82 FR 60654 - Self-Regulatory Organizations; Cboe Exchange, Inc.; Cboe C2 Exchange, Inc.; Order Granting Accelerated Approval to a Proposed Rule Change Relating to Its Nominating and Governance Committee and Regulatory Oversight and Compliance Committee as Well as Its Director Nomination and Committee Appointment Process

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 244 (December 21, 2017)

[Federal Register Volume 82, Number 244 (Thursday, December 21, 2017)]
[Notices]
[Pages 60654-60656]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-27465]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82336; File No. SR-CBOE-2017-072; SR-C2-2017-030]


Self-Regulatory Organizations; Cboe Exchange, Inc.; Cboe C2 
Exchange, Inc.; Order Granting Accelerated Approval to a Proposed Rule 
Change Relating to Its Nominating and Governance Committee and 
Regulatory Oversight and Compliance Committee as Well as Its Director 
Nomination and Committee Appointment Process

December 15, 2017.

I. Introduction

    On November 14, 2017, Cboe C2 Exchange, Inc. (``C2'') and on 
November 15, 2017, Cboe Exchange, Inc. (``Cboe'' and, together with C2, 
the ``Exchanges'') 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\ 
proposed rule changes to eliminate their Nominating and Governance 
Committees (``N&G Committee''); amend the process by which (i) 
directors are elected, (ii) committee appointments are made, and (iii) 
vacancies are filled; and rename their Regulatory Oversight and 
Compliance Committees (``ROCC'').\3\ The proposed rule changes were 
published for comment in the Federal Register on November 27, 2017.\4\ 
The Commission received no comments on the proposals. This order 
approves the proposed rule changes on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b 4.
    \3\ In addition, the Exchanges propose to make several 
formatting changes throughout their Bylaws as well as to change 
their names in the title and signature lines in their Certificates 
of Incorporation (``Certificates'') to reflect recent changes to 
their legal names.
    \4\ See Securities Exchange Act Release No. 82119 (November 20, 
2017), 82 FR 56085 (SR-CBOE-2017-072); Securities Exchange Act 
Release No. 82120 (November 20, 2017), 82 FR 56069 (SR-C2-2017-030) 
(``Notices'').
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II. Description of the Proposal

    First, the Exchanges propose to eliminate their N&G Committees and 
provide that the sole stockholder of the Exchanges (Cboe Global 
Markets, Inc.) shall nominate and elect directors at the annual 
meetings of the sole stockholder, except with respect to fair-
representation directors (``Representative Directors'').\5\ As a 
consequence of the elimination of the N&G Committee, the Exchanges 
propose conforming changes to reallocate its responsibility. 
Specifically, the Exchanges propose to amend the definition of 
``Representative Director Nominating Body'' to provide that if an 
Exchange's Board of Directors (``Board'') has two or more Industry 
Directors, excluding directors that are Exchange employees, those 
Industry Directors shall act as the Representative Director Nominating 
Body. If there are fewer than two Industry Directors on the Board 
(excluding directors that are employees of the Exchange), then the 
Trading Permit Holder Subcommittee of the Advisory Board shall act as 
the Representative Director Nominating Body. The Exchanges further 
propose to amend their Bylaws and Certificates to provide that the sole 
stockholder is bound to nominate and elect the Representative Directors 
nominees recommended by the Representative Director Nominating Body or, 
in the event of a petition candidate, the Representative Director 
nominees who receive the most votes pursuant to a Run-off Election. 
Lastly, the Exchanges each propose to amend Section 3.1 of their Bylaws 
to provide that the Board is responsible for determining whether a 
director candidate satisfies the applicable qualifications for election 
as a director.
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    \5\ See id. at 56086 and 56069, respectively.
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    Second, the Exchanges propose to transfer the N&G Committee's 
current authority with respect to committee appointments to their 
Boards (or appropriate subcommittee of the Board).\6\ Specifically, the 
Exchanges propose to amend Section 4.2 and 6.1 of their Bylaws to state 
that members of the Executive Committee and Advisory Board will be 
appointed by the Board. The Exchanges also propose to amend Section 4.4 
of their Bylaws to state that members of the ROCC will be appointed by 
the Board on the recommendation of the Non-Industry Directors of the 
Board. Lastly, Cboe proposes to amend its Rule 2.1 to provide that the 
Board shall appoint the Chairman, Vice Chairman (if any) and members to 
the Business Conduct Committee (``BCC'') as well as fill any vacancies 
on the BCC.
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    \6\ See id. at 56086 and 56070, respectively.
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    Third, the Exchanges propose to amend their Bylaws to alter the 
process for filling director vacancies.\7\ Specifically, the Exchanges 
propose to amend Section 3.4 of their Bylaws to provide that in the 
event any Industry or Non-Industry Director fails to maintain the 
required qualifications and the director's term is accordingly 
terminated, the sole stockholder, instead of the Board, shall be able 
to fill the

