[Federal Register Volume 82, Number 226 (Monday, November 27, 2017)]
[Notices]
[Pages 56072-56075]
[FR Doc No: 2017-25470]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82126; File No. SR-CboeEDGX-2017-001]

Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing of a Proposed Rule Change Relating to Its Director Nomination
and Committee Appointment Process and Its Nominating and Governance
Committee

November 20, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on November 14, 2017, Cboe EDGX Exchange, Inc. (the ``Exchange''
or ``EDGX'') 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 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 Substance
of the Proposed Rule Change

    The Exchange proposes to amend its governance documents with
respect to changes relating to its director nomination and committee
appointment process and its Nominating and Governance Committee.
    The text of the proposed rule change is available at the Exchange's
Web site at www.bats.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 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 Exchange 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 Exchange proposes to amend its Bylaws and Certificate.
Specifically the Exchange proposes to eliminate its Nominating and
Governance Committee (``N&G Committee''), as well as amend the process
by which (i) directors are elected, (ii) committee appointments are
made and (iii) vacancies are filled. Additionally, the Exchange
proposes to make other technical, non-substantive changes.
Elimination of Nominating and Governance Committee
(a) Nomination of Directors
    By way of background, Section 4.3 of the Bylaws provides, among
other things, that the Exchange N&G Committee shall consist of at least
five directors that are majority Non-Industry Directors and are
appointed by the Board on the recommendation of the N&G Committee.
Section 4.3 of the Bylaws also provides that the N&G Committee shall
have the authority to nominate individuals for election as directors of
the Corporation and such other duties as prescribed by resolution of
the Board.\3\ Additionally, if the N&G Committee has two or more
Industry Directors, those Industry Directors shall act as the
Representative Director Nominating Body, which body is responsible for
the nomination of the Representative Directors. If however, there are
less than two Industry Directors on the N&G Committee, then the
Exchange Member Subcommittee of the Advisory Board shall act as the
Representative Director Nominating Body.\4\ The N&G Committee is bound
to accept and nominate the Representative Director 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.\5\ Pursuant to Section
3.1 of the Bylaws, the N&G Committee is also responsible for
determining whether a director candidate satisfies the applicable
qualifications for election as a director, and the decision of the N&G
Committee, subject to review, if any, by the Board, is final.
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    \3\ Article Fifth, subparagraph (c) of the Certificate also
provides that the N&G Committee nominates persons for election as
directors.
    \4\ See Sections 1.1(j) and 4.3 of the Bylaws. Section 3.2 of
the Bylaws sets forth a detailed process for the nomination and
selection of fair representation directors for the Board of
Directors.
    \5\ See Sections 3.1 and 3.2 of the Bylaws and Article Fifth,
subparagraph (c) of the Certificate.
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    The Exchange first proposes to eliminate its N&G Committee and
amend the process by which Directors are nominated and elected.
Specifically, the Exchange proposes to provide that the sole
stockholder of the exchange shall nominate and elect directors for
nomination at the annual meeting of the stockholder, except with
respect to fair-representation directors (``Representative Directors'')
as described below. The Exchange notes that another Exchange 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.\6\ With respect to the
nomination of Representative Directors, the Exchange proposes to amend
the definition of ``Representative Director Nominating Body'' and
provide that if the Board has two or more Industry Directors, excluding
directors that are exchange employees, those Industry Directors

