81 FR 35092 - Self-Regulatory Organizations; NYSE MKT LLC; Order Approving a Proposed Rule Change, as Modified by Amendment No.1 Thereto, To Amend the Eighth Amended and Restated Operating Agreement of the Exchange
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 105 (June 1, 2016)
Federal Register Volume 81, Issue 105 (June 1, 2016)
| Page Range | 35092-35094 | |
| FR Document | 2016-12787 |
[Federal Register Volume 81, Number 105 (Wednesday, June 1, 2016)] [Notices] [Pages 35092-35094] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-12787] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-77901; File No. SR-NYSEMKT-2016-26] Self-Regulatory Organizations; NYSE MKT LLC; Order Approving a Proposed Rule Change, as Modified by Amendment No.1 Thereto, To Amend the Eighth Amended and Restated Operating Agreement of the Exchange May 25, 2016. I. Introduction On March 29, 2016, NYSE MKT LLC (``Exchange'' or ``NYSE MKT'') 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 Eighth Amended and Restated Operating Agreement of the Exchange (``Operating Agreement''). The proposed rule change was published for comment in the Federal Register on April 12, 2016.\3\ The Commission received no comments in response to the Notice. On May 19, 2016, the Exchange filed Amendment No. 1 to the proposal.\4\ This order approves the proposed rule change, as modified by Amendment No. 1 thereto. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ Securities Exchange Act Release No. 77536 (April 6, 2016), 81 FR 21636 (``Notice''). \4\ Amendment No. 1 is a technical amendment to retain the initial reference to ``DCRC Candidates'' in Section 2.03(a)(iii) of the Operating Agreement rather than to delete it. Because Amendment No. 1 to the proposed rule change does not materially alter the substance of the proposed rule change or raise unique or novel regulatory issues, Amendment No. 1 is not subject to notice and comment. --------------------------------------------------------------------------- II. Description of the Proposal The Exchange proposes to amend the Operating Agreement to (1) change the process for nominating non-affiliated directors; (2) remove a reference to an obsolete category of member; and (3) add references to Designated Market Makers (``DMMs''). 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'').\5\ Pursuant to [[Page 35093]] 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 played by the ICE NGC and to make a conforming change to Section 2.03(h)(i). In addition, if the Exchange's Member Organizations endorse a Petition Candidate \6\ for Non-Affiliated Director pursuant to Section 2.03(a)(iv) of the Operating Agreement, the ICE NGC makes the determination of whether the person is eligible.\7\ The Exchange proposes to amend Section 2.03(a)(iv) to have the Exchange make such determination instead of the ICE NGC. --------------------------------------------------------------------------- \5\ 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''). 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, 15 U.S.C. 78c(a)(39), Non-Affiliated Directors need not be independent. \6\ See Section 2.03(a)(iv) of the Operating Agreement. \7\ Pursuant to Section 2.02 of the Operating Agreement, ``Member Organizations'' refers to members and member organizations, as defined in NYSE MKT Rules 18 and 24, respectively. --------------------------------------------------------------------------- Currently, the nomination by the ICE NGC is the final step in the process for electing a Non-Affiliated Director. First, the DCRC recommends a candidate, whose name then is announced to the Member Organizations. The Member Organizations may propose alternate candidates by petition. If there are no Petition Candidates, the DCRC recommends its candidate to the ICE NGC. If Petition Candidates are proposed, the ICE NGC makes the determination of whether the candidates are eligible, and then all of the eligible candidates are submitted to the Member Organizations for a vote. The DCRC recommends to the ICE NGC the candidate receiving the highest number of votes. The ICE NGC is obligated to designate the DCRC-recommended candidate as the nominee, and NYSE Group is obligated to elect him or her as a Non-Affiliated Director. 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. Pursuant to Section 2.03(a)(iii), the ICE NGC is obligated to designate whomever the DCRC recommends or, if there is a Petition Candidate, whoever emerges from the petition process. According to the Exchange, the ICE NGC does not have any discretion. The Exchange believes that removing this step would make the NYSE MKT process with respect to the nomination of Non- Affiliated Directors more efficient. Moreover, the Exchange believes that having the Exchange determine whether persons endorsed to be Petition Candidates are eligible to serve as Non-Affiliated Directors also 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. The Exchange further states that the proposed change would be consistent with the petition process of the Nasdaq Stock Market LLC in which that exchange determines the eligibility of proposed nominees.