Document ID: SEC-2009-0637-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2009-05-12T04:00Z

[Federal Register: May 12, 2009 (Volume 74, Number 90)]
[Notices]               
[Page 22191-22194]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12my09-69]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59858; File No. SR-NASDAQ-2009-039]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Amend the Certificate of 
Incorporation and By-Laws of The NASDAQ OMX Group, Inc.

May 4, 2009.
    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 April 27, 2009, The NASDAQ Stock Market LLC (the ``NASDAQ 
Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the NASDAQ Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NASDAQ Exchange is filing this proposed rule change with regard 
to proposed changes to the Restated Certificate of Incorporation (the 
``Certificate'') and the By-Laws of its parent corporation, The NASDAQ 
OMX Group, Inc. (``NASDAQ OMX''). The proposed rule change will be 
implemented as soon as practicable following approval by the 
Commission. The text of the proposed rule change is available at http:/
/www.cchwallstreet.com/nasdaq, at the NASDAQ Exchange's principal 
office, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the NASDAQ 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 NASDAQ Exchange has prepared summaries, 
set forth in Sections A, B, and C below, of the most significant 
aspects of such statements.

[[Page 22192]]

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

1. Purpose
    NASDAQ OMX is proposing to make certain amendments to its By-Laws 
to make improvements in its governance and update several provisions.
    The proposed changes to the By-Laws are as follows:
     Article I is being amended to reflect the recent name 
changes of the Philadelphia Stock Exchange and the Boston Stock 
Exchange to NASDAQ OMX PHLX, Inc. and NASDAQ OMX BX, Inc., 
respectively.
     Article III is being amended to modify the procedures 
governing proposals by stockholders, including proposals by 
stockholders to nominate directors. Specifically, the amendment will 
require a stockholder making a proposal to supply more complete 
information about the stockholder's background, including a description 
of any agreement, arrangement, or understanding between the 
stockholder, the beneficial owner of the stock, and any other persons 
acting in concert with them; a description of any agreement, 
arrangement or understanding (including any derivative or short 
positions, profit interests, options, warrants, convertible securities, 
stock appreciation or similar rights, hedging transactions, and 
borrowed or loaned shares), the effect or intent of which is to 
mitigate loss to, manage risk or benefit of share price changes for, or 
increase or decrease the voting power of, such stockholder or such 
beneficial owner, with respect to shares of stock of NASDAQ OMX; and 
any other information regarding the stockholder and beneficial owner 
that would be required to be disclosed in a proxy statement under 
Section 14(a) of the Act. These changes are designed to provide the 
NASDAQ OMX Board of Directors and its stockholders with greater insight 
into the identity and intentions of persons presenting stockholder 
proposals to allow more thorough consideration of the merits of such 
proposals. These requirements are deemed satisfied, however, in the 
case of a proposal that is validly submitted under the rules and 
regulations promulgated under the Act (i.e., SEC Rule 14a-8) and 
included in NASDAQ OMX's proxy. However, compliance with the By-Laws or 
with SEC Rule 14a-8 provides the exclusive means for stockholders to 
make proposals. The amendments also provide that a representative of a 
stockholder qualified to appear at an annual meeting must be an 
officer, manager or partner of the stockholder or must have written 
authorization from the stockholder. The amendments also make several 
minor clarifying changes to the text of Article III.
     Article IV is being amended to state explicitly that the 
Management Compensation Committee and the Audit Committee must be 
composed exclusively of independent directors within the meaning of the 
rules of the NASDAQ Stock Market that govern NASDAQ OMX's listing (and, 
in the case of the Audit Committee, Section 10A of the Act).\3\ 
Although NASDAQ OMX adheres scrupulously to the independence 
requirements imposed by the NASDAQ Stock Market and the Act, it 
