81 FR 51249 - Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change Amending the Ninth Amended and Restated Operating Agreement of the Exchange

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 149 (August 3, 2016)

[Federal Register Volume 81, Number 149 (Wednesday, August 3, 2016)]
[Notices]
[Pages 51249-51251]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-18318]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78436; File No. SR-NYSE-2016-51]


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

July 28, 2016.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on July 22, 2016, New York Stock Exchange LLC (``NYSE'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Ninth Amended and Restated 
Operating Agreement of the Exchange (``Operating Agreement'') to change 
the process for nominating non-affiliated directors and remove an 
obsolete reference. The proposed rule change is available on the 
Exchange's Web site at www.nyse.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend the Operating Agreement to change 
the process for nominating non-affiliated directors and replace an 
obsolete reference to NYSE Market (DE), Inc. (``NYSE Market (DE)'').
Process for Nominating Non-Affiliated Directors
    Pursuant to the Operating Agreement, at least 20% of the Board of 
Directors of the Exchange (``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, 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).
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    \4\ 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. 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 Exchange Act. 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).
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    In addition, if the Member Organizations endorse a petition 
candidate for Non-Affiliated Director, pursuant to Section 2.03(a)(iv) 
the ICE NGC makes the determination of whether the person is 
eligible.\5\ The Exchange proposes to amend Section 2.03(a)(iv) to have 
the Exchange make such determination instead of the ICE NGC.
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    \5\ Pursuant to Section 2.02 of the Operating Agreement, 
``Member Organizations'' refers to members, allied members and 
member organizations of the Exchange.
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    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 Exchange's 
Member Organizations. The Member Organizations may propose alternate 
candidates by petition. If there are no petition candidates, the DCRC 
recommends its candidate(s) 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(s) as the 
nominee, and NYSE Group is obligated to elect such candidate(s) as a 
Non-Affiliated Director.
    The Exchange believes obligating the ICE NGC to nominate the 
candidate(s) 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, 
whomever emerges from the petition process. The ICE NGC does not have 
any discretion. Removing this unnecessary step would make the NYSE 
process more efficient.
    The Exchange believes that having the Exchange determine whether 
persons endorsed to be petition candidates are eligible also would be 
more efficient, as it would not require action from the ICE NGC, 
thereby removing the possibility of any delay in the process. The 
proposed change would be consistent with the petition processes of the 
Exchange's affiliate, NYSE MKT LLC (``NYSE MKT''), and the Nasdaq Stock 
Market LLC. In both cases the exchange determines the eligibility of 
proposed nominees.\6\
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    \6\ See 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'') and 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 believes that the proposed changes will make its 
process more consistent with the process by which its affiliates, NYSE 
MKT and NYSE Arca, Inc. (``NYSE Arca''), designate their fair 
representation

[[Page 51250]]

