Document ID: SEC-2009-0680-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing of Proposed Rule Change To Amend the Restated Certificate of Incorporation and By-Laws of NASDAQ OMX BX, Inc.
Posted Date: 2009-05-19T04:00Z

[Federal Register: May 19, 2009 (Volume 74, Number 95)]
[Notices]               
[Page 23459-23462]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19my09-92]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59908; File No. SR-BX-2009-021]

 
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing of Proposed Rule Change To Amend the Restated Certificate of 
Incorporation and By-Laws of NASDAQ OMX BX, Inc.

May 12, 2009.
    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 April 29, 2009, NASDAQ OMX BX, Inc. (``BX'' or ``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 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

    BX is filing this proposed rule change with regard to proposed 
changes to its Restated Certificate of Incorporation and By-Laws. The 
proposed rule change will be implemented as soon as practicable 
following approval by the Commission. The text of the proposed rule 
change is available at http://nasdaqomxbx.cchwallstreet.com, at BX's 
principal office, 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, BX 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. BX has prepared summaries, set forth in Sections A, B,

[[Page 23460]]

and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On August 29, 2008, BX was acquired by NASDAQ OMX. Following that 
acquisition, BX--together with The NASDAQ Stock Market LLC (the 
``NASDAQ Exchange'') and NASDAQ OMX PHLX, Inc. (formerly the 
Philadelphia Stock Exchange, Inc. and also an exchange subsidiary of 
NASDAQ OMX, and referred to herein as ``PHLX'')--has been evaluating 
means to realize synergies in the operations of these three exchanges 
while maintaining the separate identity and member representation 
structures of each.
    In making this evaluation, BX and its sister exchanges have given 
consideration to the experiences of their respective boards and have 
reviewed the governance documents of other exchanges. In particular, BX 
and the other exchanges have reviewed the board structures established 
by NYSE Euronext and its exchange subsidiaries. In Securities Exchange 
Act Release No. 55293,\3\ the Commission approved a structure in which 
certain committees of the board of directors of NYSE Euronext, the 
public holding company, perform functions for exchange subsidiaries, 
which do not themselves have these committees. Specifically, the 
Commission's approval order states that ``the NYSE Euronext board of 
directors will have an audit committee, a human resource and 
compensation committee, and a nominating and governance committee. Each 
of the audit committee, human resource and compensation committee, and 
nominating and governance committee of the NYSE Euronext board of 
directors will consist solely of directors meeting the independence 
requirements of NYSE Euronext. These committees also will perform 
relevant functions for NYSE Group,\4\ the Exchange,\5\ NYSE Market,\6\ 
NYSE Regulation,\7\ Archipelago,\8\ NYSE Arca,\9\ and NYSE Arca 
Equities,\10\ as well as other subsidiaries of NYSE Euronext, except 
that the board of directors of NYSE Regulation will continue to have 
its own compensation committee and nominating and governance 
committee.''
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    \3\ Securities Exchange Act Release No. 55293 (February 14, 
2007), 72 FR 8033 (February 22, 2007) (SR-NYSE-2006-120).
    \4\ NYSE Group, Inc., the former public holding company of NYSE 
Euronext's U.S. exchanges.
    \5\ New York Stock Exchange LLC (``NYSE''), a registered 
national securities exchange.
    \6\ NYSE Market, Inc., a subsidiary of NYSE to which it has 
delegated certain operational authority.
    \7\ NYSE Regulation, Inc., a subsidiary of NYSE to which it has 
delegated certain operational authority.
    \8\ Archipelago Holdings, Inc., formerly the public holding 
company of the entities now known as NYSE Arca, Inc. and NYSE Arca 
Equities, Inc.
    \9\ NYSE Arca, Inc., a registered national securities exchange.
    \10\ NYSE Arca Equities, Inc., a subsidiary of NYSE Arca to 
which it has delegated certain operational authority.
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    BX and the other exchanges owned by NASDAQ OMX have also considered 
