[Federal Register Volume 78, Number 22 (Friday, February 1, 2013)]
[Notices]
[Pages 7470-7472]
[FR Doc No: 2013-02186]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68740; File No. SR-ISE-2013-07]

Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing of Proposed Rule Change To Amend the
International Securities Exchange, LLC Amended and Restated
Constitution

January 28, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby
given that on January 18, 2013, the International Securities Exchange,
LLC (``Exchange'' or ``ISE'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change as described in
Items I and II below, which items have been prepared by the Exchange.
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\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change

    The Exchange proposes to amend its Amended and Restated
Constitution \3\ (the ``Constitution'') to: (i) Declassify the Non-
Industry Directors (including the Public Directors) of the Board; (ii)
change the term of the Non-Industry Directors (including the Public
Directors) and the Former Employee Director to a one (1) year term,
subject to re-election; and (iii) eliminate the three-term limit for
the Former Employee Director. Currently, Section 3.2(c) of the
Constitution requires, in part, that Non-Industry Directors (including
the Public Directors) \4\ and Exchange Directors \5\ be classified into
two classes designated as Class I and Class II directors, and that all
Directors (including the Former Employee Director) \6\ serve two (2)
year terms, subject to re-election. The text of the proposed rule
change is available on the Exchange's Web site www.ise.com, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.
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    \3\ Amended and Restated Constitution of International
Securities Exchange, LLC (last amended December 28, 2007).
    \4\ Section 3.2(b)(iv) of the Constitution requires that the
Board be composed of eight (8) Non-Industry Directors (at least two
(2) of which are Public Directors) elected by the Sole LLC Member.
    \5\ Section 3.2(b)(i)-(iii) of the Constitution requires that
the Board be composed of six (6) Exchange Directors elected by the
holders of Exchange Rights.
    \6\ Section 3.2(b)(vi) of the Constitution allows the Sole LLC
Member, in its sole and absolute discretion, [sic] elect one (1)
additional director who shall meet the requirements of ``Non-
Industry Directors,'' except that such person was employed by the
Exchange at any time during the three (3) year period prior to his
or her initial election.
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II. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange 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 these statements may be examined at the places specified in
Item IV below. The self-regulatory organization has prepared summaries,
set forth in Sections A, B and C below, of the most significant aspects
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 purpose of this proposed rule change is to amend the
Constitution: (i) To declassify the Non-Industry Directors (including
the Public Directors) of the Board; (ii) to change the term of the Non-
Industry Directors (including the Public Directors) and the Former
Employee Director to a one (1) year term, subject to re-election; and
(iii) eliminate the three-term limit for the Former Employee Director.
Currently, Section 3.2(c) of the Constitution requires, in part, that
Non-Industry Directors (including the Public Directors) \7\ and
Exchange Directors \8\ be classified into two classes designated as
Class I and Class II directors, and that all Directors (including the
Former Employee Director) \9\ serve two (2) year terms, subject to re-
election.
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    \7\ Section 3.2(b)(iv) of the Constitution requires that the
Board be composed of eight (8) Non-Industry Directors (at least two
(2) of which are Public Directors) elected by the Sole LLC Member.
    \8\ Section 3.2(b)(i)-(iii) of the Constitution requires that
the Board be composed of six (6) Exchange Directors elected by the
holders of Exchange Rights.
    \9\ Section 3.2(b)(vi) of the Constitution allows the Sole LLC
Member, in its sole and absolute discretion, elect one (1)
additional director who shall meet the requirements of ``Non-
Industry Directors,'' except that such person was employed by the
Exchange at any time during the three (3) year period prior to his
or her initial election.
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    The Exchange proposes that Section 3.2(c) of the Constitution be
amended to remove any references to Class I directors or Class II
directors as such terms relate to Non-Industry Directors (including the
Public Directors), and state that the Non-Industry Directors (including
the Public Directors) would hold office for a one (1) year term,
subject to re-election, as follows:

    ``[t]he Non-Industry Directors and the Public Directors shall
hold office for a term expiring at the annual meeting of the Sole
LLC Member and holders of Exchange Rights held in the first year
following the year of their election, and until their successors are
elected and qualified.''

