Document ID: SEC-2010-0335-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2010-03-04T05:00Z

[Federal Register: March 4, 2010 (Volume 75, Number 42)]
[Notices]               
[Page 9985-9986]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04mr10-121]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61582; File No. SR-NASDAQ-2010-025]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Amend the By-Laws of The 
NASDAQ OMX Group, Inc.

February 25, 2010.
    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 February 24, 2010, The NASDAQ Stock Market LLC (the ``Exchange'' or 
``NASDAQ'') 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NASDAQ Exchange is filing this proposed rule change relating to 
the By-Laws of its parent corporation, The NASDAQ OMX Group, Inc. 
(``NASDAQ OMX''). The text of the proposed rule change is available at 
http://nasdaqomx.cchwallstreet.com, at the Exchange's principal office, 
on the Commission's Web site at http://www.sec.gov, 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 NASDAQ 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 places 
specified in Item IV below. The NASDAQ 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
    NASDAQ OMX is proposing to make certain amendments to its By-Laws 
to make improvements in its governance. Currently, NASDAQ OMX By-Laws 
provide that each director receiving a plurality of the votes at any 
election of directors at which a quorum is present is duly elected to 
the Board.\3\ Under Corporate Governance Guidelines adopted by the 
Board, however, any director in an uncontested election who receives a 
greater number of votes ``withheld'' from his or her election than 
votes ``for'' such election is required to tender his or her 
resignation promptly following receipt of the certification of the 
stockholder vote. The NASDAQ OMX Nominating & Governance Committee then 
considers the resignation offer and recommends to the Board whether to 
accept it. Within 90 days after the certification of the election 
results, the Board will decide whether to accept or reject the 
resignation. Promptly thereafter, the Board will announce its decision 
by means of a press release. In a contested election (i.e., where the 
number of nominees exceeds the number of directors to be elected), the 
unqualified plurality standard controls.
---------------------------------------------------------------------------

    \3\ Section 216 of the General Corporation Law of the State of 
Delaware provides that in the absence of the specification in the 
certificate of incorporation or bylaws of a Delaware corporation, 
directors of the Delaware corporation shall be elected by a 
plurality of the shares present in person or represented by proxy at 
the meeting and entitled to vote on the election of directors. Since 
the Certificate of Incorporation and By-Laws of NASDAQ OMX do not 
specify the voting standard for the election of NASDAQ OMX's 
directors, the Section 216 default standard applies to NASDAQ OMX 
and, therefore, elections of NASDAQ OMX's directors are currently 
governed by a plurality vote standard.
---------------------------------------------------------------------------

Uncontested Election
    NASDAQ OMX proposes the adoption of a majority voting standard by 
amending Article IV, Section 4.4 of the By-Laws to provide that, in an 
uncontested election, directors shall be elected by holders of a 
majority of the votes cast at any meeting for the election of directors 
at which a quorum is present. Under the majority voting standard, a 
nominee who fails to receive the requisite vote would not be duly 
elected to the Board; however, because a director holds office until 
his or her successor is duly elected and qualified, any incumbent 
director-nominee who fails to receive the requisite vote does not 
automatically cease to be a director. Instead, such director continues 
as a ``holdover director'' until such director's death, resignation or 
removal, or until his or her successor is duly elected and qualified. 
For this reason, the majority voting standard under consideration 
requires that any incumbent nominee, as a condition to his or her 
nomination for election, must submit in writing an irrevocable 
resignation, the effectiveness of which is conditioned upon the 
director's failure to receive the requisite vote in any uncontested 
election and the Board's acceptance of the resignation. The resignation 
would be considered by the Nominating & Governance Committee and acted 
upon by the Board in the same manner as a resignation tendered under 
current rules.\4\ Acceptance of that resignation by the Board shall be 
in accordance with the policies and procedures adopted by the Board for 
such purpose. NASDAQ OMX specifies its policies and procedures 
pertaining to the election of its directors in its By-Laws. 
Specifically, the policies and procedures for the acceptance of the 
resignation of a director, by the Board, are proposed to be specified 
in By-Law Article IV, Section 4.4. There are no additional policies and 
procedures other than what is indicated in the By-Laws. In the event 
that NASDAQ OMX proposes to further amend its By-Laws with respect to 
the election of directors, including the adoption of any policies and 
procedure with respect to such election, NASDAQ OMX shall file a 
proposed rule change with the Commission to seek approval of those 
amendments.
---------------------------------------------------------------------------

    \4\ See NASDAQ OMX By-Law Article IV, Section 4.5.
---------------------------------------------------------------------------

Contested Election
    The Exchange is codifying its process for a contested election. The 
directors shall continue to be elected by a plurality vote in a 
contested election. There is no change to the process for contested 
elections because if a majority voting standard were to apply in a 
contested election, the likelihood of a ``failed election'' (i.e., a 
situation in which no director receives the requisite vote) would be 
more pronounced. Moreover, the rationale underpinning the majority 
voting policy does not

[[Page 9986]]

apply in contested elections where stockholders are offered a choice 
among competing candidates. Directors are currently elected by a 
plurality of votes present in person or represented by proxy at a 
meeting. The directors who receive the greatest number of votes cast 
for election of directors at the meeting will be elected.
General Election Requirements
    The following applies to elections of directors and is not being 
amended. Each share of common stock has one vote,\5\ subject to the 
voting limitation in NASDAQ OMX's certificate of incorporation that 
generally prohibits a holder from voting in excess of 5% of the total 
voting power of NASDAQ OMX.\6\ In addition, each note holder is 
entitled to the number of votes equal to the number of shares of common 
stock into which such note could be converted on the record date, 
subject to the 5% voting limitation contained in the certificate of 
incorporation.
---------------------------------------------------------------------------

    \5\ See NASDAQ OMX Certificate of Incorporation at Article IV, 
C.1(a).
    \6\ See NASDAQ OMX Certificate of Incorporation at Article IV, 
C.1(b)2.
---------------------------------------------------------------------------

    The presence of owners of a majority (greater than 50%) of the 
votes entitled to be cast by holder of NASDAQ OMX voting securities 
constitutes a quorum. Presence may be in person or by proxy. Any 
securities not voted, by abstention, will not impact the vote.
2. Statutory Basis
    The NASDAQ Exchange believes that the proposed rule change is 
consistent with the provisions of Section 6 of the Act,\7\ in general, 
and with Sections 6(b)(1) and (b)(5) of the Act,\8\ in particular, in 
that the proposal enables the NASDAQ Exchange to be so organized as to 
have the capacity to be able to carry out the purposes of the Act and 
to comply with and enforce compliance by members and persons associated 
with members with provisions of the Act, the rules and regulations 
thereunder, and self-regulatory organization rules, and is designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, 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.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(2), (5).
---------------------------------------------------------------------------

    For purposes of an uncontested election, the proposed amendments 
adopt a majority vote standard, for the NASDAQ Exchange's parent, which 
would enable its directors to be elected in a manner reflective of the 
desires of shareholders and provide a mechanism to protect against the 
election of directors by less than a majority vote of the shareholders. 
The plurality standard would continue to apply in contested elections.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The NASDAQ Exchange does not believe that the proposed rule change 
will result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

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 self-regulatory organization 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, as amended, 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-NASDAQ-2010-025 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-NASDAQ-2010-025. 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 Web site 
viewing and printing in the Commission's Public Reference Room on 
official business days between the hours of 10 a.m. and 3 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-NASDAQ-2010-025, and 
should be submitted on or before March 25, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
---------------------------------------------------------------------------

    \9\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-4453 Filed 3-3-10; 8:45 am]
BILLING CODE 8011-01-P