Document ID: SEC-2014-1464-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: National Stock Exchange, Inc.
Posted Date: 2014-09-02T04:00Z

[Federal Register Volume 79, Number 169 (Tuesday, September 2, 2014)]
[Notices]
[Pages 52089-52092]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-20696]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72914; File No. SR-NSX-2014-16]

Self-Regulatory Organizations; National Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Rule 15.5 To Provide Additional Clarity and Precision, Correct 
Certain Citations, and Align the Rule With the Rules of Other Exchanges 
With Respect to the Original and Continued Listing Standards for 
Issuers' Compensation Committees

August 26, 2014.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Exchange Act'' or ``Act'') \1\ and Rule 19b-4 thereunder,\2\ 
notice is hereby given that on August 12, 2014, National Stock 
Exchange, Inc. (``NSX[supreg]'' 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 prepared by the Exchange. The Commission is publishing this notice 
to solicit comment 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 is proposing to amend Rule 15.5 to conform with the 
provisions of Section 957 of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act of 2010 (the ``Dodd-Frank Act''),\3\ Section 
10C of the Exchange Act,\4\ and Rule 10C-1 promulgated pursuant 
thereto.\5\
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    \3\ Public Law 111-203, 124 Stat. 1900 (2010).
    \4\ 15 U.S.C. 78j-3.
    \5\ 17 CFR 229.407 and 17 CFR 240.10C-1.
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.nsx.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 parts of such 
statements.\6\
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    \6\ The Exchange notes that, as of the close of business on May 
30, 2014, it ceased trading operations on its trading system. See 
Exchange Act Release No. 72107 (May 6, 2014), 79 FR 27017 (May 12, 
2014) (SR-NSX-2014-14). The Exchange continues to be registered as a 
national securities exchange under Section 6 of the Exchange Act, 
and continues to retain its status as a self-regulatory 
organization. Prior to NSX ceasing trading operations, there were no 
NSX-listed securities and all securities traded on NSX on the basis 
of Unlisted Trading Privileges.
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A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is proposing to amend Chapter XV, ``Listed Securities 
and Other Exchange Products,'' and specifically Rule 15.5, entitled 
``Other Listing Standards'' to conform with Section 10C of the Exchange 
Act, as added by Section 952 of the Dodd-Frank Act. Section 10C 
requires the Commission to direct national securities exchanges and 
national securities associations to prohibit, with certain exceptions, 
the listing of any equity security of an issuer that does not comply 
with the Compensation Committee and compensation adviser requirements 
of Section 10C.\7\ Specifically, Section 10C(a)(1) of the Act requires 
the Commission to adopt rules directing exchanges to prohibit the 
listing of any equity security of an issuer, with certain exceptions, 
that does not comply with the requirements of Section 10C with respect 
to Compensation Committees and compensation adviser requirements.\8\
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    \7\ See Exchange Act Sections 10C(a) and (f).
    \8\ Five categories of issuers are excluded from this 
requirement: Controlled companies, limited partnerships, companies 
in bankruptcy proceedings, open-end management investment companies 
registered under the Investment Company Act of 1940 (the 
``Investment Company Act''), and foreign private issuers that 
disclose in their annual reports the reasons why they do not have an 
independent compensation committee.
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    The Exchange adopted rules to align with the requirements of 
Section 10C of the Act and Rule 10C-1 thereunder in October 2012.\9\ 
The proposed amendments in the instant filing operate to provide 
further clarity and precision and correct certain citations, and align 
with the rules of other exchanges, with respect to the provisions of 
Rule 15.5(d)(5) that govern a listed issuer's Compensation Committee. 
The rule proposal also adds new text to the

[[Page 52090]]

