the Director no longer has the same classification he or she had at the time of the annual meeting. In addition, the selection of nominees to the Company’s Board is an extremely complex process, managed by the Board’s Nominating & Governance Committee, that takes almost the full year between annual meetings of stockholders. The Nominating & Governance Committee considers possible candidates suggested by Board members, industry groups, stockholders, senior management and/or a third-party search firm engaged from time-to-time to assist in identifying and evaluating qualified candidates. In evaluating candidates for nomination to the Board, the Nominating & Governance Committee reviews the skills, qualifications, characteristics and experience desired for the Board as a whole and for its individual members, with the objective of having a Board that reflects diverse backgrounds and senior level experience in the areas of global business, finance, legal and regulatory, technology and marketing. The Nominating & Governance Committee evaluates each individual candidate in the context of the Board as a whole, with the objective of maintaining a group of Directors that can further the success of Nasdaq’s business, while representing the interests of stockholders, employees and the communities in which the company operates. Because the nominee selection process is so long and complex, the Board cannot act quickly to replace a Director whose classification has changed, and it is not in the best interests of the Company’s stockholders for the Board to be forced to take such an action when the Director otherwise provides valuable service to the Board. The Company therefore proposes to amend Section 4.7 of the By-Laws to provide that the Board may elect to defer until the next annual meeting of stockholders a determination regarding a change in a Director’s classification and such Director’s continued service on the Board.16 Further, if the Board disqualify a director who was duly qualified at the time of election during the middle of his or her term), rev’d on other grounds sub nom Crown EMAK P’ners, LLC v. Kurz, 992 A.2d 377 (Del. 2010); see also Klaassen v. Allegro Development Corp., 2013 WL 5739680, at *23 (Del. Ch. Oct. 11, 2013) (noting that director qualifications are applied at the front-end of the director’s term when such director is elected and qualified), aff’d 106 A.3d 1035 (Del. 2014). 16 The intent of the amendment is to allow the Board a deferral until the next annual meeting VerDate Sep<11>2014 14:27 Jan 06, 2016 Jkt 238001 makes such an election, neither the Board nor any committee shall be deemed to be in violation of Section 4.3 of the By-Laws, which relates to Board composition, or Section 4.13 of the ByLaws, which relates to committee composition. This will give the Board the option to retain Directors whose classification has changed, but whose continued service is otherwise beneficial to the Board, the Company and its stockholders. This also will prevent the significant disruption that would occur if the Board had to replace a Director between annual meetings of stockholders and allow the Board to continue to make informed, deliberate decisions regarding Director nominees, rather than force it to act quickly in a way that is not in the best interest of the Company’s stockholders. 2. Statutory Basis BSECC believes that its proposal is consistent with Section 17A(b)(3)(C) of the Act,17 in that it assures a fair representation of shareholders and participants in the selection of directors and administration of its affairs. While the proposals relate to the organizational documents of the Company, rather than BSECC, BSECC is indirectly owned by the Company, and therefore, the Company’s stockholders have an indirect stake in BSECC. In addition, the participants in BSECC, to the extent any exist, could purchase stock in the Company in the open market, just like any other stockholder. First, the Company is proposing an amendment to Section 4.3 of the ByLaws to state that it may, rather than shall, include at least one, but no more than two, Issuer Directors on its Board. BSECC believes that this change will assure a fair representation of shareholders and participants in the selection of directors and administration of its affairs by allowing the Company’s Nominating & Governance Committee to select nominees for the Company’s Board based on the overall strategic needs of the Board, the Company and its stockholders without forcing the Board to fill one slot with an officer or director of a listed company (i.e., an Issuer Director). BSECC notes that the Company would still have the option to include Issuer Directors on the Board, and BSECC believes the views of listed companies are well-represented on the when it can nominate a slate of directors with classifications sufficient to satisfy the requirements of Section 4.3 of the By-Laws for election by the Company’s stockholders. Assuming due election of the Board’s nominees, the Board therefore will comply with Section 4.3 of the By-Laws immediately after the next annual meeting. 