Document ID: SEC-2012-1907-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2012-11-20T05:00Z

[Federal Register Volume 77, Number 224 (Tuesday, November 20, 2012)]
[Notices]
[Pages 69677-69679]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-28192]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68233; File No. SR-NYSEArca-2012-103]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Changes Amending NYSE Arca, Inc. Rules 3.2 
and 3.3 and NYSE Arca Equities, Inc. Rules 3.2 and 3.3 To Expand the 
Eligibility Requirements for Service on Certain Boards of Directors and 
Committees

November 14, 2012.

I. Introduction

    On September 18, 2012, NYSE Arca, Inc. (``NYSE Arca'') filed with 
the Securities and Exchange Commission (``Commission''), pursuant to 
Section 19(b)(1) \1\ of the Securities Exchange Act of 1934 
(``Act''),\2\ and Rule 19b-4 thereunder,\3\ proposed rule changes to 
amend NYSE Arca Rules 3.2 and 3.3 and NYSE Arca Equities, Inc. (``NYSE 
Arca Equities'') Rules 3.2 and 3.3 to expand the eligibility 
requirements for service on the Board of Directors of NYSE Arca (``NYSE 
Arca Board'') and certain committees of NYSE Arca and NYSE Arca 
Equities. The proposed rule changes were published for comment in the 
Federal Register on October 1, 2012.\4\ The Commission received no 
comment letters on the proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ See Securities Exchange Act Release No. 67923 (September 25, 
2012), 77 FR 59995 (SR-NYSEArca-2012-103) (the ``Notice'').
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II. Background

Amendments to NYSE Arca Rules 3.2 and 3.3

    NYSE Arca Rule 3.2(a) sets forth the general provisions for Options 
Committees. Specifically, NYSE Arca Rule 3.2(a)(8) states that any OTP 
Holder \5\ of the Exchange in good standing, Allied Person \6\ of an 
OTP Firm,\7\ or person from the public is eligible for appointment or 
election to various Options Committees. NYSE Arca Rule 3.2(b) sets 
forth the eligibility requirements for three specific Options 
Committees: The Ethics and Business Conduct Committee (the ``EBCC 
Committee''), the Nominating Committee, and the OTP Advisory 
Committee.\8\ NYSE Arca Rule 3.3(a) sets forth the eligibility 
requirements for the Board Appeals Committee and Appeals

[[Page 69678]]