For the avoidance of doubt, Non-Industry Directors (including the
Public Directors) would continue to be elected by the Sole LLC Member
at each annual meeting of the Sole LLC Member and holders of Exchange
Rights in accordance with Section 3.2 of the Constitution.
    The Exchange further proposes to modify the term of the Former
Employee Director so that any such director shall hold office for a one
(1) year term, subject to re-election, and to make such corresponding
technical changes to the applicable parts of Section 3.2(c).
Furthermore, the Exchange proposes to eliminate the three-term limit
for the Former Employee Director.\10\ Upon modification of the two (2)
year term to a one (1) year term, the Former Employee Director would
qualify to become a Non-Industry Director after serving on the Board of
Directors for three (3) years as he/she would no longer have been
employed by the

Exchange in the previous three (3) year period prior to his or her
initial election. As such, there is no need for the three-term limit
upon modification of the two (2) year term to a one (1) year term.
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    \10\ Section 3.2(e)(iv) of the Constitution provides that a
Former Employee Director may not serve on the Board of Directors for
more than three (3) consecutive terms. Any such director may be
eligible for election as a director following a two-year hiatus from
service on the Board of Directors, provided, that he or she meets
the director qualifications pursuant to Section 3.2(b).
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    ISE believes that the declassification of the Non-Industry
Directors (including the Public Directors), and the institution of a
one year term for Non-Industry Directors (including the Public
Directors) and the Former Employee Director, subject to reelection,
would allow the Exchange to align its Board structure in accordance
with corporate governance best practices guidelines which advocate the
repeal of classified/staggered boards and the annual elections of
directors, including, but not limited to, the Institutional Shareholder
Services Proxy Voting Guidelines, the CalPERS Core Principles of
Accountable Corporate Governance, the TIAA-CREF Policy Statement on
Corporate Governance, and the AFI-CIO Proxy Voting Guidelines. The
Exchange notes that just because it has one shareholder, the Sole LLC
Member, as opposed to many shareholders in a public company, the
Exchange nonetheless believes that the adherence to the aforementioned
corporate governance best practices guidelines are beneficial to the
Exchange in that it provides for flexibility, transparency, and
accountability for the sole shareholder, and ultimately for the members
of the Exchange and the customers of the Exchange members.
Specifically, the Exchange believes that the proposed modifications to
the Constitution would provide it with the most flexibility to
structure the Board of Directors in a way that is most effective for:
(i) Attracting and keeping Non-Industry Directors (including Public
Directors) and the Former Employee Director who provide valuable
insight and knowledge to the Board; (ii) providing the Sole LLC Member
with the ability to evaluate and hold Non-Industry Directors (including
Public Directors) and the Former Employee Director accountable on an
annual basis; and (iii) removing underperforming, inactive, or
ineffective Non-Industry Directors (including Public Directors) and the
Former Employee Director who may be detrimental to the enhancement of
long-term corporate value.
    Notwithstanding any of the foregoing, the Exchange is not proposing
any changes to the current requirements in the Constitution which
specify that Exchange Directors serve two (2) year terms in a
classified/staggered manner as the Exchange believes that the current
structure continues to be an effective and practical mechanism for
ensuring continuity and fair representation of the Exchange's
membership on the Board. Exchange Directors represent the membership of
the Exchange on the Board of Directors and because of the direct
connection between the Exchange's business and each Exchange Director's
underlying business, Exchange Directors provide a very different
perspective from the Non-Industry Directors (including Public
Directors) and the Former Employee Director. Specifically, Exchange
Directors not only have an interest in seeing certain Exchange
initiatives through to implementation, but are uniquely positioned to
offer valuable feedback on such initiatives directly to the Board of
Directors. Given the regulatory nature of the Exchange's business and
the extended period of time necessary to see initiatives through to
implementation, it is the Exchange's belief and experience that a term
longer than one (1) year is necessary for Exchange Directors to achieve
the full benefit of participation of the Board. Furthermore, the
Exchange believes that the classified structure of the Exchange
Directors allows for a more consistent representation of the Exchange's
membership on the Board of Directors. By never having a whole slate of
new Exchange Directors join the Board at the same time, the Exchange
