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]
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Federal Register / Vol. 81, No. 4 / Thursday, January 7, 2016 / Notices
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[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)
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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.
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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 https://
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.
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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.
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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.
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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.
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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
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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
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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).
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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
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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–
BSECC–2015–002 on the subject line.
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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 (https://www.sec.gov/
rules/sro.shtml).
Copies of the submission, all
subsequent amendments, all written
statements with respect to the proposed
rule change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
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).
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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
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 https://
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.
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\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
https://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.
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\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.
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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.
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\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.
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\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\
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\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 (https://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 (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for Web site viewing and printing in
the Commission's Public Reference Room, 100 F Street NE., Washington,
DC 20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filing also will be available for inspection
and copying at the principal 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
