Document ID: SEC-2011-1413-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: EDGX Exchange, Inc.
Posted Date: 2011-09-20T04:00Z

[Federal Register Volume 76, Number 182 (Tuesday, September 20, 2011)]
[Notices]
[Pages 58317-58319]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-24068]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65329; File No. SR-EDGX-2011-29]

 Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
EDGX By-Laws

September 13, 2011.
    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 September 2, 2011, EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') 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 self-regulatory 
organization. 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 amend the EDGX By-Laws to: (i) Incorporate 
enhanced Nominating Committee responsibilities; (ii) amend the name of 
the Nominating Committee to the Nominating and Governance Committee; 
and (iii) revise By-Law Article V, Section 5(b) to state that nothing 
in the Audit Committee description prohibits or conflicts with the 
Exchange's ability to retain a third party to perform all or a portion 
of its audit function. The text of the proposed rule change is attached 
as Exhibit 5 and is available on the Exchange's Web site at http://www.directedge.com, at the Exchange's principal office, and at the 
Public Reference Room of the Commission.

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 self-regulatory organization has prepared summaries, 
set forth in

[[Page 58318]]

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 purpose of this filing is to make improvements to the 
Exchange's governance, and make certain clarifying amendments to its 
By-Laws. Specifically, the Exchange proposes to: (i) Incorporate 
enhanced Nominating Committee responsibilities; (ii) amend the name of 
the Nominating Committee to the Nominating and Governance Committee; 
and (iii) revise By-Law Article V, Section 5(b) to state that nothing 
in the Audit Committee description prohibits or conflicts with the 
Exchange's ability to retain a third party to perform all or a portion 
of its audit function.
    First, EDGX proposes certain amendments to its By-Laws to improve 
its governance. Article VI, Section 2 of the By-Laws currently 
provides, in pertinent part, that the Nominating Committee shall 
nominate candidates for election to the Board and all other vacant or 
new Director positions on the Board. The Board met and approved the 
assignment of additional responsibilities for the Nominating Committee. 
Specifically, the Committee shall nominate chairpersons to serve on 
committees of the Board; oversee the implementation and effectiveness 
of the By-Laws, committee charters and other governance documents as 
needed; review and make recommendations regarding best practices in 
corporate governance; and oversee an annual self-evaluation of the 
independent Directors and each Board committee.
    The Exchange believes that combining nominating and governance 
functions in a single committee will help ensure a careful 
consideration of nominees through a structured process. Although 
distinct, nominating and governance are related functions. The combined 
functions will allow the Nominating and Governance Committee to play a 
critical role in overseeing matters of corporate governance for the 
Board, including formulating and recommending governance principles. 
The Exchange believes that consolidating these functions in a single 
committee will improve the input of the committee in the overall 
committee process by taking advantage of overlaps in issues emanating 
from each function.
    Combining governance responsibilities will not impair the 
committee's functioning. The overlap in responsibilities should improve 
efficiency as well as coordination within the Exchange, as the same 
group of committee members will oversee the entire nominating and 
governance function. Through these new functions, the Nominating and 
Governance Committee will have a greater role in overseeing Exchange 
governance. As a result, the Committee will be better positioned to 
provide future governance advice, while gaining a better understanding 
of the skills and attributes necessary for a candidate for Board 
membership or committee chairpersonship. By enhancing the quality of 
nominees to the Board, and ensuring the integrity of the nomination 
process, the Exchange believes that these additional functions will 
considerably improve its governance to the benefit of the Exchange and 
its stockholders.
    The Exchange believes that combining nominating and governance 
functions within one committee is consistent with prior precedent, in 
that the Chicago Board Options Exchange, C2 Options Exchange, Inc., 
NYSE Euronext, and the NASDAQ OMX Group, Inc. currently have a 
Nominating and Governance Committee \3\ performing functions similar to 
those proposed in this filing.\4\
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    \3\ See Article IV, Section 4.4 of the By-Laws of the Chicago 
Board Options Exchange; Article IV, Section 4.4 of the By-Laws of 
the C2 Options Exchange, Inc.; Article IV, Section 4.4 of the By-
Laws of NYSE Euronext; Article IV, Section 4.13(h) of the By-Laws of 
the NASDAQ OMX Group, Inc.
    \4\ See Nominating and Governance Committee Charter, Chicago 
Board of Options Exchange (adopted May 17, 2011); Nominating & 
Corporate Governance Committee Charter, NASDAQ OMX Group, Inc. 
(approved July 26, 2010); Nominating and Governance Committee 
Charter, NYSE Euronext (adopted Dec. 12, 2007). Although not named 
the Nominating and Governance Committee, the International 