17 15 U.S.C. 78q–1(b)(3)(C). PO 00000 Frm 00107 Fmt 4703 Sfmt 4703 Board without the explicit participation of an Issuer Director.18 Second, the Company is proposing an amendment to Section 4.7 of the ByLaws to provide that the Board may elect to defer until the next annual meeting of stockholders a determination regarding a change in a Director’s classification and such Director’s continued service on the Board. Further, if the Board makes such an election, neither the Board nor any committee shall be deemed to be in violation of Section 4.3 of the By-Laws, which relates to Board composition, or Section 4.13 of the By-Laws, which relates to committee composition. BSECC believes that this change will assure a fair representation of shareholders and participants in the selection of directors and administration of its affairs by clarifying the disqualification provisions in the Company’s By-Laws, which are currently ambiguous. In addition, the change will prevent the significant disruption that would occur if the Board were forced to replace an otherwise valuable director between annual meetings. B. Self-Regulatory Organization’s Statement on Burden on Competition Because the proposed rule change relates to the governance of the Company and not to the operations of BSECC, BSECC does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or 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 of such date (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 BSECC consents, the Commission shall: (a) By order approve or disapprove such proposed rule change, or (b) institute proceedings to determine whether the proposed rule change should be disapproved. 18 See E:\FR\FM\07JAN1.SGM note 12, supra. 07JAN1 Federal Register / Vol. 81, No. 4 / Thursday, January 7, 2016 / 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 (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– BSECC–2015–002 on the subject line. rmajette on DSK2TPTVN1PROD with NOTICES 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–BSECC–2015–002. 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 (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal offices of BSECC. 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–BSECC–2015–002, and should be submitted on or before January 28, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.19 19 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 14:27 Jan 06, 2016 Jkt 238001 Jill M. Peterson, Assistant Secretary. [FR Doc. 2015–33305 Filed 1–6–16; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–76810; File No. SR–Phlx– 2015–113] Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 2 Thereto, To Amend the By-Laws of Nasdaq, Inc. December 31, 2015. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on December 21, 2015, NASDAQ OMX PHLX LLC (‘‘Phlx’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. On December 29, 2015, the Exchange filed Amendment No. 1 to the proposal.3 On December 30, 2015, the Exchange filed Amendment No. 2 to the proposal.4 The Commission is publishing this notice to solicit comments on the proposed rule change, as modified by Amendment No. 2, from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange is filing this proposed rule change with respect to amendments of the By-Laws (the ‘‘By-Laws’’) of its parent corporation, Nasdaq, Inc. (‘‘Nasdaq’’ or the ‘‘Company’’), to revise the requirements regarding Director classifications. This Amendment No. 2 to SR–Phlx–2015–113 amends and replaces the original filing in its entirety.5 The proposed amendments will be implemented on a date designated by the Company following approval by the Commission. The text of U.S.C. 78s(b)(1). CFR 240.19b–4. 3 On December 30, 2015, the Exchange withdrew Amendment No. 1. 4 Amendment No. 2 amends and replaces the original filing in its entirety. In Amendment No. 2, the Exchange, among other things, clarified the operation of the current and proposed provisions of the By-Laws of Nasdaq, Inc. and how the proposed rule change would operate in conjunction with the Listing Rules of The NASDAQ Stock Market. See infra, note 7. 5 Amendment No. 1 to SR–Phlx–2015–113 was filed on December 29, 2015 and subsequently withdrawn on December 30, 2015. 841 the proposed rule change is available on the Exchange’s Web site at http:// nasdaqomxphlx.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. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Company is proposing amendments to certain provisions of its By-Laws that relate to Director 6 classifications.7 Specifically, the Company proposes to revise Section 4.3 of the By-Laws to state that it may, rather than shall, include at least one, but no more than two, Issuer Directors on its Board. In addition, the Company proposes to revise Section 4.7 of the ByLaws to clarify the procedures when a Director’s classification changes between annual meetings of stockholders. i. Section 4.3 Currently, the Company’s By-Laws require that all of the Company’s Directors be classified as: (i) Industry 1 15 2 17 PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 6 ‘‘Director’’ means a member of the Company’s Board of Directors. See Article I(j) of the By-Laws. 7 The provisions of the Company’s By-Laws that relate to Director classifications are completely distinct from the Listing Rules of The NASDAQ Stock Market. Therefore, the proposed amendments do not affect in any way the Company’s obligation, as an issuer listed on The NASDAQ Stock Market, to comply with the Listing Rules, and the Company will continue to comply with the Listing Rules, including provisions relating to corporate governance, following the effectiveness of the proposed By-Law amendments. E:\FR\FM\07JAN1.SGM 07JAN1

