Document ID: SEC-2007-0599-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange LLC
Posted Date: 2007-04-26T04:00Z

[Federal Register: April 26, 2007 (Volume 72, Number 80)]
[Notices]               
[Page 20905-20907]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26ap07-100]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55650; File No. SR-NYSE-2007-10]

 
Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Amendments to Interpretation to Rule 
311(b)(5) (``Co-Designation of Principal Executive Officers'') as 
Modified by Amendment No. 1

April 19, 2007.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on February 2, 2007, the New York Stock Exchange LLC 
(``NYSE'' or the ``Exchange'') 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 substantially 
prepared by the Exchange. On April 16, 2007, the Exchange submitted 
Amendment No. 1 to the proposed rule change.\4\ 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\ 15 U.S.C. 78(a) et seq.
    \3\ 17 CFR 240.19b-4.
    \4\ Amendment No. 1 replaced the original filing in its 
entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NYSE is proposing amendments to Interpretation .05 to NYSE Rule 
311(b)(5) regarding co-designation of principal executive officers.

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. 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
    Rule 311 (``Formation and Approval of Member Organizations'') and 
specifically Section (b)(5) thereof

[[Page 20906]]

provide that ``principal executive officers'' shall exercise principal 
executive responsibility over the various areas of the business of the 
member corporation. Interpretation .05 to Rule 311(b)(5) (the 
``Interpretation'') sets forth the regulatory framework under which 
member organizations may request approval for assigning two persons as 
the ``principal executive officers'' \5\ for the same function pursuant 
to Rule 311(b)(5). It presently provides that no understanding or 
agreement purporting to limit or apportion the joint and several 
responsibility of each such co-officer will be recognized by the 
Exchange. The proposed amended Interpretation would qualify that 
prohibition to permit certain principal executive officers to allocate 
specific responsibility, subject to Exchange approval.
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    \5\ Rule 311(b)(5) provides that the board of directors of each 
member organization shall designate ``principal executive officers'' 
who shall have responsibility over the various areas of the business 
of the member organization. In operation, the Exchange recognizes 
four such principal executive officers: Chief executive officer 
(``CEO''), chief operations officer (``COO''), chief finance officer 
(``CFO'') and chief compliance officer (``CCO'').
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Background

    On September 7, 2005, the Commission approved changes to Rule 
311.\6\ In promulgating the changes to the Interpretation, the Exchange 
explained: \7\
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    \6\ See Securities Exchange Act Release No. 52391 (September 7, 
2005), 70 FR 54429 (September 14, 2005) (SR-NYSE-2005-04).
    \7\ See NYSE Information Memo 05-69 (September 16, 2005).
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Co-Designation of Principal Executive Officers

    The Exchange believes that co-designating principal executive 
officer titles (i.e., assigning or sharing of the same title to two 
persons) is a potentially troublesome practice in that it can lead to 
confusion as to which designee is ultimately responsible and 
accountable for assigned functions. However, there may be instances 
where such arrangements are supported by valid business reasons, such 
as when each co-designee has special expertise in critical areas within 
the purview of the principal executive officer job description or co-
principal executive officers have functional responsibility for 
separate business lines. In light of such circumstances, the Exchange 
has permitted the co-designation of certain principal executive officer 
titles at member organizations on a limited basis. Accordingly, the 
amendments continue to permit such co-designations, but only pursuant 
to a written request and subject to the prior written approval of the 
Exchange (see new Section /05).
    Written requests to the Exchange must set forth the reason for the 
co-designation and explain how the arrangement is structured. Further, 
since such co-designations raise issues regarding which person has 
ultimate authority and accountability, the request must make clear that 
each co-designee has joint and several responsibility for discharging 
the duties of the principal executive officer designation and that no 
understanding or agreement purporting to apportion or limit such 
responsibility will be recognized by the Exchange.
    In situations where authority is, by its nature, indivisible, such 
as in the cases of CEOs and CFOs, the basis for this position is 
unarguable. The Exchange now believes, however, that there are 
legitimate situations where other principal executive officers exercise 
supervisory authority over discrete and naturally separate business 
functions, consistent with the internal corporate structure of the 
particular member organization. As an example, the Exchange has seen a 
reasonable division of supervisory jurisdictions and responsibility 
between CCOs whereby one is responsible for the member organization's 
retail brokerage activities and another deals with the firm's 
investment banking functions. While there are inevitable areas of 
overlap between the two, as where new offerings are readied for 
distribution by the retail sales force, and any proposed request for 
recognition of the differing areas would need to address such overlap, 
the greater part of the two functions are mutually exclusive, and lend 
themselves logically to separation.\8\
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    \8\ All present co-designations have involved two persons, and 
that may be the optimal number for such sharing of responsibility. 
However, to assure maximum member organization operational 
flexibility, the proposed interpretation does not limit the number 
to two, but would allow three co-designees where a compelling case 
for such allocation is made. The Commission notes that while the 
Exchange states above that it would allow three co-designees, the 
proposed change to the Interpretation .05 of rule 311(b)(5) does not 
specify a limit on the number of co-designees permitted.
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    It can be seen that a joint and several responsibility could expose 
one of the co-CCOs to regulatory sanctions for actions in an area which 
he or she did not and could not reasonably supervise. This needs to be 
balanced against the need to avoid the situation where each such 
officer attempts to disclaim responsibility for the supervision of the 
area in question.

