Document ID: SEC-2013-0665-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX BX, Inc.
Posted Date: 2013-04-08T04:00Z

[Federal Register Volume 78, Number 67 (Monday, April 8, 2013)]
[Notices]
[Pages 20971-20973]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-08099]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69280; File No. SR-BX-2013-029]

Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing of Proposed Rule Change Relating to Board of Director 
Qualifications

April 2, 2013.
    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 March 27, 2013, NASDAQ OMX BX, Inc. (``BX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``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 Substance 
of the Proposed Rule Change

    The Exchange proposes to amend By-Law Article IV, Section 4.3 to 
amend the calculation of Non-Industry Directors in the Exchange's By-
Laws with respect to Qualification of Board Members.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxbx.cchwallstreet.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 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
    The purpose of this filing is to amend BX By-Law Article IV, 
Section 4.3 entitled ``Qualifications'' to amend the number of Public 
Directors \3\ required to be included in the calculation of Non-
Industry Directors \4\ from three Public Directors to one Public 
Director for purposes of determining the number of Non-Industry 
Directors that may serve on the Exchange board. The Exchange recently 
filed to amend its By-Laws because the Boston Options Exchange LLC 
(``BOX'') ceased to operate as an options trading facility of the 
Exchange \5\ and terminated the Regulatory Services Agreement (``RSA'') 
between BX and BOX effective June 1, 2012.\6\ In that filing the 
Exchange noted that the BOX Trading Rules will no longer be operative 
to permit options trading on

[[Page 20972]]