Agencies

[Federal Register Volume 81, Number 4 (Thursday, January 7, 2016)]
[Notices]
[Pages 838-841]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-33305]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76806; File No. SR-BSECC-2015-002)


Self-Regulatory Organizations; Boston Stock Exchange Clearing 
Corporation; Notice of Filing of Proposed Rule Change, as Modified by 
Amendment No. 1 Thereto, To Amend the By-Laws of Nasdaq, Inc.

December 31, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 21, 2015, Boston Stock Exchange Clearing Corporation 
(``BSECC'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by BSECC. On December 29, 
2015, BSECC filed Amendment No. 1 to the proposal.\3\ The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as modified by Amendment No. 1, from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 amends and replaces the original filing in 
its entirety. In Amendment No. 1, BSECC, among other things, 
clarified the operation of the current and proposed provisions of 
the By-Laws of Nasdaq, Inc. and how the proposed rule change would 
operate in conjunction with the Listing Rules of The NASDAQ Stock 
Market. See infra, note 5.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    BSECC is filing this proposed rule change with respect to 
amendments of the By-Laws (the ``By-Laws'') of its parent corporation, 
Nasdaq, Inc. (``Nasdaq'' or the ``Company''), to revise the 
requirements regarding Director classifications. This Amendment No. 1 
to SR-BSECC-2015-002 amends and replaces the original filing in its 
entirety. The proposed amendments will be implemented on a date 
designated by the Company following approval by the Commission. The 
text of the proposed rule change is available on BSECC's Web site at 
http://nasdaqomxbx.cchwallstreet.com, at the principal office of BSECC, 
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, BSECC 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. BSECC has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

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

1. Purpose
    The Company is proposing amendments to certain provisions of its 
By-Laws that relate to Director \4\ classifications.\5\ Specifically, 
the Company proposes to revise Section 4.3 of the By-Laws to state that 
it may, rather than shall, include at least one, but no more than two, 
Issuer Directors on its Board. In addition, the Company proposes to 
revise Section 4.7 of the By-Laws to clarify the procedures when a 
Director's classification changes between annual meetings of 
stockholders.
---------------------------------------------------------------------------

    \4\ ``Director'' means a member of the Company's Board of 
Directors. See Article I(j) of the By-Laws.
    \5\ The provisions of the Company's By-Laws that relate to 
Director classifications are completely distinct from the Listing 
Rules of The NASDAQ Stock Market. Therefore, the proposed amendments 
do not affect in any way the Company's obligation, as an issuer 
listed on The NASDAQ Stock Market, to comply with the Listing Rules, 
and the Company will continue to comply with the Listing Rules, 
including provisions relating to corporate governance, following the 
effectiveness of the proposed By-Law amendments.
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i. Section 4.3
    Currently, the Company's By-Laws require that all of the Company's 
Directors be classified as: (i) Industry

[[Page 839]]

Directors; \6\ (ii) Non-Industry Directors,\7\ which are further 
classified as either Issuer Directors \8\ or Public Directors; \9\ or 
(iii) Staff Directors.\10\ Section 4.3 of the By-Laws includes 
composition requirements for the Board based on these classifications. 
Specifically, the number of Non-Industry Directors on the Board must 
equal or exceed the number of Industry Directors. In addition, the 
Board must include at least two Public Directors and at least one, but 
no more than two, Issuer Directors. Finally, the Board shall include no 
more than one Staff Director, unless the Board consists of ten or more 
Directors, in which case, the Board shall include no more than two 
Staff Directors.
---------------------------------------------------------------------------

