80 FR 34744 - Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving Proposed Rule Change To Amend NYSE Arca Rules 3.1 and 3.3 and Section 4.01(a) of the Exchange's Bylaws To Establish a Regulatory Oversight Committee as a Committee of the Board of Directors of the Exchange

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 116 (June 17, 2015)

[Federal Register Volume 80, Number 116 (Wednesday, June 17, 2015)]
[Notices]
[Pages 34744-34745]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-14829]



[[Page 34744]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75155; File No. SR-NYSEARCA-2015-29]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving 
Proposed Rule Change To Amend NYSE Arca Rules 3.1 and 3.3 and Section 
4.01(a) of the Exchange's Bylaws To Establish a Regulatory Oversight 
Committee as a Committee of the Board of Directors of the Exchange

June 11, 2015.

I. Introduction

    On April 17, 2015, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'') 
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 NYSE Arca Rules 3.1 and 3.3, and Section 4.01(a) of the Bylaws of 
NYSE Arca (``Bylaws''), to establish a Regulatory Oversight Committee 
(``ROC'') as a committee of the board of directors of the Exchange 
(``Board''). The proposed rule change was published for comment in the 
Federal Register on May 4, 2015.\3\ The Commission did not receive any 
comment letters 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. 74824 (April 28, 
2015), 80 FR 25347.
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II. Description of the Proposal

    The Exchange proposes to establish a ROC as a committee of the 
Board with the responsibility to independently monitor the Exchange's 
regulatory operations. The Exchange proposes to amend NYSE Arca Rule 
3.3(a) to provide for the ROC and set forth the ROC's composition and 
functions. In addition, the Exchange proposes that the Board shall 
appoint the ROC on an annual basis.\4\ Under NYSE Arca Rule 
3.3(a)(2)(B), the ROC would consist of at least three members, each of 
whom would be a Public Director \5\ of the Exchange or a director of 
NYSE Regulation, Inc. (``NYSE Regulation''),\6\ who satisfies the 
Exchange's Public Director requirements set forth in Article III, 
Section 3.02(a) of the Bylaws.\7\ The Exchange further proposes that 
(i) the Board may, on affirmative vote of a majority of directors, at 
any time remove a member of the ROC for cause and (ii) a failure of a 
member of the ROC to qualify as a Public Director shall constitute a 
basis to remove a member of the ROC for cause.\8\
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    \4\ See Proposed NYSE Arca Rule 3.3(a)(2)(A).
    \5\ See infra note 7 for the definition of ``Public Director'' 
as set forth in Article III, Section 3.02(a) of the Bylaws.
    \6\ The Exchange states that NYSE Regulation is a not-for-profit 
subsidiary of the Exchange's affiliate New York Stock Exchange LLC 
that performs all of the Exchange's regulatory functions pursuant to 
an intercompany Regulatory Services Agreement that gives the 
Exchange the contractual right to review NYSE Regulation's 
performance.
    \7\ Article III, Section 3.02(a) of the Bylaws requires that at 
least 50% of the Exchange's directors be Public Directors, defined 
as ``persons from the public and [who] will not be, or be affiliated 
with, a broker-dealer in securities or employed by, or involved in 
any material business relationship with, the Exchange or its 
affiliates.''
    \8\ See Proposed NYSE Arca Rule 3.3(a)(2)(B). Under the 
proposal, if a ROC member's term of office terminates pursuant to 
NYSE Arca Rule 3.3(a)(2)(B), and the remaining term of office of 
such committee member at the time of termination is not more than 
three months, during the period of vacancy, the ROC would not be 
deemed to be in violation of its compositional requirements by 
virtue of the vacancy. See id.
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    NYSE Arca Rule 3.3(a)(2)(C) would set forth the functions and 
authority of the ROC. The ROC's responsibilities would be as follows:
     oversee the Exchange's regulatory and self-regulatory 
organization responsibilities and evaluate the adequacy and 
effectiveness of the Exchange's regulatory and self-regulatory 
organization responsibilities;
     assess the Exchange's regulatory performance; and
     advise and make recommendations to the Board or other 
committees of the Board about the Exchange's regulatory compliance, 
effectiveness and plans.
    In furtherance of the ROC's functions, the Exchange proposes that 
the ROC shall have the authority and obligation to: (i) Review the 
regulatory budget of the Exchange and specifically inquire into the 
adequacy of resources available in the budget for regulatory 
activities; (ii) meet regularly with the Chief Regulatory Officer 
(``CRO'') of the Exchange in executive session; (iii) in consultation 
with the Exchange's Chief Executive Officer, establish the goals, 
assess the performance, and recommend the CRO's compensation; and (iv) 
keep the Board informed with respect to the foregoing matters.\9\
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    \9\ See Proposed NYSE Arca Rule 3.3(a)(2)(C).
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    The Exchange also proposes to amend NYSE Arca Rule 3.1(a) and 
Article IV, Section 4.01(a) of the Bylaws. The Exchange proposes to 
amend NYSE Arca Rule 3.1(a) to allow NYSE Regulation directors to serve 
on the ROC.\10\ In Article IV, Section 4.01(a) of the Bylaws, the 
Exchange proposes to add references to the ROC, and the Exchange 
proposes to add the text ``[e]xcept as otherwise provided in the 
Rules'' to the clause that currently requires each committee of the 
Board to be comprised of at least 50% Public Directors of the Exchange 
because, under the proposal, the ROC may include directors of NYSE 
Regulation.\11\ Lastly, the Exchange proposes to add text to Section 
4.01(a) to provide that vacancies in the membership of any committee 
would be filled by the Board.
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    \10\ Specifically, the Exchange proposes to amend NYSE Arca Rule 
3.1(a) to change the current requirement that committees of the 
Board consist of ``one or more directors of the Exchange.'' The 
amended rule text would provide that committees of the Board ``may 
consist partly or entirely of directors of the Exchange.''
    \11\ The Exchange also proposes to make a corresponding change 
to the immediately subsequent clause in Article IV, section 4.01(a) 
so that it reads as follows: ``The purpose and composition of each 
such committee shall be as set forth in the Rules.''
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III. 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.\12\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(1) of the Act,\13\ which 
requires an 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 Act, the 
rules and regulations thereunder, and the rules of the exchange. The 
Commission also finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act,\14\ which requires that the rules of an 
exchange be 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.
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    \12\ 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).
    \13\ 15 U.S.C. 78f(b)(1).
    \14\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the Exchange's creation of a ROC as an 
independent committee to oversee the adequacy and effectiveness of the 
Exchange's regulatory responsibilities, compliance, and plans is 
appropriate and should help the Exchange to fulfill its self-regulatory 
obligations. The Commission notes that, under NYSE