directors, in which the ICE NGC plays no role.\7\
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    \7\ See Article II, Section 2.03(a) of the Ninth Amended and 
Restated Operating Agreement of NYSE MKT LLC; NYSE MKT 2016 Release, 
supra note 6; and Article III, Section 3.02 of the NYSE Arca Bylaws 
and NYSE Arca Rule 3.2(b)(2). Similarly, the board of directors of 
The NASDAQ OMX Group, Inc., the sole member of the Nasdaq Stock 
Market LLC, 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. As proposed, the process would be as follows. 
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(s) it had previously recommended. If there were petition 
candidates, the Exchange would make the eligibility determination of 
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.
    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.''
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.'' 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.'' \8\
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    \8\ See Article II, Section 2.02 of the proposed Tenth Amended 
and Restated Operating Agreement of New York Stock Exchange LLC. 
References to the ``Company'' in the Operating Agreement are to the 
Exchange.
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    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.\9\
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    \9\ See 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 Delegation Agreement terminated in April 2016. Accordingly, 
NYSE Market (DE) no longer is delegated the Exchange's market 
functions, making the reference to NYSE Market (DE) in Section 2.02 
obsolete. The Exchange therefore proposes to update the reference to 
NYSE Market (DE) with a reference to ``the exchange operated by the 
Company.''
    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.'' \10\
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    \10\ 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.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Exchange Act \11\ in general, and with Section 
6(b)(1) \12\ in particular, in that it enables the Exchange to be so 
organized as to have the capacity to be able to carry out the purposes 
of the Exchange Act and to comply, and to enforce compliance by its 
exchange members and persons associated with its exchange members, with 
the provisions of the Exchange Act, the rules and regulations 
thereunder, and the rules of the Exchange.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(1).
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    The proposed change would remove the requirement that the ICE NGC 
nominate the candidates for Non-Affiliated Directors and have the DCRC 
nominate the candidates for Non-Affiliated Director directly. This 
proposed change would remove an unnecessary step in the process of 
nominating candidates for Non-Affiliated Directors and increase 
efficiency. In addition, the proposed change would remove the 
requirement that the ICE NGC make the determination whether persons 
endorsed to be petition candidates are eligible to be Non-Affiliated 
Directors, and have the Exchange make such determination instead. By 
not requiring action from the ICE NGC, the possibility of any resulting 
delay in the process is removed. For these reasons, the Exchange 
believes that the proposed rule change would contribute to the orderly 
operation of the Exchange and would enable the Exchange to be so 
organized as to have the capacity to carry out the purposes of the 
Exchange Act and comply and enforce compliance with the provisions of 
the Exchange Act by its members and persons associated with its 
members. The Exchange therefore believes that approval of the proposed 
is consistent with Section 6(b)(1) of the Act.
    The Exchange believes that amending Section 2.02 of the Operating 
Agreement to replace the reference to NYSE Market (DE) with a reference 
to ``the exchange operated by the Company'' would remove an obsolete 
reference to an entity that is no longer delegated the Exchange's 
market functions, thereby reducing potential confusion that may result 
from retaining obsolete references in the Exchange's Operating 
Agreement. The proposed replacement will clarify that the Board has 
supervision relating to the collection, dissemination and use of 
quotations and of reports of prices on the Exchange. The Exchange 
believes that replacing such obsolete reference would not be 
inconsistent with the public interest and the protection of investors 
because investors will not be harmed and in fact would benefit from 
increased transparency, thereby reducing potential confusion. Removing 
such obsolete reference will also further the goal of transparency and 
add clarity to the Exchange's rules.
    The Exchange also believes that this filing furthers the objectives 
of Section 6(b)(5) of the Exchange Act \13\ because the proposed rule 
change would be consistent with and facilitate a governance and 
regulatory structure that is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, 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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    \13\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that having the DCRC nominate the candidates 
for Non-

[[Page 51251]]

Affiliated Director would remove impediments to and perfect a national 
market system because the proposed rule change would remove an 
unnecessary step in the process for nominating candidates for Non-
Affiliated Directors and would remove the ICE NGC from making the 
determination whether persons endorsed to be petition candidates are 
eligible to be Non-Affiliated Directors. By not requiring action from 
the ICE NGC, the possibility of any resulting delay in the process is 
removed. The Exchange believes that the proposed rule change is 
therefore consistent with and facilitates a governance and regulatory 
structure that furthers the objectives of Section 6(b)(5) of the Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Exchange Act. The proposed rule 
change is not intended to address competitive issues but rather is 
concerned solely with the administration and functioning of the 
Exchange and its Board.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or up to 90 days (i) as the Commission may designate 
if it finds such longer period to be appropriate and publishes its 
reasons for so finding or (ii) as to which the self-regulatory 
organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule change 
should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSE-2016-51 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSE-2016-51. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSE-2016-51 and should be 
submitted on or before August 24, 2016.
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    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-18318 Filed 8-2-16; 8:45 am]
 BILLING CODE 8011-01-P