    \6\ ``Industry Director'' or ``Industry committee member'' means 
a Director (excluding any Staff Directors) or committee member who 
(1) is, or within the last year was, or has an immediate family 
member who is, or within the last year was, a member of a Self-
Regulatory Subsidiary; (2) is, or within the last year was, employed 
by a member or a member organization of a Self-Regulatory 
Subsidiary; (3) has an immediate family member who is, or within the 
last year was, an executive officer of a member or a member 
organization of a Self-Regulatory Subsidiary; (4) has within the 
last year received from any member or member organization of a Self-
Regulatory Subsidiary more than $100,000 per year in direct 
compensation, or received from such members or member organizations 
in the aggregate an amount of direct compensation that in any one 
year is more than 10 percent of the Director's annual gross 
compensation for such year, excluding in each case director and 
committee fees and pension or other forms of deferred compensation 
for prior service (provided such compensation is not contingent in 
any way on continued service); or (5) is affiliated, directly or 
indirectly, with a member or member organization of a Self-
Regulatory Subsidiary. See Article I(m) of the By-Laws. A ``Self-
Regulatory Subsidiary'' is any subsidiary of the Company that is a 
self-regulatory organization as defined under Section 3(a)(26) of 
the Act. See Article I(s) of the By-Laws. Currently, the term 
``Self-Regulatory Subsidiary'' encompasses NASDAQ OMX BX, Inc. 
(``BX''), The NASDAQ Stock Market LLC (``NASDAQ''), NASDAQ OMX PHLX 
LLC (``Phlx''), BSECC and the Stock Clearing Corporation of 
Philadelphia (``SCCP'').
    \7\ ``Non-Industry Director'' or ``Non-Industry committee 
member'' means a Director (excluding any Staff Director) or 
committee member who is (1) a Public Director or Public committee 
member; (2) an Issuer Director or Issuer committee member; or (3) 
any other individual who would not be an Industry Director or 
Industry committee member. See Article I(q) of the By-Laws.
    \8\ ``Issuer Director'' or ``Issuer committee member'' means a 
Director (excluding any Staff Director) or committee member who is 
an officer or employee of an issuer of securities listed on a 
national securities exchange operated by any Self-Regulatory 
Subsidiary, excluding any Director or committee member who is a 
director of such an issuer but is not also an officer or employee of 
such an issuer. See Article I(o) of the By-Laws.
    \9\ ``Public Director'' or ``Public committee member'' means a 
Director or committee member who (1) is not an Industry Director or 
Industry committee member, (2) is not an Issuer Director or Issuer 
committee member, and (3) has no material business relationship with 
a member or member organization of a Self- Regulatory Subsidiary, 
the Company or its affiliates, or the Financial Industry Regulatory 
Authority, Inc. and its affiliates. See Article I(r) of the By-Laws.
    \10\ ``Staff Director'' means an officer of the Company that is 
serving as a Director. See Article I(t) of the By-Laws.
---------------------------------------------------------------------------

    The Company proposes to amend Section 4.3 of the By-Laws to state 
that the Board may, rather than shall, include one, but no more than 
two, Issuer Directors. With this change, the Company intends to give 
itself the option, but not the requirement, to include one or two 
Issuer Directors on its Board. Issuer Directors bring to the Board the 
perspective of an officer or employee of companies listed on The NASDAQ 
Stock Market. While the Company highly values the views of its listed 
companies, it does not believe that it is strictly necessary to have an 
Issuer Director on its own Board to represent those views. Within the 
overall governance structure of the Company and its subsidiaries, 
issues relating to listed companies are generally the province of 
NASDAQ and its Board of Directors, rather than the Company and its 
Board of Directors. The Company is a holding company for over 100 
subsidiaries that provide both regulated and unregulated products and 
services across the globe, while NASDAQ is the Company subsidiary that, 
among other things, provides listing services on The NASDAQ Stock 
Market. The Company's Board generally focuses on the overall strategic 
direction of the Company, while NASDAQ's Board generally focuses on 
issues relevant specifically to The NASDAQ Stock Market, including 
issues affecting listed companies. Furthermore, NASDAQ's Board includes 
issuer representation, as required by its By-Laws.\11\ Finally, if the 
Company's Board ever does address issues relating to listed companies, 
its Directors are experienced and capable enough to handle those issues 
without specifically having an Issuer Director on the Board.\12\
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    \11\ See Article III, Section 2 of NASDAQ's By-Laws.
    \12\ Currently, three of the Company's eleven Directors are also 
directors of companies listed on The NASDAQ Stock Market or another 
national securities exchange. These Directors do not qualify as 
Issuer Directors because they are not specifically officers or 
employees of listed companies; however, as directors of such 
companies, they are familiar with corporate governance topics and 
other issues confronted by listed companies.
---------------------------------------------------------------------------