Interpretations and Policies of Rule 15.5(d)(5).
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    \9\ See Exchange Act Release No. 68039 (October 11, 2012), 77 FR 
63914 (October 17, 2012) (SR-NSX-2012-15).
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Listed Company Corporate Governance Requirements
    The Exchange proposes to amend Rule 15.5(d)(5)(a) to clarify the 
Listed Company Corporate Governance Requirements for purposes of 
determining the independence of a member of the Compensation Committee. 
Specifically, the proposed amendment adds text stating that, in 
addition to determining whether the director meets the independence 
requirements of Rule 15.5(d)(2)(a) and (b),\10\ the listed company must 
consider those factors contained in Rule 15.5(d)(5)(a)(i) and (ii).\11\ 
The Exchange submits that this amendment will reinforce the elements 
that must inform a listed company's determination of the independence 
of a member of the Compensation Committee.
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    \10\ Paragraph (d)(2)(a) provides that no director may qualify 
as ``independent'' unless the board of directors affirmatively 
determines that the director has no material relationship with the 
listed company (either directly or as a partner, shareholder, or 
officer of an organization that has a relationship with the company) 
and that companies must disclose these determinations. Paragraph 
(d)(2)(b) lists five additional bright line tests that a director 
must meet to be considered independent, including that a director 
who is an employee of the company, or whose immediate family member 
is an executive officer of the company, is not independent until 
three years after the end of such employment relationship.
    \11\ Paragraph (d)(5)(a) requires that, when determining the 
independence of directors the listed company must consider (i) the 
source of compensation of the director, including any consulting, 
advisory or other compensatory fee paid by the listed company to the 
director; and (ii) whether the director is affiliated with the 
listed company, a subsidiary of the listed company, or an affiliate 
of a subsidiary of the listed company.
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Written Charter of the Compensation Committee
    The amendments proposed by the Exchange to Rule 15.5(d)(5)(b)(i) 
with regard to the requirements for the written charter of the 
Compensation Committee are also primarily intended to conform the text 
of the rule with the provisions of Section 10C of the Act. First, the 
Exchange proposes in the introductory text of Paragraph (d)(5)(b)(i) to 
amplify the general requirements for the written charter by stating 
that the charter must address the Compensation Committee's purpose, 
responsibilities and authority, which at minimum must be to have direct 
responsibility and authority to engage in the tasks described in Rule 
15.5(d)(5)(b)(i)(A) through (F). The proposed amendment will better 
define the scope of the Compensation Committee's authority to engage in 
the tasks described in the rule.
    The Exchange is next proposing amendments to Rule 
15.5(d)(5)(b)(i)(A) through (F) to remove the word ``independent'' 
contained in the pre-amendment rule text in reference to legal counsel. 
The proposed changes to paragraph (b)(i)(A) through (F) recognize that, 
while Section 10C(d)(1) of the Act provides that the Compensation 
Committees of listed issuers shall have the express authority to hire 
``independent legal counsel,'' it does not require that they do so, nor 
does it preclude a Compensation Committee from retaining non-
independent legal counsel or obtaining advice from in-house counsel or 
outside counsel retained by the issuer or management. The proposed 
deletion will operate to remove any ambiguity in that regard.
    Consistent with Section 10C of the Act, the proposed change to the 
rule text will enhance the pre-amendment requirements for the written 
charter of the Compensation Committee by expressly stating that the 
