Document ID: SEC-2009-0575-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc., Order Approving Proposed Rule Change Relating to the Nomination and Election of Candidates for Governor and Independent Governor
Posted Date: 2009-04-24T04:00Z

[Federal Register: April 24, 2009 (Volume 74, Number 78)]
[Notices]               
[Page 18761-18762]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24ap09-104]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59794; File No. SR-Phlx-2009-17]

 
Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc., Order 
Approving Proposed Rule Change Relating to the Nomination and Election 
of Candidates for Governor and Independent Governor

April 20, 2009.
    On February 23, 2009, NASDAQ OMX PHLX, Inc. (``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 to amend its Certificate of Incorporation and By-
Laws to modify its processes relating to the nomination and election of 
candidates for the Board of Governors (``Board''). The proposed rule 
change was published for comment in the Federal Register on March 16, 
2009.\3\ The Commission received no comments 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. 59538 (March 9, 
2009), 74 FR 11152 (``Notice'').
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    In its filing, the Exchange sought to conform its governance 
structure, including its process for the nomination and election of 
candidates for Governor and Designated Independent Governor positions, 
to more closely resemble that of its corporate sibling, The NASDAQ 
Stock Market LLC (``Nasdaq'').\4\ In particular, the Exchange proposed 
several changes to its governance structure, including (i) bifurcating 
the ``Nominating, Elections and Governance Committee'' into a separate 
``Nominating Committee'' and a ``Member Nominating Committee''; (ii) 
modifying the processes for nominating candidates for Governor and 
Designated Independent Governor; (iii) modifying the procedures for 
Member Organization Representatives to vote for Designated Governor 
nominees and the procedures for meetings of Members and Member 
Organizations; (iv) changing the procedures for filling vacancies on 
the Board, and the timeframe for submitting Board resignations; and (v) 
adding several new definitions, including ``Industry Member,'' ``Non-
Industry Member,'' and ``Member Representative member.'' The Exchange 
also proposed to amend its Certificate of Incorporation and its By-Laws 
to delete the positions of Vice Chair and PBOT Governor.
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    \4\ Both the Exchange and Nasdaq are subsidiaries of The NASDAQ 
OMX GROUP, Inc. See Securities Exchange Act Release No. 58179 (July 
17, 2008), 73 FR 42874 (July 23, 2008) (SR-Phlx-2008-31) (order 
approving changes to the Exchange's governing documents in 
connection with its acquisition by The NASDAQ OMX Group, Inc.).
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    The Commission has carefully reviewed the proposed rule change and 
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 \5\ including, in particular, Section 
6(b)(1) of the Act,\6\ which requires a national securities exchange to 
be so organized and have the capacity to carry out the purposes of the 
Act and to enforce compliance by its members and persons associated 
with its members with the provisions of the Act; Section 6(b)(3) of the 
Act,\7\ which requires that the rules of a national securities exchange 
assure a fair representation of its members in the selection of its 
directors and administration of its affairs, and provided that one or 
more directors shall be representative of issuers and investors and not 
be associated with a member of the exchange, broker or dealer; and 
Section 6(b)(5) of the Act,\8\ which requires that an exchange have 
rules designed 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, protect investors and the 
public interest.
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    \5\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78f(b)(1).
    \7\ 15 U.S.C. 78f(b)(3).
    \8\ 15 U.S.C. 78f(b)(5).
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    Among other things, the Exchange proposed to bifurcate its 
Nominating, Elections and Governance Committee into (1) a Member 
Nominating Committee that would be responsible for nominating 
candidates for each vacant Designated Governor \9\ position and would 
also nominate candidates for appointment by the Board for each vacant 
or new position on any committee that is to be filled with a Member 
Representative member, and (2) a Nominating Committee that would 
nominate candidates for all other vacant Governor positions that are 
not nominated by the Member Nominating Committee. All members of the 
Member Nominating Committee would be a current associated person of a 
current member organization and would be appointed annually by the 
Board following consultations with Member Organization Representatives. 
The Nominating Committee would consist of a number of non-industry 
members that equal or exceed the number of industry members. In 
addition, a number of Public Members would be represented on the 
Nominating Committee, and no officer or employee of the Exchange could 
serve in any voting or non-voting capacity on the committee.
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    \9\ The term ``Designated Governor,'' which includes the Member 
Governor and a number of Designated Independent Governors, refers to 
a Governor who is selected through a process that is subject to the 
input of the Exchange's Member Organization Representatives. See 
Proposed Phlx By-Law Article I, Section 1-1(e) (defining 
``Designated Governor'' as proposed to be amended by Phlx to exclude 
the PBOT Governor position).
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    Further, the Exchange proposed to modify its nominating process, 
including the procedures for Member Organization Representatives to 
vote for Designated Governor nominees and the procedures for meetings 
of Members and Member Organizations, to more closely align them with 
Nasdaq's process and procedures. Among other things, the proposed 
procedures would continue to afford Member Organization Representatives 
the ability to nominate candidates for Designated Governor positions 
subject to certain conditions. In addition, in the event of a contested