Proposed Amendments

    Accordingly, the Exchange proposes to amend the Interpretation to 
permit co-CCOs and co-COO \9\ to allocate supervisory responsibility in 
a fashion acceptable to the Exchange. Where a member organization seeks 
to divide regulatory responsibility between more than one principal 
executive officer bearing the same or similar titles without the 
assumption of joint and several responsibility, it must provide the 
Exchange with a plan acceptable to the Exchange allocating specific 
responsibility and making unambiguous provisions, especially for the 
supervision of areas where the separate functions interact. It should 
be clearly understood that joint and several responsibility remains in 
effect for any area not specifically included in the plan approved by 
the Exchange. In addition, because the CCO of a member organization has 
unique responsibilities under Rule 342.30 (``Annual Reports''), the 
revised Interpretation would also require a representation that the 
certification required by Rule 342.30(e) will further confirm the 
qualification of each such co-CCO and that the responsibility of the 
co-CCOs encompasses every aspect of the business of the member 
organization. Of necessity, each of the co-CCOs would meet with and 
advise the CEO as part of the Rule 342.30 certification process.
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    \9\ Although to date only co-CCOs have chosen to seek separate 
status, it would not be unreasonable to extend the same treatment to 
co-COOs where their duties are subject to rational separation.
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    As proposed, the Interpretation would read:
    The prior written approval of the Exchange is required to assign 
[two] more than one person[s] to a single ``principal executive 
officer'' designation pursuant to Rule 311(b)(5). Member organizations 
seeking approval for such co-designations must submit a written request 
to the Exchange that sets forth the reason for the co-designation, 
explains how the arrangement is structured, and makes clear that each 
co-designee has joint and several responsibility for discharging the 
duties of that principal executive officer designation[;]. However, the 
Exchange may approve a specific plan identifying the business need and 
other justification for an arrangement which does not provide for joint 
and several responsibility for principal executive officers other than 
the chief executive officer and chief financial officer. Such a plan 
must identify the areas and functions subject to separate supervisory 
responsibility and make specific provisions for the supervisory

[[Page 20907]]

responsibility of functions, activities and areas which can reasonably 
be expected to overlap. [no understanding or agreement purporting to 
apportion or limit such responsibility will be recognized by the 
Exchange.] In addition, in the case of co-CCOs, the written approval 
request submitted in accordance with this Interpretation shall include 
a representation to the Exchange, to the effect that the CEO's Annual 
Report and Certification required by Rule 342.30(e) will further state, 
in addition to the fact that each such CCO has met the qualification 
requirements set forth at 342.30(d)/01, that the collective authority, 
accountability, and responsibility of such co-equal CCOs encompasses, 
without exception, every aspect of the business of such member 
organization.

Implementation Date

    The proposed amendments would be effective upon SEC approval.
2. Statutory Basis
    The proposed rule change is consistent with the requirements of the 
Act and the rules and regulations thereunder applicable to a national 
securities exchange, and in particular, with the requirements of 
Sections 6(b)(5)\10\ of the Act. Section 6(b)(5) requires, among other 
things, that the rules of an exchange be designed to promote just and 
equitable principles of trade, to remove impediments to and perfect the 
mechanism of a free and open market and national market system, and in 
general, to protect investors and the public interest. The proposed 
amendments will provide member organizations with organizational 
flexibility in the allocation of certain regulatory responsibilities.
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    \10\ 15 U.S.C. 78f(b)(5).
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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 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 neither solicited nor received written comments on 
the proposed rule change.

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

    Within 35 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 Exchange consents, the Commission will:
    (A) By order approve 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 e-mail to rule-comments@sec.gov. Please include 

File Number SR-NYSE-2007-10 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSE-2007-10. 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 inspection and copying in the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
NYSE. All comments received will be posted without change; the 
Commission does not edit personal identifying information 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-NYSE-2007-10 and should be submitted by May 17, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-7939 Filed 4-25-07; 8:45 am]

BILLING CODE 8010-01-P