believes that these requirements should be explicitly stated in the By-
Laws as well. NASDAQ OMX is also removing language making its Chief 
Executive Officer an ex-officio, non-voting member of the Management 
Compensation Committee. In this regard, listing standards of the NASDAQ 
Stock Market require management compensation determinations regarding 
executive officers to be made by vote of the Board's independent 
directors, or by vote of or upon the recommendation of a committee 
composed solely of independent directors.\4\ NASDAQ OMX has satisfied 
this requirement by submitting compensation decisions to the vote of 
all of NASDAQ OMX's independent directors, but removing the Chief 
Executive Officer as an ex-officio director will provide it with 
flexibility to act upon the vote or upon the recommendation of the 
committee.
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    \3\ 15 U.S.C. 78j-1(m). Notably, ``Staff Directors,'' who are 
officers of NASDAQ OMX serving on the NASDAQ OMX Board, are not 
considered independent under these provisions, and are therefore 
ineligible for service on the Audit Committee or Management 
Compensation Committee, or, as discussed below, the newly 
constituted Nominating Committee.
    \4\ NASDAQ Exchange Rule 4350(c)(3).
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     Currently, NASDAQ OMX's Nominating Committee is required 
to be composed of persons who are not directors or who are directors 
not standing for re-election. This compositional requirement, which 
NASDAQ OMX's predecessor, The Nasdaq Stock Market, Inc., originally 
adopted while it was a wholly owned subsidiary of the National 
Association of Securities Dealers (``NASD''), is highly unusual for a 
public company such as NASDAQ OMX. In light of NASDAQ OMX's continued 
evolution into a public company with global operations, NASDAQ OMX 
believes that it is appropriate to adopt a standard nominating 
committee structure in which the committee is composed exclusively of 
independent directors. Under the amended by-law, the nominating 
committee shall consist of four or five directors, each of whom shall 
be an independent director within the meaning [sic] the rules of the 
NASDAQ Exchange. In addition, the number of Non-Industry Directors 
(i.e., Directors without material ties to the securities industry) must 
equal or exceed the number of Industry Directors, and at least two 
members of the committee must be Public Directors (i.e., directors who 
have no material business relationship with a broker or dealer, NASDAQ 
OMX or its affiliates, or FINRA).
     Article VIII is being amended to provide that NASDAQ OMX 
shall provide indemnification against liability, advancement of 
expenses, and the power to purchase and maintain insurance on behalf of 
persons serving as a director, officer, or employee of any wholly owned 
subsidiary of NASDAQ OMX to the same extent as indemnification, 
advancement of expenses, and the power to maintain insurance is 
provided for directors, officers, or employees of NASDAQ OMX. Thus, for 
example, a director of one of NASDAQ OMX's US or Nordic exchanges would 
be entitled to indemnification (and advancement of expenses) by NASDAQ 
OMX if made a party to a lawsuit to the same extent as a director of 
NASDAQ OMX. Similarly, the discretionary authority of NASDAQ OMX under 
Section 8.1(c) of the By-Laws to provide indemnification to persons 
serving as an agent of NASDAQ OMX is being extended to persons serving 
as an agent of any wholly owned subsidiary of NASDAQ OMX. Article VIII 
is also amended to clarify that any repeal, modification or amendment 
of, or adoption of any provision inconsistent with, the indemnification 
and advancement of expenses provided for in Article VIII will not 
adversely affect the right of any person covered by the provision if 
the act or omission that any proceeding arises out of or is related to 
had occurred prior to the time for the repeal, amendment, adoption or 
modification.
     Article IX is being amended to modernize the language of 
the provisions dealing with capital stock to reflect possible 
participation in the Direct Registration System (the ``DRS''). The DRS 
provides for the electronic registration of eligible securities in an 
investor's name on the books of the transfer agent or corporation, 
eliminating the need for physical stock certificates or shares held in 
book-entry form by the beneficial owner's broker.

[[Page 22193]]