\8\ --------------------------------------------------------------------------- \8\ See 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.''). --------------------------------------------------------------------------- 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. 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. Second, if there were no Petition Candidates, the DCRC would nominate the candidate whom it had previously recommended. If there were Petition Candidates, the Exchange would make the eligibility determination regarding 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. Finally, NYSE Group would be obligated to elect the DCRC-nominated candidate as a Non-Affiliated Director. 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.'' Currently, the provision states that the DCRC ``will be responsible for recommending Non-Affiliated Director Candidates to the ICE NGC.'' B. Elimination of a Category of DCRC Membership The Operating Agreement requires that the DCRC include representatives from each of the four categories of Exchange members. The Exchange proposes to amend Section 2.03(h)(i) of the Operating Agreement to eliminate from the DCRC representatives of the fourth category, which relates to individuals who are ``associated with a Member Organization and spend a majority of their time on the trading floor of the [Exchange] and have as a substantial part of their business the execution of transactions on the trading floor of the [Exchange] for their own account or the account of their Member Organization, but are not registered as a specialist.'' \9\ --------------------------------------------------------------------------- \9\ Representatives from the following three categories would continue to be included on the DCRC: (1) Member organizations that engage in a business involving substantial direct contact with securities customers (commonly referred to as ``upstairs firms''); (2) specialists; and (3) floor brokers. The Exchange proposes to add DMMs to category (2), as discussed below. See note 15, infra, and accompanying text. --------------------------------------------------------------------------- This fourth category describes a class of proprietary traders known as Registered Equity Market Makers (``REMMs'') on the former American Stock Exchange LLC, a predecessor of the Exchange. REMMs were floor traders who engaged in on-floor proprietary trading, subject to certain requirements intended to have these members effectively function like market makers, pursuant to the exemption for market makers in Section 11(a)(1)(A) of the Exchange Act.\10\ The rules relating to this category of proprietary floor trader were eliminated shortly after the American Stock Exchange LLC was acquired by the NYSE.\11\ In addition, NYSE MKT Rule 114, which governed REMMs, was deleted as obsolete in 2012.\12\ As a result, there are no Exchange members or member organizations that fall under the fourth category specified in Section 2.03(h)(i) of the Operating Agreement. Thus, the Exchange proposes to delete references to this category as obsolete. This change would make Section 2.03(h)(i) consistent with the categories of members of the Committee for Review, as set forth in Section 2.03(h)(iii).\13\ --------------------------------------------------------------------------- \10\ This class of proprietary traders were known as Registered Competitive Market Makers (``RCMM'') on the New York Stock Exchange LLC (``NYSE''). \11\ See Securities Exchange Act Release No. 58705 (October 1, 2008), 73 FR 58995, 58996 (October 8, 2008) (SR-Amex-2008-63). The NYSE eliminated RCMMs shortly thereafter. See Securities Exchange Act Release No. 60356 (July 21, 2009), 74 FR 37281 (July 28, 2009) (SR-NYSE-2009-08). \12\ See Securities Exchange Act Release No. 68306 (November 28, 2012), 77 FR 71846 (December 4, 2012) (SR-NYSEMKT-2012-68). \13\ See Securities Exchange Act Release No. 77008 (February 1, 2016), 81 FR 6311 (February 5, 2016) (SR-NYSEMKT-2015-106). --------------------------------------------------------------------------- C. References to Designated Market Makers In 2008, the Exchange adopted rules, based on NYSE rules, that transformed specialists in the Exchange's equity [[Page 35094]] market into DMMs.\14\ As a result, market makers on the NYSE MKT equity market are called DMMs and on the NYSE Amex Options LLC (``NYSE Amex Options'') options market are called specialists.\15\ However, several provisions of the Operating Agreement were not updated and refer only to specialists. Accordingly, the Exchange proposes to amend Sections 2.02 and 2.03(h)(i) to add references to DMMs. --------------------------------------------------------------------------- \14\ See Securities Exchange Act Release Nos. 58705 (October 1, 2008), 73 FR 58995 (October 8. 