the experience of the NASDAQ Exchange in operating as a subsidiary of a 
public company since 2006. During the period, the board of each of the 
NASDAQ Exchange and its parent corporation (currently NASDAQ OMX, and 
formerly The Nasdaq Stock Market, Inc.) has appointed its own audit 
committee and management compensation committee. However, these 
committees at the NASDAQ Exchange level have generally found themselves 
duplicating the work of other committees at the exchange or holding 
company level. The NASDAQ OMX audit committee has broad authority to 
review the financial information that will be provided to shareholders 
and others, systems of internal controls, and audit, financial 
reporting and legal and compliance processes. Because NASDAQ OMX's 
financial statements are prepared on a consolidated basis that includes 
the financial results of NASDAQ OMX's subsidiaries, including BX and 
the other exchange subsidiaries, the NASDAQ OMX audit committee's 
purview necessarily includes these subsidiaries. The committee is 
composed of four or five directors, all of whom must be independent 
under the standards established by Section 10A(m) of the Act \11\ and 
Rule 4200(a) of the NASDAQ Exchange. All committee members must be able 
to read and understand financial statements, and at least one member 
must have past employment experience in finance or accounting, 
requisite professional certification in accounting, or any other 
comparable experience or background that results in the individual's 
financial sophistication.
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    \11\ 15 U.S.C. 78j-1(m).
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    By contrast, the audit committee of the NASDAQ Exchange has a more 
limited role, focused solely on the exchange entity and its 
subsidiaries that operate as facilities of the NASDAQ Exchange. As 
described in the current By-Laws of the NASDAQ Exchange (which are, in 
this respect, virtually identical to the current By-Laws of BX), the 
primary functions of the audit committee are (i) Oversight over 
financial reporting, (ii) oversight over the systems of internal 
controls established by management and the Board and the legal and 
compliance process, (iii) selection and evaluation of independent 
auditors, and (iv) direction and oversight of the internal audit 
function. However, to the extent that the committee reviews financial 
and accounting matters, its activities are duplicative of the 
activities of the NASDAQ OMX audit committee, which is also charged 
with providing oversight over financial reporting and independent 
auditor selection for NASDAQ OMX and all of its subsidiaries, including 
the NASDAQ Exchange, BX, and PHLX and their subsidiaries. Similarly, 
the NASDAQ OMX audit committee has general responsibility for oversight 
over internal controls and direction and oversight over the internal 
audit function for NASDAQ OMX and all of its subsidiaries. Thus, the 
responsibilities of the exchanges' audit committees are fully 
duplicated by the responsibilities of the NASDAQ OMX audit committee. 
Accordingly, the NASDAQ Exchange is proposing to allow the elimination 
of its audit committee by amending Article III, Section 5 of the By-
Laws.\12\ Similarly, drawing upon the model established by NYSE 
Euronext and the experience of the NASDAQ Exchange, BX is likewise 
proposing to allow the elimination of its audit committee by amending 
Section 4.13 of its By-Laws.
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    \12\ SR-NASDAQ-2009-042 (April 29, 2009). PHLX expects to file a 
similar proposed rule change in the near future.
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    BX believes, however, that even in light of the NASDAQ OMX audit 
committee's overall responsibilities for internal controls and the 
internal audit function, it is nevertheless important for the BX Board 
to maintain its own independent oversight over BX's controls and 
internal audit matters relating to BX's operations. In this regard, BX 
notes that its regulatory oversight committee currently has broad 
authority to oversee the adequacy and effectiveness of BX's regulatory 
and self-regulatory organization responsibilities, and is therefore 
able to maintain oversight over controls in tandem with the NASDAQ OMX 
audit committee's overall control oversight responsibilities. 
Similarly, it is already the practice of NASDAQ OMX's Internal