Although under the Delaware General Corporation Law, NASDAQ OMX can 
authorize participation in the program through a resolution, the 
various amendments to Article IX track more closely the language of 
Section 158 of the Delaware General Corporation Law, as recently 
revised, to explicitly reference the possibility of capital stock in 
uncertificated form. The amendments, however, do not require NASDAQ OMX 
to participate in the DRS or to eliminate stock certificates.
    Article XII is being amended to conform certain of its provisions 
more closely to corresponding provisions in the Amended and Restated 
By-Laws of NYSE Euronext (the ``NYSE Euronext By-Laws''). Article XII 
contains provisions that govern the relationship between NASDAQ OMX and 
each of its subsidiaries that is a self-regulatory organization. First, 
the article requires NASDAQ OMX's ``[d]irectors, officers, employees, 
and agents'' (emphasis added) to give due regard to the preservation of 
the independence of each self-regulatory subsidiary, not to take any 
actions that would interfere with each self-regulatory subsidiary's 
regulatory functions, to cooperate with the Commission, to consent to 
U.S. jurisdiction, and to consent in writing to the applicability of 
these provisions. Corresponding provisions of Articles VII, VIII, and 
IX of the NYSE Euronext By-Laws, however, do not include the ambiguous 
and potentially expansive word ``agent.'' NASDAQ OMX is concerned that 
a broad construction of the term--to include not only parties with 
which it establishes an explicit contractual agency relationship, but 
also other service providers such as law firms and financial advisors 
that may act on NASDAQ OMX's behalf on certain occasions--may deter 
some parties from providing services to NASDAQ OMX. However, in lieu of 
the requirement to obtain specific consents from agents, NASDAQ OMX 
proposes to adopt a provision from the NYSE Euronext By-Laws providing 
that NASDAQ OMX shall comply with the U.S. Federal securities laws and 
the rules and regulations thereunder and shall cooperate with the SEC 
and the Self-Regulatory Subsidiaries pursuant to and to the extent of 
their respective regulatory authority, and shall take reasonable steps 
necessary to cause its agents to cooperate, with the SEC and, where 
applicable, the Self-Regulatory Subsidiaries pursuant to their 
regulatory authority. Second, Article XII provides that NASDAQ OMX and 
its officers, directors and employees \5\ agree to maintain an agent 
for service of process in the U.S. By contrast, Article VII of the NYSE 
Euronext By-Laws includes a statement that officers, directors and 
employees shall be deemed to agree that the Corporation may serve as 
the U.S. agent for service of process. Accordingly, NASDAQ OMX proposes 
to adopt this more self-executing version. Finally, while the NASDAQ 
OMX By-Laws provide that NASDAQ OMX shall take such action as is 
necessary to insure that officers, directors and employees consent in 
writing to the applicability of these provisions, Article IX of the 
NYSE Euronext By-Laws requires only that NYSE Euronext take reasonable 
steps necessary to cause officers, directors, and employees to consent. 
Although NASDAQ OMX has begun the process of collecting written 
consents from current officers, directors, and employees, it believes 
that the current language may be unreasonably demanding as applied to a 
multinational exchange operator with over 2,000 employees in over 20 
countries. Accordingly, NASDAQ OMX proposes to adopt a version of NYSE 
Euronext's language, which will require reasonable steps to obtain 
consent from both current officers, directors, and employees, as well 
as prospective officers, directors, and employees prior to their 
acceptance of a position.
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    \5\ The existing reference to ``agents'' in the sentence is 
proposed to be deleted.
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2. Statutory Basis
    The NASDAQ Exchange believes that the proposed rule change is 
consistent with the provisions of Section 6 of the Act,\6\ in general, 
and with Sections 6(b)(1) and (b)(5) of the Act,\7\ in particular, in 
that the proposal enables the NASDAQ Exchange to be so organized as to 
have the capacity to be able to carry out the purposes of the Act and 
to comply with and enforce compliance by members and persons associated 
with members with provisions of the Act, the rules and regulations 
thereunder, and self-regulatory organization rules, and is designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest. The proposed changes will 
enhance the clarity of NASDAQ OMX's governance documents and improve 
its Board committee structures.
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    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(1), (5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The NASDAQ Exchange does not believe that the proposed rule change 
will result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended.

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

    Written comments were neither solicited nor received.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    A. by order approve such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2009-039 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2009-039. This 
file number should be included on the subject line if e-mail is used.

[[Page 22194]]

    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 inspection 
and copying in the Commission's Public Reference Room on official 
business days between the hours of 10 a.m. and 3 p.m. Copies of such 
filing also will be available for inspection and copying at the 
principal offices of the Exchange. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly.
    All submissions should refer to File Number SR-NASDAQ-2009-039, and 
should be submitted on or before June 2, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-10994 Filed 5-11-09; 8:45 am]

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