2008) (SR-Amex-2008-63) (approval order) and 59022 (November 26, 2008), 73 FR 73683 (December 3, 2008) (SR-NYSEALTR-2008-10) (amending equity rules to conform to NYSE New Market Model Pilot rules). See also Securities Exchange Act Release No. 58845 (October 24, 2008), 73 FR 64379 (October 29, 2008) (SR- NYSE-2008-46) (approving rule change to create NYSE New Market Model Pilot). \15\ The Exchange operates a marketplace for trading options through NYSE Amex Options, a facility of the Exchange. See Rule 2-- Equities (i) & (j) (defining DMM) and Rule 927NY (defining specialist). --------------------------------------------------------------------------- Section 2.02 of the Operating Agreement provides that the Board has general supervision over Member Organizations and over approved persons in connection with their conduct with or affecting Member Organizations. Section 2.02 further provides that the Board ``may disapprove of any member acting as a specialist or odd lot dealer.'' The Exchange proposes to add ``designated market maker (as defined in Rule 2 of the Company Rules) (`DMM')'' after ``specialist'' in Section 2.02. Section 2.03(h)(i) sets out the categories of individuals that shall be represented on the DCRC. The Exchange proposes to add ``or DMM'' to the references to ``specialist'' in categories (ii) and (iii), so that they reference both types of market makers. The changes would be consistent with the categories of members of the Committee for Review set forth in Section 2.03(h)(iii), which refers to both DMMs and specialists.\16\ --------------------------------------------------------------------------- \16\ See note 13, supra, and accompanying text. --------------------------------------------------------------------------- Finally, the Exchange proposes to make technical and conforming changes to the recitals and signature page of the Operating Agreement. III. Discussion and Commission's Findings The Commission finds that the proposed rule change, as modified by Amendment No. 1, is consistent with the requirements of Section 6 of the Act \17\ and the rules and regulations thereunder applicable to a national securities exchange.\18\ --------------------------------------------------------------------------- \17\ 15 U.S.C. 78f. \18\ The Commission has also considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). --------------------------------------------------------------------------- The Commission finds that the proposed rule change is consistent with Section 6(b)(1),\19\ 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,\20\ 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. --------------------------------------------------------------------------- \19\ 15 U.S.C. 78f(b)(1). \20\ 15 U.S.C. 78f(b)(3). --------------------------------------------------------------------------- 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.\21\ 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. --------------------------------------------------------------------------- \21\ The Commission notes that the DCRC is appointed by the Board. See Section 2.03(h)(i) of the Operating Agreement. --------------------------------------------------------------------------- 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 another exchange that similarly provide for that exchange to determine the eligibility of proposed Petition Candidates.\22\ --------------------------------------------------------------------------- \22\ See supra note 8. See generally Securities Exchange Act Release Nos. 56876 (November 30, 2007), 72 FR 70357 (December 11. 2007) (SR-NASDAQ-2007-068) (approving process for electing Member Representative Directors). --------------------------------------------------------------------------- Further, eliminating the requirement that the DCRC include representatives from the fourth category of members described above (formerly REMMs) would remove a reference to an obsolete category of member from the Operating Agreement. The Commission finds that eliminating such an obsolete reference would add clarity to the Exchange's rules and be consistent with the public interest and the protection of investors. Finally, the proposed addition of references to DMMs in Section 2.02 and 2.03(h)(i) of the Operating Agreement would more accurately reflect that specialists in the Exchange's equity market are now referred to as DMMs and also would make these sections consistent with Section 2.03(h)(iii) (categories of members of the Committee for Review), which refers to both DMMs and specialists. The proposed addition of a reference to DMMs in Section 2.02 would clarify that the Board has general supervision over all Member Organizations, including the ability to disapprove of any member acting as a DMM, as well as a specialist or odd lot dealer. The proposed addition of references to DMMs in Section 2.03(h)(i) would clarify that DMMs, as well as specialists, are categories of individuals that would be represented on the DCRC. 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,\23\ that the proposed rule change (SR-NYSEMKT-2016-26), as modified by Amendment No. 1 thereto, be, and it hereby is, approved. --------------------------------------------------------------------------- \23\ 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\24\ --------------------------------------------------------------------------- \24\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Brent J. Fields, Secretary. [FR Doc. 2016-12787 Filed 5-31-16; 8:45 am] BILLING CODE 8011-01-P
![35092 Federal Register / Vol. 81, No. 105 / Wednesday, June 1, 2016 / Notices
C. Self-Regulatory Organization’s • Send an email to rule-comments@ SECURITIES AND EXCHANGE
Statement on Comments on the sec.gov. Please include File Number SR– COMMISSION
Proposed Rule Change Received From NYSEMKT–2016–55 on the subject line.