Panel.\9\ The Exchange proposes to amend its rules to expand the 
eligibility requirements to serve on these various committees and 
panels to include OTP Holders, Allied Persons of OTP Firms and 
Associated Persons \10\ of OTP Firms.
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    \5\ An ``OTP Holder'' is a natural person, in good standing, who 
has been issued an Options Trading Permit (``OTP''), or has been 
named as a nominee. See NYSE Arca Rule 1.1(q).
    \6\ An ``Allied Person'' (for purposes of NYSE Arca Rules) is an 
individual who is (1) an employee of an OTP Firm who controls such 
firm, (2) an employee of an OTP Firm corporation who is a director 
or a principal executive officer of such corporation, (3) an 
employee of an OTP Firm limited liability company who is a manager 
or a principal executive officer of such limited liability company, 
or (4) a general partner in an OTP Firm partnership. Each of these 
persons must be approved by the Exchange as an Allied Person. See 
NYSE Arca Rule 1.1(b).
    \7\ ``OTP Firm'' means a sole proprietorship, partnership, 
corporation, limited liability company, or other organization in 
good standing who holds an OTP or upon whom an individual OTP Holder 
has conferred trading privileges on the Exchange's trading 
facilities. See NYSE Arca Rule 1.1(r).
    \8\ The EBCC currently consists primarily of OTP Holders and 
Allied Persons of an OTP Firm. See NYSE Arca Rule 3.2(b)(1)(A). The 
Nominating Committee currently consists of six OTP Holders. See NYSE 
Arca Rule 3.2(b)(2)(A). The OTP Advisory Committee currently 
consists of OTP Holders. See NYSE Arca Rule 3.2(b)(3)(A).
    \9\ Each Appeals Panel is made up of no less than three (3) but 
no more than five (5) individuals, at least one of whom is a 
director that is an OTP Holder or Allied Person of an OTP Firm. See 
NYSE Arca Rule 3.3(a)(1)(B).
    \10\ ``Associated Person'' is person who is a partner, officer, 
director, member of a limited liability company, trustee of a 
business trust, employee of an OTP Firm, or any person directly or 
indirectly controlling, controlled by or under common control with 
an OTP Firm. See NYSE Arca Rule 1.1(d).
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    The Exchange also proposes to expand the eligibility for its fair 
representation directors.\11\ Currently, the Nominating Committee 
publishes the name of one OTP Holder or Allied Person of an OTP Firm as 
its nominee for the NYSE Arca Board.\12\ The Exchange proposes to 
expand the eligibility for fair representation directors by amending 
this rule to allow the Nominating Committee to publish the name of an 
Associated Person of an OTP Firm as well.
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    \11\ Under Section 3.02(a) of the Bylaws of NYSE Arca, the NYSE 
Arca Board must have 8-12 directors, and at least 20 percent of the 
directors must be individuals nominated by trading permit holders, 
with at least one director nominated by the Equities Trading Permit 
Holders (``ETP Holders'') of NYSE Arca Equities, and at least one 
director nominated by the OTP Holders of the Exchange. In addition, 
at least 50 percent of the directors must be directors who represent 
the public. The exact number of the directors nominated by the ETP 
Holders and OTP Holders is determined from time to time by the NYSE 
Arca Board, subject to the percentage restrictions described above.
    \12\ See NYSE Arca Rule 3.2(b)(2)(C)(ii).
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Amendments to NYSE Arca Equities Rules

    The Exchange proposes to make parallel changes to the NYSE Arca 
Equities Rules. NYSE Arca Equities Rule 3.2(a) sets forth general 
provisions for various Equities Committees. Specifically, NYSE Arca 
Equities Rule 3.2(a)(8) states that any ETP Holder \13\ of the Exchange 
in good standing or Allied Person \14\ of an ETP Holder,\15\ or person 
from the public is eligible for appointment or election to Equities 
Committees. NYSE Arca Equities Rule 3.2(b) sets forth provisions for 
two specific Equities Committees: The Business Conduct Committee (the 
``BCC Committee'') and the Nominating Committee (the ``Equities 
Nominating Committee'').\16\ NYSE Arca Rule 3.3(a) sets forth the 
eligibility requirements for the Board Appeals Committee.\17\ The 
Exchange proposes to amend the rules of NYSE Arca Equities so to expand 
the eligibility requirements to serve on these various committees and 
panels to include ETP Holders, Allied Persons of ETP Firms and 
Associated Persons \18\ of ETP Firms.
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    \13\ An ``ETP Holder'' is a sole proprietorship, partnership, 
corporation, limited liability company or other organization in good 
standing that has been issued an Equities Trading Permit. See NYSE 
Arca Equities Rule 1.1(n).
    \14\ An ``Allied Person'' (for purposes of NYSE Arca Equities 
Rules) is an individual who is (1) an employee of an ETP Holder who 
controls such firm, (2) an employee of an ETP Holder corporation who 
is a director or a principal executive officer of such corporation, 
(3) an employee of an ETP Holder limited liability company who is a 
manager or a principal executive officer of such limited liability 
company, or (4) a general partner in an ETP Holder partnership; each 
of these persons must be approved by NYSE Arca Equities as an Allied 
Person. See NYSE Arca Equities Rule 1.1(c).
    \15\ ETP Firm means a sole proprietorship, partnership, 
corporation, limited liability company, or other organization in 
good standing who holds an OTP or upon whom an individual OTP Holder 
has conferred trading privileges on the Exchange's trading 
facilities. See NYSE Arca Rule 1.1(r).
    \16\ The BCC currently consists of a minimum of one ETP Holder 
or Allied Persons of an ETP Holder. See NYSE Arca Equities Rule 
3.2(b)(1)(A). The Nominating Committee currently consists of six ETP 
Holders. See NYSE Arca Equities Rule 3.2(b)(2)(A).
    \17\ Each Appeals Committee currently consists of at least one 
public director and at least one director that is an ETP Holder or 
Allied Person of an ETP Firm. See NYSE Arca Equities Rule 
3.3(a)(1)(A).
    \18\ ``Associated Person'' is person who is a partner, officer, 
director, member of a limited liability company, trustee of a 
business trust, employee of an ETP Holder, or any person directly or 
indirectly controlling, controlled by or under common control with 
an ETP Holder. See NYSE Arca Equities Rule 1.1(f).
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    In addition to amending the composition requirements of the 
Equities Nominating Committee, the Exchange also proposes to amend NYSE 
Arca Rules 3.2(b)(2)(C)(i) to expand the eligibility for fair 
representation directors. Currently, the Equities Nominating Committee 
may nominate ETP Holders or Allied Persons of ETP Holders to serve on 
the NYSE Arca Board. The Exchange proposes to expand the eligibility 
for fair representation directors by amending this rule to allow the 
Equities Nominating Committee to publish the name of an Associated 
Person of an ETP Firm as well.

