[ by Howard Haykin ]

The NYSE proposes to amend the bylaws of its wholly-owned subsidiary, NYSE Regulation, to eliminate the requirement that not less than 2 members of the board of directors of NYSE Regulation must qualify as fair representation candidates. 

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NYSE RULE FILING 13-32
4/29/13

The Exchange is proposing to amend the Fourth Amended and Restated Bylaws of NYSE Regulation (“NYSE Regulation Bylaws”) to eliminate the requirement that not less than two members of the NYSE Regulation board of directors must be “fair representation candidates” (as defined in the NYSE Regulation Bylaws).  However, the current requirement that such directors constitute a minimum of 20% of the board will continue to apply. If the number that is equal to 20% of the entire board of directors is not a whole number, such number will be rounded up to the next whole number, and a provision so stating would be added to the NYSE Regulation Bylaws.

As defined in the NYSE Regulation Bylaws, fair representation candidates are Board members who are determined by member organizations of the Exchange through a specified petition process (“Petition Candidates”) or, in the absence of a sufficient number of Petition Candidates, candidates recommended by the Director Candidate Recommendation Committee (the “DCRC”) of NYSE Regulation. In addition, fair representation candidates for the NYSE Regulation Board must qualify as “non-affiliated directors” (as such term is defined in the NYSE Regulation Bylaws), i.e., U.S. Persons who are not members of the board of directors of NYSE Euronext and qualify as independent under the director independence policy of NYSE Regulation.4 Finally, like all members of the NYSE Regulation Board except for the Chief Executive Officer, fair representation candidates must qualify as independent under the director independence policy of NYSE Regulation.

The NYSE Regulation Bylaws also provide that the Board shall consist of not less than three persons and that the number of directors shall be fixed from time to time by the Exchange, as sole equity member of NYSE Regulation. The size of the NYSE Regulation Board is currently fixed at five members, of which four positions are currently filled and one is open.6 The Exchange and NYSE Regulation believe that a Board consisting of five members is sufficiently large to effectively perform the Board’s oversight responsibilities. In addition, with a Board size of five directors, the Exchange believes that retaining the requirement that at least two directors must be “fair representation candidates” is now unwarranted since such directors would constitute 40% of the Board rather than 20% as was the case when the number of directors was ten. The Exchange believes that the current process for selecting the 20% of directors who meet the fair representation requirement in Section 6(b)(3), is consistent with the Act.   The Exchange is not proposing to change the NYSE Regulation independence requirements.

The Exchange believes that elimination of the two-director minimum requirement for fair representation candidates is consistent with the governance structures of other national securities exchanges that have been approved by the Securities and Exchange Commission (the “Commission”). For example, Article III, Section 5(e) of the By-Laws of the of the NASDAQ Stock Market LLC ( “NASDAQ”) requires that the Regulatory Oversight Committee of the NASDAQ Board of Directors (the “NASDAQ ROC”), which has an oversight role comparable to that of the NYSE Regulation Board, must consist of three members, each of whom must be a Public Director (i.e., “a Director who has no material business relationship with a broker or dealer, [NASDAQ] or its affiliates, or FINRA”) and “independent director” as defined by NASDAQ Marketplace Rule 4200. There is no requirement that the NASDAQ ROC have any members who would be the equivalent of a fair representation candidate on the NYSE Regulation Board.
 

[NYSE Ruling Filing 13-32]