Document ID: SEC-2016-1661-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange, LLC
Posted Date: 2016-09-15T04:00Z

[Federal Register Volume 81, Number 179 (Thursday, September 15, 2016)]
[Notices]
[Pages 63536-63538]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-22154]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78805; File No. SR-NYSE-2016-51]

Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Approving a Proposed Rule Change Amending the Ninth Amended and 
Restated Operating Agreement of the Exchange

September 9, 2016.

I. Introduction

    On July 22, 2016, New York Stock Exchange LLC (``Exchange'' or 
``NYSE'') 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 the Ninth Amended and Restated Operating 
Agreement of the Exchange (``Operating Agreement''). The proposed rule 
change was published for comment in the Federal Register on August 3, 
2016.\3\ The Commission received no comments in response to the Notice. 
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\ Securities Exchange Act Release No. 78436 (July 28, 2016), 
81 FR 51249 (``Notice'').
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II. Description of the Proposal

    The Exchange proposes to amend the Operating Agreement to (1) 
change the process for nominating non-affiliated directors; and (2) 
replace an obsolete reference to NYSE Market (DE), Inc. (``NYSE Market 
(DE)'').

A. Process for Nominating Non-Affiliated Directors

    Pursuant to the Operating Agreement, at least 20 percent of the 
Exchange's Board of Directors (``Board'') is made up of ``Non-
Affiliated Directors'' (commonly referred to as ``fair representation 
directors'').\4\ Pursuant to Section 2.03(a) of the Operating 
Agreement, the nominating and governance committee (``NGC'') of the 
board of directors of ICE, the indirect parent of the Exchange, 
nominates the candidates for Non-Affiliated Directors, who are then 
elected by NYSE Group, Inc. (``NYSE Group'') as the sole member of the 
Exchange. The Exchange proposes to amend Section 2.03(a) to have the 
Director Candidate Recommendation Committee (``DCRC'') of the Exchange 
assume the role currently served by the ICE NGC and to make a 
conforming change to Section 2.03(h)(i).\5\
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    \4\ Id. The Exchange notes that pursuant to Section 2.03(a) of 
the Operating Agreement, Non-Affiliated Directors are persons who 
are not members of the Board of Directors of Intercontinental 
Exchange, Inc. (``ICE'') but qualify as independent and that a 
person may not be a Non-Affiliated Director unless he or she is free 
of any statutory disqualification, as defined in Section 3(a)(39) of 
the Act. See id. The Exchange's independence requirements are set 
forth in the Company Director Independence Policy of the Exchange. 
See Securities Exchange Act Release No. 67564 (August 1, 2012), 77 
FR 47161 (August 7, 2012) (SR-NYSE-2012-17) (approving, among other 
things, the Exchange's Company Director Independence Policy).
    \5\ See Notice, supra note 3, at 51249.
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    In addition, if the Exchange's Member Organizations endorse a 
Petition Candidate for Non-Affiliated Director pursuant to Section 
2.03(a)(iv) of the Operating Agreement, the ICE NGC currently makes the 
determination of whether the person is eligible.\6\ The Exchange 
proposes to amend Section 2.03(a)(iv) to have the Exchange make such 
determination instead of the ICE NGC.\7\
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    \6\ Pursuant to Section 2.02 of the Operating Agreement, 
``Member Organizations'' refers to members, allied members and 
member organizations of the Exchange. ``Petition Candidates'' are 
defined in Section 2.03(a)(iv) of the Operating Agreement as 
alternate candidates proposed by Member Organizations by petition, 
pursuant to the requirements of that Section.
    \7\ See Notice, supra note 3, at 51249.
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    The Exchange explains that currently the nomination by the ICE NGC 
is the final step in the process for electing a Non-Affiliated 
Director.\8\ First, the DCRC recommends a candidate, whose name then is 
announced to the Member Organizations.\9\ The Member Organizations may 
propose alternate candidates by petition, and if there are no Petition 
Candidates, the DCRC recommends its candidate(s) to the ICE NGC.\10\ If 
Petition Candidates are proposed, the ICE NGC makes the determination 
of whether the candidates are eligible to serve as a Non-Affiliated 
Director, and then all eligible candidates are submitted to the Member 
Organizations for a vote, after which the DCRC recommends to the ICE 
NGC the candidate receiving the highest number of votes.\11\ The 
Exchange states that the ICE NGC is obligated to designate the DCRC-
recommended candidate(s) as the nominee, and that NYSE Group is 
obligated to elect such candidate(s) as a Non-Affiliated Director.\12\
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    \8\ Id.
    \9\ Id.
    \10\ Id.
    \11\ Id.
    \12\ Id.
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    The Exchange believes that obligating the ICE NGC to nominate the 
candidates for Non-Affiliated Directors based on the DCRC's unalterable 
recommendation is neither necessary nor meaningful.\13\ The Exchange 
notes that, pursuant to Section 2.03(a)(iii) of the Operating 
Agreement, the ICE NGC is obligated to designate whomever the DCRC 
recommends or, if there is a Petition Candidate, whoever emerges from 
the petition process.\14\ According to the Exchange, the ICE NGC does 
not have any discretion.\15\ The Exchange believes that removing this 
step would make the NYSE process with respect to the nomination of Non-
Affiliated Directors more efficient.\16\ Moreover, the Exchange 
believes that having the Exchange determine whether persons endorsed to 
be Petition Candidates are eligible to serve as Non-Affiliated 
Directors would be more efficient, as it would not require action by 
the ICE NGC, thereby potentially removing the possibility of any delay 
in the process.\17\ The Exchange further states that the proposed 
change would be consistent with the petition processes of the 
Exchange's affiliate, NYSE MKT LLC (``NYSE MKT''), and of the Nasdaq 
Stock Market LLC, because each of these exchanges determines the 
eligibility of proposed nominees.\18\
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    \13\ Id.
    \14\ Id.
    \15\ Id.
    \16\ Id.
    \17\ Id.
    \18\ Id. See also Article II, Section 2.03(a) of the Ninth 
Amended and Restated Operating Agreement of NYSE MKT LLC; Securities 
Exchange Act Release No. 77901 (May 25, 2016), 81 FR 35092 (June 1, 
2016) (SR-NYSEMKT-2016-26) (``NYSE MKT 2016 Release''); By-Laws of 
the Nasdaq Stock Market LLC, Art. II, Sec. 1(b) (``The Company may 
require any proposed nominee to furnish such other information as it 
may reasonably require to determine the eligibility of such proposed 
nominee to serve as a Member Representative Director.'').
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    The Exchange also believes that the proposed changes will make its 
process

