Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto Relating to the Acquisition of the Exchange by NYSE Euronext, 46086-46097 [E8-18145]
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Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Notices
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding, or
(ii) as to which the Amex consents, the
Commission will:
(A) By order approve such proposed
rule change; or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
office 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–Amex–
2008–63 and should be submitted on or
before August 28, 2008.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–18073 Filed 8–6–08; 8:45 am]
BILLING CODE 8010–01–P
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:
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–58284; File No. SR–Amex–
2008–62]
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–Amex–2008–63 on the
subject line.
sroberts on PROD1PC70 with NOTICES
Electronic Comments
Self-Regulatory Organizations;
American Stock Exchange LLC; Notice
of Filing of Proposed Rule Change and
Amendment No. 1 Thereto Relating to
the Acquisition of the Exchange by
NYSE Euronext
August 1, 2008.
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
Paper Comments
on July 23, 2008, American Stock
Exchange LLC, a Delaware limited
• Send paper comments in triplicate
liability company (‘‘Amex’’ or the
to Secretary, Securities and Exchange
‘‘Exchange’’), filed with the Securities
Commission, 100 F Street, NE.,
and Exchange Commission
Washington, DC 20549–1090.
(‘‘Commission’’ or ‘‘SEC’’) the proposed
All submissions should refer to File
rule change as described in Items I, II,
Number SR–Amex–2008–63. This file
and III below, which Items have been
number should be included on the
substantially prepared by the Exchange.
subject line if e-mail is used. To help the
On July 30, 2008, the Exchange filed
Commission process and review your
Amendment No. 1 to the proposed rule
comments more efficiently, please use
change. The Commission is publishing
only one method. The Commission will
this notice to solicit comments on the
post all comments on the Commission’s
proposed rule change, as amended, from
Internet Web site (https://www.sec.gov/
interested persons.
rules/sro.shtml). Copies of the
I. Self-Regulatory Organization’s
submission, all subsequent
Statement of the Terms of Substance of
amendments, all written statements
the Proposed Rule Change
with respect to the proposed rule
change that are filed with the
The Exchange is submitting the
Commission, and all written
proposed rule change in connection
communications relating to the
with the AMCAS Merger, the Holdings
proposed rule change between the
Merger, the LLC Merger and the NYSE/
Commission and any person, other than Amex Merger (each as defined in
those that may be withheld from the
Section 1.(a). of Item II.A. below and
public in accordance with the
collectively, the ‘‘Mergers’’) and related
provisions of 5 U.S.C. 552, will be
transactions which will result in the
available for inspection and copying in
successor to Amex, to be renamed
the Commission’s Public Reference
‘‘NYSE Alternext U.S. LLC’’ (‘‘NYSE
Room, on official business days between
the hours of 10 a.m. and 3 p.m. Copies
27 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
of the filing also will be available for
2 17 CFR 240.19b–4.
inspection and copying at the principal
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Alternext U.S.’’), becoming an indirect
wholly-owned subsidiary of NYSE
Euronext, a Delaware Corporation
(‘‘NYSE Euronext’’).
In connection with the Mergers, New
York Stock Exchange LLC (‘‘NYSE’’), an
indirect wholly-owned subsidiary of
NYSE Euronext, is proposing that
certain organizational documents of
NYSE Euronext and its wholly-owned
subsidiaries, NYSE Group, Inc. (‘‘NYSE
Group’’) and NYSE Regulation, Inc.
(‘‘NYSE Regulation’’) and the
Independence Policy of NYSE Euronext
(‘‘NYSE Euronext Independence
Policy’’) be amended substantially
concurrently with the Mergers. In
addition, Amex is proposing to adopt
the operating agreement of NYSE
Alternext U.S. (‘‘NYSE Alternext U.S.
Operating Agreement’’) and to amend its
rules (‘‘Amex Rules’’), which will
become the rules of NYSE Alternext
U.S. (‘‘NYSE Alternext U.S. Rules’’), to
reflect the Mergers and related
transactions. In connection with the
Mergers, Amex also proposes that the
present Constitution of Amex (‘‘Amex
Constitution’’) will be eliminated and
relevant provisions thereof will be
included in the NYSE Alternext U.S.
Operating Agreement or the NYSE
Alternext U.S. Rules, as applicable.
The text of the proposed rule change
is available at Amex, the Commission’s
Public Reference Room, and on Amex’s
Web site at https://www.amex.com. The
text of Exhibits 5A through 5J is also
available on the Commission’s Web site
(https://www.sec.gov/rules/sro.shtml).
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. 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
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to permit the Mergers as well
as certain other changes relating to
corporate governance and other items to
accommodate the transformation of the
Exchange from its current status as a
subsidiary of a not-for-profit member-
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Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Notices
owned corporation into its post-merger
status as a U.S. Regulated Subsidiary 3
of NYSE Euronext.
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(a) Description of the Mergers
Amex is a wholly-owned subsidiary
of The Amex Membership Corporation,
a New York not-for-profit corporation
(‘‘MC’’).4 MC owns 99% of Amex’s
ownership interest directly and owns
the remaining 1% ownership interest
indirectly through MC’s direct whollyowned subsidiary, AMC Acquisition
Sub, Inc., a Delaware corporation
(‘‘AMCAS’’). To effect the Mergers, MC
has established: (i) A new direct whollyowned subsidiary of MC, American
Stock Exchange Holdings, Inc., a
Delaware for-profit, stock corporation
(‘‘Holdings’’); and (ii) a new direct
wholly-owned subsidiary of Holdings,
American Stock Exchange 2, LLC, a
Delaware limited liability company
(‘‘Amex 2’’). Consummation of the
Mergers, which have been approved by
MC members,5 is conditioned upon
satisfaction or waiver (subject to
applicable law) of the conditions set
forth in the terms of the Agreement and
Plan of Merger, dated as of January 17,
2008 (as may be amended, ‘‘Merger
Agreement’’), by and among NYSE
Euronext, Amsterdam Merger Sub, LLC,
a Delaware limited liability company
and a wholly-owned subsidiary of NYSE
Euronext created by NYSE Euronext in
connection with the Mergers
(‘‘Amsterdam Merger Sub’’), MC,
AMCAS, Holdings, Amex and Amex 2.
The proxy statement/prospectus sent to
MC members in connection with their
approval of the Mergers has been filed
with the Commission by NYSE
Euronext. The Mergers were approved
by the requisite vote of MC members at
the special meeting of MC members
held on June 17, 2008. In addition, the
Board of Governors of Amex (‘‘Amex
Board’’) approved the proposed rule
change on May 21, 2008.
