Document ID: SEC-2009-0955-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX BX, Inc.
Posted Date: 2009-07-13T04:00Z

[Federal Register: July 13, 2009 (Volume 74, Number 132)]
[Notices]               
[Page 33495-33496]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13jy09-140]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60247; File No. SR-BX-2009-021]

 
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Order 
Approving Proposed Rule Change to Amend the Restated Certificate of 
Incorporation and By-Laws of NASDAQ OMX BX, Inc.

July 6, 2009.
    On April 29, 2009, NASDAQ OMX BX, Inc. (``BX'' or ``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 Restated Certificate of Incorporation (``Certificate'') and 
by-laws (``By-Laws''). The proposed rule change was published for 
comment in the Federal Register on May 19, 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. 59908 (May 12, 
2009), 74 FR 23459 (``Notice'').
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I. Description of the Proposed Rule Change

    On August 29, 2008, The NASDAQ OMX Group, Inc. (``NASDAQ OMX'') 
acquired BX. Since then, the boards of BX and its parent company, 
NASDAQ OMX, have maintained their own audit committee and management 
compensation committee. As more fully discussed in the Notice, the 
Exchange states that it has found the work of these committees to 
overlap substantially.\4\ As a result, BX proposes to revise its By-
Laws to allow for the elimination of its audit and management 
compensation committees. In addition, BX proposes to amend its 
Certificate and By-Laws to reflect the name change of The Nasdaq Stock 
Market, Inc. to The NASDAQ OMX Group, Inc. II.
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    \4\ See Notice, supra note 3, 74 FR at 23460.
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Discussion and Commission Findings

    After careful review, the Commission 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\ 
In particular, the Commission finds that the proposed rule change is 
consistent with 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 comply, and to enforce 
compliance by its members and persons associated with its members, with 
the provisions of the Act. The Commission also finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\7\ 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. The Commission

[[Page 33496]]

previously approved a structure in which certain committees of the 
board of directors of NYSE Euronext, including the audit and 
compensation committees, were authorized to perform functions for 
various subsidiaries, including the New York Stock Exchange, LLC 
(``NYSE'').\8\
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    \5\ In approving this proposed rule change, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78(b)(1).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ Securities Exchange Act Release No. 55293 (February 14, 
2007), 72 FR 8033 (February 22, 2007) (SR-NYSE-2006-120).
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    The BX Audit Committee. Currently, the BX audit committee is 
primarily charged with: (1) Overseeing BX's financial reporting 
process; (2) overseeing the systems of internal controls established by 
management and the BX board, as well as the legal and compliance 
process; (3) selection and evaluation of independent auditors; and (4) 
direction and oversight of the internal audit function. BX states that 
the NASDAQ OMX audit committee \9\ will assume the duties currently 
performed by the BX audit committee once that committee is eliminated. 
The Exchange states that the responsibilities of BX's audit committee 
are fully duplicated by the responsibilities of the NASDAQ OMX audit 
committee.\10\ In addition, BX states that its regulatory oversight 
committee has broad authority to oversee the adequacy and effectiveness 
of BX's regulatory and self-regulatory organization responsibilities, 
and therefore is able to maintain oversight over internal controls in 
tandem with the NASDAQ OMX audit committee. Further, BX states that the 
practice of NASDAQ OMX's Internal Audit Department 
(``Department''),\11\ which performs internal audit functions for all 
NASDAQ OMX subsidiaries, is to report to the BX regulatory oversight 
committee on all internal audit matters relating to BX, which will be 
formally reflected in the Department's written procedures. BX also 
represents that, 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.\12\
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    \9\ The NASDAQ OMX audit 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 and the listing rules of 
The NASDAQ Stock Market LLC. 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.
    \10\ Specifically, BX states that: 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 and, because NASDAQ OMX's financial statements 
are prepared on a consolidated basis that includes the financial 
results of NASDAQ OMX's subsidiaries, including BX, the NASDAQ OMX 
audit committee's purview necessarily includes these subsidiaries. 
In addition, BX states that the NASDAQ OMX audit committee currently 
is charged with providing oversight over financial reporting and 
independent auditor selection for NASDAQ OMX and all of its 
subsidiaries, including BX, and 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. See Notice, 74 FR at 23460.
    \11\ See Notice, 74 FR at 23460-61.
    \12\ See Notice, 74 FR at 23461.
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    BX Management Compensation Committee. BX also proposes to eliminate 
its compensation committee, and to prescribe that the functions of that 
committee be performed by the NASDAQ OMX compensation committee or the 
full BX board, when required. The NASDAQ OMX By-Laws provide that its 
compensation committee considers and recommends compensation policies, 
programs, and practices for employees of NASDAQ OMX. According to BX, 
many employees performing work for BX are also employees of NASDAQ OMX, 
and certain senior officers of BX are also officers of NASDAQ OMX and 
other NASDAQ OMX subsidiaries because their responsibilities relate to 
multiple entities within the NASDAQ OMX corporate structure.\13\ As a 
result, NASDAQ OMX establishes compensation and compensation policy for 
these employees.
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    \13\ Id.
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    To the extent that policies, programs, and practices must be 
established for any BX officers or employees who are not also NASDAQ 
OMX officers or employees, BX states that the BX Board will perform 
such actions without the use of a compensation committee, subject to 
recusal by Staff Directors,\14\ unless the persons in question are also 
employees of Boston Options Exchange Regulation LLC (``BOXR'').\15\
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    \14\ See BX By-Laws Article I(t). Staff Directors are directors 
of BX that are also serving as officers. Because the BX board would 
not be responsible for setting the compensation of any Staff 
Directors who are also officers of NASDAQ OMX, these directors would 
be permitted to participate in discussions concerning compensation 
of BX employees, but BX states that they must 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. BX also states 
that, if a Staff Director is not also an employee of NASDAQ OMX, 
that Staff Director must also absent himself or herself from any 
deliberations regarding his or her compensation.
    \15\ 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. The Commission notes that, 
under the By-Laws, BX's regulatory oversight committee 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. See BX 
By-Laws Section 4.13(e).
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    The Commission notes that the proposed elimination of the BX audit 
and management compensation committees is comparable to a structure for 
the NYSE that the Commission previously considered and approved.\16\ 
The Commission finds that the proposed elimination of the BX's audit 
and management compensation committees is consistent with the Exchange 
Act.
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    \16\ See supra note 8.
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II. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\17\ that the proposed rule change (SR-BX-2009-021) be, and it 
hereby is, approved.
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    \17\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-16450 Filed 7-10-09; 8:45 am]

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