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Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Notices
jbell on DSKJLSW7X2PROD with NOTICES2

extent they believe it is in their selfinterest and there is no downside for an SRO to act in its self-interest contrary to the Plan as they are exculpated in taking any such action. 864
Other commenters support the proposed provisions, arguing that the limitation of liability provisions are standard protections for members in LLC agreements.865 One of these commenters cites the OPRA and CAT
LLC Plans as precedent for extending liability protection and indemnification coverage only to the SROs that created the LLC.866 These commenters argue that Non-SRO Voting Representatives do not need the same liability protections because they are not Members of the LLC.867
For several reasons, the Commission disagrees with the argument that NonSRO Voting Representatives do not need the liability, exculpation, and indemnification protections that the CT
Plan provides solely to SROs.868 First, the Commission believes that the NonSRO Voting Representatives could have liability exposure arising from their service as voting members of the Operating Committee, for example, in the case of a third-party civil action for damages against the CT Plan, which might, among other things, require NonSRO Voting Representatives to engage the services of counsel. Thus, the Commission does not agree that liability exposure inures to the SROs solely as a result of their status as Members of the LLC. Instead, the Commission believes that the risk of liability also arises from the actions taken by the Operating Committee in its governance of the CT
Plan and would, therefore, potentially affect both the SROs and the Non-SRO
Voting Representatives of the Operating Committee.
Second, the Commission believes that the commenters reliance on the OPRA
Plan and the CAT NMS Plan as precedent for extending liability protection and indemnification coverage only to the SROs that created the LLC
is misplaced.869 While the OPRA Plan and the CAT NMS Plan do, in fact, provide such protection only to the SROs as Members of the LLC, the comparison is inapt because neither of those NMS plans has any non-SRO
voting members of its operating committee. Therefore, neither the OPRA
864 MFA

Letter, supra note 30, at 3.
Nasdaq Letter I, supra note 20, at 1516;
NYSE Letter I, supra note 18, at 3738.
866 See NYSE Letter I, supra note 18, at 3738.
867 See id. at 38.
868 See Nasdaq Letter I, supra note 20, at 1516;
NYSE Letter I, supra note 18, at 3738.
869 See NYSE Letter I, supra note 18, at 3738.
865 See
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Plan nor the CAT NMS Plan has had to address the issue in question.
Third, the Commission shares the commenters view that it is customary to provide such protection to members of governing boards.870 More importantly, the Commission agrees that the failure to provide liability, exculpation, and indemnification protections to the NonSRO Voting Representatives could make it more difficult to attract qualified individuals to serve in the capacity of voting members of the Operating Committee and, further, could hinder such individuals meaningful participation, for example by hindering their ability to freely share ideas if they choose to serve. The Commission believes that this potential result would be inconsistent with the objectives of the Governance Order to broaden participation in Plan governance to addressing the core problem described above.871 Moreover, Delaware law permits non-Members of an LLC
agreement to receive such protections.
Specifically, Section 18108 of the Delaware Act provides that subject to the standards and restrictions, if any, set forth in its LLC agreement, a limited liability company may, and shall have the power to, indemnify and hold harmless any member or manager or other person from and against any and all claims and demands whatsoever.
Emphasis added. Consequently, Section 18108 of the Delaware Act provides flexibility to the contracting parties to specify the rights and obligations with respect to indemnification provisions in an LLC
agreement.
Accordingly, the Commission believes that, to promote the objectives of the Governance Order to broaden participation in Plan governance,872 the CT Plan should explicitly provide the same protections to Non-SRO Voting Representatives that Article XII, Section 12.1 and Section 12.2 of the CT Plan currently provide only to SROs as Members of the LLC. To that end, the Commission is modifying several proposed definitions to explicitly include Non-SRO Voting Representatives. First, the Commission is modifying Article I, Section 1.1k of the CT Plan to include Non-SRO Voting Representatives in the definition of Company Indemnified Party. Next, the Commission is modifying Article XII, Section 12.1 of the CT Plan to include Non-SRO Voting 870 See
BlackRock Letter I, supra note 247, at 3

Representatives in the definition of Exculpated Party. In addition, the Commission is modifying Section 1.1eee of Article I of the CT Plan to include Non-SRO Voting Representatives in the definition of the term, Party to a Proceeding. The Commission finds that each of these modifications is appropriate to provide Non-SRO Voting Representatives with the same indemnification protections that are available to SRO Voting Representatives, because the modifications will remove a significant disincentive for persons to serve as NonSRO Voting Representatives, thereby helping to support participation on the Operating Committee of a broad array of market participants. For these reasons, the Commission is approving Article I, Section 1.1k, as modified; Article I, Section 1.1eee, as modified; and Article XII, Section 12.1, as modified.
Finally, with respect to paragraph b of Section 12.1, which 1 explicitly permits an Exculpated Party, in making decisions authorized to be in its sole discretion, to consider its own interests and 2 asserts that the Exculpated Party has no duty or obligation fiduciary or otherwise to give any consideration to any interest of or factors affecting the Company or the Members, the Commission reiterates its view, expressed above and added by the Commission to the Recitals of the CT
Plan, that no provision of this Agreement shall be construed to limit or diminish the obligations and duties of the Members as self-regulatory organizations under the federal securities laws and the regulations thereunder. 873
Because the modified definition of Company Indemnified Party in Section 1.1k of the CT Plan expands the indemnification provisions of Section 12.2 to include Non-SRO Voting Representatives,874 no further modification to Section 12.2 is necessary, and the Commission is approving Section 12.2 of the CT Plan as proposed.
b Advance Payment Article XII, Section 12.3 of the CT
Plan provides for the payment of reasonable expenses incurred by a Company Indemnified Party who is a named defendant or respondent to a Proceeding, except that such Company Indemnified Party must repay such amount if it is ultimately determined that he or she is not entitled to indemnification. The Commission
4.
871 See Governance Order, supra note 8, 85 FR at 2871420.
872 See id.

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873 See supra Section II.C.1b discussing paragraph g of the Recitals of the CT Plan.
874 See supra discussion in Section II.C.2.

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