[Release No. 34–77901; File No. SR–
Members, Participants, or Others NYSEMKT–2016–26]
Paper Comments
No written comments were solicited
or received with respect to the proposed • Send paper comments in triplicate Self-Regulatory Organizations; NYSE
rule change. to Secretary, Securities and Exchange MKT LLC; Order Approving a
Commission, 100 F Street NE., Proposed Rule Change, as Modified by
III. Date of Effectiveness of the Amendment No.1 Thereto, To Amend
Proposed Rule Change and Timing for Washington, DC 20549–1090.
the Eighth Amended and Restated
Commission Action All submissions should refer to File Operating Agreement of the Exchange
The Exchange has filed the proposed Number SR–NYSEMKT–2016–55. This
rule change pursuant to Section file number should be included on the May 25, 2016.
19(b)(3)(A)(iii) of the Act 15 and Rule subject line if email is used. To help the I. Introduction
19b–4(f)(6) thereunder.16 Because the Commission process and review your
On March 29, 2016, NYSE MKT LLC
proposed rule change does not: (i) comments more efficiently, please use
(‘‘Exchange’’ or ‘‘NYSE MKT’’) filed
Significantly affect the protection of only one method. The Commission will
with the Securities and Exchange
investors or the public interest; (ii) post all comments on the Commission’s Commission (‘‘Commission’’), pursuant
impose any significant burden on Internet Web site (http://www.sec.gov/ to Section 19(b)(1) of the Securities
competition; and (iii) become operative rules/sro.shtml). Copies of the Exchange Act of 1934 (‘‘Act’’) 1 and Rule
prior to 30 days from the date on which submission, all subsequent 19b–4 thereunder,2 a proposed rule
it was filed, or such shorter time as the amendments, all written statements change to amend the Eighth Amended
Commission may designate, if with respect to the proposed rule and Restated Operating Agreement of
consistent with the protection of change that are filed with the the Exchange (‘‘Operating Agreement’’).
investors and the public interest, the Commission, and all written The proposed rule change was
proposed rule change has become communications relating to the published for comment in the Federal
effective pursuant to Section 19(b)(3)(A) proposed rule change between the Register on April 12, 2016.3 The
of the Act and Rule 19b–4(f)(6)
Commission and any person, other than Commission received no comments in
thereunder.17
those that may be withheld from the response to the Notice. On May 19,
At any time within 60 days of the
public in accordance with the 2016, the Exchange filed Amendment
filing of such proposed rule change, the
provisions of 5 U.S.C. 552, will be No. 1 to the proposal.4 This order
Commission summarily may
available for Web site viewing and approves the proposed rule change, as
temporarily suspend such rule change if
printing in the Commission’s Public modified by Amendment No. 1 thereto.
it appears to the Commission that such
action is necessary or appropriate in the Reference Room, 100 F Street NE., II. Description of the Proposal
public interest, for the protection of Washington, DC 20549 on official
business days between the hours of The Exchange proposes to amend the
investors, or otherwise in furtherance of Operating Agreement to (1) change the
the purposes of the Act. If the 10:00 a.m. and 3:00 p.m. Copies of such
process for nominating non-affiliated
Commission takes such action, the filing also will be available for
directors; (2) remove a reference to an
Commission shall institute proceedings inspection and copying at the principal
obsolete category of member; and (3)
under Section 19(b)(2)(B) 18 of the Act to office of the Exchange. All comments add references to Designated Market
determine whether the proposed rule received will be posted without change; Makers (‘‘DMMs’’).