[[Page 60655]]

vacancy.\8\ The Exchanges also propose to amend Section 3.5 of their 
Bylaws to provide the sole stockholder with authority to fill vacancies 
so long as the elected director qualifies for the position. 
Additionally, with respect to vacancies among the Representative 
Directors, the Representative Director Nominating Body will recommend 
an individual, or provide a list of recommended individuals, to the 
sole stockholder who shall select and fill the position.
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    \7\ See id. at 56086 and 56070, respectively.
    \8\ Amended Section 3.4 would also provide that if such 
terminated director requalified, the sole stockholder would have 
discretion to reappoint such director, including by increasing the 
size of the Board, should that be necessary.
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    Fourth, the Exchanges propose to change the name of the ROCC to the 
``Regulatory Oversight Committee'' (``ROC'').\9\ As such, the Exchanges 
propose to remove the word ``Compliance'' from references to the 
``ROCC'' in the Bylaws and, as applicable, Exchange rules.
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    \9\ The Exchanges note that the regulatory oversight committees 
of its affiliated exchanges does not use the term ``Compliance'' in 
their Committees' name. See Notices, supra note 5 at 56087 n.8 and 
56070 n.8, respectively.
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    Finally, the Exchanges propose to change their names in the title 
and signature lines in their Certificates to reflect recent changes to 
their legal names.\10\
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    \10\ Other technical formatting changes occur throughout the 
Bylaws as a result of the Exchanges proposed changes. See Notices, 
supra note 5 at 56087 and 56070, respectively.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
changes are consistent with the requirements of Section 6 of the Act 
\11\ and the rules and regulations thereunder applicable to a national 
securities exchange.\12\ In particular, the Commission finds that the 
proposed rule changes are consistent with Sections 6(b)(1) the Act,\13\ 
which require a national securities exchange to be so organized and 
have the capacity to be able 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 regulations thereunder, and the rules of the Exchange. The 
Commission also finds that the proposed rule changes are consistent 
with Section 6(b)(3) of the Act,\14\ which requires that the rules of a 
national securities exchange assure the fair representation of its 
members in the selection of its directors and administration of its 
affairs, and provide that one or more directors shall be representative 
of issuers and investors and not be associated with a member of the 
exchange, broker, or dealer.
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    \11\ 15 U.S.C. 78f(b).
    \12\ In approving these proposed rule changes, the Commission 
has considered the proposed rules' 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)(3).
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    The Commission believes that the Exchanges' proposals to eliminate 
their N&G Committees and reassign the N&G Committees' responsibilities 
are consistent with the Act. In particular, with respect to vesting the 
authority to nominate and elect directors in the sole stockholder, the 
Exchanges cite to the rules of another Exchange that similarly does not 
maintain an exchange-level nominating committee and instead provides 
that the sole stockholder of the Exchange nominates and elects their 
non-fair representation directors.\15\ Importantly, the Commission 
notes that the proposed rule changes do not substantively impact the 
provisions concerning the nomination and selection of fair 
representation directors that currently apply to the Exchanges. The 
sole stockholder will continue to be bound to nominate and elect the 
Representative Director nominees recommended by the Representative 
Director Nominating Body and there are no other changes to the process 
for the nomination and selection of Representative Directors. 
Accordingly, the Commission believes that members of the Exchanges 
should continue to have a voice in the governance of the Exchanges 
through Board representation and thus will have a voice in the 
Exchanges' exercise of their self-regulatory authority. The Exchanges 
represent that they are not proposing to amend any of the compositional 
requirements currently set forth in the Bylaws and that such existing 
compositional requirements must continue to be satisfied, including the 
provision relating to the fair representation of members.\16\
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    \15\ See Section 3.02(f) of the Amended and Restated NYSE Arca, 
Inc. Bylaws. See also Notices, supra note 5 at 56086 and 56069, 
respectively.
    \16\ See id. at 56087 and 56071, respectively.
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    In addition, with respect to providing the Board, as opposed to the 
N&G Committee, with the authority to recommend and approve members of 
the Executive Committee, Advisory Board, ROC and BCC, the Commission 
notes that other exchanges provide that their Boards, without input 
from a nominating committee, may appoint members to committees.\17\ 
While the internal Exchange delegations of the authority relating to 
the (i) nomination and election of directors, (ii) nominating body for 
Representative Directors, (iii) filling of director vacancies and (iv) 
appointment of committees are being amended, the Exchanges represent 
that the substantive requirements of the Exchanges applicable to those 
items will remain the same.\18\
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    \17\ See e.g., Eleventh Amended and Restated Operating Agreement 
of New York Stock Exchange, LLC, Section 2.03(h) and By-Laws of 
Nasdaq Phlx LLC, Section 5-3.
    \18\ See id.
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    The Commission further believes that the proposals to change the 
name of the ROCC to the ROC are consistent with the Act as they may 
clarify the scope of the ROC's activities. Moreover, the Exchanges note 
that changing the name of the committee would harmonize the names with 
the name of the regulatory oversight committee of their affiliated 
exchanges.\19\
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    \19\ See supra note 10.
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    Finally, the Commission believes that the proposals to update the 
exchanges' names in their Certificates are consistent with the Act as 
they may also serve to reduce potential confusion by ensuring the 
Exchanges' corporate documents reflect their recent name changes.

