Document ID: SEC-2012-1016-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2012-06-28T04:00Z

[Federal Register Volume 77, Number 125 (Thursday, June 28, 2012)]
[Notices]
[Pages 38701-38704]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-15807]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67244; File No. SR-NYSEArca-2012-67]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Amending NYSE Arca Rule 3.2 and NYSE Arca 
Equities, Inc. Rule 3.2, Which Concern the Nomination and Election of 
Fair Representation Directors

June 22, 2012.
    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 18, 2012, NYSE Arca, Inc. (the ``Exchange'' or ``NYSE Arca'') 
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 NYSE Arca. 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 NYSE Arca Rule 3.2 and NYSE Arca 
Equities, Inc. (``NYSE Arca Equities'') Rule 3.2, which concern the 
nomination and election of fair representation directors. The text of 
the proposed rule change is available on the Exchange's Web site at 
www.nyse.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 self-regulatory organization 
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 those 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 parts 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 NYSE Arca Rule 3.2 and NYSE Arca 
Equities Rule 3.2, which concern the nomination and election of fair 
representation directors.
Background
    Section 6(b)(3) of the Securities Exchange Act of 1934, as amended 
(the ``Act''), requires that the rules of an exchange shall ``assure a 
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.'' \3\ 
Exchange members who serve on exchange boards thus are sometimes 
referred to as ``fair representation directors.'' NYSE Arca Rule 3.2 
sets forth a process for the nomination and selection of fair 
representation directors for the NYSE Arca Board of Directors (``NYSE 
Arca Board''), and NYSE Arca Equities Rule 3.2 sets forth a similar 
process for the nomination and selection of fair representation 
directors for the NYSE Arca Equities Board of Directors (``Equities 
Board'').\4\
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    \3\ 15 U.S.C. 78f(b)(3).
    \4\ NYSE Arca Equities is a wholly-owned subsidiary of NYSE 
Arca.
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    The Exchange proposes to amend both rules to streamline those 
processes and make them more similar to the processes used by the New 
York Stock Exchange LLC (``NYSE'') \5\ and NYSE MKT LLC (``NYSE 
MKT'').\6\
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    \5\ See Section 2.03(a) of the Third Amended and Restated 
Operating Agreement of New York Stock Exchange LLC (``NYSE Operating 
Agreement''), available at http://usequities.nyx.com/sites/corporate.nyx.com/files/thirdamendedandrestatedoperatingagreementofnewyorkstockexchangellc.pdf [sic]; Article III, Sections 1(C) and 5 of the Amended and 
Restated Bylaws of NYSE Market, Inc. (``NYSE Market Bylaws''), 
available at http://usequities.nyx.com/sites/usequities.nyx.com/files/final_second_amended_and_restated_bylaws_of_nyse_market_inc_0.pdf and Article III, Sections 1(C) and 5 of the Third 
Amended and Restated Bylaws of NYSE Regulation, Inc. (``NYSE 
Regulation Bylaws''), available at http://www.nyse.com/pdfs/SecondAmendedandRestatedBylawsofNYSERegulationInc.PDF.
    \6\ See Second Amended and Restated Operating Agreement of NYSE 
MKT LLC (``NYSE MKT Operating Agreement''), Section 2.03(a) and (h), 
available at http://nyseamexrules.nyse.com/AMEX/pdf/operating_agreement.pdf.
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Amendments to NYSE Arca Rules
    Under Section 3.02(a) of the NYSE Arca Bylaws, the NYSE Arca Board 
must have 8-12 Directors, and at least

[[Page 38702]]