The following transactions are
contemplated to effect the Mergers:
(i) AMCAS Merger. Prior to the
Effective Time (as defined below),
AMCAS will be merged with and into
MC (‘‘AMCAS Merger’’) and the
3 The term ‘‘U.S. Regulated Subsidiary’’ is defined
under Article VII, Section 7.3(G) of the Bylaws of
NYSE Euronext.
4 For a discussion of the current governance
structure of MC and Amex, see Securities Exchange
Act Release No. 50057 (July 22, 2004) (Notice of
filing of proposed rule change relating to the
NASD’s sale of its interest in Amex to MC) and
Securities Exchange Act Release No. 50927
(December 23, 2004) (Order approving proposed
rule change relating to the NASD’s sale of its
interest in Amex to MC). SR–Amex–2004–50.
5 The term ‘‘MC members’’ herein refers to
persons eligible to vote on the Mergers.
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separate corporate existence of AMCAS
will thereupon cease. MC will be the
surviving entity in the AMCAS Merger
and will hold 100 percent of the
ownership interest in Amex. At the
effective time of the AMCAS Merger,
each outstanding share of AMCAS
common stock, par value $.01 per share,
will be cancelled and retired without
payment of any consideration therefor
and will cease to exist or be
outstanding.
(ii) Holdings Merger. Following the
effective time of the AMCAS Merger but
prior to the Effective Time (as defined
below), MC will be merged with and
into Holdings (‘‘Holdings Merger’’) and
the separate corporate existence of MC
will thereupon cease. Holdings will be
the surviving entity in the Holdings
Merger. At the effective time of the
Holdings Merger, shares of Holding
common stock, par value $0.01 per
share (‘‘Holdings Common Stock’’), will
be issued to persons owning MC
memberships 6 immediately prior to the
Holdings Merger, with each Regular
Membership and each Options Principal
Membership (‘‘OPM’’) receiving a
certain number of shares of Holdings
Common Stock, as determined in the
manner set forth in the Merger
Agreement, which, among other things,
takes into account a $36,000 discount
on the consideration issued to each
`
OPM vis-a-vis each Regular
Membership. Upon the Holdings
Merger, each Regular Membership and
OPM held by MC will be cancelled and
retired without payment of any
consideration therefor and will cease to
exist or be outstanding.
(iii) LLC Merger. Contemporaneously
with the Holdings Merger, Amex will be
merged with and into Amex 2 (‘‘LLC
Merger’’), and the separate limited
liability company existence of Amex
will thereupon cease. At the effective
time of the LLC Merger, each
outstanding ownership interest in Amex
held by MC will be cancelled and
retired without payment of any
consideration therefor and will cease to
exist or be outstanding. Amex 2 will be
renamed NYSE Alternext U.S. LLC.
(iv) NYSE/Amex Merger. Following
the completion of the AMCAS Merger,
the Holdings Merger and the LLC
Merger, Holdings (as the surviving
corporation of the Holdings Merger) will
be merged with and into Amsterdam
Merger Sub (‘‘NYSE/Amex Merger’’) and
the separate corporate existence of
6 ‘‘Memberships’’ used herein refer to Regular
Memberships and OPMs (defined below) and not to
the membership interests held by allied members or
associate members, which membership interest
granted certain limited rights but did not grant
voting rights.
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Holdings shall thereupon cease. At the
effective time of the NYSE/Amex
Merger (‘‘Effective Time’’), each share of
Holdings Common Stock issued and
outstanding immediately prior to the
Effective Time will be converted into
the right to receive one fully paid and
nonassessable share of the common
stock of NYSE Euronext and cash in lieu
of fractional shares, if any, into which
such shares of Holdings Common Stock
has been converted. In addition, under
the terms of the Merger Agreement,
persons owning MC memberships
immediately prior to the Holdings
Merger will be entitled to receive
additional shares of NYSE Euronext
common stock measured by reference to
the ‘‘Net Building Sale Proceeds’’ (as
defined in the Merger Agreement), if
any, from the sale of two buildings in
New York City currently owned by
Amex’s realty subsidiary, to the extent
such sale occurs prior to the date that
is four years and 240 days following the
Effective Time and certain other
conditions are satisfied, as set forth in
the Merger Agreement. Immediately
following the NYSE/Amex Merger,
NYSE Euronext will contribute 100% of
the limited liability company interest of
Amsterdam Merger Sub to NYSE Group
(such contribution, the ‘‘Contribution’’),
causing Amsterdam Merger Sub to
become a direct wholly-owned
subsidiary of NYSE Group. Immediately
following the Contribution, Amsterdam
Merger Sub will merge with and into
NYSE Alternext U.S. a direct whollyowned subsidiary of Amsterdam Merger
Sub (‘‘Internal Merger’’). As a result of
the Contribution and the Internal
Merger, NYSE Alternext U.S. will
become a direct wholly-owned
subsidiary of NYSE Group.
The NYSE Euronext Bylaws, the
NYSE Group Charter, the NYSE Group
Bylaws, the NYSE Regulation Bylaws,
the Trust Agreement (each as defined in
Section 1.(c). of this Item II.A. below)
and the NYSE Euronext Independence
Policy will be amended in connection
with the Mergers. The NYSE Euronext
Bylaws, the NYSE Euronext
Independence Policy, the NYSE
Regulation Bylaws and the Trust
Agreement will become effective at the
Effective Time. The NYSE Group
Charter and the NYSE Group Bylaws
will become effective at or prior to the
time of the Contribution. In addition,
upon the Contribution and the Internal
Merger, the NYSE Alternext U.S.
Operating Agreement will become
effective.
Upon completion of the NYSE/Amex
Merger, NYSE Alternext U.S. will
continue to engage in the business of
operating a national securities exchange
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Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Notices
registered under Section 6 of the
Exchange Act,7 and will continue to
have self-regulatory responsibilities over
its members. NYSE Alternext U.S. will
contract for the performance of its
regulatory responsibilities with NYSE
Regulation, an indirect wholly-owned
subsidiary of NYSE Euronext, pursuant
to a regulatory services agreement
(‘‘NYSE Regulation RSA’’), as further
described in Section 1.(c).(E).a. of this
Item II.A. below.8
The Mergers will have the effect of
‘‘demutualizing’’ MC because equity
ownership will be separated from the
rights to trade on NYSE Alternext U.S.
