Document ID: SEC-2019-0929-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq BX, Inc.
Posted Date: 2019-07-02T04:00Z

[Federal Register Volume 84, Number 127 (Tuesday, July 2, 2019)]
[Notices]
[Pages 31641-31643]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-14053]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86203; File No. SR-BX-2019-021]

Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Harmonize the 
Exchange's By-Law Provisions Regarding the Size of the Exchange's Board 
of Directors to Those of the Other Nasdaq, Inc.-Owned U.S. Exchanges

June 26, 2019.
    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 June 17, 2019, Nasdaq BX, Inc. (``BX'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I and II below, which Items have been 
prepared by the 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 Exchange proposes to harmonize the Exchange's By-Law provisions 
regarding the size of the Exchange's Board of Directors (``Board'') to 
those of the other Nasdaq, Inc.-owned U.S. exchanges, The Nasdaq Stock 
Market LLC (``Nasdaq''), Nasdaq PHLX LLC (``Phlx''), Nasdaq ISE, LLC 
(``ISE''), Nasdaq GEMX, LLC (``GEMX''), and Nasdaq MRX, LLC (``MRX'') 
(together, ``Affiliated Exchanges'').
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaqbx.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 Exchange proposes to amend its By-Laws at Article IV, Section 
4.2 \3\ to conform its provisions regarding the size of the Exchange's 
Board to those of the Affiliated Exchanges.\4\
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    \3\ In Exhibit 5, the references to ``Corporation'' mean the 
Exchange.
    \4\ See Nasdaq Second Amended Limited Liability Company 
Agreement (``Nasdaq LLC Agreement''), Section 9(a); Phlx Second 
Amended Limited Liability Company Agreement (``Phlx LLC 
Agreement''), Section 8(a); and ISE, GEMX, and MRX Limited Liability 
Company Agreements, Section 9(a).
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    By-Law Article IV contains provisions regarding the powers and 
composition of the Board, which are generally aligned with similar 
provisions in the Limited Liability Company (``LLC'') Agreements and 
By-Laws of the Affiliated Exchanges. For instance, as is the case with 
the Affiliated Exchanges, the composition of the Exchange's Board is 
required to reflect a balance among Industry Directors,\5\ Member 
Representative Directors,\6\ and Non-Industry Directors,\7\ including 
Public Directors \8\ and Director representatives of issuers and 
investors (``issuer representatives''). Specifically, the number of 
Non-Industry Directors, including at least one Public Director and at 
least one issuer representative, shall equal or exceed the sum of the 
number of Industry Directors and Member Representative Directors. In 
addition, at least 20% of the Directors shall be Member Representative 
Directors.\9\
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    \5\ ``Industry Director'' means a Director (excluding any two 
officers of the Exchange, selected at the sole discretion of the 
Board, amongst those officers who may be serving as Directors (the 
``Staff Directors'')), who (i) is or has served in the prior three 
years as an officer, director, or employee of a broker or dealer, 
excluding an outside director or a director not engaged in the day-
to-day management of a broker or dealer; (ii) is an officer, 
director (excluding an outside director), or employee of an entity 
that owns more than ten percent of the equity of a broker or dealer, 
and the broker or dealer accounts for more than five percent of the 
gross revenues received by the consolidated entity; (iii) owns more 
than five percent of the equity securities of any broker or dealer, 
whose investments in brokers or dealers exceed ten percent of his or 
her net worth, or whose ownership interest otherwise permits him or 
her to be engaged in the day-to-day management of a broker or 
dealer; (iv) provides professional services to brokers or dealers, 
and such services constitute twenty percent or more of the 
professional revenues received by the Director or twenty percent or 
more of the gross revenues received by the Director's firm or 
partnership; (v) provides professional services to a director, 
officer, or employee of a broker, dealer, or corporation that owns 
fifty percent or more of the voting stock of a broker or dealer, and 
such services relate to the director's, officer's, or employee's 
professional capacity and constitute twenty percent or more of the 
professional revenues received by the Director or twenty percent or 
more of the gross revenues received by the Director's firm or 
partnership; or (vi) has a consulting or employment relationship 
with or provides professional services to the Exchange or any 
affiliate thereof or to FINRA or has had any such relationship or 
provided any such services at any time within the prior three years. 
See By-Law Article I(t).
    \6\ ``Member Representative Director'' means a Director who has 
been elected by the stockholders after having been nominated by the 
Member Nominating Committee or voted upon by Exchange Members 
pursuant to the By-Laws (or elected by the stockholders without such 
nomination or voting in the case of the Member Representative 
Directors elected pursuant to Section 4.3(b)). A Member 
Representative Director may, but is not required to be, an officer, 
director, employee, or agent of an Exchange Member. See By-Law 
Article I(x). Member Representative Directors are directors that 
meet the fair representation requirement in Section 6(b)(3) of the 
Act, which requires that the ``rules of the Exchange assure a fair 
representation of its members in the selection of its directors and 
administration of its affairs. . .''
    \7\ ``Non-Industry Director'' means a Director (excluding Staff 
Directors) who is (i) a Public Director; (ii) an officer or employee 
of an issuer of securities listed on the Exchange; or (iii) any 
other individual who would not be an Industry Director. See By-Law 
Article I(bb).
    \8\ ``Public Director'' means a Director who has no material 
business relationship with a broker or dealer, the Exchange or its 
affiliates, or FINRA. See By-Law Article I(gg).
    \9\ See By-Law Article IV, Section 4.3. The Affiliated Exchanges 
have substantially similar board composition requirements, including 
the requirement that at least 20% of the directors be Member 
Representative Directors. In addition, the By-Laws of Nasdaq, ISE, 
GEMX, and MRX each have an additional board composition requirement 
of at least two issuer representatives if the board consists of ten 
or more directors. See Nasdaq LLC Agreement, Section 9(a) and Nasdaq 
By-Laws, Article III, Section 2(a); Phlx LLC Agreement, Section 8(a) 
and Phlx By-Laws, Article III, Section 3-2(a); and ISE, GEMX, and 
MRX LLC Agreements, Section 9(a) and ISE, GEMX, and MRX By-Laws, 
Article III, Section 2(a).
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    Furthermore, consistent with the Affiliated Exchanges, the 
Exchange's By-Laws presently allow the stockholders \10\ to set the 
exact number of Directors.\11\ Unlike the Affiliated