believes that the classified structure allows incumbent Exchange
Directors to provide leadership and continuity to new Exchange
Directors and the Board of Directors, as a whole.
    The Exchange proposes that the declassification changes to the
Board of Directors be implemented through a gradual process in which
each current Non-Industry Director (including the Public Directors)
will serve out the remainder of his or her two (2) year term and at the
end of such term, the election or re-election of such Non-Industry
Director (including the Public Directors) vacancy will be for a one (1)
year term. This gradual process would result in a fully declassified
Board of Directors at the conclusion of the Exchange's 2014 annual
meeting of the Sole LLC Member and holders of Exchange Rights.
2. Statutory Basis
    The basis under the Exchange Act for this proposed rule change is
the requirement under Section 6(b)(1) that an exchange be so organized
so as to have the capacity to be able to carry out the purposes of the
Exchange Act and to comply, and (subject to any rule or order of the
Commission pursuant to Section 17(d) or 19(g)(2) of the Exchange Act)
to enforce compliance by its members and persons associated with its
members, with the provisions of the Exchange Act, the rules and
regulations thereunder and the rules of the Exchange. The Exchange also
believes this proposed rule change furthers the objective of Section
6(b)(5) that an exchange have rules that, among other things, are
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
with persons engaged in 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.
    Specifically, the Exchange believes that because the proposed rule
change does not modify the structure of the Exchange Directors, the
Exchange continues to be organized so as to have the capacity to be
able to carry out the purposes of the Exchange Act and to comply, and
(subject to any rule or order of the Commission pursuant to Section
17(d) or 19(g)(2) of the Exchange Act) to enforce compliance by its
members and persons associated with its members, with the provisions of
the Exchange Act, the rules and regulations thereunder and the rules of
the Exchange. Furthermore, aligning the structure of the Non-Industry
Directors (including the Public Directors) and the Former Employee
Director in accordance with corporate governance best practices
guidelines would ensure that the Exchange continues to have rules that
are designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to foster
cooperation with persons engaged in facilitating transactions in
securities, and to remove impediments to and perfect the mechanism of a
free and open market and a national market system. In addition, the
Exchange believes that the proposed rule change protects investors and
the public interest by providing the most flexibility to structure the
Non-Industry Directors (including the Public Directors) and the Former
Employee Director in a way that is most effective for: (i) Attracting
and keeping Non-Industry Directors (including Public Directors) and the
Former Employee Director who provide valuable insight and knowledge to
the Board; (ii) providing the Sole LLC Member with the ability to
evaluate and hold Non-Industry Directors (including Public Directors)
and the Former Employee Director accountable on an annual basis; and
(iii) removing underperforming, inactive, or ineffective Non-Industry
Directors (including Public Directors)

and the Former Employee Director who may be detrimental to the
enhancement of long-term corporate value.

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. Specifically, the proposed rule
change only seeks to implement corporate governance best practices
guidelines with respect to the structure of its Board of Directors and
does not directly impact the Exchange's trading rules, its membership,
or marketplace, and therefore does not implicate the competition
analysis.

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

    The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any unsolicited written comments from members or other interested
parties.

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

    Within 45 days of the publication date of this notice or within
such longer period (1) as the Commission may designate up to 45 days of
such date if it finds such longer period to be appropriate and
publishes its reasons for so finding or (2) as to which the self-
regulatory organization consents, the Commission will:
    (a) By order approve or disapprove such 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 Exchange 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_ADDRESS>Please include
File Number SR-ISE-2013-07 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.

All submissions should refer to File Number SR-ISE-2013-07. 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 on official business
days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for inspection and copying at the
principal offices 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-ISE-2013-07, and should be submitted on or before
February 22, 2013.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-02186 Filed 1-31-13; 8:45 am]
BILLING CODE 8011-01-P