Document ID: SEC-2013-0900-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Y-Exchange, Inc.
Posted Date: 2013-05-15T04:00Z

[Federal Register Volume 78, Number 94 (Wednesday, May 15, 2013)]
[Notices]
[Pages 28695-28698]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-11502]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69541; File No. SR-BYX-2013-013]

Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To Amend and Restate the Amended and 
Restated By-Laws of BATS Y-Exchange, Inc.

May 8, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on April 29, 2013, BATS Y-Exchange, Inc. (the ``Exchange'' or 
``BYX'') 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 the Exchange. 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 the 
Substance of the Proposed Rule Change

    The Exchange filed a proposal to amend the by-laws of the Exchange.
    The text of the proposed rule change is available at the Exchange's 
Web site at http://www.batstrading.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 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

[[Page 28696]]

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 intends to amend and restate its Amended and Restated 
By-Laws (the ``Current By-Laws'') and adopt these changes as its Second 
Amended and Restated By-Laws (the ``New By-Laws'').
    The amendments to the Current By-Laws include: (i) Providing that 
the Board of Directors will consist of four (4) or more directors, with 
the board fixing the actual number of directors from time to time by 
resolution of the Board of Directors rather than fixing the number of 
directors in by-laws; and (ii) clarifying the procedures for filling 
vacancies on the Board of Directors, including as it relates to filling 
vacancies on the board resulting from newly created directorships 
resulting from any increase in the number of directors. The amendments 
to the Current By-Laws will provide greater flexibility to the Board of 
Directors of the Exchange by permitting the board to increase or 
decrease the size of the board without the need to further amend the 
by-laws, but in all cases subject to the compositional requirements of 
the board set forth in the by-laws. The amendments to the Current By-
Laws would also (i) clarify the procedures for filling vacancies for 
the Member Representative Director position, and (ii) add a new 
requirement that the processes for filling any director vacancies apply 
to vacancies created as a result of an increase in the size of the 
board. The Exchange is not proposing to amend any of the compositional 
requirements of the board set forth in the by-laws. Thus, any vacancies 
filled pursuant to the New By-Laws would be required to continue to 
comply with these requirements.
Number of Directors
    Article III, Section 2(a) of the Current By-Laws fixes the number 
of directors of the Exchange at ten (10) directors. Article III, 
Section 2(a) of the New By-Laws would amend Article III, Section 2(a) 
to state that the Board of Directors of the Exchange shall consist of 
four (4) or more members, the number thereof to be determined from time 
to time by resolution of the Board of Directors, subject to the 
compositional requirements of the board set forth in Article III, 
Section 2(b). As a result of these compositional requirements, the 
board must, at a minimum, be comprised of at least four (4) directors. 
The Current By-Laws and the New By-Laws require that the Board of 
Directors consist of the following: (i) one (1) director who is the 
Chief Executive Officer of the Company; (ii) representation by Member 
Representative Directors of at least twenty percent (20%) of the 
board;\3\ and (iii) representation by Non-Industry Directors (including 
at least one (1) Independent Director) that equals or exceeds the sum 
of the number of Industry Directors and Member Representative 
Directors. Under the Current By-Laws and the New By-Laws, the Chief 
Executive Officer is considered to be an Industry Director. With the 
Member Representative Director requirement of twenty percent (20%), the 
board must include at least one (1) Member Representative Director. 
Thus, the sum of the number of Industry Directors and Member 
Representative Directors would equal two (2) directors. As such, the 
board must also be comprised of at least two (2) Non-Industry 
Directors, bringing the total minimum size of the board to four (4) 
directors.
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    \3\ Because the number of Member Representative Directors must 
be at least twenty percent (20%) of the board, it is required under 
the Current By-Laws and the New By-Laws that if twenty percent (20%) 
of the directors then serving on the board is not a whole number, 
such number of Member Representative Directors must be rounded up to 
the next whole number.
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    The New By-Laws will provide the board with the flexibility to 
increase or decrease the size of the board by resolution, rather than 
amending the by-laws each time the board seeks to increase or decrease 
the size of the board. The New By-Laws would continue to require that 
the Board of Directors meet the compositional requirements of Article 
III, Section 2(b).
Member Representative Director Vacancies
    A Member Representative Director is defined in relevant part in 
Article I of the Current By-Laws as a Director ``elected by the 
stockholders after having been nominated by the Member Nominating 
Committee \4\ or by an Exchange Member pursuant to these By-Laws.'' 
Article III, Section 4 of the Current By-Laws in turn specifies the 
precise process the Member Nominating Committee is required to follow 
with the respect to the election and nomination of Member 
Representative Directors. Article III, Section 4(c) of the Current By-
Laws specifies that the Member Representative Director nomination and 
election process includes the following requirements for member 
participation:
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    \4\ See Article VI, Section 3 of the Current By-Laws for a 
detailed description of the Member Nominating Committee and its 
responsibilities.