BX as of the facility termination effective date.\7\ At that time, the 
Exchange filed to amend its By-Laws to remove references to BOX which 
were no longer necessary.\8\ Specifically, Article I of the BX By-Laws 
was amended to reflect that BOX will no longer be a facility of the 
Exchange and Article IV, Section 4.3(a) regarding qualifications for 
the Board of Directors was amended to remove the requirement that one 
Industry Director shall represent BOX Participants, because the 
Exchange explained those provisions were no longer needed.\9\ The 
Exchange also separately filed to dissolve the BOX Committee of the BX 
Board of Directors.\10\
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    \3\ Pursuant to BX By-Law Article I(gg) a Public Director is a 
Director who has no material business relationship with a broker or 
dealer, the Corporation or its affiliates, or FINRA.
    \4\ Pursuant to BX By-Law Article I(bb) a Non-Industry Director 
is a Director (excluding Staff Directors) who is (i) a Public 
Director; (ii) an officer or employee of an issuer of securities 
listed on the Exchange; or (iii) any other individual who would not 
be an Industry Director.
    \5\ BOX was a facility of the Exchange under Section 39(a)(2) of 
the Act. See Securities Exchange Act Release Nos. 49066 (January 13, 
2004), 69 FR 2773 (January 20, 2004) (SR-BSE-2003-17); 49065 
(January 13, 2004), 69 FR 2768 (January 20, 2004) (SR-BSE-2003-04) 
(``BOXR Order''); and 49068 (January 13, 2004), 69 FR 2775 (January 
20, 2004) (SR-BSE-2002-15). See also Release No. 58324; 73 FR 46936 
(August 7, 2008) (File Nos. SR-BSE-2008-02; SR-BSE-2008-23; SR-BSE-
2008-25; SR-BSECC-2008-01) (``Order Approving the Acquisition of the 
Boston Stock Exchange, Incorporated by The NASDAQ OMX Group, 
Inc.'').
    \6\ The RSA specified, among other matters, that BX would 
terminate its responsibility for fulfilling certain obligations and 
cease performing certain regulatory functions as of the effective 
date of June 1, 2012, or sooner if BOX satisfies all of the 
conditions required for BOX to operate as a national securities 
exchange (``the facility termination effective date'').
    \7\ See Securities Exchange Act Release No. 67009 (May 17, 
2012), 77 FR 30566 (May 23, 2012) (SR-BX-2012-036).
    \8\ Id.
    \9\ Id. In addition, By-Law Article IV, Section 4.14, entitled 
Committees Not Composed Solely of Directors, was amended to remove 
the manner in which an Industry Director who is a representative of 
BOX Participants is nominated to the Board as it is no longer 
needed.
    \10\ See Securities Exchange Act Release No. 67102 (June 4, 
2012), 77 FR 34107 (June 8, 2012) (SR-BX-2012-039). After The NASDAQ 
OMX Group, Inc. acquired the Boston Stock Exchange, Inc., the 
Exchange adopted resolutions to establish a committee of its Board 
of Directors, referred to as the BOX Committee. See Securities 
Exchange Act Release No. 58324 (August 7, 2008); 73 FR 46936 (August 
12, 2008) (File Nos. SR-BSE-2008-02; SR-BSE-2008-23; SR-BSE-2008-25; 
SR-BSECC-2008-01) (``Order approving the Acquisition of the Boston 
Stock Exchange, Incorporated by The NASDAQ OMX Group, Inc.'').
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    At the time the Exchange filed to remove BOX references from its 
By-Laws and dissolve the BOX Committee, the Exchange inadvertently did 
not amend its By-Laws to correct the number of Public Directors 
required to be included in the calculation of Non-Industry Directors 
for purposes of determining the number of Non-Industry Directors that 
may serve on the Exchange board. Section 4.3 currently states, ``* * * 
The number of non-Industry Directors, including at least three Public 
Directors and at least one Director representative of issuers and 
investors shall equal or exceed the sum of the number of Industry 
Directors \11\ and Member Representative Directors.'' \12\ The number 
of Public Directors was set at three directors to accommodate the 
additional interests of the BOX Industry Director and the BOX Committee 
\13\ that were also proposed to be part of the new Boston Stock 
Exchange board at that time.
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    \11\ Pursuant to BX By-Law Article I(t) an Industry Director is 
a Director (excluding any two officers of the Corporation, 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 twenty percent or more of the professional revenues 
received by the Director or twenty 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 fifty 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 twenty percent or more of the professional revenues 
received by the Director or twenty percent or more of the gross 
revenues received by the Director's firm or partnership; or (vi) has 
a consulting or employment relationship with or provides 
professional services to the Corporation or any affiliate thereof or 
to FINRA or has had any such relationship or provided any such 
services at any time within the prior three years.
    \12\ Pursuant to BX By-Law Article I(x) a Member Representative 
Director is a Director who has been elected by the stockholders 
after having been nominated by the Member Nominating Committee or 
voted upon by Exchange Members pursuant to these By-Laws (or elected 
by the stockholders without such nomination or voting in the case of 
the Member Representative Directors elected pursuant to Section 
4.3(b)). A Member Representative Director may, but is not required 
to be, an officer, director, employee, or agent of an Exchange 
Member.
    \13\ An independent committee of the Exchange's Board of 
Governors that reviewed BOX rule changes and certain other BOX-
related regulatory matters. See Securities Exchange Act Release No. 
34-58324 (August 7, 2008); 73 FR 46936 (August 12, 2008) (File Nos. 
SR-BSE-2008-02; SR-BSE-2008-23; SR-BSE-2008-25; SR-BSECC-2008-01. 
See also Securities Exchange Act Release No. 67102 (June 4, 2012), 
77 FR 34107 (June 8, 2012) (SR-BX-2012-039).
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    The Exchange proposes to amend its By-Laws similar to the By-Laws 
of NASDAQ OMX PHLX LLC (``Phlx'') which requires the number of Non-
Industry Directors, including at least one Public Director and at least 
one Director representative of issuers and investors shall equal or 
exceed the sum of the number of Industry Directors and Member 
Representative Directors * * *'' \14\ Also, The NASDAQ Stock Market LLC 
(``NASDAQ'') requires the number of Non-Industry Directors, including 
at least one Public Director 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 and Member Representative Directors.\15\ The 
amendment reflects the recent elimination of BOX representatives from 
the Board and the reduction of the number of Public Directors from the 
computation of qualifying Non-Industry Directors is consistent with the 
removal of the BOX representatives from the Board. Today, 
notwithstanding the increased number of Public Directors in the Non-
Industry director calculation, the Exchange meets the requirements of 
the Non-Industry Director requirement in By-Law Article IV, Section 
4.13.
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    \14\ See Phlx By-Law Article III, Section 3-2(a).
    \15\ See NASDAQ By-Law Article III, Section 2(a).
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    The Exchange's annual meeting will take place on or around the end 
of May 2013. The Exchange anticipates utilizing the revised Non-
Industry Director calculation for the upcoming election of directors. 
The Exchange does not believe that this calculation will impact the 
board composition as twenty percent of the Directors will continue to 
be Member Representative Directors as required in By-Law Article IV, 
Section 4.3(a). Also, the Board will continue to have three Public 
Directors serving on the Regulatory Oversight Committee as required by 
By-Law Article IV, Section 4.13. The requirement that the number of 
Non-Industry Directors equal or exceed the sum of Industry Directors 
and Member Representative Directors will continue to be met, but only 
one Public Director will be included in the calculation similar to Phlx 
and NASDAQ.\16\
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    \16\ BX confirmed that BX will continue to have at least three 
Public Directors on its Board of Directors, as required by its By-
Laws, because the BX Regulatory Oversight Committee must consist of 
three Public Directors. See email from Angela Dunn, BX, to Adam 
Moore, Special Counsel, and Dhawal Sharma, Attorney Advisor, 
Division of Trading and Markets, Commission, dated March 29, 2013.
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2. Statutory Basis
    BX believes that its proposal to amend BX Article IV, Section 4.3 
entitled ``Qualifications'' to correct the number of Public Directors 
required to be included in the calculation of Non-Industry Directors 
that are permitted to serve on the Exchange Board is consistent with 
Section 6 of the Act,\17\ in general, and with Sections 6(b)(1) and 
(b)(5) of the Act,\18\ in particular, in that the proposal enable BX to 
be so organized and to have the capacity to be able to carry out the 
purposes of the Act and to comply with and enforce compliance by 
members with provisions of the Act, the rules and regulations 
thereunder, BX 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,