As described in greater detail above, in
connection with the Mergers, persons
owning MC memberships immediately
prior to the Holdings Merger will
receive shares and cash in lieu of
fractional shares, if any, of the common
stock of NYSE Euronext. Upon the
completion of the Holdings Merger, all
trading rights appurtenant to either
Regular Memberships or OPMs existing
immediately prior to the Holdings
Merger will be cancelled. In addition,
the lessees will cease to have any
trading rights under any applicable
leases upon the completion of the
Holdings Merger. Neither NYSE
Alternext U.S. nor NYSE Euronext will
have any obligations under any leases
that existed immediately prior to the
Holdings Merger to any party thereto.
Physical and electronic access to NYSE
Alternext U.S.’s trading facilities will be
made available to individuals and
organizations that obtain an equity
trading license, an options trading
permit (‘‘OTP’’) or prior to the issuance
of the equity trading licenses and OTPs,
a temporary trading permit (to be known
as an ‘‘86 Trinity Permit’’), from NYSE
Alternext U.S. Unless the context
otherwise requires, persons or entities to
whom such trading licenses or permits
are issued following the Mergers are
referred to as ‘‘trading license or permit
holders.’’
NYSE Alternext U.S. intends to issue
equity trading licenses and OTPs upon
relocation of the NYSE Alternext U.S.
equities and options trading facilities to
the NYSE trading floor or the electronic
trading platform of NYSE or NYSE Arca,
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7 15
U.S.C. 78f.
8 Following the Mergers, NYSE Alternext U.S.
will not use any regulatory fees, fines or penalties
collected by NYSE Regulation for commercial
purposes. Earnings of NYSE Alternext U.S. not
retained in its business, other than regulatory fees,
fines or penalties will be distributed to its parent,
NYSE Group, which may in turn distribute such
earnings to its parent, NYSE Euronext. See Section
4.05 of the proposed NYSE Alternext U.S.
Operating Agreement. NYSE Euronext, at its
discretion, may use such distributions from NYSE
Alternext U.S. to pay dividends to its stockholders.
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Inc. (‘‘NYSE Arca’’), as applicable.9
Until such new trading licenses or
permits are issued, NYSE Alternext U.S.
intends to make available to persons
and entities that apply and meet certain
specified requirements 10 86 Trinity
Permits for which certain additional
fees 11 will be waived. 86 Trinity
Permits will allow the holders to trade
products currently traded on the
Exchange, including equities and
options, prior to relocation of the NYSE
Alternext U.S. equities and options
trading facilities. To ensure continuity
of trading following the Mergers,
persons and entities who were
authorized to trade on the Exchange
immediately prior to the LLC Merger,
including: (i) Owners, lessees or
nominees of Regular Memberships or
OPMs; (ii) limited trading permit
holders; and (iii) associate members, in
each case who were authorized to trade
on the Exchange immediately prior to
the LLC Merger, will be deemed to have
satisfied applicable requirements
necessary to receive an 86 Trinity
Permit. 86 Trinity Permits will
authorize owners, lessees or nominees
of Regular Memberships, OPMs, limited
trading permit holders and associate
members who were authorized to trade
on the Exchange immediately prior to
the LLC Merger, to trade the products
which they were previously authorized
to trade and, subject to meeting the
qualifications currently in place for
trading products which they previously
were not authorized to trade, to trade
such other products.
It is currently anticipated that NYSE
Alternext U.S. will issue equity trading
licenses prior to OTPs. Upon the initial
effective date of the equity trading
licenses, only holders of such equity
trading licenses will have the right to
trade equities and any other products
associated with such equity trading
licenses. Therefore, following the initial
effective date of the equity trading
licenses, a holder of an 86 Trinity
Permit shall only be entitled to trade
products other than those associated
with the equity trading licenses. Upon
9 Separate filings will be made to the Commission
relating to the rule changes associated with such
relocation.
10 The requirements for 86 Trinity Permits in the
NYSE Alternext U.S. Rules will be the same as the
current requirements for memberships in the Amex
Rules and such requirements may be satisfied by
persons or entities that were not previously
authorized to trade on the Exchange immediately
prior to the Mergers.
11 Certain application processing fees may be
charged for persons or entities that were not
previously authorized to trade on the Exchange
immediately prior to the Mergers. In addition,
certain charges may be applicable to the 86 Trinity
Permits once issued. See proposed NYSE Alternext
U.S. Rule 358.
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the initial effective date of the OTPs,
only holders of such OTPs will have the
right to trade in options, and all 86
Trinity Permits will be cancelled.
Pursuant to the requirements of
Section 19 of the Exchange Act, NYSE
Alternext U.S. intends to set forth in a
separate rule filing the qualifications for
equity trading licenses and OTPs and
the application process for such trading
licenses or permits. The Exchange
currently expects that the qualifications
for trading license or permit holders 12
will be based on the current
requirements for memberships on the
NYSE or NYSE Arca, respectively.
Pursuant to the requirements of Section
19 of the Exchange Act, NYSE Alternext
U.S. also intends to set forth in a
separate rule filing the fees for a trading
license or permit that will be assessed.
For a more detailed discussion of the 86
Trinity Permits, the equity trading
licenses and OTPs, see Section 1(c)(C) of
this Item II.A. below.
Finally, in connection with the
Mergers, the Board of Directors of MC
and the Amex Board (collectively, the
‘‘Boards’’) have approved the
termination of the Gratuity Fund.13 As
a result, the Gratuity Fund will be
terminated upon the LLC Merger and
neither NYSE Euronext nor NYSE
Alternext U.S. will offer a Gratuity Fund
following the Mergers. There will be no
further payment of gratuities other than
those related to any deaths that occurred
prior to the completion of the Mergers.
Upon the completion of the NYSE/
Amex Merger, NYSE Alternext U.S.
currently expects to allocate the assets
then remaining in the Gratuity Fund
(net of any administrative expenses
incurred in the distribution of such
amount), first to pay out any death
benefits that are accrued but unpaid as
of the completion of the NYSE/Amex
Merger, and then to distribute the
remaining balance, if any, in a manner
as the Boards deem appropriate, taking
into account the length of time each
person was a participant in the Gratuity
Fund.
12 See
proposed NYSE Alternext U.S. Rule 353.
the Amex Constitution provides for
a Gratuity Fund which makes an assessment on the
participants upon the death of a participant and
provides benefit to the surviving family of the
deceased participant. Active traders on Amex who
may be the owner, lessee, or nominee of a
membership are eligible to participate in the
Gratuity Fund. Certain owners of a membership
who are not currently active are also eligible
through the operation of certain transition
provisions in the Amex Constitution. See Article IX
of the current Amex Constitution for the provisions
relating to the Gratuity Fund currently in place.
