Document ID: SEC-2011-1295-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX PHLX LLC
Posted Date: 2011-08-31T04:00Z

[Federal Register Volume 76, Number 169 (Wednesday, August 31, 2011)]
[Notices]
[Pages 54271-54272]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-22307]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65201; File No. SR-Phlx-2011-90]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Order 
Approving Proposed Rule Change Relating to Board of Director 
Qualifications

August 25, 2011.

I. Introduction

    On June 30, 2011, NASDAQ OMX PHLX LLC (``Phlx'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change relating to the qualifications of its Board of 
Directors (``Board''). The proposed rule change was published for 
comment in the Federal Register on July 14, 2011.\3\ The Commission 
received no comment letters regarding the proposal. This order approves 
the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 64845 (July 8, 
2011), 76 FR 41549 (July 14, 2011) (``Notice'').
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II. Description of the Proposal

    The Exchange proposes to amend its By-Laws to revise the 
qualifications for any position on the Board required to be 
representative of issuers. Currently, Section 3-2 of the Exchange By-
Laws provides: ``[T]he number of Non-Industry Directors, including at 
least one Public Director \4\ and at least one issuer representative 
(or if the Board consists of ten or more Directors, at least two issuer 
representatives), shall equal or exceed the sum of the number of 
Industry Directors \5\ and Member

[[Page 54272]]

Representative Directors \6\ to be elected under the terms of the LLC 
Agreement.'' \7\ The Exchange recently adopted this provision when it 
conformed its By-Laws to those of NASDAQ.\8\ According to the Exchange, 
however, it does not have a significant number of original listings as 
does NASDAQ,\9\ and therefore has less available issuer representatives 
to serve on the Board. Consequently, the Exchange now proposes to 
change the requirement by broadening it to require a director 
representative of issuers and investors instead of a director that is 
representative only of issuers. The Exchange believes that the 
expansion of the director position from one that is representative of 
issuers to one that is representative of issuers and investors is more 
appropriate for Phlx.\10\ The nomination and election process for such 
directors would remain the same. The director representative of issuers 
and investors would be nominated by the Nominating Committee and 
elected by the sole shareholder, The NASDAQ OMX Group, Inc.\11\
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    \4\ A Public Director is ``a Director who has no material 
business relationship with a broker or dealer, the Exchange or its 
affiliates, or FINRA.'' See Exchange By-Law Article I(gg).
    \5\ An Industry Director is ``a Director (excluding any two 
officers of the Exchange, selected at the sole discretion of the 
Board, amongst those officers who may be serving as Directors (the 
`Staff Directors')), who (i) is or has served in the prior three 
years as an officer, director, or employee of a broker or dealer, 
excluding an outside director or a director not engaged in the day-
to-day management of a broker or dealer; (ii) is an officer, 
director (excluding an outside director), or employee of an entity 
that owns more than ten percent of the equity of a broker or dealer, 
and the broker or dealer accounts for more than five percent of the 
gross revenues received by the consolidated entity; (iii) owns more 
than five percent of the equity securities of any broker or dealer, 
whose investments in brokers or dealers exceed ten percent of his or 
her net worth, or whose ownership interest otherwise permits him or 
her to be engaged in the day-to-day management of a broker or 
dealer; (iv) provides professional services to brokers or dealers, 
and such services constitute 20 percent or more of the professional 
revenues received by the Director or 20 percent or more of the gross 
revenues received by the Director's firm or partnership; (v) 
provides professional services to a director, officer, or employee 
of a broker, dealer, or corporation that owns 50 percent or more of 
the voting stock of a broker or dealer, and such services relate to 
the director's, officer's, or employee's professional capacity and 
constitute 20 percent or more of the professional revenues received 
by the Director or member or 20 percent or more of the gross 
revenues received by the Director's or member's firm or partnership; 
or (vi) has a consulting or employment relationship with or provides 
professional services to the Exchange or any affiliate thereof or to 
FINRA (or any predecessor) or has had any such relationship or 
provided any such services at any time within the prior three 
years.'' See Exchange By-Law Article I(p).
    \6\ A Member Representative Director is ``a Director who has 
been elected or appointed after having been nominated by the Member 
Nominating Committee or by a Member pursuant to [the] By-Laws. A 
Member Representative Director may, but is not required to be, an 
officer, director, employee, or agent of a Member. See Exchange By-
Law Article I(w).
    \7\ The Exchange recently adopted this provision to its By-Laws. 
See Securities Exchange Act Release No. 64338 (April 25, 2011), 76 
FR 24069 (April 29, 2011) (SR-Phlx-2011-13) (conforming some of the 
Exchange By-Laws to the By-Laws of The NASDAQ Stock Market LLC 
(``NASDAQ'')).
    \8\ See id.
    \9\ See Notice, supra note 3, 76 FR at 41550 n.9.
    \10\ Id.
    \11\ See Exchange By-Law Article V, Section 5-3 and Article II, 
Section 2-1.
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    The Exchange also proposes to eliminate the requirement that there 
be at least two of these director positions representative of issuers 
if the Board consists of ten or more directors. In its proposal, the 
Exchange notes that Section 6(b)(3) of the Act \12\ only requires that 
one Director representative represents issuers and investors.\13\
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    \12\ 15 U.S.C. 78f(b)(3).
    \13\ See Notice, supra note 3, 76 FR at 41550.
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III. Discussion

    After careful review of the proposal, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\14\ In particular, the Commission finds that the 
proposal is consistent with Section 6(b)(5) of the Act,\15\ which 
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 
a national market system, and, in general, to protect investors and the 
public interest. The Commission further finds that the proposal is 
consistent with Section 6(b)(3) of the Act,\16\ which requires that one 
or more directors be representative of issuers and investors and not be 
associated with a member of the exchange, broker, or dealer.
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    \14\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \15\ 15 U.S.C. 78f(b)(5).
    \16\ 15 U.S.C. 78f(b)(3).
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    The Commission believes that the proposed expansion from an issuer 
representative to a representative of issuers and investors, and 
elimination of the requirement that the Board have two such 
representatives if the Board consists of ten or more directors are 
consistent with the Act. The fair representation requirement in Section 
6(b)(3) of the Act \17\ is intended to give members a voice in the 
selection of an exchange's directors and the administration of its 
affairs. The Commission notes that this change tracks the statutory 
language included in Section 6(b)(3) of the Act,\18\ which requires one 
or more directors to be ``representative of issuers and investors.'' 
The Commission also notes that the elimination of the requirement to 
have at least two director positions representative of issuers if the 
Board consists of ten or more directors is consistent with Section 
6(b)(3) of the Act,\19\ which only requires the Board to have one such 
representative. Further, the proposed rule change is consistent with 
the Act in that it is designed to ensure that the Board continues to 
satisfy compositional requirements, particularly those concerning fair 
representation. The Exchange will continue to require the Board 
composition to include the requisite Public Directors, Industry 
Directors, and Member Representative Directors (the latter will 
continue to constitute twenty percent of the Board). In addition, the 
proposed change will not impact the procedures to nominate and elect 
any director to the Board that are currently in place. Accordingly, the 
Commission finds that Phlx's revised By-Laws, as proposed, will 
continue to provide board qualification requirements that are 
consistent with the Act.
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    \17\ Id.
    \18\ Id.
    \19\ Id.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\20\ that the proposed rule change (SR-Phlx-2011-90) be, and hereby 
is, approved.
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    \20\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-22307 Filed 8-30-11; 8:45 am]
BILLING CODE 8011-01-P