Document ID: SEC-2015-1008-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE MKT, LLC
Posted Date: 2015-06-17T04:00Z

[Federal Register Volume 80, Number 116 (Wednesday, June 17, 2015)]
[Notices]
[Pages 34751-34753]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-14822]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75148; File No. SR-NYSEMKT-2015-27]

Self-Regulatory Organizations; NYSE MKT LLC; Order Approving 
Proposed Rule Change To Amend the Sixth Amended and Restated Operating 
Agreement of the Exchange

June 11, 2015.

I. Introduction

    On April 17, 2015, NYSE MKT LLC (``Exchange'' or ``NYSE MKT'') 
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\ a proposed rule change to 
amend the Sixth Amended and Restated Operating Agreement (``Operating 
Agreement'') of the Exchange. The proposed rule change was published 
for comment in the Federal Register on May 4, 2015.\4\ The Commission 
received no comment letters on the proposed rule change. This order 
approves the proposed rule change.
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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. 74825 (April 28, 
2015), 80 FR 25341 (``Notice'').
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II. Description of the Proposal

    NYSE MKT proposes to amend the Exchange's Operating Agreement to 
(1) establish a Regulatory Oversight Committee (``ROC''), and (2) 
remove the requirement that the independent directors who make up the 
majority of the board of directors of the Exchange (``Board'') also be 
directors of

[[Page 34752]]

Intercontinental Exchange, Inc. (``ICE''), the Exchange's parent 
company.

A. Creation of a ROC

    The Exchange proposes to add subsection (ii) to Section 2.03(h) of 
the Operating Agreement to establish a ROC and to delineate its 
composition and functions. The ROC would have the responsibility to 
independently monitor the Exchange's regulatory operations.\5\ In 
particular, pursuant to Section 2.03(h)(ii), the ROC would:
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    \5\ See Notice, 80 FR at 25342.
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     Oversee the Exchange's regulatory and self-regulatory 
organization responsibilities and evaluate the adequacy and 
effectiveness of the Exchange's regulatory and self-regulatory 
organization responsibilities;
     assess the Exchange's regulatory performance; and
     advise and make recommendations to the Board or other 
committees of the Board about the Exchange's regulatory compliance, 
effectiveness and plans.

In furtherance of these functions, the Exchange proposes that the ROC 
shall have the authority and obligation to: (i) Review the regulatory 
budget of the Exchange and specifically inquire into the adequacy of 
resources available in the budget for regulatory activities; (ii) meet 
regularly with the Chief Regulatory Officer (``CRO'') in executive 
session; (iii) in consultation with the Exchange's Chief Executive 
Officer, establish the goals, assess the performance, and recommend the 
CRO's compensation; and (iv) keep the Board informed with respect to 
the foregoing matters.

    With respect to the ROC's composition, Section 2.03(h)(ii) would 
provide that the ROC shall consist of at least three members, each of 
whom shall be a director of either the Exchange or of NYSE Regulation, 
Inc. (``NYSE Regulation''), and who satisfy the independence 
requirements of the Exchange.\6\ The Exchange represents that it 
believes that a ROC comprised of at least three independent members has 
been recognized as one of several measures that can help ensure the 
independence of the regulatory function from the market operations and 
commercial interests of a national securities exchange.\7\
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    \6\ The Exchange's independence requirements are set forth in 
the Company Director Independence Policy of the Exchange. See 
Securities Exchange Act Release No. 67564 (August 1, 2012), 77 FR 
47151 (August 7, 2012) (SR-NYSE-2012-17) (approving, among other 
things, the Exchange's Company Director Independence Policy).
    \7\ See Notice, 80 FR at 25342.
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    In addition, Section 2.03(h)(ii) of the Operating Agreement would 
provide that the Board, on affirmative vote of a majority of directors, 
at any time may remove a member of the ROC for cause, and also would 
provide that a failure of the ROC member to qualify as independent 
under the Company Director Independence Policy would constitute a basis 
to remove a member of the ROC for cause. If the term of office of a ROC 
member terminates, and the remaining term of office of such member at 
the time of termination is not more than three months, Section 
2.03(h)(ii) would provide that during the period of vacancy, the ROC 
would not be deemed to be in violation of its compositional 
requirements by virtue of the vacancy. To clarify the process for 
filling vacancies on any committee of the Exchange, including the ROC, 
the Exchange also proposes to amend Section 2.03(h) of the Operating 
Agreement to provide that vacancies in the membership of any committee 
shall be filled by the Board. The Exchange represents that it believes 
that the proposed adoption of a ROC would ensure the continued 
independence of the regulatory process.\8\
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    \8\ See Notice, 80 FR at 25343.
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B. Exchange Independent Directors