13 Currently,
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(b) Reasons for the Proposed Mergers
The Mergers will have the effect of
‘‘demutualizing’’ MC and causing Amex
to become and operate as a for-profit
subsidiary market of NYSE Euronext
(other than with respect to the
regulatory responsibilities currently
conducted by Amex, which will be
carried out by NYSE Regulation, a notfor-profit entity). The Exchange believes
that changing its focus to that of a forprofit business and joining the group of
exchanges operated by NYSE Euronext
along with modifying its corporate and
governance structures to reflect its
status as a subsidiary of NYSE Euronext
will provide the Exchange with greater
flexibility to respond to the demands of
a rapidly changing business
environment. In addition, the NYSE
Euronext common stock issued in the
NYSE/Amex Merger will provide the
MC members with greater liquidity than
the MC memberships they currently
hold. Furthermore, by bringing NYSE
Euronext’s leadership together with
Amex’s historically strong position in
options, exchange traded funds, closedend funds, structured products and cash
equities, the combined company will be
in a position to create a diversified
business model, ensuring its ability to
grow into, and compete using, new
products and services, such as a second
U.S. options exchange license, which
will enable the combined company to
operate a compelling dual market
structure making available to all
customers the choice of price-time
priority on NYSE Arca and Amex’s
traditional market-maker model and a
third, complementary U.S. cash equities
exchange, in addition to NYSE and
NYSE Arca.
The Exchange remains committed to
its role as a national securities exchange
and does not believe that the Mergers
will undermine its responsibilities for
regulating its marketplace. While it is
currently contemplated that NYSE
Alternext U.S. will contract for the
performance of its regulatory
responsibilities with NYSE Regulation
through the NYSE Regulation RSA, as
further described in Section 1(c)(E) a. of
this Item II.A. below, NYSE Alternext
U.S. will retain ultimate responsibility
for the fulfillment of its statutory and
self-regulatory obligations under the
Exchange Act. Indeed, as further
described below, the NYSE Alternext
U.S. Operating Agreement and the
NYSE Alternext U.S. Rules will have
specific provisions that reinforce the
responsibility of NYSE Alternext U.S.
for its self-regulatory obligations,
including, without limitation, the
requirement that NYSE Group seek the
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Commission’s consent before
transferring its limited liability
company interests in NYSE Alternext
U.S.14
Effective Time,20 (vii) the adoption of
certain amendments to the Trust
Agreement of the NYSE Group Trust I
by and among NYSE Euronext, NYSE
Group, Wilmington Trust Company, as
(c) Summary of Proposed Rule Change
Delaware Trustee, Jacques de Larosiore
The proposed rule change is outlined
de Champfeu, as Trustee, Charles K.
below. In general, the proposed rule
Gifford, as Trustee and John Shepard
change consists of: (i) The Amended
Reed, as Trustee and the Amendment
and Restated Certificate of Incorporation No. 1 thereto (such Trust Agreement, as
of NYSE Euronext (‘‘NYSE Euronext
amended, the ‘‘Trust Agreement’’),
Charter’’),15 (ii) the adoption of the
which will become effective at the
Amended and Restated Bylaws of NYSE
Effective Time,21 (viii) the adoption of
Euronext (the ‘‘NYSE Euronext
the NYSE Alternext U.S. Operating
Bylaws’’), which will become effective
Agreement, to become effective upon
16 (iii) the adoption
at the Effective Time,
the Internal Merger,22 and (ix) the
of the Second Amended and Restated
amendment of the Amex Rules, which
Certificate of Incorporation of NYSE
will become the NYSE Alternext U.S.
Group (the ‘‘NYSE Group Charter’’),
Rules upon the completion of the LLC
which will become effective at or prior
to the time of the Contribution,17 (iv) the Merger, necessary to issue trading
licenses or permits following the
adoption of the Second Amended and
Mergers, to incorporate certain
Restated Bylaws of NYSE Group
provisions in the Amex Constitution,
(‘‘NYSE Group Bylaws’’), which will
which will be eliminated in connection
become effective at or prior to the time
of the Contribution,18 (v) the adoption of with the Mergers and to effect certain
the NYSE Euronext Independence
other changes as described more fully
Policy, to become effective at the
below.23 The proposed rule change will
Effective Time,19 (vi) the adoption of the become operative upon completion of
Third Amended and Restated Bylaws of the Internal Merger. The proposed
NYSE Regulation (‘‘NYSE Regulation
NYSE Alternext U.S. Operating
Bylaws’’), to become effective at the
Agreement will reflect that Amex 2, to
be renamed ‘‘NYSE Alternext U.S. LLC’’
14 See Section 3.03 of the proposed NYSE
upon the consummation of the Mergers,
Alternext U.S. Operating Agreement.
will be a wholly-owned Regulated
15 The NYSE Euronext Charter is not being
Subsidiary of NYSE Group and a
amended in connection with the Mergers.
16 The NYSE Euronext Bylaws are being amended
wholly-owned U.S. Regulated
to provide similar protections to NYSE Alternext
Subsidiary of NYSE Euronext.
U.S. relating to its self-regulatory functions as are
currently provided to the NYSE and NYSE Arca.
Please see the proposed rule filing that the NYSE
has filed with the Commission in connection with
the Mergers for more detail.
17 The NYSE Group Charter is being amended to
provide similar protections to NYSE Alternext U.S.
relating to its self-regulatory functions as are
currently provided to NYSE and NYSE Arca. Please
see the proposed rule filing that the NYSE has filed
with the Commission in connection with the
Mergers for more detail.
18 The NYSE Group Bylaws are being amended to
provide that any amendment to or repeal of the
bylaws of NYSE Group must either be (i) filed with
or filed with and approved by the Commission, or
(ii) submitted to the boards of directors of NYSE
Alternext U.S., as well as the other Regulated
Subsidiaries of NYSE Group, to the extent that such
entity continues to be controlled by NYSE Group,
and if any or all of such boards of directors shall
determine that such amendment or repeal must be
filed with or filed with and approved by the
Commission before such amendment or repeal may
be effectuated, then such amendment or repeal shall
not be effectuated until filed with or filed with and
approved by the Commission, as the case may be.
Please see the proposed rule filing that the NYSE
has filed with the Commission in connection with
the Mergers for more detail.
19 The NYSE Euronext Independence Policy is
being amended to ensure independence of the
NYSE Euronext directors from NYSE Alternext
U.S., similar to the independence from NYSE and
NYSE Arca. Please see the proposed rule filing that
the NYSE has filed with the Commission in
connection with the Mergers for more detail.
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20 NYSE Regulation Bylaws are being amended to
provide that the Committee for Review be expanded
to include certain individuals who are associated
with member organizations of NYSE Alternext U.S.