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 Options Trading Permit Holders 
(``OTP Holders'') of the Exchange.\7\ The exact number of Permit Holder 
Directors is determined from time to time by the NYSE Arca Board, 
subject to the percentage restrictions described above.
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    \7\ In addition, at least 50 percent of the directors must be 
directors who represent the public. The Nominating Committee of NYSE 
Arca Holdings, Inc. (``NYSE Arca Holdings'') nominates the directors 
for election to the NYSE Arca Board (other than the fair 
representation directors) at the annual meeting of NYSE Arca 
Holdings. NYSE Arca is a non-stock corporation with one authorized 
membership interest; the sole member is NYSE Arca Holdings. See 
Sections 2.01 and 3.02 of the NYSE Arca Bylaws.
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Nominating Committee Composition and Appointment
    The Exchange proposes to amend NYSE Arca Rule 3.2(b)(2)(A) and (B) 
to change the composition of, and the appointment process for, the 
Nominating Committee for fair representation directors. Currently, the 
Nominating Committee has seven members, consisting of six OTP Holders 
and one member of the public. Sixty-five days prior to the expiration 
of the term of its members, the Nominating Committee publishes a slate 
of six eligible nominees to fill the positions during the next annual 
term of the Nominating Committee. OTP Holders in good standing may 
submit a petition to the Exchange to nominate additional eligible 
candidates to fill the OTP positions on the Nominating Committee, and 
the Chief Executive Officer of NYSE Arca appoints the public member to 
the Nominating Committee. If there are more than six nominees to the 
Nominating Committee, the Nominating Committee submits the nominees to 
the OTP Holders for an election.
    The Exchange proposes to eliminate the public member position from 
the Nominating Committee and eliminate the nomination process for the 
Nominating Committee members and instead have the NYSE Arca Board 
appoint the members of the Nominating Committee. This change would be 
consistent with the fair representation nominating committee 
composition and selection processes followed by NYSE and NYSE MKT; each 
of those exchanges utilizes an appointed Director Candidate 
Recommendation Committee, which serves the same purpose as the 
Nominating Committee, and which does not include a public member.\8\
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    \8\ See Section 2.03(a)(iii) and (iv) of the NYSE Operating 
Agreement; Article III, Section 5 of the NYSE Market Bylaws; Article 
III, Section 5 of the NYSE Regulation Bylaws; and Section 2.03(h) of 
the NYSE MKT Operating Agreement.
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Petition Process for Fair Representation Director Nominees
    Under current NYSE Arca Rule 3.2(b)(2)(C)(ii), the Nominating 
Committee publishes the names of the fair representation director 
nominees to the NYSE Arca Board no later than 65 days prior to the 
expiration of the term of its directors. OTP Holders may submit a 
petition to add another nominee within 10 business days after the 
Nominating Committee publishes its nominees to the NYSE Arca Board. If 
a written petition of the lesser of 35 OTP Holders or 10 percent of OTP 
Holders in good standing is submitted to the Nominating Committee, such 
person also is nominated by the Nominating Committee. The Board of 
Directors of NYSE Arca Holdings has 10 business days to object to the 
nominees in its sole discretion and may object to the nomination of a 
nominee if the nominee has been disciplined by any self-regulatory 
organization or is subject to a statutory disqualification under 
Section 3(a)(39) of the Act. If the Board of Directors of NYSE Arca 
Holdings objects to all the proposed nominees, the Nominating Committee 
must publish the names of eligible alternative nominees.
    The Exchange proposes to amend this process to make it more 
efficient and more consistent with the petition process for fair 
representation directors for NYSE and NYSE MKT. Under proposed NYSE 
Arca Rule 3.2(b)(2)(C)(ii), the Nominating Committee would publish the 
names of the nominees to the Board of Directors on an ``Announcement 
Date'' each year sufficient to accommodate the nomination and petition 
processes of the proposed rule. OTP Holders in good standing would be 
permitted to nominate additional eligible candidates if a written 
petition of at least 10 percent of OTP Holders in good standing were 
submitted to the Nominating Committee within two weeks after the 
Announcement Date. The Exchange believes that the current 65-day period 
is unnecessarily long, and that instead using the Announcement Date 
with petitions due two weeks thereafter would be more efficient while 
preserving OTP Holders' rights and creating consistency with the 
processes used by NYSE and NYSE MKT.\9\ The proposed rule differs from 
the current rule in that it eliminates the option for 35 OTP Holders, 
if they represent less than 10 percent of OTP Holders, to submit a 
petition. The Exchange believes that setting a minimum of 10 percent is 
appropriate and consistent with current NYSE and NYSE MKT processes as 
well as current NYSE Arca Equities Rule 3.2(b)(2)(C)(i). The current 
deadline for submitting petition nominations is 10 business days, which 
generally will be the same as the proposed deadline of two weeks, but 
the proposed change will make the time periods identical for all three 
exchanges.
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    \9\ See Section 2.03(a)(iv) of the NYSE Operating Agreement and 
Section 2.03(a)(iv) of the NYSE MKT Operating Agreement.
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    Under the proposed rule, each petition candidate would be required 
to include a completed questionnaire used to gather information 
concerning director candidates, and the Nominating Committee would 
determine whether the petition candidate is eligible to serve on the 
NYSE Arca Board (including whether such person was free of a statutory 
disqualification under Section 3(a)(39) of the Act), and such 
determination would be final and conclusive. The Exchange believes 
that, similar to the NYSE and NYSE MKT processes,\10\ the Nominating 
Committee, rather than the Board of Directors of NYSE Arca Holdings, 
should determine the qualifications of a petition candidate. The 
questionnaire would be a new requirement to assist the Nominating 
Committee in reaching its decision. Such a questionnaire is already 
used by NYSE and NYSE MKT.\11\
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    \10\ The NYSE Euronext nominating and governance committee 
evaluates the qualifications of petition candidates. Id.
    \11\ Id.
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Contested Nominations
    Under current NYSE Arca Rule 3.2(b)(2)(C)(iii), in the event that 
the OTP Holder position is nominated by the Nominating Committee 
pursuant to petition by the OTP Holders, and there are two or more 
nominees for the NYSE Arca Board, the Nominating Committee must submit 
the contested nomination to the OTP Holders for selection. The nominee 
for the NYSE Arca Board selected by the most OTP Holders is submitted 
by the Nominating Committee to the NYSE Arca Board. The Exchange 
proposes to amend this text to simplify it and provide that if the 
number of nominees exceeds the number of available seats, the 
Nominating Committee would submit the contested nomination to the OTP