[[Page 63537]]

more consistent with the process by which its affiliates, NYSE MKT and 
NYSE Arca, Inc. (``NYSE Arca''), designate their fair representation 
directors, in which the ICE NGC plays no role.\19\
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    \19\ See Notice, supra note 3, at 51249-50. See also Article II, 
Section 2.03(a) of the Ninth Amended and Restated Operating 
Agreement of NYSE MKT LLC; NYSE MKT 2016 Release, supra note 18; 
Article III, Section 3.02 of the NYSE Arca Bylaws and NYSE Arca Rule 
3.2(b)(2). The Exchange also notes that the board of directors of 
The NASDAQ OMX Group, Inc., the sole member of the Nasdaq Stock 
Market LLC, similarly plays no role in nominating or determining the 
eligibility of Member Representative Directors. See By-Laws of the 
Nasdaq Stock Market LLC, Art. II, Sec. 1.
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    Accordingly, the Exchange proposes to revise Section 2.03(a)(iii)--
(v) of the Operating Agreement to amend the process for electing Non-
Affiliated Directors.\20\ First, as is currently the case, the DCRC 
would recommend a candidate, whose name would be announced to the 
Member Organizations, and the Member Organizations could propose 
alternate candidates by petition.\21\ Next, if there were no Petition 
Candidates, the DCRC would nominate the candidate(s) whom it had 
previously recommended.\22\ If there were Petition Candidates, the 
Exchange would make the eligibility determination regarding the 
Petition Candidates; all eligible candidates would be submitted to the 
Member Organizations for a vote; and the DCRC would nominate the 
candidate receiving the highest number of votes.\23\ Finally, NYSE 
Group would be obligated to elect the DCRC-nominated candidate as a 
Non-Affiliated Director.\24\
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    \20\ See Notice, supra note 3, at 51250.
    \21\ Id.
    \22\ Id.
    \23\ Id.
    \24\ Id.
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    In addition, the Exchange would make a conforming change to Section 
2.03(h)(i) to state that the DCRC ``will be responsible for nominating 
Non-Affiliated Director Candidates.'' \25\ Currently, the provision 
states that the DCRC ``will be responsible for recommending Non-
Affiliated Director Candidates to the ICE NGC.'' \26\
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    \25\ Id.
    \26\ Id.
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B. Reference to NYSE Market (DE), Inc.