change should be approved or the Commission does not edit personal
disapproved. identifying information from A. Process for Nominating Non-
submissions. You should submit only Affiliated Directors
IV. Solicitation of Comments
information that you wish to make Pursuant to the Operating Agreement,
Interested persons are invited to available publicly. All submissions at least 20 percent of the Exchange’s
submit written data, views, and should refer to File Number SR– Board of Directors (‘‘Board’’) is made up
arguments concerning the foregoing, NYSEMKT–2016–55, and should be of ‘‘Non-Affiliated Directors’’
including whether the proposed rule (commonly referred to as ‘‘fair
submitted on or before June 22, 2016.
change is consistent with the Act. representation directors’’).5 Pursuant to
Comments may be submitted by any of For the Commission, by the Division of
the following methods: Trading and Markets, pursuant to delegated 1 15 U.S.C. 78s(b)(1).
authority.19 2 17
Electronic Comments CFR 240.19b–4.
Brent J. Fields, 3 Securities Exchange Act Release No. 77536
• Use the Commission’s Internet Secretary. (April 6, 2016), 81 FR 21636 (‘‘Notice’’).
comment form (http://www.sec.gov/ [FR Doc. 2016–12788 Filed 5–31–16; 8:45 am]
4 Amendment No. 1 is a technical amendment to
rules/sro.shtml); or retain the initial reference to ‘‘DCRC Candidates’’ in
BILLING CODE 8011–01–P Section 2.03(a)(iii) of the Operating Agreement
rather than to delete it. Because Amendment No. 1
15 15 U.S.C. 78s(b)(3)(A)(iii). to the proposed rule change does not materially
16 17 CFR 240.19b–4(f)(6).
alter the substance of the proposed rule change or
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17 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– raise unique or novel regulatory issues, Amendment
4(f)(6) requires a self-regulatory organization to give No. 1 is not subject to notice and comment.
the Commission written notice of its intent to file 5 Pursuant to Section 2.03(a) of the Operating
the proposed rule change at least five business days Agreement, Non-Affiliated Directors are persons
prior to the date of filing of the proposed rule who are not members of the Board of Directors of
change, or such shorter time as designated by the Intercontinental Exchange, Inc. (‘‘ICE’’). A person
Commission. The Exchange has satisfied this may not be a Non-Affiliated Director unless he or
requirement. she is free of any statutory disqualification, as
18 15 U.S.C. 78s(b)(2)(B). 19 17 CFR 200.30–3(a)(12). defined in Section 3(a)(39) of the Act, 15 U.S.C.
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Section 2.03(a) of the Operating believes that removing this step would individuals who are ‘‘associated with a
Agreement, the nominating and make the NYSE MKT process with Member Organization and spend a
governance committee (‘‘NGC’’) of the respect to the nomination of Non- majority of their time on the trading
board of directors of ICE, the indirect Affiliated Directors more efficient. floor of the [Exchange] and have as a
parent of the Exchange, nominates the Moreover, the Exchange believes that substantial part of their business the
candidates for Non-Affiliated Directors, having the Exchange determine whether execution of transactions on the trading
who are then elected by NYSE Group, persons endorsed to be Petition floor of the [Exchange] for their own
Inc. (‘‘NYSE Group’’) as the sole Candidates are eligible to serve as Non- account or the account of their Member
member of the Exchange. The Exchange Affiliated Directors also would be more Organization, but are not registered as a
proposes to amend Section 2.03(a) to efficient, as it would not require action specialist.’’ 9
have the Director Candidate by the ICE NGC, thereby potentially
Recommendation Committee (‘‘DCRC’’) removing the possibility of any delay in This fourth category describes a class
of the Exchange assume the role the process. The Exchange further states of proprietary traders known as
currently played by the ICE NGC and to that the proposed change would be Registered Equity Market Makers
make a conforming change to Section consistent with the petition process of (‘‘REMMs’’) on the former American
2.03(h)(i). In addition, if the Exchange’s the Nasdaq Stock Market LLC in which Stock Exchange LLC, a predecessor of
Member Organizations endorse a that exchange determines the eligibility the Exchange. REMMs were floor traders
Petition Candidate 6 for Non-Affiliated of proposed nominees.8 who engaged in on-floor proprietary
Director pursuant to Section 2.03(a)(iv) Accordingly, the Exchange proposes trading, subject to certain requirements
of the Operating Agreement, the ICE to revise Section 2.03(a)(iii)–(v) of the intended to have these members