[[Page 38703]]

Holders for selection, and the nominee for the NYSE Arca Board 
receiving the most votes of OTP Holders would be submitted by the 
Nominating Committee to the NYSE Arca Board. The current rule does not 
describe the voting process. The Exchange proposes to amend the rule to 
explicitly provide that OTP Holders would be afforded no less than 20 
calendar days to submit their votes on a confidential basis.
Amendments to NYSE Arca Equities Rules
    Similar to the NYSE Arca Bylaws, Section 3.02(a) of the NYSE Arca 
Equities Bylaws (``Equities Bylaws'') requires that at least 20 percent 
of the Equities Board, but no fewer than two Directors, must be 
nominees of the Nominating Committee of the Equities Board (``Equities 
Nominating Committee'') selected in accordance with NYSE Arca Equities 
Rule 3.2. Under Section 3.02(e) of the Equities Bylaws, the Equities 
Board nominates directors for election at the annual meeting of 
stockholders, and such nominations must comply with Section 3.02(a) of 
the Equities Bylaws and NYSE Arca Equities Rules.\12\
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    \12\ A 10-member Equities Board must include two nominees of the 
Nominating Committee, five from the public (including at least three 
from the NYSE Arca Board), one individual from a firm employing an 
ETP or Equity ASAP holder (which individual serves concurrently on 
the NYSE Arca Board), the chief executive officer of the NYSE Arca, 
and the current president of NYSE Arca Equities (unless the 
president has notified the Corporation of his or her intention to 
resign or retire, in which case, the designated successor president 
shall be nominated.) See Section 3.02(e) of the Equities Bylaws.
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Nominating Committee Composition and Appointment
    Current NYSE Arca Equities Rule 3.2(b)(2)(A) and (B) are similar to 
the counterpart NYSE Arca rules described above. Under current NYSE 
Arca Equities Rule 3.2(b)(2)(A), the Equities Nominating Committee has 
seven members, consisting of six ETP Holders and one member of the 
public. Under current NYSE Arca Equities Rule 3.2(b)(2)(B), 65 days 
prior to the expiration of the term of its members, the Equities 
Nominating Committee publishes a slate of six eligible nominees to fill 
the positions of the Equities Nominating Committee during the next 
annual term. ETP Holders in good standing may submit a petition to the 
Exchange to nominate additional eligible candidates to fill the ETP 
positions on the Equities Nominating Committee, and the Chief Executive 
Officer of NYSE Arca Equities appoints the public member to the 
Equities Nominating Committee.\13\ If there are more than six nominees 
to the Equities Nominating Committee, the Equities Nominating Committee 
submits the nominees to the ETP Holders for an election.
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    \13\ The NYSE Arca and NYSE Arca Equities rules differ with 
respect to how many trading permit holders are required to submit a 
petition.
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    As proposed with respect to NYSE Arca Rule 3.2(b)(2)(A) and (B), 
and consistent with current NYSE and NYSE MKT processes described 
above, the Exchange proposes to amend NYSE Arca Equities Rule 3.2 to 
eliminate the public member position from the Equities Nominating 
Committee and eliminate the nomination process for the Equities 
Nominating Committee members and instead have the Equities Board 
appoint the members of the Equities Nominating Committee.
Petition Process for Fair Representation Director Nominees
    Although current NYSE Arca Rule 3.2(b)(2)(C) and current NYSE Arca 
Equities Rule 3.2(b)(2)(C) are also substantially similar with respect 
to the petition process for fair representation director nominees, 
there are certain differences in processes for NYSE Arca Equities. The 
NYSE Arca Equities Nominating Committee publishes the names of two 
nominees to the Equities Board and one nominee to the NYSE Arca Board, 
and ETP Holders select two nominees for any contested seat on the 
Equities Board and one nominee for any contested seat on the NYSE Arca 
Board.\14\
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    \14\ By comparison, the NYSE Arca Nominating Committee publishes 
the name of one nominee to the NYSE Arca Board, and OTP Holders may 
select one nominee for the contested seat on the NYSE Arca Board.
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    Under current NYSE Arca Equities Rule 3.2(b)(2)(C)(ii), the 
Equities Nominating Committee publishes the names of the fair 
representation director nominees no later than 65 days prior to the 
expiration of the term of the directors. ETP Holders may submit a 
petition to add another nominee within 10 business days after the 
Equities Nominating Committee publishes its nominees. If a written 
petition of at least 10 percent of ETP Holders in good standing is 
submitted to the Equities Nominating Committee within 45 days preceding 
the expiration of the current term, such person is also nominated by 
the Equities Nominating Committee. Unlike NYSE Arca Rule 3.2(b)(2)(C), 
there is no objection process for petition candidates.
    The Exchange proposes to amend this process to align it with the 
NYSE and NYSE MKT processes and proposed NYSE Arca Rule 3.2(b)(2)(C) 
for the same reasons stated above with respect to proposed NYSE Arca 
Rule 3.2. Under proposed NYSE Arca Equities Rule 3.2(b)(2)(C)(ii), the 
Nominating Committee would publish the names of the nominees on an 
``Announcement Date'' each year sufficient to accommodate the 
nomination and petition processes of the proposed rule. ETP Holders in 
good standing would be permitted to nominate additional eligible 
candidates if a written petition of at least 10 percent of ETP Holders 
in good standing were submitted to the Equities Nominating Committee 
within two weeks after the Announcement Date. Each petition candidate 
would be required to include a completed questionnaire used to gather 
information concerning director candidates, and the Equities Nominating 
Committee would determine whether the petition candidate is eligible to 
serve on the NYSE Arca Board (including whether such person was free of 
a statutory disqualification under Section 3(a)(39) of the Act), and 
such determination would be final and conclusive.
Contested Nominations
    Under current NYSE Arca Equities Rule 3.2(b)(2)(C)(ii), if there is 
a contested nomination, the Equities Nominating Committee submits it to 
the ETP Holders, which may select two nominees for the contested seat 
on the Equities Board and one nominee for the contested seat on the 
NYSE Arca Board. The Exchange proposes to simplify this text to align 
it with the proposed changes to NYSE Arca Rule 3.2(b)(2)(C)(iii).
    Current NYSE Arca Equities Rule 3.2(b)(2)(C)(ii) does not describe 
the voting process. The Exchange proposes to amend the rule to 
explicitly provide that ETP Holders would be afforded no less than 20 
calendar days to submit their votes on a confidential basis.
Technical and Conforming Changes
    NYSE Arca Equities Rule 3.2 refers to the governing body of NYSE 
Arca as the Board of Governors; the Rule should instead refer to the 
NYSE Arca Board of Directors.\15\ As such, the Exchange proposes to 
change references to the NYSE Arca Board of Governors to the NYSE Arca 
Board of Directors.
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    \15\ See Article III of the NYSE Arca Bylaws.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with