III. Discussion and Commission Findings

    The Commission has reviewed carefully the proposed rule changes and 
finds that the proposed rule changes are consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\19\ In particular, the 
Commission finds that the proposed rule changes are consistent with 
Section 6(b)(3) of the Act,\20\ which, among other things, requires 
that the rules of an exchange assure a fair representation of its 
members in the selection of its directors and administration of its 
affairs and provides 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. As the Exchange notes, the proposed rule 
changes are consistent with the composition requirements set forth in 
the governing documents of other self-regulatory organizations.\21\ The 
Exchange is not proposing to alter the number of fair representation 
candidates on the boards or any other aspect of the NYSE Arca Board's 
composition or nomination process.
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    \19\ In approving the proposed rule changes, the Commission has 
considered their impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \20\ 15 U.S.C. 78f(b)(3).
    \21\ See Notice, supra note 3 at 59995-59997.
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    The proposed rule change also furthers the objectives of Section 
6(b)(6) of the Act,\22\ because it provides for appropriate discipline 
for violations of Exchange rules and regulations. The Commission 
believes that the proposed rule change will expand the available 
candidates with industry knowledge that are eligible for membership on 
the Options and Equities Committees that are involved in reviewing 
disciplinary actions against OTP Holders, OTP Firms, and ETP Holders 
and advising on rule changes related to disciplinary matters and 
trading rules.
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    \22\ 15 U.S.C. 78f(b)(6).
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    The Commission also believes that the proposed rule change furthers 
the objectives of Section 6(b)(5) of the Act \23\ in that it 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. Specifically, 
the Commission believes the proposed rule change would expand the pool 
of candidates eligible for membership on the NYSE Arca Board and 
committees of NYSE Arca and NYSE Arca Equities and thereby increase the 
breadth of industry knowledge that would be available to these 
entities, which should benefit the public interest.
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    \23\ 15 U.S.C. 78f(b)(5).

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[[Page 69679]]

IV. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule changes are consistent with the Act and the rules and regulations 
thereunder applicable to a national securities exchange.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\24\ that the proposed rule changes (SR-NYSEArca-2012-103), are 
approved.
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    \24\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
Kevin M. O'Neill,
Deputy Secretary.
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    \25\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2012-28192 Filed 11-19-12; 8:45 am]
BILLING CODE 8011-01-P