[[Page 31642]]

Exchanges, however, the Exchange's By-Laws require that the minimum 
Board size be fixed at ten Directors.\12\ The Exchange now proposes to 
remove the minimum threshold of ten Directors contained in the By-Laws 
to align with the provisions in the LLC Agreements of the Affiliated 
Exchanges. The Exchange does not seek to amend the Board's authority or 
qualification requirements in the By-Laws other than to remove this 
minimum threshold. As such, the current requirements that the number of 
Non-Industry Directors (including at least one Public Director and at 
least one issuer representative) equal or exceed the sum of the number 
of Industry Directors and Member Representative Directors, and at least 
20% of the Directors be Member Representative Directors, would continue 
to apply.
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    \10\ Nasdaq, Inc. is the sole stockholder of the Exchange.
    \11\ See By-Law Article IV, Section 4.2. See supra note 4.
    \12\ See By-Law Article IV, Section 4.2. Section 4.2 also 
provides that no decrease in the number of Directors shall shorten 
the term of any incumbent Director.
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    The practical effect of the proposed rule change is to enable the 
size of the Board to be set below ten members. The Exchange believes 
that a Board consisting of less than ten members is sufficiently large 
to effectively perform the Board's oversight responsibilities, and when 
combined with the current Board composition requirements discussed 
above, is consistent with the Act. Furthermore, as noted above, while 
the Affiliated Exchanges have substantially similar provisions in their 
respective LLC Agreements authorizing the sole member to determine the 
number of directors, these LLC Agreement provisions do not have a 
strict minimum threshold on Board size like BX.\13\ As such, the 
proposed changes will further streamline the rules governing the 
organization and administration across BX and the Affiliated Exchanges.
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    \13\ See supra note 4.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\14\ in general, and furthers the objectives of Section 
6(b)(1) of the Act,\15\ which requires that the Exchange to be so 
organized so as to have the capacity to be able to carry out the 
purposes of the Act and to comply, and to enforce compliance by its 
members and persons associated with its members, with the provisions of 
the Act, the rules and regulations thereunder, and the rules of the 
Exchange; Section 6(b)(3) of the Act,\16\ which requires that the rules 
of a national securities exchange assure the fair representation of its 
members in the selection of its directors and administration of its 
affairs, and provide that one or more directors shall be representative 
of issuers and investors and not be associated with a member of the 
exchange, broker, or dealer; and Section 6(b)(5) of the Act,\17\ in 
that it is designed to promote just and equitable principles of trade, 
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 eliminate 
the requirement for a minimum of ten Directors on the Board currently 
in Article IV, Section 4.2 of the Exchange's By-Laws. As discussed 
above, the current Board composition requirements in the By-Laws remain 
unchanged under this proposal, and the requirements that the number of 
Non-Industry Directors (including at least one Public Director and at 
least one issuer representative) equal or exceed the sum of the number 
of Industry Directors and Member Representative Directors, and at least 
20% of the Directors be Member Representative Directors, would continue 
to apply. Accordingly, the Exchange believes that the proposed removal 
of the minimum threshold will improve administrative efficiency and 
effectiveness by operating with a smaller number of directors while 
continuing to fulfill its statutory obligations regarding the fair 
representation of members of the Exchange. In addition, the proposed 
amendments will have the additional benefit of bringing the Exchange's 
requirements on Board size into greater conformity with those of the 
Affiliated Exchanges, which allow for discretion as to the size of 
their boards, thereby creating more consistent standards among the 
affiliated exchanges owned by Nasdaq, Inc.\18\ As such, the Exchange 
believes that its proposal will bring greater consistency to its rules, 
which is beneficial to both investors and the public interest.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(1).
    \16\ 15 U.S.C. 78f(b)(3).
    \17\ 15 U.S.C. 78f(b)(5).
    \18\ See supra note 4.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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. The proposed rule change 
relates solely to the administration and governance of the Exchange and 
will have no effect on the Exchange's business operations or 
competitive position.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \19\ and Rule 19b-
4(f)(6) thereunder.\20\
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \21\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, Rule 19b-4(f)(6)(iii) \22\ permits the Commission to 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay. The Exchange states 
that the annual meeting of the stockholder will take place in June 2019 
to address the election of Directors as well as certain housekeeping 
items, which has historically included setting the size of the Board. 
The Exchange states that the waiver of the operative delay will allow 
the Exchange to harmonize its rules across the Affiliated Exchanges in 
a timely manner, thereby creating more consistent standards for the 
administration and governance across the Nasdaq, Inc.-owned affiliated 
exchanges. Accordingly, the Commission believes that waiver of the 30-
day operative delay is consistent with the protection of investors and 
the public interest. Therefore, the Commission hereby waives the 30-day 
operative delay and designates the

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proposed rule change as operative upon filing.\23\
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    \21\ 17 CFR 240.19b-4(f)(6).
    \22\ 17 CFR 240.19b-4(f)(6)(iii).
    \23\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-BX-2019-021 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-BX-2019-021. 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 website (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 website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-BX-2019-021 and should be submitted on 
or before July 23, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-14053 Filed 7-1-19; 8:45 am]
 BILLING CODE 8011-01-P