    Currently, Section 2.03(a)(i) of the Operating Agreement, which 
governs the Board's composition, provides that a majority of the 
Exchange's directors shall be U.S. persons who are members of the board 
of directors of ICE and who satisfy the Exchange's Company Director 
Independence Policy. Each such director is defined as an ``ICE 
Independent Director'' in Section 2.03(a)(i) of the Operating 
Agreement. The Exchange proposes to amend Section 2.03(a)(i) to remove 
the requirement that the independent directors, who must comprise the 
majority of the Board also be directors of ICE, by amending the 
definition of ``ICE Independent Director'' to remove the reference to 
ICE, and to make conforming changes in both subsections (i) and (ii) of 
Section 2.03(a).
    The Exchange represents that, under this modification to its 
Operating Agreement, a majority of the directors of the Board would 
continue to satisfy the Company Director Independence Policy.\9\ The 
Exchange also notes that it believes that eliminating the requirement 
that the independent directors of the Exchange also be directors of ICE 
would allow the Exchange to broaden the pool of potential Board 
members, resulting in a more diversified Board membership while still 
ensuring the directors' independence.\10\ The Exchange states that 
eliminating the requirement that the independent directors of the 
Exchange also be directors of ICE would result in the Exchange's Board 
composition requirements being commensurate with the board requirements 
of its affiliate, NYSE Arca, Inc., which does not require any of its 
directors to be directors of ICE.\11\
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    \9\ See Notice, 80 FR at 25343.
    \10\ Id.
    \11\ Id.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\12\ In 
particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(1) of the Act,\13\ which requires an 
exchange to be so organized and have the capacity 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 Act, the 
rules and regulations thereunder, and the rules of the exchange. The 
Commission also finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act,\14\ which requires that the rules of the 
exchange be designed, among other things, to prevent fraudulent and 
manipulative acts and practices, 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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    \12\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \13\ 15 U.S.C. 78(b)(1).
    \14\ 15 U.S.C. 78(b)(5).
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    The Commission believes that the Exchange's creation of a ROC as an 
independent committee to oversee the adequacy and effectiveness of the 
Exchange's regulatory responsibilities, compliance and plans, is 
appropriate and should help the Exchange to fulfill its self-regulatory 
obligations. The Commission notes that, under proposed Section 
2.03(h)(ii) of the Operating Agreement, the responsibilities, 
enumerated functions, and authority of the ROC are substantially 
similar to those of other exchanges.\15\ In addition, the Commission 
believes that the

[[Page 34753]]

proposed requirement that the members of the ROC consist of either 
directors of the Exchange or directors of NYSE Regulation who satisfy 
the independence requirements of the Exchange's Company Director 
Independence Policy, and the provisions relating to the removal of a 
member of the ROC either for cause or for failing to qualify as 
independent, should help ensure the continued independence of the 
members of the ROC. The proposal to establish a ROC should assist the 
Exchange in meeting its statutory obligations to comply, and to enforce 
compliance by its members and persons associated with its members, with 
the Act, the rules and regulations thereunder, and the rules of the 
Exchange.
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    \15\ See, e.g., Bylaws of NASDAQ Stock Market LLC, Article III, 
Section 5(c); Third Amended and Restated Bylaws of BATS Exchange, 
Inc., Article V, Section 6(c); Amended and Restated Bylaws of Miami 
International Securities Exchange, LLC, Article IV, Section 4.5(c).
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    The Commission notes that, while the proposal removes the 
requirement that the independent directors who make up the majority of 
the Board also be ICE directors, it does not alter the requirement 
under the Operating Agreement that a majority of the Board must satisfy 
the Exchange's Company Director Independence Policy.\16\ Thus, the 
majority of directors on the Exchange's Board must still qualify as 
independent directors under the Exchange's Company Director 
Independence Policy. Moreover, removing the requirement that the 
independent directors on the Exchange's Board also be directors of ICE 
may result in a more diversified Board composition as candidates for 
membership on the Board who qualify as independent under the Company 
Director Independence Policy need not be limited to those candidates 
who also serve on the board of directors of ICE.
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    \16\ See supra note 6.
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    Accordingly, the Commission finds that the proposed rule change is 
consistent with the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (SR-NYSEMKT-2015-27) is approved.

    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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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-14822 Filed 6-16-15; 8:45 am]
 BILLING CODE 8011-01-P