Compensation Committee, at a minimum, has the authority to retain or 
obtain the advice of compensation consultants, legal counsel and other 
compensation advisers as determined in the sole discretion of the 
Compensation Committee and to appoint, compensate and oversee the work 
of any such compensation consultants, legal counsel or other adviser. 
The amended rule text will also list the factors that the Compensation 
Committee must use in selecting a compensation consultant, legal 
counsel or other adviser.\12\
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    \12\ See proposed Rule 15.5(d)(5)(b)(i)(D).
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Compensation Committee Funding
    The Exchange proposes to amend Rule 15.5(d)(5)(c) regarding the 
funding that a listed company must provide for the Compensation 
Committee to discharge its functions. As amended, subparagraph (5)(c) 
will provide that listed companies must provide for appropriate 
funding, as determined by the Compensation Committee, for payment of 
reasonable compensation to a compensation consultant, legal counsel or 
any other adviser retained by the Compensation Committee. As amended, 
the text of such subparagraph will delete the word ``independent'' with 
reference to legal counsel, a change which mirrors the similar change 
to the requirement for the written charter of the Compensation 
Committee, and specifies that the funding must be sufficient to pay 
reasonable compensation to any other adviser `` . . . retained by the 
Compensation Committee.''
    The Exchange submits that the proposed change will align 
subparagraph (5)(c) with Section 10C of the Act and Rule 10C-1(b)(3) 
pursuant thereto \13\ with regard to listing standards that must be 
adopted by exchanges regarding requirements for compensation committees 
and any compensation consultant, legal counsel or other adviser used by 
such committees.\14\ The proposed amendments are intended to enhance 
the clarity and precision of the Rule by providing that a listed issuer 
must provide for appropriate funding for reasonable compensation for 
compensation consultants, legal counsel, or any other adviser retained 
by the Compensation Committee.
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    \13\ 17 CFR 240.10C-1(b)(3).
    \14\ Id.
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Requirements for a Smaller Reporting Company
    The Exchange is further proposing clarifying amendments to Rule 
15.5(d)(5)(e) with respect to the requirements for a Smaller Reporting 
Company as defined in Rule 12b-2 under the Act.\15\ Specifically, the 
amendments provide that a Smaller Reporting Company with a public float 
of $75 million or more as of the last business day of its second fiscal 
quarter will cease to be a Smaller Reporting Company as of the 
beginning of the fiscal year following the Smaller Reporting Company 
Determination Date. In that instance, the company shall be required to 
comply with Rule 15.5(d)(5)(b)(i)(F) with respect to the criteria for 
selecting a compensation consultant, legal counsel, or other adviser to 
the Compensation Committee, as of six months from the date it ceases to 
be a Smaller Reporting Company.
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    \15\ 17 CFR 240.12b-2.
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    Additionally, the amended rule specifies that the company must: (i) 
Provide for one member of its Compensation Committee meeting the 
independence standard of Rule15.5(d)(5)(a)(i)-(ii) within six months of 
the date that it ceases to be a Smaller Reporting Company; (ii) provide 
for a majority of directors on its Compensation Committee meeting those 
requirements within nine months of that date; and (iii) provide that a 
Compensation Committee comprised solely of members that meet those 
requirements is in place within twelve months of that date.
    These amendments are intended to provide a degree of flexibility to 
companies that cease to be Smaller Reporting Companies to fully 
implement the provisions of Rule