shall act as the Representative Director Nominating Body. Additionally,
similar to the current practice, if there are less than two Industry
Directors on the Board (excluding directors that are employees of the
Exchange), then the Exchange Member Subcommittee of the Advisory Board
shall act as the Representative Director Nominating Body. The Bylaws
and Certificate will also be amended 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, as the N&G Committee is being eliminated, the Exchange proposes
to amend Section 3.1 of the Bylaws to provide that the Board, instead
of the N&G Committee, is responsible for determining whether a director
candidate satisfies the applicable qualifications for election as a
director, and the decision of the Board is final. There are no other
changes with respect to the process for the nomination and selection of
Representative Directors. The Exchange notes that it believes that the
proposed changes continue to give Exchange members a voice in the
Exchange's use of self-regulatory authority.
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    \6\ See Section 3.02 of the Amended and Restated NYSE Arca, Inc.
Bylaws.
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(b) Committee Appointments
    The N&G Committee is also currently responsible for recommending to
the Board of Directors appointments to certain Committees.
Specifically, Section 4.2 and Section 6.1 of the Bylaws provides that
the members of the Executive Committee and Advisory Board,
respectively, be recommended by the N&G Committee for approval by the
Board. Pursuant to Section 4.4 of the Bylaws, members of the Regulatory
Oversight Committee (``ROC'') are recommended by the Non-Industry
Directors on the N&G Committee for approval by the Board.
    In light of the elimination of the N&G Committee, the Exchange
proposes to eliminate references to the N&G Committee with respect to
committee appointments and transfer the N&G's current authority to the
Board (or appropriate subcommittee of the Board). Specifically the
Exchange proposes that members of the Executive Committee and Advisory
Board be appointed by the Board and members of the ROC be appointed by
the Board on the recommendation of the Non-Industry Directors of the
Board. The Exchange notes that Boards of other Exchanges also have
authority to appoint Board Committees.\7\
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    \7\ 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.
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Filling of Director Vacancies
    Next, the Exchange proposes to amend the process to fill Director
vacancies. Currently, Sections 3.4 of the Bylaws provides that in the
event any Industry Director or Non-Industry Director fails to maintain
the qualifications required for such category of director, his office
shall become vacant and the vacancy may be filled by the Board with a
person who qualifies for the category in which the vacancy exists. If a
director is determined to have requalified, Section 3.4 provides the
Board, in its sole discretion, may fill an existing vacancy in the
Board or may increase the size of the Board, as necessary, to appoint
such director to the Board; provided, however, that the Board shall be
under no obligation to return such director to the Board.
    Section 3.5 of the Bylaws also provides that a vacancy on the Board
may be filled by a vote of majority of the Directors then in office, or
by the sole remaining Director, so long as the elected Director
qualifies for the position. Additionally, for vacancies of
Representative Directors, the Representative Director Nominating Body
will recommend an individual to be elected, or provide a list of
recommended individuals, and the position shall be filled by the vote
of a majority of the Directors then in office. Consistent with the
proposal to have the sole stockholder nominate and elect directors to
the Board (and to be bound to accept and elect the Representative
Director Nominating Body's nominee(s)), the Exchange wishes to provide
that the sole stockholder, instead of the Board, will also have the
ability to fill the above described Director vacancies.
Technical, Non-Substantive Changes
    Lastly, the Exchange proposes to change the Exchange's name in the
title and signature line in its Certificate from ``Bats EDGX Exchange,
Inc.'' to ``Cboe EDGX Exchange, Inc.'' The Exchange notes that it
recently changed its legal name, but was unable to update the
Exchange's name in the title or signature line in its Certificate as
the name changes were not effective until the Exchange, as previously
named, filed the proposed changes in Delaware. The Exchange had noted
in the filing that proposed the name changes that it would later amend
the Certificate to reflect the new name in the title and signature line
and the Exchange is seeking to do so now. The Exchange also proposes to
make clarifying amendments and cite to the applicable provisions of the
General Corporation Law of the State of Delaware in connection with the
proposed restatement and amendment.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\8\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \9\ requirements that the rules of an exchange be
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. Additionally,
the Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \10\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers. The Exchange also believes that its proposal is
consistent with Section 6(b) of the Act in general, and furthers the
objectives of Section 6(b)(1) of the Act 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 Act and to comply, and to enforce
compliance by its exchange members and persons associated with its
exchange members, with the provisions of the Act, the rules and
regulations thereunder, and the rules of the Exchange. The Exchange
also believes that this proposal furthers the objectives of Section
6(b)(3) \11\ of the Act in particular, in that it is designed to assure
a fair representation of Exchange Members in the selection of its
directors and administration of its affairs and provide that one or
more directors would be representative of issuers and investors and not
be associated with a member of the exchange, broker, or

dealer. For instance, the proposed changes continue to include a
process by which Exchange members can directly petition and vote for
representation on the Board.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ Id.
    \11\ 15 U.S.C. 78f(b)(3).
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    The Exchange believes eliminating the exchange-level N&G Committee
allows the Exchange to eliminate a board committee whose core
responsibilities can be adequately handled by its sole stockholder or
Board, as applicable. The Exchange believes the elimination of this
board committee will streamline, make more efficient, and improve the
Exchange's governance structure and allow directors of the Exchange to
continue to focus their attention on matters within the purview of the
Exchange's Board including its orderly discharge of regulatory duties
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. The Exchange also notes that
it is not statutorily required to maintain a standing nominating
committee. Indeed, another Exchange similarly does not do so and
instead provides that its sole stockholder nominates and elects its
non-fair representation directors.\12\ Other Exchanges also provide
that their Board, without input from a nominating committee, appoint
members to committees.\13\ The Exchange also believes that since it is
being proposed that the sole stockholder have the authority to nominate
(and elect) directors to the Board (and accept and elect Representative
Director nominees), it is also consistent to transfer the authority to
fill director vacancies from the Board to the sole stockholder.
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    \12\ See Section 3.02 of the Amended and Restated NYSE Arca,
Inc. Bylaws.
    \13\ 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.
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    The Exchange importantly notes that it is not proposing to amend
any of the compositional requirements currently set forth in the Bylaws
and that notwithstanding the proposed changes, existing compositional
requirements of the Exchange will still be required to be satisfied,
including the provision relating to the fair representation of members.
While the delegation 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 is being modified, the substantive practices of the Exchange
will remain the same. For example, the sole stockholder will be 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 Exchange believes the clarifying changes to the
Exchange's Certificate, including updating the Exchange's name in the
title and signature line, allows the Exchange to comply with Delaware
law and reduce potential confusion. The alleviation of confusion
removes impediments to, and perfects the mechanism for a free and open
market and a national market system, and, in general, protects
investors and the public interest of market participants.
    The Exchange believes the proposed changes do not affect the
meaning, administration, or enforcement of any rules of the Exchange or
the rights, obligations, or privileges of Exchange members or their
associated persons is any way.

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

    The Exchange does not believe the proposed rule change will impose
any burden on competition not necessary or appropriate in furtherance
of the purposes of the Act. The proposed rule change relates to the
corporate governance of the Exchange and not the operations of the
Exchange. This is not a competitive filing and, therefore, imposes no
burden on competition.

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

    The Exchange neither solicited nor received comments on 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 within such longer period 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 Exchange 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 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-CboeEDGX-2017-001 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CboeEDGX-2017-001. 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. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-CboeEDGX-2017-001, and

should be submitted on or before December 12, 2017.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-25470 Filed 11-24-17; 8:45 am]
 BILLING CODE 8011-01-P