[[Page 20973]]

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.
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    \17\ 15 U.S.C. 78f.
    \18\ 15 U.S.C. 78f(b)(1), (5).
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    The composition and selection of the BX Board of Directors will 
continue to satisfy the requirement in Section 6(b)(3) of the Act \19\ 
that the rules of the Exchange provide for the fair representation of 
members in the selection of directors and administration of the 
Exchange. The Exchange believes that its By-Laws continue to assure 
fair representation of the Exchange's members in the selection of its 
directors and administration of its affairs and provide that, among 
other things, one or more directors shall be representative of 
investors and not be associated with the exchange, or with a broker or 
dealer. Twenty percent of the Directors will continue to be Member 
Representative Directors as required by BX Article IV, Section 4.3(a).
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    \19\ 15 U.S.C. 78f(b)(3).
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    The number of Public Directors that are required to be included in 
the calculation of Non-Industry Directors will be the same as the 
number required on the Phlx and NASDAQ Boards.\20\ The BX board 
requirements today are otherwise similar to the requirements at Phlx 
and NASDAQ. The Exchange believes that this proposal is consistent with 
the previous filing which eliminated BOX related references from its 
By-Laws.\21\ The number of Public Directors in the Non-Industry 
Director calculation was directly related to the BX Board composition 
with BOX representation and the elimination of the BOX representation 
from the BX Board no longer necessitates the increased number of Public 
Directors. The Exchange believes that amending the By-Laws to reflect a 
similar board composition to NASDAQ and Phlx would continue to assure 
fair representation of the Exchange's members in the selection of its 
directors and administration of its affairs.
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    \20\ See Phlx By-Law Article III, Section 3-2(a) and NASDAQ By-
Law Article III, Section 2(a).
    \21\ See note 7.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    BX does not believe that the proposed rule change will impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act. This proposal will continue to provide for the 
fair representation of members in the selection of directors and 
administration of the Exchange. The amendment to amend By-Law Article 
IV, Section 4.3 to modify the number of Public Directors in the Non-
Industry calculation is similar to by-laws on other exchanges.\22\
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    \22\ See Phlx By-Law Article III, Section 3-2(a) and NASDAQ By-
Law Article III, Section 2(a).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were either solicited or received.

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 Exchange consents, the Commission shall: (a) by order approve 
or disapprove 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 email to rule-comments@sec.gov. Please include 
File Number SR-BX-2013-029 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-BX-2013-029. 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, 100 F Street NE., 
Washington, DC 20549, 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-BX-2013-029, 
and should be submitted on or before April 29, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-08099 Filed 4-5-13; 8:45 am]
BILLING CODE 8011-01-P