    Therefore, it is not strictly necessary to have an officer or 
employee of a listed company on the Company's Board of Directors, and 
accordingly, the Company proposes to amend its By-Laws to give itself 
the option, but not the requirement, to include an Issuer Director on 
its Board.
ii. Section 4.7
    As required by Section 4.13(h)(iii) of the By-Laws, the Company's 
Corporate Secretary certifies to the Nominating & Governance Committee 
of the Company's Board on an annual basis the classification of each 
Director following a review of information relating to the 
classifications collected from the Directors. This certification 
usually occurs in connection with the Company's annual meeting of 
stockholders, and at the same time, Directors are elected to serve on 
various Board committees, all of which have compositional requirements 
relating to the classifications.\13\ However, Directors' 
classifications may change from time to time following the annual 
meeting due to various changes in personal circumstances (e.g., a 
retirement or job change). Directors are required to report to the 
Corporate Secretary any change in the information used as the basis of 
their classification.\14\
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    \13\ See Section 4.13 of the By-Laws.
    \14\ See Section 4.13(h)(iii) of the By-Laws.
---------------------------------------------------------------------------

    Section 4.7 of the By-Laws addresses potential disqualifications of 
Directors due to a classification change. Under this section, the term 
of office of a Director shall terminate immediately upon a 
determination by the Board, by a majority vote of the remaining 
Directors, that: (a) The Director no longer satisfies the 
classification for which the Director was elected; and (b) the 
Director's continued service would violate the Board compositional 
requirements. Section 4.7 also states that if a Director position 
becomes vacant because of such disqualification, and the remaining term 
of office is not more than six months, the By-Laws do not require an 
immediate replacement.
    The Company has observed two potential weaknesses relating to the 
disqualification procedures as currently drafted. First, Section 4.7 of 
the By-Laws does not address a situation where a Director's 
classification has changed, but the Board believes that it is in the 
best interests of the Company and its stockholders for such Director to 
remain on the Board. Second, the By-Laws could be read to contemplate 
that the Company must immediately cure any deficiencies in Board or 
committee composition that may occur because of a change in a Director 
or committee member's classification because otherwise the Board would 
not meet all of the compositional requirements set forth in Section 4.3 
of the By-Laws.\15\ It

[[Page 840]]

would be extremely disruptive to the Board, its committees and the 
Company to add, remove, disqualify or replace a Director between annual 
meetings of stockholders simply because the Director no longer has the 
same classification he or she had at the time of the annual meeting. In 
addition, the selection of nominees to the Company's Board is an 
extremely complex process, managed by the Board's Nominating & 
Governance Committee, that takes almost the full year between annual 
meetings of stockholders. The Nominating & Governance Committee 
considers possible candidates suggested by Board members, industry 
groups, stockholders, senior management and/or a third-party search 
firm engaged from time-to-time to assist in identifying and evaluating 
qualified candidates. In evaluating candidates for nomination to the 
Board, the Nominating & Governance Committee reviews the skills, 
qualifications, characteristics and experience desired for the Board as 
a whole and for its individual members, with the objective of having a 
Board that reflects diverse backgrounds and senior level experience in 
the areas of global business, finance, legal and regulatory, technology 
and marketing. The Nominating & Governance Committee evaluates each 
individual candidate in the context of the Board as a whole, with the 
objective of maintaining a group of Directors that can further the 
success of Nasdaq's business, while representing the interests of 
stockholders, employees and the communities in which the company 
operates. Because the nominee selection process is so long and complex, 
the Board cannot act quickly to replace a Director whose classification 
has changed, and it is not in the best interests of the Company's 
stockholders for the Board to be forced to take such an action when the 
Director otherwise provides valuable service to the Board.
---------------------------------------------------------------------------

    \15\ But see Kurz v. Holbrook, 989 A.2d 140, 156-57 (Del.Ch. 
2010) (holding that a by-law cannot disqualify a director who was 
duly qualified at the time of election during the middle of his or 
her term), rev'd on other grounds sub nom Crown EMAK P'ners, LLC v. 
Kurz, 992 A.2d 377 (Del. 2010); see also Klaassen v. Allegro 
Development Corp., 2013 WL 5739680, at *23 (Del. Ch. Oct. 11, 2013) 
(noting that director qualifications are applied at the front-end of 
the director's term when such director is elected and qualified), 
aff'd 106 A.3d 1035 (Del. 2014).
---------------------------------------------------------------------------