    Not later than sixty (60) days prior to the date announced as 
the date for the annual meeting of stockholders, the Member 
Nominating Committee shall report to the Nominating Committee and 
the Secretary the initial nominees for Member Representative 
Director positions on the Board that have been approved and 
submitted by the Member Nominating Committee. The Secretary shall 
promptly notify Exchange Members of those initial nominees. Exchange 
Members may identify other candidates (``Petition Candidates'' for 
purposes of this Section 4) for the Member Representative Director 
positions by delivering to the Secretary, at least thirty-five (35) 
days before the date announced as the date for the annual meeting of 
stockholders (the ``Record Date'' for purposes of this Section 4), a 
written petition, which shall designate the candidate by name and 
office and shall be signed by Executive Representatives of ten 
percent (10%) or more of the Exchange Members. An Exchange Member 
may endorse as many candidates as there are Member Representative 
Director positions to be filled. No Exchange Member, together with 
its affiliates, may account for more than fifty percent (50%) of the 
signatures endorsing a particular candidate, and any signatures of 
such Exchange Member, together with its affiliates, in excess of the 
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fifty percent (50%) limitation shall be disregarded.

    As distinguished from the nomination and election of directors as 
part of the Exchange's annual stockholders meeting, Article III, 
Section 6 of the Current By-Laws specifies the procedures for filling 
vacancies on the board when a director position becomes vacant prior to 
the election of a successor at the end of such director's term, whether 
because of death, disability, disqualification, removal, or 
resignation. Under these circumstances, the Nominating Committee\5\ 
must nominate, and the stockholders must elect, a person satisfying the 
classification for the directorship in compliance with the board 
compositional requirements of Article III, Section 2(b) of the Current 
By-Laws to fill such vacancy; provided, however, that if the remaining 
term of office of a Member Representative Director at the time of such 
director's termination is not more than six (6) months, during the 
period of vacancy the board is not deemed to be in violation of the 
board

[[Page 28697]]