NGC makes the determination of Operating Agreement to amend the effectively function like market makers,
whether the person is eligible.7 The process for electing Non-Affiliated pursuant to the exemption for market
Exchange proposes to amend Section Directors. First, as is currently the case, makers in Section 11(a)(1)(A) of the
2.03(a)(iv) to have the Exchange make the DCRC would recommend a Exchange Act.10 The rules relating to
such determination instead of the ICE candidate, whose name would be this category of proprietary floor trader
NGC. announced to the Member were eliminated shortly after the
Currently, the nomination by the ICE Organizations, and the Member American Stock Exchange LLC was
NGC is the final step in the process for Organizations could propose alternate acquired by the NYSE.11 In addition,
electing a Non-Affiliated Director. First, candidates by petition. Second, if there NYSE MKT Rule 114, which governed
the DCRC recommends a candidate, were no Petition Candidates, the DCRC REMMs, was deleted as obsolete in
whose name then is announced to the would nominate the candidate whom it 2012.12 As a result, there are no
Member Organizations. The Member had previously recommended. If there Exchange members or member
Organizations may propose alternate were Petition Candidates, the Exchange organizations that fall under the fourth
candidates by petition. If there are no would make the eligibility category specified in Section 2.03(h)(i)
Petition Candidates, the DCRC determination regarding Petition of the Operating Agreement. Thus, the
recommends its candidate to the ICE Candidates; all eligible candidates Exchange proposes to delete references
NGC. If Petition Candidates are would be submitted to the Member to this category as obsolete. This change
proposed, the ICE NGC makes the Organizations for a vote; and the DCRC would make Section 2.03(h)(i)
determination of whether the candidates would nominate the candidate receiving consistent with the categories of
are eligible, and then all of the eligible the highest number of votes. Finally, members of the Committee for Review,
candidates are submitted to the Member NYSE Group would be obligated to elect as set forth in Section 2.03(h)(iii).13
Organizations for a vote. The DCRC the DCRC-nominated candidate as a
recommends to the ICE NGC the Non-Affiliated Director. C. References to Designated Market
candidate receiving the highest number In addition, the Exchange would Makers
of votes. The ICE NGC is obligated to make a conforming change to Section
designate the DCRC-recommended 2.03(h)(i) to state that the DCRC ‘‘will be In 2008, the Exchange adopted rules,
candidate as the nominee, and NYSE responsible for nominating Non- based on NYSE rules, that transformed
Group is obligated to elect him or her Affiliated Director Candidates.’’ specialists in the Exchange’s equity
as a Non-Affiliated Director. Currently, the provision states that the
The Exchange believes that obligating DCRC ‘‘will be responsible for 9 Representatives from the following three
the ICE NGC to nominate the candidates recommending Non-Affiliated Director categories would continue to be included on the
DCRC: (1) Member organizations that engage in a
for Non-Affiliated Directors based on Candidates to the ICE NGC.’’ business involving substantial direct contact with
the DCRC’s unalterable recommendation securities customers (commonly referred to as
B. Elimination of a Category of DCRC
is neither necessary nor meaningful. ‘‘upstairs firms’’); (2) specialists; and (3) floor
Membership brokers. The Exchange proposes to add DMMs to
Pursuant to Section 2.03(a)(iii), the ICE
The Operating Agreement requires category (2), as discussed below. See note 15, infra,
NGC is obligated to designate whomever and accompanying text.
the DCRC recommends or, if there is a that the DCRC include representatives 10 This class of proprietary traders were known as
Petition Candidate, whoever emerges from each of the four categories of Registered Competitive Market Makers (‘‘RCMM’’)
from the petition process. According to Exchange members. The Exchange on the New York Stock Exchange LLC (‘‘NYSE’’).
the Exchange, the ICE NGC does not proposes to amend Section 2.03(h)(i) of 11 See Securities Exchange Act Release No. 58705
the Operating Agreement to eliminate (October 1, 2008), 73 FR 58995, 58996 (October 8,
have any discretion. The Exchange 2008) (SR–Amex–2008–63). The NYSE eliminated
from the DCRC representatives of the
sradovich on DSK3TPTVN1PROD with NOTICES
RCMMs shortly thereafter. See Securities Exchange
78c(a)(39), Non-Affiliated Directors need not be fourth category, which relates to Act Release No. 60356 (July 21, 2009), 74 FR 37281
independent. (July 28, 2009) (SR–NYSE–2009–08).