Please see the proposed rule filing that the NYSE
has filed with the Commission in connection with
the Mergers for more detail.
21 The Trust Agreement is being amended to make
certain technical changes designed to provide NYSE
Alternext U.S. with the same protections against
certain material adverse changes in European Law
that it currently provides for NYSE and NYSE Arca.
Please see the proposed rule filing that the NYSE
has filed with the Commission in connection with
the Mergers for more detail.
22 Following the Holdings Merger and the LLC
Merger, Holdings will be the sole member of Amex
2, as the successor of Amex. Upon the effectiveness
of the NYSE/Amex Merger, Amsterdam Merger Sub,
as the successor to Holdings, will become the sole
member of Amex 2, whose name will then be
changed to ‘‘NYSE Alternext U.S. LLC.’’ Following
the Contribution and upon the effectiveness of the
Internal Merger, NYSE Group will be substituted as
the sole member of NYSE Alternext U.S. The
discussion of the NYSE Alternext U.S. Operating
Agreement herein refers to the operating agreement
that will become effective upon the Internal Merger.
23 The Exchange is also proposing, in connection
with the Mergers, the elimination of the
undertakings made by the Exchange to the
Commission (Securities Exchange Act Release No.
50927 (December 23, 2004), 69 FR 78494 (December
30, 2004)).
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A. Governance Structure of NYSE
Alternext U.S. Following the Mergers
Following the Mergers, the
governance structure of NYSE Alternext
U.S. will be substantially similar to that
of the NYSE, a New York limited
liability company and an indirect
wholly-owned subsidiary of NYSE
Euronext.
a. Board of Directors of NYSE
Alternext U.S. Upon the effectiveness of
the Mergers, the Contribution and the
Internal Merger, the Board of Directors
of NYSE Alternext U.S. (‘‘NYSE
Alternext U.S. Board’’) will consist of a
number of directors as determined by
NYSE Group from time to time;
provided that: (i) A majority of the
directors of the NYSE Alternext U.S.
Board shall be U.S. Persons (as defined
below) who are members of the NYSE
Euronext board that satisfy the
independence requirements of the board
of directors of NYSE Euronext (each a
‘‘NYSE Euronext Independent
Director’’); and (ii) at least 20 percent of
the directors shall be persons who are
not members of the board of directors of
NYSE Euronext and who do not need to
be independent under the independence
policy of the board of directors of NYSE
Euronext 24 (‘‘Non-Affiliated
Directors’’).25 Such Non-Affiliated
Directors shall be appointed and
nominated pursuant to the procedures
set forth in Section 1.(c).(A).c. of this
Item II.A. below. For purposes of
calculation of the minimum number of
Non-Affiliated Directors, if 20 percent of
the directors is not a whole number,
such number of directors to be
nominated and selected by NYSE
Alternext U.S. members 26 will be
rounded up to the next whole number.27
A ‘‘U.S. Person’’ shall mean, as of the
date of his or her most recent election
or appointment as a director any person
whose domicile as of such date is and
for the immediately preceding 24
months shall have been the United
States.28
Immediately following the Mergers,
the Contribution and the Internal
24 A copy of the current independence policy of
the NYSE Euronext board of directors is available
at https://www.nyse.com/pdfs/
director_independence_policy.pdf. See also the
proposed NYSE Euronext Independence Policy. See
also Section 3.4 of the proposed NYSE Euronext
Bylaws for the independence requirements of the
board of director of NYSE Euronext.
25 See Section 2.03 of the proposed NYSE
Alternext U.S. Operating Agreement.
26 The term ‘‘NYSE Alternext U.S. members’’
refers to the persons or entities that trade on Amex
after the Mergers, including the 86 Trinity Permit
Holders, to the extent such permits are outstanding.
27 See Section 2.03 of the proposed NYSE
Alternext U.S. Operating Agreement.
28 Id.
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Merger, the NYSE Alternext U.S. Board
will have five directors, one of which
shall be a Non-Affiliated Director
selected by NYSE Group from among
the Industry Governors serving on the
Amex Board immediately prior to the
NYSE/Amex Merger.
b. Board Term. Following the
Mergers, the Contribution and the
Internal Merger, the directors of NYSE
Alternext U.S. will serve for one-year
terms and will hold office until their
successors are elected.29 There will be
no limit on the number of terms a
director may serve on the NYSE
Alternext U.S. Board.
c. Nomination and Election of the
NYSE Alternext U.S. Directors. i.
General. Following the Internal Merger,
NYSE Group will effectively appoint as
directors of NYSE Alternext U.S.: (i) The
NYSE Euronext Independent Directors
designated by it; and (ii) the NonAffiliated Directors nominated by the
nominating and governance committee
of the board of directors of NYSE
Euronext (‘‘NYSE Euronext NGC’’).30 To
ensure fair representation of NYSE
Alternext U.S. members, the NYSE
Euronext NGC shall be obligated to
designate as Non-Affiliated Director
candidates the persons recommended
by the Director Candidate
Recommendation Committee of NYSE
Alternext U.S. (‘‘NYSE Alternext U.S.
DCRC’’), as described more fully under
Section 1.(c).(A).e. of this Item II.A.
below; provided, however, if there are
candidates who have received a
plurality of the votes cast by the NYSE
Alternext U.S. members in accordance
with the provisions set forth in the
NYSE Alternext U.S. Operating
Agreement relating to the petition
process and described in the paragraph
immediately below, the NYSE Euronext
NGC will be obligated to designate such
candidates as Non-Affiliated Director
candidates.31 Notwithstanding the
forgoing, as described under Section
1(c)(A) a. of this Item II.A. above, one
Non-Affiliated Director on the initial
NYSE Alternext U.S. Board will be
selected by NYSE Group from among
the six Industry Governors serving on
the Amex Board immediately prior to
the Mergers. The initial NYSE Alternext
U.S. Board will serve one-year terms
until their successors are duly elected.
ii. Petition by the NYSE Alternext U.S.
Members. To ensure fair representation
of members on the NYSE Alternext U.S.
Board, at the end of the initial one-year
term of each of the directors on the
NYSE Alternext U.S. Board, the Non29 Id.
Affiliated Directors will be nominated
and elected in the following manner.32
A newly established NYSE Alternext
U.S. DCRC will announce to the NYSE
Euronext NGC on a date in each year
sufficient to accommodate the process
described, the names of candidates
nominated by the NYSE Alternext U.S.
DCRC as Non-Affiliated Director
candidates.