compositional requirements because of such vacancy.
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    \5\ See Article VI, Section 2 of the Current By-Laws for a 
detailed description of the Nominating Committee and its 
responsibilities.
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    The Current By-Laws do not separately specify a process for filling 
a Member Representative Director position that becomes vacant prior to 
the election of a successor at the end such director's term. This lack 
of specificity has led to some confusion regarding the exact process to 
follow. In particular, the Current By-Laws would appear to require that 
a Member Representative Director vacancy be filled by the Nominating 
Committee; however, such a requirement would conflict with the Current 
By-Laws' definition of a Member Representative Director, which requires 
in all cases that such person be nominated by the Member Nominating 
Committee or by an Exchange Member. The Exchange intended that its 
Current By-Laws would require that the Member Nominating Committee 
nominate one or more candidates to fill Member Representative Director 
vacancies, which is consistent with precedent from other exchanges.\6\
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    \6\ See Article III, Section 3.5(b) of the Sixth Amended and 
Restated Bylaws of Chicago Board Options Exchange, Incorporated; see 
also Article II, Section 3 of the By-Laws of the NASDAQ Stock Market 
LLC; see also Article II, Section 2.8(b) of the By-Laws of Miami 
International Securities Exchange, LLC; see also Article III, 
Section 6(b) of the Amended and Restated Bylaws of EDGA Exchange, 
Inc and Article III, Section 6(b) of the Amended and Restated Bylaws 
of EDGX Exchange, Inc.
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    As such, Article III, Section 6(a) and (b) of the New By-Laws would 
clarify the procedures for filling Member Representative Director 
vacancies on the board to require that the Member Nominating Committee 
shall either (i) recommend an individual to the stockholders to be 
elected to fill such vacancy or (ii) provide a list of recommended 
individuals to the stockholders from which the stockholders shall elect 
the individual to fill such vacancy. In addition, Article III, Section 
6(a) and (b) of the New By-Laws would add the requirement that the 
process for filling vacancies described therein shall be followed in 
the circumstance where such vacancy is created as a result of an 
increase in the size of the board. Generally, if the board has 
determined to increase the size of the board, it is creating the new 
directorship seat(s) because it has identified a qualified candidate(s) 
who would improve the overall quality of the board. Under these 
circumstances, time is of the essence and waiting to elect a 
director(s) to fill a newly created directorship seat(s) at the next 
scheduled annual stockholder meeting is not in the best interests of 
the Exchange or its stockholders. As such, it's necessary that the New 
By-Laws include a more streamlined process to fill any vacancies 
created by increasing the size of the board. In the case of a director 
filling a vacancy not resulting from a newly-created directorship, the 
new director would serve until the expiration of the remaining term. In 
the case of a director filling a vacancy resulting from a newly-created 
directorship, the new director would serve until the expiration of such 
person's designated term. In all cases, however, if the remaining term 
of office of a director at the time of such director's vacancy is not 
more than six (6) months, during the period of vacancy the board shall 
not be deemed to be in violation of Article III, Section 2(b) because 
of such vacancy. Under the Current By-Laws, this six-month grace period 
applies only to Member Representative Director vacancies. Under the New 
By-Laws, this six-month grace period would be expanded to apply to any 
director vacancy, which is consistent with precedent from other 
exchanges.\7\ Applying the six-month grace period to filling any 
director vacancy, and not just a Member Representative Director 
vacancy, would avoid the board being in violation of the board 
compositional requirements of the by-laws during such vacancy. This, in 
turn, would be less disruptive to the director election process by 
permitting the vacancy to be filled at the next scheduled annual 
stockholder meeting, rather than through an earlier-held special 
stockholder meeting.
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    \7\ See Article III, Section 6(a) of the Amended and Restated 
Bylaws of EDGA Exchange, Inc and Article III, Section 6(a) of the 
Amended and Restated Bylaws of EDGX Exchange, Inc.; see also Article 
III, Section 2(b) of the By-Laws of the NASDAQ Stock Market LLC.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with the 
requirements of the Act and rules and regulations thereunder that are 
applicable to a national securities exchange, and, in particular, with 
the requirements of Section 6(b) of the Act.\8\ In particular, (i) 
Article III, Section 2(a) of the proposed New By-Laws, which permits 
the board to increase or decrease the size of the board by resolution, 
and (ii) Article III, Section 6(a) and (b) of the proposed New By-Laws, 
which clarify the procedures for filling vacancies on the board as 
described above, are consistent with Section 6(b)(1) of the Act, 
because they provide the board with measured flexibility in the 
operation of the Exchange and clarify the method by which vacancies on 
the board may be filled by stockholders, thereby enabling the Exchange 
to be so organized as to have the capacity to be able 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 provisions of 
the Act, the rules and regulations thereunder, and the rules of the 
Exchange. While under the proposed New By-Laws the method of 
determining the size of the board would change and the procedures for 
filling vacancies on the board would be explained in greater detail, 
the Exchange is not proposing to amend any of the compositional 
requirements of the board set forth in the Current By-Laws. As such, 
the board would be required to continue to comply with these 
requirements. The Exchange further believes that the proposed changes 
will provide greater flexibility to the Exchange in populating a Board 
of Directors that includes directors with relevant expertise, while 
continuing to ensure that the existing compositional requirements of 
the Exchange are met. Finally, the Exchange again notes that the New 
By-Laws, as proposed to be amended, are similar to the by-laws of other 
exchanges with respect to the size of the board as well as the filling 
of vacancies.\9\
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    \8\ 15 U.S.C. 78f(b).
    \9\ See supra note 6.
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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. Specifically, the Exchange 
believes that the New By-Laws do not directly affect competition 
between the Exchange and others that provide the same goods and 
services as the Exchange, since they do not affect the availability or 
pricing of such goods and services. To the extent that the proposed 
changes to the by-laws may be construed to have any bearing on 
competition, the Exchange believes that the changes will promote 
competition between the Exchange and other national securities 
exchanges that do not have a restrictive number of directors set forth 
in their respective by-laws and permit vacancies on the board to be 
filled using similar procedures.\10\
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    \10\ Id.

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[[Page 28698]]

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 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 the 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-BYX-2013-013 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-BYX-2013-013. 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 on official business 
days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such 
filing also will be available for inspection and copying at the 
principal offices 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-BYX-2013-013, and should be submitted on or before June 
5, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-11502 Filed 5-14-13; 8:45 am]
BILLING CODE 8011-01-P