IV. Accelerated Approval of Proposed Rule Changes

    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Act,\20\ to approve the proposed rule changes prior to the 30th day 
after the date of publication of the Notices in the Federal 
Register.\21\ The Commission believes that the proposed rule changes do 
not raise novel regulatory issues and are substantively similar to the 
existing rules of other national securities exchanges.\22\ In 
particular, the Commission notes that the proposed rule changes do not 
substantively impact the provisions concerning the nomination and 
selection of fair representation directors that currently apply to the 
Exchanges. Members of the Exchanges should continue to have an 
opportunity to participate in the selection of Board representation and 
have input into the Exchanges' exercise of self-regulatory authority. 
In addition, the Commission did not receive any comment on the proposed 
changes. Accordingly, the Commission finds that good cause exists to 
approve the proposed rule changes on an accelerated basis.
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    \20\ 15 U.S.C. 78s(b)(2).
    \21\ As noted above, the Notices were published for comment in 
the Federal Register on November 27, 2017 and the comment period 
closed on December 12, 2017. Accordingly, the 30th day after 
publication of the Notices is December 27, 2017.
    \22\ See notes 15 and 17, supra.

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[[Page 60656]]

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\23\ that the proposed rule changes (SR-CBOE-2017-072; SR-C2-2017-030) 
be, and hereby are, approved on an accelerated basis.
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    \23\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-27465 Filed 12-20-17; 8:45 am]
 BILLING CODE 8011-01-P