[[Page 52091]]

15.5(d) on a workable basis, giving due regard to the steps necessary 
for a company to fully implement the provisions of the Rule.
Revised Interpretations and Policies of Rule 15.5(d)(5): Compensation 
Committee Assessment of Adviser Independence and Adoption of Adviser's 
Recommendations
    The Exchange is also proposing amendments to the Interpretations 
and Policies of Rule 15.5(a)(1)(d) that will serve to: (i) Provide 
additional clarity as to the responsibility of a listed issuer's 
Compensation Committee to conduct an independence assessment before 
retaining or obtaining the advice of a compensation consultant, legal 
counsel, or any other adviser; and (ii) provide guidance as to the 
implementation of a consultant's or adviser's recommendations and the 
exercise of the Compensation Committee's judgment in that regard.
    First, the revised text of the Interpretations and Policies 
reinforces that the Compensation Committee is required to conduct the 
independence assessment outlined in Rule 15.5(5)(b)(i)(F) \16\ with 
respect to any compensation consultant, legal counsel or other adviser, 
other than in-house legal counsel and any other in-house adviser whose 
role is limited to certain identified activities, for which no 
disclosure would be required under Item 407(e)(3)(iii) of Regulation S-
K.\17\ Such activities are consulting on any broad-based plan that does 
not discriminate in scope, terms or operation, in favor of executive 
officers or directors of the listed company, and that is available 
generally to all salaried employees; or providing information that 
either is not customized for a particular company or that is customized 
based on parameters that are not developed by the compensation 
consultant, and about which the compensation consultant does not 
provide advice. The revised text in the Interpretations and Policies 
incorporates in the Exchange's guidance to issuers the amendments to 
Item 407 that were adopted by the Commission along with Section 10C of 
the Act.\18\
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    \16\ Under Rule 15.5(b)(i)(F)(1)-(6), the independence 
determination must take into account the following required factors: 
Other services provided to the issuer by the person that employs the 
compensation consultant, legal counsel or adviser; the amount of 
fees received by the adviser's employer from the issuer, as 
expressed by a percentage of total revenue of that employer; the 
conflicts of interests policies and procedures of the adviser's 
employer; any business or personal relationship between the 
compensation consultant, legal counsel or adviser with a member of 
the Compensation Committee; any stock of the issuer owned by the 
compensation consultant, legal counsel or adviser; and any business 
or personal relationship between the compensation consultant, legal 
counsel or adviser and any executive officers of the issuer.
    \17\ 17 CFR 229.407.
    \18\ 17 CFR 229.407(e)(iv).
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    In addition, the revised Interpretations and Policies makes clear 
that Rule 15.5(d)(5) does not, in fact, require that a compensation 
consultant, legal counsel or other compensation adviser be independent, 
but only that the Compensation Committee consider the enumerated 
independence factors before selecting or receiving advice from a 
compensation adviser. The Compensation Committee may select or receive 
advice from any compensation adviser they prefer including ones that 
are not independent, after considering the six independence factors 
outlined in Rule 15.5(d)(5)(b)(i)(F)(1)-(6).
    Finally, the Exchange proposes to include a new provision that 
nothing in Rule 15.5(d)(5)(b) shall be construed to require the 
Compensation Committee to implement or act consistently with the advice 
or recommendations of the compensation consultant, legal counsel or 
other adviser to the Compensation Committee; or to affect the ability 
or obligation of the Compensation Committee to exercise its own 
judgment in fulfillment of the duties of the Compensation Committee. 
The proposed new text tracks the provisions of Rule 10C-1.\19\
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    \19\ See CFR 240.10C-1(b)(2)(iii)(A) and (B).
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2. Statutory Basis
    The Exchange believes the proposed rule amendments are consistent 
with the Exchange Act and the rules and regulations thereunder 
applicable to national securities exchanges. Specifically, the Exchange 
believes that the proposed amendments are consistent with Section 6 of 
the Exchange Act \20\ in general, and Section 6(b)(5) in particular. 
Section 6(b)(5) requires that the rules of an exchange be designed to, 
among other things, 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.
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    \20\ 15 U.S.C. Sec.  78f(b)(5).
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    The Exchange submits that the proposed amendments are consistent 
with Section 6(b)(5) in that they are designed to protect investors and 
the public interest by providing additional clarity and precision and 
correct citations with regard to the Exchange's requirements for 
Compensation Committees under the listed issuer corporate governance 
requirements. The proposed revisions will also align the Exchange's 
rules with the rules of other national securities exchanges, The 
Exchange further believes that the proposed rule changes will further 
the implementation of the requirements of Section 10C of the Act and 
Rule 10C-1 pursuant thereto and are therefore consistent with the 
Exchange Act.

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. The Exchange submits that 
these changes will have no competitive impact, in that they are 
intended to better align the Exchange's corporate governance rules for 
listed companies with the statutory requirements. Similar rules have 
been enacted by other national securities exchanges with rules 
governing the initial or continued listing of the equity securities of 
listed companies and the proposed changes work to align Exchange Rule 
15.5(d)(5) with the rules of other exchanges.

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

    The Exchange has not solicited, and does not intend to solicit, 
written comments on the proposed rule change.

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

    Because the foregoing proposed rule change does not:
    A. Significantly affect the protection of investors or the public 
interest;
    B. impose any significant burden on competition; and
    C. become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) \21\ of the Exchange 
Act and Rule 19b-4(f)(6) thereunder.\22\ At any time within 60 days of 
the filing of such proposed rule change, the Commission summarily may 
temporarily suspend such rule change if it appears to the Commission 
that such

[[Page 52092]]

action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act. If the Commission takes such action, the Commission will 
institute proceedings to determine whether the proposed rule change 
should be approved or disapproved.
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    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description of the text of the proposed rule change, at least 
five business days prior to the date of the filing of the proposed 
rule change, or such other time as designated by the Commission. 
This requirement has been met.
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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-NSX-2014-16 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NSX-2014-16. 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 office 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-NSX-2014-16, and should be 
submitted on or before September 23, 2014.

    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. 2014-20696 Filed 8-29-14; 8:45 am]
BILLING CODE 8011-01-P