6 See Section 2.03(a)(iv) of the Operating 8 See By-Laws of the Nasdaq Stock Market LLC, 12 See Securities Exchange Act Release No. 68306
Agreement. Art. II, Sec. 1(b) (‘‘The Company may require any (November 28, 2012), 77 FR 71846 (December 4,
7 Pursuant to Section 2.02 of the Operating proposed nominee to furnish such other 2012) (SR–NYSEMKT–2012–68).
Agreement, ‘‘Member Organizations’’ refers to information as it may reasonably require to 13 See Securities Exchange Act Release No. 77008
members and member organizations, as defined in determine the eligibility of such proposed nominee (February 1, 2016), 81 FR 6311 (February 5, 2016)
NYSE MKT Rules 18 and 24, respectively. to serve as a Member Representative Director.’’). (SR–NYSEMKT–2015–106).
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market into DMMs.14 As a result, market The Commission finds that the described above (formerly REMMs)
makers on the NYSE MKT equity market proposed rule change is consistent with would remove a reference to an obsolete
are called DMMs and on the NYSE Section 6(b)(1),19 which requires, among category of member from the Operating
Amex Options LLC (‘‘NYSE Amex other things, that a national securities Agreement. The Commission finds that
Options’’) options market are called exchange be so organized and have the eliminating such an obsolete reference
specialists.15 However, several capacity to carry out the purposes of the would add clarity to the Exchange’s
provisions of the Operating Agreement Act, and to comply, and to enforce rules and be consistent with the public
were not updated and refer only to compliance by its members and persons interest and the protection of investors.
specialists. Accordingly, the Exchange associated with its members, with the Finally, the proposed addition of
proposes to amend Sections 2.02 and provisions of the Act, the rules and references to DMMs in Section 2.02 and
2.03(h)(i) to add references to DMMs. regulation thereunder, and the rules of 2.03(h)(i) of the Operating Agreement
Section 2.02 of the Operating the exchange. In addition, the would more accurately reflect that
Agreement provides that the Board has Commission finds that the proposed specialists in the Exchange’s equity
general supervision over Member rule change is consistent with Section market are now referred to as DMMs
Organizations and over approved 6(b)(3) of the Act,20 which requires, and also would make these sections
persons in connection with their among other things, that the rules of a consistent with Section 2.03(h)(iii)
conduct with or affecting Member national securities exchange assure a (categories of members of the Committee
Organizations. Section 2.02 further fair representation of its members in the for Review), which refers to both DMMs
provides that the Board ‘‘may selection of its directors and and specialists. The proposed addition
disapprove of any member acting as a administration of its affairs. of a reference to DMMs in Section 2.02
specialist or odd lot dealer.’’ The The proposed rule change would would clarify that the Board has general
Exchange proposes to add ‘‘designated remove the requirement that the ICE supervision over all Member
market maker (as defined in Rule 2 of NGC nominate the candidates for Non- Organizations, including the ability to
the Company Rules) (‘DMM’)’’ after Affiliated Directors and instead have the disapprove of any member acting as a
‘‘specialist’’ in Section 2.02. DCRC nominate the candidates for Non- DMM, as well as a specialist or odd lot
Section 2.03(h)(i) sets out the Affiliated Director directly.21 Because dealer. The proposed addition of
categories of individuals that shall be the ICE NGC currently is required to references to DMMs in Section 2.03(h)(i)
represented on the DCRC. The Exchange nominate the candidate recommended would clarify that DMMs, as well as
proposes to add ‘‘or DMM’’ to the to it by the DCRC, this proposed change specialists, are categories of individuals
references to ‘‘specialist’’ in categories would remove an additional step in the that would be represented on the DCRC.
