Document ID: SEC-2009-1066-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; NASDAQ OMX BX, Inc. and NASDAQ OMX PHLX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Changes Amending the By-Laws of The NASDAQ OMX Group, Inc., Their Parent Company
Posted Date: 2009-07-28T04:00Z

[Federal Register: July 28, 2009 (Volume 74, Number 143)]
[Notices]               
[Page 37277-37280]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28jy09-86]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60358; File Nos. SR-BX-2009-040, SR-Phlx-2009-60]

 
Self-Regulatory Organizations; NASDAQ OMX BX, Inc. and NASDAQ OMX 
PHLX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Changes Amending the By-Laws of The NASDAQ OMX Group, Inc., Their 
Parent Company

July 21, 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 July 16, 2009, NASDAQ OMX BX, Inc. (``BX'') and NASDAQ OMX PHLX, 
Inc. (``Phlx'') (collectively, the ``NASDAQ OMX Exchange 
Subsidiaries'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule changes as described in Items I, II, 
and III below, which Items have been substantially prepared by the 
NASDAQ OMX Exchange Subsidiaries. The Commission is publishing this 
notice to solicit comments on the proposed rule changes from interested 
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organizations' Statement of the Terms of Substance 
of the Proposed Rule Changes

    The NASDAQ OMX Exchange Subsidiaries are filing these proposed rule 
changes with regard to proposed changes to the By-Laws of their parent 
corporation, The NASDAQ OMX Group, Inc. (``NASDAQ OMX''). The proposed 
rule changes will be implemented as soon as practicable following 
submission of these filings. The text of the proposed rule changes is 
available at http://nasdaqomxbx.cchwallstreet.com and http://
nasdaqomxphlx.cchwallstreet.com/nasdaqomxphlx/phlx, respectively, and 
at the respective NASDAQ OMX Exchange Subsidiary's principal office, 
and at the Commission's Public Reference Room.

II. Self-Regulatory Organizations' Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Changes

    In their filings with the Commission, each of the NASDAQ OMX 
Exchange Subsidiaries included statements concerning the purpose of and 
basis for its proposed rule change and discussed any comments it 
received on its proposed rule change. The text of these statements may 
be examined at the

[[Page 37278]]

places specified in Item IV below. Each of the NASDAQ OMX Exchange 
Subsidiaries has prepared summaries, set forth in Sections A, B, and C 
below, of the most significant aspects of such statements.

A. Self-Regulatory Organizations' Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Changes

1. Purpose
    NASDAQ OMX has proposed making certain amendments to its By-Laws to 
make improvements in its governance and update several provisions. In 
SR-NASDAQ-2009-039, The NASDAQ Stock Market LLC (the ``NASDAQ 
Exchange'') sought Commission approval to adopt these By-Law changes as 
part of the rules of the NASDAQ Exchange, and the Commission granted 
approval to these changes in an order dated June 26, 2009.\3\ The 
NASDAQ OMX Exchange Subsidiaries are now submitting these filings on an 
immediately effective basis to adopt the same By-Law changes as rules 
of each Exchange.
---------------------------------------------------------------------------

    \3\ Securities Exchange Act Release No. 59858 (May 4, 2009), 74 
FR 22191 (May 12, 2009) (SR-NASDAQ-2009-039); Securities Exchange 
Act Release No. 60183 (June 26, 2009), 74 FR 32207 (July 7, 2009) 
(SR-NASDAQ-2009-039).
---------------------------------------------------------------------------

    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).\4\ 
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.\5\ 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.
---------------------------------------------------------------------------

    \4\ 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.
    \5\ NASDAQ Exchange Rule 4350(c)(3).
---------------------------------------------------------------------------

     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 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

[[Page 37279]]

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. 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 
\6\ 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.
---------------------------------------------------------------------------

    \6\ The existing reference to ``agents'' in the sentence is 
proposed to be deleted.
---------------------------------------------------------------------------

2. Statutory Basis
    The NASDAQ OMX Exchange Subsidiaries believe that the proposed rule 
changes are consistent with the provisions of Section 6 of the Act,\7\ 
in general, and with Sections 6(b)(1) and (b)(5) of the Act,\8\ in 
particular, in that the proposals enable them 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 are 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.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(1), (5).
---------------------------------------------------------------------------

B. Self-Regulatory Organizations' Statements on Burden on Competition

    The NASDAQ OMX Exchange Subsidiaries do not believe that the 
proposed rule changes 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 Organizations' Statements on Comments on the 
Proposed Rule Changes Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

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

    The foregoing rule changes have become effective pursuant to 
Section 19(b)(3)(A)(iii) of the Act \9\ and subparagraph (f)(6) of Rule 
19b-4 thereunder.\10\ At any time within 60 days of the filing of the 
respective proposed rule change by the applicable NASDAQ OMX Exchange 
Subsidiary, the Commission may summarily abrogate such rule change if 
it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \10\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \11\ normally 
does not become operative for 30 days after the

[[Page 37280]]

date of filing. However, Rule 19b-4(f)(6)(iii) \12\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The NASDAQ 
OMX Exchange Subsidiaries request that the Commission waive the 30-day 
operative delay so that the proposals may become operative immediately 
upon filing. The NASDAQ OMX Exchange Subsidiaries state that the 
proposed rule changes do not significantly affect the protection of 
investors or the public interest and do not impose any significant 
burden on competition.
---------------------------------------------------------------------------

    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public 
interest.\13\ As mentioned above, the Commission recently approved the 
proposed rule change by The NASDAQ Stock Market LLC to adopt as part of 
its rules these same proposed changes to the By-Laws of NASDAQ OMX.\14\
---------------------------------------------------------------------------

    \13\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \14\ See supra, note 3 and accompanying text.
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
changes are 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 Nos. SR-BX-2009-040 and SR-Phlx-2009-60 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 Nos. SR-BX-2009-040 and SR-Phlx-
2009-60. These file numbers should be included on the subject line if 
e-mail 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 changes that 
are filed with the Commission, and all written communications relating 
to the proposed rule changes 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 
filings also will be available for inspection and copying at the 
principal offices of the respective 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 Nos. SR-BX-2009-040 and SR-Phlx-2009-60, and 
should be submitted on or before August 18, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-17889 Filed 7-27-09; 8:45 am]

BILLING CODE 8010-01-P