[[Page 34745]]

Arca Rule 3.3(a)(2)(C), the responsibilities, enumerated functions, and 
authority of the ROC are substantially similar to those of other 
exchanges.\15\ In addition, the Commission believes that the proposed 
requirement that the members of the ROC consist of either Public 
Directors of the Exchange or directors of NYSE Regulation, who meet the 
Exchange's Public Director requirements,\16\ and the provisions 
relating to the removal of a member of the ROC either for cause or for 
failing to qualify under the Exchange's Public Director 
requirement,\17\ should help ensure the continued independence of the 
members of the ROC. The proposal to establish a ROC should assist the 
Exchange in meeting its statutory obligations to comply, and to enforce 
compliance by its members and persons associated with its members, with 
the Act, the rules and regulations thereunder, and the rules of the 
Exchange. Accordingly, the Commission finds that the proposed rule 
change is consistent with the Act.
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    \15\ See, e.g., Bylaws of NASDAQ Stock Market LLC, Article III, 
Section 5(c); Third Amended and Restated Bylaws of BATS Exchange, 
Inc., Article V, Section 6(c); Amended and Restated Bylaws of Miami 
International Securities Exchange, LLC, Article IV, Section 4.5(c).
    \16\ See supra note 7 and accompanying text.
    \17\ See supra note 8 and accompanying text.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\18\ that the proposed rule change (SR-NYSEARCA-2015-29) be, and it 
hereby is, approved.
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    \18\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-14829 Filed 6-16-15; 8:45 am]
 BILLING CODE 8011-01-P