(ii) and (iii), so that they reference both process of nominating candidates for
types of market makers. The changes The Commission finds that the
Non-Affiliated Director positions and foregoing revisions to the Operating
would be consistent with the categories thus may improve the efficiency of the
of members of the Committee for Agreement are consistent with the Act.
nomination process.
Review set forth in Section 2.03(h)(iii), In addition, the proposed rule change IV. Conclusion
which refers to both DMMs and would remove the requirement that the
specialists.16 It is therefore ordered, pursuant to
ICE NGC make the determination of Section 19(b)(2) of the Act,23 that the
Finally, the Exchange proposes to whether persons endorsed to be Petition
make technical and conforming changes proposed rule change (SR–NYSEMKT–
Candidates are eligible to be a Non- 2016–26), as modified by Amendment
to the recitals and signature page of the Affiliated Director, and would have the
Operating Agreement. No. 1 thereto, be, and it hereby is,
Exchange make such determination approved.
III. Discussion and Commission’s instead. The proposed process would
maintain an independent review of the For the Commission, by the Division of
Findings
Trading and Markets, pursuant to delegated
The Commission finds that the eligibility of any Petition Candidates, authority.24
proposed rule change, as modified by while avoiding the potential conflict of
Brent J. Fields,
Amendment No. 1, is consistent with interest that could arise if, for example,
the DCRC were to be responsible for Secretary.
the requirements of Section 6 of the [FR Doc. 2016–12787 Filed 5–31–16; 8:45 am]
Act 17 and the rules and regulations both proposing and nominating
thereunder applicable to a national candidates and making eligibility BILLING CODE 8011–01–P
securities exchange.18 determinations of Petition Candidates
proposed by Member Organizations.
14 See The Commission previously considered SECURITIES AND EXCHANGE
Securities Exchange Act Release Nos.
58705 (October 1, 2008), 73 FR 58995 (October 8. and approved rules of another exchange COMMISSION
2008) (SR–Amex–2008–63) (approval order) and that similarly provide for that exchange
59022 (November 26, 2008), 73 FR 73683 [Release No. 34–77908; File No. SR–Phlx–
(December 3, 2008) (SR–NYSEALTR–2008–10)
to determine the eligibility of proposed
(amending equity rules to conform to NYSE New Petition Candidates.22 2016–59]
Market Model Pilot rules). See also Securities Further, eliminating the requirement
Exchange Act Release No. 58845 (October 24, 2008), that the DCRC include representatives Self-Regulatory Organizations;
73 FR 64379 (October 29, 2008) (SR–NYSE–2008–
from the fourth category of members NASDAQ PHLX LLC; Notice of Filing
46) (approving rule change to create NYSE New and Immediate Effectiveness of
Market Model Pilot).
15 The Exchange operates a marketplace for 19 15 U.S.C. 78f(b)(1). Proposed Rule Change Related to PIXL
sradovich on DSK3TPTVN1PROD with NOTICES
trading options through NYSE Amex Options, a 20 15 U.S.C. 78f(b)(3). Pricing
facility of the Exchange. See Rule 2—Equities (i) & 21 The Commission notes that the DCRC is
(j) (defining DMM) and Rule 927NY (defining appointed by the Board. See Section 2.03(h)(i) of May 25, 2016.
specialist). the Operating Agreement. Pursuant to Section 19(b)(1) of the
16 See note 13, supra, and accompanying text. 22 See supra note 8. See generally Securities
17 15 U.S.C. 78f.
Securities Exchange Act of 1934
Exchange Act Release Nos. 56876 (November 30,
18 The Commission has also considered the 2007), 72 FR 70357 (December 11. 2007) (SR–
23 15 U.S.C. 78s(b)(2).
proposed rule’s impact on efficiency, competition, NASDAQ–2007–068) (approving process for
and capital formation. See 15 U.S.C. 78c(f). electing Member Representative Directors). 24 17 CFR 200.30–3(a)(12).
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Document Created: 2018-02-08 07:27:25
Document Modified: 2018-02-08 07:27:25
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 81 FR 35092 |
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