NYSE Alternext U.S. members may
nominate candidates for Non-Affiliated
Director by written petition filed with
NYSE Alternext U.S. within two weeks
after the announcement. For any such
petition to be valid, it must be, among
other things, endorsed by at least 10
percent of the signatures eligible to
endorse a candidate. For purposes of
determining whether a person has been
endorsed by the requisite 10 percent,
each trading license or permit holder in
good standing shall be entitled to one
signature for each trading license or
permit held by it; provided, however,
that no trading license or permit holder,
either alone or together with its affiliates
may account for more than 50 percent
of the signatures endorsing a particular
candidate, and any signatures of such
trading license or permit holder, either
alone or together with its affiliates, in
excess of such 50 percent limitation
shall be disregarded.
Each petition must include a
completed questionnaire used to gather
information concerning Non-Affiliated
Director candidates. The eligibility of
any Non-Affiliated Director candidate
nominated in any such petition will be
determined by the NYSE Euronext NGC,
in its sole discretion.
If no petitions are submitted within
two weeks after the dissemination of the
report of the NYSE Euronext NGC, the
NYSE Euronext NGC will nominate the
candidates for Non-Affiliated Director
that the NYSE Alternext U.S. DCRC
initially identified. If one or more valid
petitions are submitted, NYSE Alternext
U.S. members will be allowed to vote on
the entire group of potential candidates.
Each trading license or permit holder
will have one vote per trading license or
permit held by it; provided, however,
that no trading license or permit holder,
either alone or together with its
affiliates, may account for more than 20
percent of the votes cast for a particular
candidate, and any votes cast by such
trading license or permit holder, either
alone or together with its affiliates, in
excess of such 20 percent limitation will
be disregarded. The persons with the
highest number of votes will be
nominated.
30 Id.
31 Id.
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d. Officers of NYSE Alternext U.S.
The day-to-day business of NYSE
Alternext U.S. will be managed by the
officers of NYSE Alternext U.S.
appointed by, and subject to the
directions of, the NYSE Alternext U.S.
Board.33 NYSE Alternext U.S. will have
such officers as its Board may deem
advisable. The NYSE Alternext U.S.
Operating Agreement provides that for
so long as NYSE Euronext directly or
indirectly owns all of the equity interest
of NYSE Group and NYSE Group holds
100 percent of the limited liability
company interest of NYSE Alternext
U.S. the Chief Executive Officer of
NYSE Alternext U.S. shall be a U.S.
Person.34
NYSE Alternext U.S. will also have a
Chief Regulatory Officer, who will
either be the Chief Executive Officer of
NYSE Regulation or an employee of
NYSE Regulation who reports to the
Chief Executive Officer of NYSE
Regulation. Such Chief Regulatory
Officer will also be an officer of NYSE
Alternext U.S. appointed by the NYSE
Alternext U.S. Board, with reporting
obligation to the NYSE Alternext U.S.
Board.
e. Committees of NYSE Alternext U.S.
Board of Directors. Following the
Mergers, the NYSE Alternext U.S. Board
may create one or more committees
comprised of NYSE Alternext U.S.
directors.35 It is expected that the
committees of the NYSE Euronext board
of directors will perform the board
committee functions relating to audit,
governance and compensation. The
NYSE Alternext U.S. Board may also
create committees comprised in whole
or in part of individuals who are not
directors.36
In addition, as described under
Section 1(c)(A)c.i. of this Item II.A.
above, the NYSE Alternext U.S. Board
will, on an annual basis, appoint a new
standing committee, the NYSE Alternext
U.S. DCRC, which will be charged with
the responsibility of recommending the
Non-Affiliated Director candidates to
the NYSE Euronext NGC. The NYSE
33 See Section 2.04 of the proposed NYSE
Alternext U.S. Operating Agreement.
34 See Section 2.03 of the proposed NYSE
Alternext U.S. Operating Agreement.
35 See Section 2.03(h) of the proposed NYSE
Alternext U.S. Operating Agreement.
36 It is currently anticipated that NYSE Alternext
U.S. will retain the Committee on Securities, but
will not retain the Committee for Appointment and
Approval of Supplemental Registered Options
Traders and Remote Registered Options Traders,
each a non-board committee of Amex. The
Exchange, along with NYSE Euronext, are currently
evaluating whether other non-board committees of
Amex should be retained by NYSE Alternext U.S.
and what changes to the NYSE Alternext U.S. Rules
such decision may require. NYSE Alternext U.S.
will submit a separate rule filing as necessary.
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Alternext U.S. Operating Agreement
provides that the NYSE Alternext U.S.
DCRC shall include individuals who are
(i) associated with a member
organization that engages in a business
involving substantial direct contact with
securities customers, (ii) associated with
a member organization and registered as
a specialist and spend a substantial part
of their time on the NYSE Alternext U.S.
trading floor, (iii) associated with a
member organization and spend a
majority of their time on the NYSE
Alternext U.S. trading floor and have as
a substantial part of their business the
execution of transactions on the NYSE
Alternext U.S. trading floor for other
than their own account or the account
of their member organization, but are
not registered as a specialist, or (iv)
associated with a member organization
and spend a majority of their time on
the NYSE Alternext U.S. trading floor
and have as a substantial part of their
business the execution of transactions
on the NYSE Alternext U.S. trading
floor for their own account or the
account of their member organization,
but are not registered as a specialist. The
NYSE Alternext U.S. Board will appoint
such individuals after appropriate
consultation with representatives of
member organizations.
f. Floor Officials, Senior Floor
Officials, Exchange Officials and Senior
Supervisory Officer. The Floor Officials,
Senior Floor Officials, and Exchange
Officials in place at Amex immediately
prior to the Mergers will continue in
such capacity for the period prior to the
relocation of the NYSE Alternext U.S.
equities and options trading facilities to
the NYSE trading floor or the electronic
trading platform of the NYSE or NYSE
Arca, as applicable.37 However, the
Exchange’s Rule 21, which provides for
the appointment of such officials, is
proposed to be amended to reflect that
such appointments will be made by the
Chief Executive Officer or the Chief
Regulatory Officer of NYSE Alternext
U.S. or their respective designee rather
than the Chairman of the Board of
Directors or the Chief Executive Officer
(if delegated by the Chairman) and to
allow qualified NYSE Alternext U.S.
employees who spend a substantial
portion of their time on the trading floor
to be appointed to serve as Floor
Officials. Rule 21 will be further
amended to reflect the elimination of
the two Floor Governors, i.e., the
Industry Governors on the Amex Board
37 Rule 22 describes the authority and
responsibilities of Floor Officials, Senior Floor
Officials, and the Senior Supervisory Officer, which
responsibilities are to generally promote fair and
orderly operations on the floor of the Exchange.