    The Company therefore proposes to amend Section 4.7 of the By-Laws 
to provide that the Board may elect to defer until the next annual 
meeting of stockholders a determination regarding a change in a 
Director's classification and such Director's continued service on the 
Board.\16\ Further, if the Board makes such an election, neither the 
Board nor any committee shall be deemed to be in violation of Section 
4.3 of the By-Laws, which relates to Board composition, or Section 4.13 
of the By-Laws, which relates to committee composition. This will give 
the Board the option to retain Directors whose classification has 
changed, but whose continued service is otherwise beneficial to the 
Board, the Company and its stockholders. This also will prevent the 
significant disruption that would occur if the Board had to replace a 
Director between annual meetings of stockholders and allow the Board to 
continue to make informed, deliberate decisions regarding Director 
nominees, rather than force it to act quickly in a way that is not in 
the best interest of the Company's stockholders.
---------------------------------------------------------------------------

    \16\ The intent of the amendment is to allow the Board a 
deferral until the next annual meeting when it can nominate a slate 
of directors with classifications sufficient to satisfy the 
requirements of Section 4.3 of the By-Laws for election by the 
Company's stockholders. Assuming due election of the Board's 
nominees, the Board therefore will comply with Section 4.3 of the 
By-Laws immediately after the next annual meeting.
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2. Statutory Basis
    BSECC believes that its proposal is consistent with Section 
17A(b)(3)(C) of the Act,\17\ in that it assures a fair representation 
of shareholders and participants in the selection of directors and 
administration of its affairs. While the proposals relate to the 
organizational documents of the Company, rather than BSECC, BSECC is 
indirectly owned by the Company, and therefore, the Company's 
stockholders have an indirect stake in BSECC. In addition, the 
participants in BSECC, to the extent any exist, could purchase stock in 
the Company in the open market, just like any other stockholder.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78q-1(b)(3)(C).
---------------------------------------------------------------------------

    First, the Company is proposing an amendment to Section 4.3 of the 
By-Laws to state that it may, rather than shall, include at least one, 
but no more than two, Issuer Directors on its Board. BSECC believes 
that this change will assure a fair representation of shareholders and 
participants in the selection of directors and administration of its 
affairs by allowing the Company's Nominating & Governance Committee to 
select nominees for the Company's Board based on the overall strategic 
needs of the Board, the Company and its stockholders without forcing 
the Board to fill one slot with an officer or director of a listed 
company (i.e., an Issuer Director). BSECC notes that the Company would 
still have the option to include Issuer Directors on the Board, and 
BSECC believes the views of listed companies are well-represented on 
the Board without the explicit participation of an Issuer Director.\18\
---------------------------------------------------------------------------

    \18\ See note 12, supra.
---------------------------------------------------------------------------

    Second, the Company is proposing an amendment to Section 4.7 of the 
By-Laws to provide that the Board may elect to defer until the next 
annual meeting of stockholders a determination regarding a change in a 
Director's classification and such Director's continued service on the 
Board. Further, if the Board makes such an election, neither the Board 
nor any committee shall be deemed to be in violation of Section 4.3 of 
the By-Laws, which relates to Board composition, or Section 4.13 of the 
By-Laws, which relates to committee composition. BSECC believes that 
this change will assure a fair representation of shareholders and 
participants in the selection of directors and administration of its 
affairs by clarifying the disqualification provisions in the Company's 
By-Laws, which are currently ambiguous. In addition, the change will 
prevent the significant disruption that would occur if the Board were 
forced to replace an otherwise valuable director between annual 
meetings.

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

    Because the proposed rule change relates to the governance of the 
Company and not to the operations of BSECC, BSECC does not believe that 
the proposed rule change will impose any burden on competition not 
necessary or appropriate in furtherance of the purposes of the Act.

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

    No written comments were either solicited or 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 of such 
date (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 BSECC consents, the Commission shall: (a) By order approve or 
disapprove such proposed rule change, or (b) institute proceedings to 
determine whether the proposed rule change should be disapproved.

[[Page 841]]

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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-BSECC-2015-002 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-BSECC-2015-002. 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 (http://www.sec.gov/rules/sro.shtml).
    Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for Web site viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE., Washington, 
DC 20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filing also will be available for inspection 
and copying at the principal offices of BSECC. 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-BSECC-2015-002, and 
should be submitted on or before January 28, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-33305 Filed 1-6-16; 8:45 am]
 BILLING CODE 8011-01-P