Securities Exchange's Corporate Governance Committee also performs 
nominating and governance functions similar to those proposed by 
EDGX. See Charter of the Corporate Governance Committee of 
International Securities Exchange, LLC.
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    Second, EDGX By-Laws currently provide for a Nominating Committee 
which Committee is appointed pursuant to the By-Laws. The Exchange is 
proposing to name this Committee the ``Nominating and Governance 
Committee.'' The Exchange proposes to amend the By-Laws to change all 
references to the ``Nominating Committee'' to state ``Nominating and 
Governance Committee.''
    Third, the Exchange added the phrase ``Nothing herein shall 
prohibit or be deemed to be in conflict with the ability of the 
Exchange to retain a third party to perform all or a portion of its 
audit function'' to Article V, Section 5(b) of its By-Laws. Under the 
current powers and responsibilities listed in that section of the By-
Laws, the Audit Committee shall direct and oversee all the activities 
of the Company's internal audit function, including management's 
responsiveness to internal audit recommendations. Specifically, the 
Board seeks to clarify that references to the internal audit function 
relate to internal controls, and do not necessarily require internal 
auditors to perform the internal audit function. Accordingly, this 
amendment does not change the Audit Committee's current 
responsibilities, but is intended to clarify the Exchange's current 
ability to retain a third party auditor through codification in the By-
Laws. The Exchange notes that it shall supervise and retain primary 
responsibility for any action undertaken by a third-party auditor 
retained to perform all or a portion of the Exchange's audit function.
2. Statutory Basis
    The statutory basis for the proposed rule change is Section 6(b)(5) 
of the Act,\5\ which requires the rules of an exchange 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.
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    \5\ 15 U.S.C. 78f(b)(5).
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    Specifically, the proposed additions will improve EDGX's governance 
structure by taking advantage of overlaps in nominating and governance 
functions. The additions promote consistency and efficiency in 
governance by consolidating these functions in one committee. Through 
the implementation of sound governance policies and practices, the 
Nominating Committee can better enhance the quality of Board nominees 
and ensure the integrity of the nomination process. This furthers 
EDGX's ability to be organized in a manner to have the capacity to 
carry out the purposes of the Act consistent with Section 6(b)(1) of 
the Act \6\ and to carry out the purposes of Section 6(b)(5) of the 
Act.\7\
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    \6\ 15 U.S.C. 78f(b)(1).
    \7\ 15 U.S.C. 78f(b)(5).
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    The changes will ensure that the committee's title accurately 
reflects the Nominating Committee's new governance functions as adopted 
by the Board. Codifying the Audit Committee's ability to retain third 
party auditors reflects the Board's determination that outsourcing the 
internal audit function to a third-party auditor can benefit the 
Exchange by providing another

[[Page 58319]]

mechanism to detect and prevent fraudulent and manipulative acts and 
practices. Accordingly, the Exchange believes that the amendments are 
consistent with investor protection and the public interest.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change does not impose any burden on competition 
that is 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

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any unsolicited written comments from members or other interested 
parties.

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 19(b)(3)(A) of the Act \8\ and Rule 19b-4(f)(6) 
\9\ thereunder.
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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. 
EDGX has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \10\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\11\ the Commission 
may 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 so that the proposal 
may become operative immediately upon filing. Because the proposed rule 
change is designed to codify and/or enhance certain of the Exchange's 
governance provisions, the Commission believes that waiving the 30-day 
operative delay is consistent with the protection of investors and the 
public interest, and designates the proposed rule change to be 
operative upon filing with the Commission.\12\
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    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ 17 CFR 240.19b-4(f)(6)(iii).
    \12\ For purposes only of waiving the operative delay for this 
proposal, the Commission has 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.

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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-EDGX-2011-29 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-EDGX-2011-29. This file 
number 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 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 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office 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-EDGX-2011-29 and should be 
submitted on or before October 11, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-24068 Filed 9-19-11; 8:45 am]
BILLING CODE 8011-01-P