[[Page 38704]]

Section 6(b)(3) of the Act,\16\ which 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 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. The 
Exchange believes that it is not necessary to have a public member on 
its Nominating Committees under NYSE Arca Rule 3.2 and NYSE Arca 
Equities Rule 3.2 because the purpose is to represent the interests of 
the membership, not the public, and NYSE and NYSE MKT do not include a 
public member on their equivalent nominating committees and appoint, 
rather than elect, their nominating committees that serve the same 
purpose.
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    \16\ 15 U.S.C. 78f(b)(3).
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    The proposed petition process will continue to assure a fair 
representation of OTP and ETP Holders in the selection of directors 
that is consistent with the processes for NYSE and NYSE MKT and allows 
a reasonable period of time for trading permit holders to submit a 
petition and to vote on a contested nomination. The Exchange further 
believes that it is appropriate to remove the option for 35 OTP Holders 
to submit a petition because the total number of OTP Holders varies 
from time to time and instead requiring at least 10% of the current OTP 
Holders support the petition assures that only candidates that have a 
consistent minimum level of support can trigger a contest. The Exchange 
believes that the proposed petition process will continue to allow 
trading permit holders to have a voice in the administration of the 
Exchange and thus help to ensure that the Exchange is administered in a 
way that is equitable to all participants who trade on the Exchange.
    Finally, the Exchange notes that the proposed rule change would not 
affect the number of fair representation candidates on the boards or 
any other aspect of the boards' composition or the remainder of the 
boards' nomination process. The proposed rule change also would 
continue to ensure that persons subject to a statutory disqualification 
under the Act could not serve on the Exchange's boards.

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 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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    Within 45 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 or disapprove 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 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-NYSEArca-2012-67 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-NYSEArca-2012-67. 
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 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 10:00 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; 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-
NYSEArca-2012-67 and should be submitted on or before July 19, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-15807 Filed 6-27-12; 8:45 am]
BILLING CODE 8011-01-P