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46091
who are required to spend a substantial
portion of their time on the trading
floor. Rule 21 currently provides that
Floor Governors are deemed to be
Senior Floor Officials and if one of the
Floor Governors is also the vice
chairman of the Amex Board, he is the
Senior Supervisory Officer on the
trading floor. Rule 21 further provides
that if the vice chairman is not a Floor
Governor, then one of the Floor
Governors is appointed Senior
Supervisory Officer. Rule 22(a)
describes the authority of the Senior
Supervisory Officer, which includes
among other duties, the supervision of
Floor Officials and Senior Floor
Officials in the performance of their
responsibilities. As described in Section
1(c)(A)a. of this Item II.A. above, the
NYSE Alternext U.S. Board of Directors
will not have a category of directors
who are required to spend a substantial
portion of their time on the trading
floor. Therefore, Rule 21, which
describes the appointment of the Senior
Supervisory Officer and Floor Officials,
and other rules referencing Floor
Governor are proposed to be amended.
For the most part when the reference to
Floor Governor in a rule relates to the
approval or review of activities on the
trading floor and the chairing of certain
committees (e.g., the Performance and
Allocation committees), it is proposed
that Senior Floor Officials replace the
Floor Governors.38 Pursuant to current
Rule 21(a), a Senior Floor Official has
the same authority and responsibilities
as a Floor Governor with respect to
matters that arise on the Floor and
require review or action by a Floor
Governor or Senior Floor Official. Thus,
these changes will not expand the
authority or responsibilities of Senior
Floor Officials, but will simply
eliminate the concept of Floor
Governors. In situations where a rule
calls upon the Floor Governors to advise
the Chief Executive Officer of the
Exchange in connection with floor
facilities and administration, it is
proposed that the Senior Supervisory
Officer replace the Floor Governors.39
38 For example, the proposed Rule 118–AEMI will
require the approval of a Senior Floor Official for
the dissemination of price indicators prior to 9:30
a.m. and the proposed Rule 933–ANTE will provide
for the determination by a Senior Floor Official that
quotes from another options exchange are not
reliable before those quotes can be excluded from
the National Best Bid and Offer (NBBO).
39 For example, the proposed Rule 27(g) will
require the Chief Executive Officer to consult the
Senior Supervisory Officer prior to restoring to a
specialist a specialty security previously reallocated
under emergency circumstances.
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B. Provisions Relating to, or Arising
From, the Self-Regulatory Functions of
the Exchange
The NYSE Alternext U.S. Operating
Agreement will contain specific
provisions relating to the self-regulatory
function of NYSE Alternext U.S. In
addition, the NYSE Group Charter and
the NYSE Group Bylaws currently
contain specific provisions relating to
the self-regulatory functions of its
Regulated Subsidiaries, and the
definition of Regulated Subsidiaries will
be amended in connection with the
Mergers to also include NYSE Alternext
U.S.40 Furthermore, the ultimate parent,
NYSE Euronext has provisions in place
relating to the self-regulatory functions
of the U.S. Regulated Subsidiaries of
NYSE Euronext and such provisions
will be amended in connection with the
Mergers to provide that NYSE Alternext
U.S. will thereafter be considered to be
one of the NYSE Euronext’s U.S.
Regulated Subsidiaries.41
sroberts on PROD1PC70 with NOTICES
a. Management of NYSE Alternext U.S.
As is the case with the Amex Board,
the NYSE Alternext U.S. Board must
consider applicable requirements under
Section 6(b) of the Exchange Act 42 in
connection with the management of
NYSE Alternext U.S. The NYSE
Alternext U.S. Operating Agreement, for
instance, imposes obligations on the
NYSE Alternext U.S. Board, officers and
employees relating to the self-regulatory
functions of NYSE Alternext U.S. The
NYSE Alternext U.S. Operating
Agreement requires that, in discharging
his or her responsibilities as a member
of the Board of Directors of NYSE
Alternext U.S., each member of the
Board of Directors shall take into
consideration the effect that his or her
actions would have on the ability of
NYSE Alternext U.S. to carry out its
responsibilities under the Exchange
Act.43 In addition, the NYSE Euronext
Bylaws 44 and the NYSE Group
Charter 45 also impose obligations on
40 See Article IV, Section 4(b)(1)(A)(w) of the
proposed NYSE Group Charter for the definition of
Regulated Subsidiaries.
41 See Article VII, Section 7.3(G) of the proposed
NYSE Euronext Bylaws.
42 15 U.S.C. 78f(b). Section 6(b) of the Exchange
Act requires, among other things, that the
Exchange’s Rules must be designed to protect
investors and the public interest. It also requires
that the Exchange be organized so that it can carry
out the purposes of the Exchange Act and enforce
compliance by its participants with the Exchange
Act, the rules and regulations under that Act, and
the Rules of the Exchange.
43 See Section 2.03(k) of the proposed NYSE
Alternext U.S. Operating Agreement.
44 See Articles VII, VIII and IX of the proposed
NYSE Euronext Bylaws.
45 See Article XI, Sections 2 and 3 of the proposed
NYSE Group Charter.
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NYSE Euronext’s and NYSE Group’s
respective boards, officers and
employees relating to the self-regulatory
functions of their Regulated
Subsidiaries, and the definition of
‘‘Regulated Subsidiaries’’ will be
amended in connection with the
Mergers to also include NYSE Alternext
U.S.
b. Confidentiality.
As is the case with the Amex
Constitution, under the NYSE Alternext
U.S. Operating Agreement, all
confidential information of NYSE
Alternext U.S. pertaining to the selfregulatory function of NYSE Alternext
U.S., including all books and records of
NYSE Alternext U.S. reflecting such
confidential information (including but
not limited to disciplinary matters,
trading data, trading practices and audit
information) will (i) not be made
available to any persons (including,
without limitation, any NYSE Alternext
U.S. members) other than to those
officers, directors, employees and agents
of NYSE Alternext U.S. that have a
reasonable need to know the contents
thereof; (ii) be retained in confidence by
NYSE Alternext U.S. and the officers,
directors, employees and agents of
NYSE Alternext U.S.; and (iii) not be
used for any commercial purposes.46
The purpose of this provision is to help
ensure that confidential information
relating to NYSE Alternext U.S.’s selfregulatory function is accorded
appropriate confidential treatment and
is not misused.