[[Page 23461]]

Audit Department (``Department''),\13\ which performs internal audit 
functions for all NASDAQ OMX subsidiaries, to report to the BX 
regulatory oversight committee on all internal audit matters relating 
to BX. This practice will be formally reflected in the Department's 
written procedures. In addition, to ensure that the BX Board retains 
authority to direct the Department's activities with respect to BX, the 
Department's written procedures will be amended to stipulate that the 
BX regulatory oversight committee may, at any time, direct the 
Department to conduct an audit of a matter of concern to it and report 
the results of the audit both to the BX regulatory oversight committee 
and the NASDAQ OMX audit committee.
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    \13\ See e-mail from John Yetter, Vice President and Deputy 
General Counsel, NASDAQ OMX Group, Inc., to Christopher W. Chow, 
Special Counsel, Commission, dated May 5, 2009.
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    BX also proposes to amend Section 4.13 of the By-Laws in order to 
follow the NYSE Euronext model with respect to allowing the elimination 
of its compensation committee and the performance of its function by 
the NASDAQ OMX compensation committee and/or subsidiary boards. The 
NASDAQ OMX By-Laws provide that its compensation committee considers 
and recommends compensation policies, programs, and practices for 
employees of NASDAQ OMX. Because many employees performing work for BX 
are also employees of NASDAQ OMX, its compensation committee already 
performs these functions for such employees. Moreover, certain of its 
senior officers are also officers of NASDAQ OMX and other NASDAQ OMX 
subsidiaries because their responsibilities relate to multiple entities 
within the NASDAQ OMX corporate structure. Accordingly, NASDAQ OMX pays 
these individuals and establishes compensation policy for them. Most 
notably, the former Chief Executive Officer of BX was also an 
``executive officer'' of NASDAQ OMX within the meaning of NASDAQ 
Exchange Rule 4350.\14\ Under that rule, the compensation of executive 
officers of an issuer of securities, such as the common stock of NASDAQ 
OMX, that is listed on the NASDAQ Exchange, must be determined by, or 
recommended to the board of directors for determination by, a majority 
of independent directors or a compensation committee comprised solely 
of independent directors. Accordingly, the NASDAQ OMX board of 
directors and/or its compensation committee was legally required to 
establish the compensation for this individual. Although the individual 
recently resigned his positions with NASDAQ OMX and its subsidiaries in 
order to pursue another opportunity, it is likely that his successor as 
Chief Executive Officer of BX will serve in a similar position at 
NASDAQ OMX and therefore be subject to comparable compensation 
requirements.
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    \14\ The position of Chief Executive Officer of BX is currently 
vacant, pending selection of a successor.
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    To the extent that policies, programs, and practices must also be 
established for any BX officers or employees who are not also NASDAQ 
OMX officers or employees, the BX Board will perform such actions 
without the use of a compensation committee (but subject to the recusal 
of Staff Directors) \15\ unless the persons in question are also 
employees of Boston Options Exchange Regulation LLC (``BOXR''). BOXR is 
the subsidiary of BX that has been delegated responsibility to regulate 
the market operated by Boston Options Exchange Group LLC (``BOX''), an 
options exchange that is a facility of BX but in which neither BX nor 
any of its affiliates has a financial interest. Section 17 of the By-
Laws of BOXR (which are part of its Limited Liability Company 
Agreement) provides that the compensation of BOXR's officers shall be 
determined by the BOXR Board. Because of BOXR's special status as a 
regulatory subsidiary, this provision will remain operative following 
the implementation of the rule change proposed by this filing. Finally, 
it should be noted that as already provided in the By-Laws, the 
regulatory oversight committee of the BX Board must be informed about 
the compensation and promotion or termination of the BX chief 
regulatory officer and the reasons therefor, to allow it to provide 
oversight over decisions affecting this key officer.\16\
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    \15\ Staff Directors are directors of BX that are also serving 
as officers. Since the BX Board would not be responsible for setting 
the compensation of any Staff Directors who are also officers of 
NASDAQ OMX, they would be permitted to participate in discussions 
concerning compensation of BX employees, but would recuse themselves 
from a vote on the subject to allow the determination to be made by 
directors that are not officers or employees of BX. If a Staff 
Director was not also an employee of NASDAQ OMX, that Staff Director 
would also absent himself or herself from any deliberations 
regarding his or her compensation.
    \16\ In this filing, BX is also amending its Restated 
Certificate of Incorporation and By-laws to reflect the name change 
of The Nasdaq Stock Market, Inc. to The NASDAQ OMX Group, Inc. See 
Article Fourth of Restated Certificate of Incorporation; Section 9.4 
of the By-Laws.
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2. Statutory Basis
    BX believes that its proposal is consistent with Section 6(b) of 
the Act \17\ in general, and furthers the objectives of: (1) Section 
6(b)(1) of the Act,\18\ which requires a national securities exchange 
to be so organized and have the capacity to carry out purposes of the 
Act and to enforce compliance by its members and persons associated 
with its members with the provisions of the Act; and (2) Section 
6(b)(5) of the Act,\19\ in that it is designed, among other things, to 
prevent fraudulent and manipulative acts and practices, 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. 
Specifically, the proposed rule change will allow BX to eliminate two 
Board committees whose roles are limited by BX's status as a wholly 
owned subsidiary of NASDAQ OMX, thereby allowing directors to focus 
greater attention on matters falling directly within the purview of the 
Board, including regulatory quality, market structure, new product 
initiatives, and review of proposed rule changes. The filing also 
updates the corporate name of NASDAQ OMX in the Restated Certificate of 
Incorporation and By-Laws.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78(b)(1).
    \19\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    BX 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.

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:

[[Page 23462]]

    (A) By order approve 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-BX-2009-021 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-2009-021. 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 inspection and 
copying in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the 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-BX-2009-021 and should be 
submitted on or before June 8, 2009.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-11609 Filed 5-18-09; 8:45 am]

BILLING CODE 8010-01-P