[[Page 18762]]

vote for a Designated Governor position, Member Organization 
Representatives would have the opportunity to vote on the list of 
candidates, and the Exchange would utilize a balloting process rather 
than hold a formal meeting of members.
    The Exchange also proposed to delete the position of Vice Chair, 
which is a position that Nasdaq does not maintain.\10\ In addition, the 
Exchange proposed to eliminate the PBOT Governor position and replace 
it with a new Designated Independent Governor position.\11\ The 
Exchange's current Certificate of Incorporation specifies that the 
Board shall be composed of ``[a] number of Designated Independent 
Governors, which, together with the Member Governor and the PBOT 
Governor, shall equal at least 20% of the total number of Governors* * 
*'' \12\ Because the Exchange proposed to replace the PBOT Governor 
position with a new Designated Independent Governor, which position, 
like all other ``Designated'' Governor positions, would be selected 
pursuant to a process that involves member input, the proposal does not 
change the composition of the Board with respect to the minimum 
percentage of Governors that would be selected pursuant to member 
input.\13\
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    \10\ The function of the Vice Chair was to preside over meetings 
of the Board in the absence of the Chair. See Phlx By-Law Sec. 28-
12.
    \11\ With the acquisition of the Exchange by The NASDAQ OMX 
GROUP, Inc., the Philadelphia Board of Trade, Inc (``PBOT'') (n/k/a 
NASDAQ OMX Futures Exchange, Inc.) became a subsidiary of the parent 
holding company. Accordingly, the Exchange determined that it was no 
longer appropriate to provide for this special representation on the 
Board. See Notice, supra note 3, at 74 FR 11157.
    \12\ See the Exchange's Certificate of Incorporation, Article 
Sixth.
    \13\ The election of the Designated Governors is conducted 
pursuant to the Exchange's Trust Agreement under which an 
independent trustee exercises voting authority with respect to the 
one outstanding share of Series A Preferred Stock, which share has 
the exclusive right to elect and remove such Governors. The Series A 
Preferred Stock is voted by the trustee, pursuant to the Trust 
Agreement, as directed by Phlx members in accordance with the 
Exchange's governing documents.
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    Finally, the Exchange proposed to modify the process for filing 
vacancies on the Board to reflect the newly proposed structure. Among 
other things, in the event of a vacancy, the appropriate nominating 
committee would nominate, and the Board would appoint, a replacement 
Governor. For example, in the event of a vacancy in the Member Governor 
position, the new Member Nominating Committee would nominate a 
replacement.
    Accordingly, the proposed changes will more closely align Phlx's 
governance structure to that of Nasdaq, which, like the Exchange, is a 
subsidiary of NASDAQ OMX GROUP, Inc. At the same time, the proposed 
changes will continue to assure the fair representation of the 
Exchange's members in the selection of the Exchange's directors and 
administration of its affairs.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (SR-Phlx-2009-17) be, and it hereby is, 
approved.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-9389 Filed 4-23-09; 8:45 am]

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