    Section 2.02 of the Operating Agreement sets forth the Board's 
general supervision over Member Organizations and approved persons in 
connection with their conduct with or affecting Member Organizations. 
It provides that the Board ``shall have supervision relating to the 
collection, dissemination and use of quotations and of reports of 
prices on NYSE Market (DE), Inc.'' \27\ The Exchange proposes to amend 
Section 2.02 to replace the reference to NYSE Market (DE) with a 
reference to ``the exchange operated by the Company.'' \28\
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    \27\ See Article II, Section 2.02 of the Operating Agreement.
    \28\ See Notice, supra note 3, at 51250. The Exchange notes that 
references to the ``Company'' in the Operating Agreement are to the 
Exchange. Id.
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    The Exchange explains that following the merger of New York Stock 
Exchange, Inc. with Archipelago Holdings, Inc., the Exchange and its 
subsidiaries NYSE Market (DE) and NYSE Regulation, Inc. entered into a 
Delegation Agreement, pursuant to which the Exchange delegated its 
market functions to NYSE Market (DE) and its regulatory functions to 
NYSE Regulation, Inc.\29\
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    \29\ See id. See also Securities Exchange Act Release No. 75991 
(September 28, 2015), 80 FR 59837(October 2, 2015) (SR-NYSE-2015-
27), at 59839.
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    The Exchange states that the Delegation Agreement terminated in 
April 2016 and, accordingly, NYSE Market (DE) no longer is delegated 
the Exchange's market functions, making the reference to NYSE Market 
(DE) in Section 2.02 of the Operating Agreement obsolete.\30\ The 
Exchange, therefore, proposes to update the reference to NYSE Market 
(DE) with a reference to ``the exchange operated by the Company.'' \31\
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    \30\ See Notice, supra note 3, at 51250.
    \31\ Id.
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    The Exchange states that the proposed change would be consistent 
with Article II, Section 2.02 of the operating agreement of the 
Exchange's affiliate NYSE MKT, which states that its board of directors 
``shall have supervision relating to the collection, dissemination and 
use of quotations and of reports of prices on the exchange operated by 
the Company.'' \32\
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    \32\ Id. (citing Article II, Section 2.02 of the Ninth Amended 
and Restated Operating Agreement of NYSE MKT LLC).
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    Finally, the Exchange proposes to make technical and conforming 
changes to the recitals and signature page of the Operating 
Agreement.\33\
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    \33\ Id.
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III. Discussion and Commission's Findings

    The Commission finds that the proposed rule change is consistent 
with the requirements of Section 6 of the Act \34\ and the rules and 
regulations thereunder applicable to a national securities 
exchange.\35\
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    \34\ 15 U.S.C. 78f.
    \35\ The Commission has also considered the proposed rule's 
impact on efficiency, competition, and capital formation. See 15 
U.S.C. 78c(f).
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    The Commission finds that the proposed rule change is consistent 
with Section 6(b)(1),\36\ which requires, among other things, that a 
national securities exchange 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 rules and regulation thereunder, and the 
rules of the exchange. In addition, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(3) of the Act,\37\ 
which requires, among other things, 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.
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    \36\ 15 U.S.C. 78f(b)(1).
    \37\ 15 U.S.C. 78f(b)(3).
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    The proposed rule change would remove the requirement that the ICE 
NGC nominate the candidates for Non-Affiliated Directors and instead 
have the DCRC nominate the candidates for Non-Affiliated Director 
directly.\38\ Because the ICE NGC currently is required to nominate the 
candidate recommended to it by the DCRC, this proposed change would 
remove an additional step in the process of nominating candidates for 
Non-Affiliated Director positions and thus may improve the efficiency 
of the nomination process.
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    \38\ The Commission notes that the DCRC is appointed by the 
Board. See Section 2.03(h)(i) of the Operating Agreement.
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    In addition, the proposed rule change would remove the requirement 
that the ICE NGC make the determination of whether persons endorsed to 
be Petition Candidates are eligible to be a Non-Affiliated Director, 
and would have the Exchange make such determination instead. The 
proposed process would maintain an independent review of the 
eligibility of any Petition Candidates, while avoiding the potential 
conflict of interest that could arise if, for example, the DCRC were to 
be responsible for both proposing and nominating candidates and making 
eligibility determinations of Petition Candidates proposed by Member 
Organizations. The Commission previously considered and approved rules 
of other exchanges that similarly provide for those exchanges to 
determine the eligibility of proposed Petition Candidates.\39\
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    \39\ See supra note 18. See generally Securities Exchange Act 
Release No. 56876 (November 30, 2007), 72 FR 70357 (December 11, 
2007) (SR-NASDAQ-2007-068) (approving process for electing Member 
Representative Directors).
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    Finally, replacing the reference to NYSE Market (DE) in Section 
2.02 of the Operating Agreement with a reference to

[[Page 63538]]

``the exchange operated by the Company'' would remove an obsolete 
reference to NYSE Market (DE) from the Operating Agreement. The 
Exchange explains that the Delegation Agreement pursuant to which the 
Exchange delegated its market functions to NYSE Market (DE) has 
expired, thereby making the reference to NYSE Market (DE) in Section 
2.02 obsolete.\40\ The Commission finds that eliminating such an 
obsolete reference would add clarity to the Exchange's rules and is 
consistent with the public interest and the protection of investors. 
The proposed addition of a reference to ``the exchange operated by the 
Company'' in Section 2.02 would clarify that the Board has general 
supervision relating to the collection, dissemination and use of 
quotations and of reports of prices on the Exchange.
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    \40\ See Notice, supra note 3, at 51250.
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    The Commission finds that the foregoing revisions to the Operating 
Agreement are consistent with the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\41\ that the proposed rule change (SR-NYSE-2016-51) be, and it 
hereby is, approved.
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    \41\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\42\
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    \42\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-22154 Filed 9-14-16; 8:45 am]
 BILLING CODE 8011-01-P