Notwithstanding the foregoing, such
confidential information of NYSE
Alternext U.S. shall be subject at all
times to inspection and copying by the
Commission at no cost to the
Commission. Nothing in the NYSE
Alternext U.S. Operating Agreement
shall be interpreted as to limit or
impede the rights of the Commission to
access and examine such confidential
information of NYSE Alternext U.S.
pursuant to the U.S. federal securities
laws and the rules thereunder, or to
limit or impede the ability of a director,
NYSE Alternext U.S. and its personnel
to disclose such confidential
information to the Commission. In
addition, the NYSE Euronext Bylaws
and the NYSE Group Charter also
currently contain similar provisions
relating to protecting the confidential
information of its Regulated
Subsidiaries,47 and the definition of
Regulated Subsidiaries will be amended
46 See Article VII of the proposed NYSE Alternext
U.S. Operating Agreement.
47 See Article VIII of the proposed NYSE Euronext
Bylaws and Article X of the proposed NYSE Group
Charter.
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in connection with the Mergers to also
include NYSE Alternext U.S.
c. Ownership and Voting Limitations
General The NYSE Alternext U.S.
Operating Agreement will provide that
NYSE Group, which will be the sole
member of NYSE Alternext U.S. may
not transfer or assign its limited liability
company interest in NYSE Alternext
U.S. in whole or in part, to any person
or entity, unless such transfer or
assignment shall be filed with and
approved by the Commission under
Section 19 of the Exchange Act and the
rules promulgated thereunder.48 In
addition, the NYSE Group Charter
provides that NYSE Euronext, as the
owner of all the issued and outstanding
shares of stock of NYSE Group, may not
transfer or assign its ownership interest
in NYSE Group, in whole or in part, to
any person or entity, unless such
transfer or assignment shall be filed
with and approved by the Commission
under Section 19 of the Exchange Act
and the rules promulgated thereunder.49
The NYSE Euronext Charter,50 in
turn, imposes, and the NYSE Euronext
Bylaws,51 which will be amended in
connection with the Mergers to include
NYSE Alternext U.S. in the definition of
U.S. Regulated Subsidiaries and which
will become effective upon the closing
of the Mergers, will impose, specific
limitations on the ability to own and
vote shares of NYSE Euronext stock,
which are designed to protect the
independence of the self-regulatory
function of NYSE Euronext’s U.S.
Regulated Subsidiaries (as defined in
the NYSE Euronext Bylaws),52
including NYSE Alternext U.S.
following the Mergers. Following the
Mergers, for so long as NYSE Euronext
shall control, directly or indirectly,
NYSE Alternext U.S. the board of
directors of NYSE Euronext shall not
adopt any resolution to repeal or amend
any provision of the NYSE Euronext
Charter or the NYSE Euronext Bylaws
unless such amendment or repeal has
been (i) filed with or filed with and
approved by the Commission, or (ii)
submitted to the boards of directors of
NYSE Alternext U.S. as well as the other
U.S. Regulated Subsidiaries of NYSE
Euronext, and if any or all of such
boards of directors shall determine that
such amendment or repeal must be filed
48 See Section 3.03 of the proposed NYSE
Alternext U.S. Operating Agreement.
49 See Article IV, Section 4 of the proposed NYSE
Group Charter.
50 See Article V of NYSE Euronext Charter.
51 See Section 10.12 of the proposed NYSE
Euronext Bylaws.
52 See Section 7.3(G) of the proposed NYSE
Euronext Bylaws.
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with or filed with and approved by the
Commission before such amendment or
repeal may be effectuated, then such
amendment or repeal shall not be
effectuated until filed with or filed with
and approved by the Commission, as the
case may be.
Finally, the Exchange proposes to
adopt Rule 1, which will mirror in all
material respects NYSE Rule 2B.
According to Rule 1(a), without prior
SEC approval, NYSE Alternext U.S. or
any entity with which it is affiliated
shall not, directly or indirectly, acquire
or maintain an ownership interest in a
member organization. The Exchange
notes, however, that upon completion of
the Mergers, Archipelago Securities,
LLC (‘‘Arca Securities’’), which is a
member organization of the Exchange,
will be an affiliate of NYSE Alternext
U.S. Accordingly, the Exchange requests
that the Commission approve NYSE
Alternext U.S.’s affiliation with Arca
Securities following the Mergers. Arca
Securities is the approved outbound
routing facility of both NYSE Arca and
the NYSE. In its Order approving the
merger of the Archipelago Exchange
(‘‘ArcaEx’’) with the Pacific Exchange
(‘‘PCX’’),53 the Commission permitted
ArcaEx’s holding company, Archipelago
Holdings, Inc. (‘‘Archipelago’’), to own
and operate Arca Securities, in its
capacity as a facility of the PCX that
routes orders from ArcaEx to other
market centers.54 This approval remains
in effect insofar as Arca Securities acts
in the capacity of a facility of NYSE
Arca for the routing of orders from
NYSE Arca to other market centers,
including the NYSE and NYSE
Alternext U.S. subject to the applicable
conditions.55
Arca Securities performs a similar
outbound routing function on behalf of
the NYSE. On April 5, 2007, in a notice
of immediate effectiveness, the
Commission published the NYSE’s rule
change that established Arca Securities
as a facility of the NYSE for purposes of
routing orders to away market centers
for execution in compliance with NYSE
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53 Following
the ArcaEx-PCX merger, Archipelago
merged with the NYSE and the PCX was later
renamed NYSE Arca.
54 See Securities Exchange Act Release No. 52497
(Sept. 22, 2005), 70 FR 56949 (Sept. 29, 2005) (order
approving SR–PCX–2005–90). The Commission’s
approval was subject to several conditions and
undertakings which remain in effect, specifically
that: (1) Arca Securities would continue to operate
and be regulated as a facility of the PCX; (2) the
scope of the exception would be limited to
outbound routing; (3) the primary regulatory
responsibility for Arca Securities would lie with an
unaffiliated SRO; and (4) the use of Arca Securities
for outbound routing is only available to—and
optional for—other PCX members.
55 Id.
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Rules and Regulation NMS.56 Pursuant
to NYSE Rule 17, Arca Securities
receives its routing instructions from the
NYSE and reports any such executions
back to the NYSE.57 Arca Securities has
no discretion and cannot change the
terms of an order or the routing
instructions.58 Moreover, each type of
order is subject to the same principles
governing the NYSE’s authority to route
orders to away market centers, namely:
use of Arca Securities for outbound
routing is only available to—and is
optional for—NYSE members, the
primary regulatory responsibility for
Arca Securities lies with an unaffiliated
self-regulatory organization (‘‘SRO’’),
and, as clarified herein, appropriate
procedures are in place to manage any
conflicts of interest or potential
information advantages. In this capacity
as a facility of the NYSE, Arca Securities
receives the routing instructions from
the NYSE and routes the orders to
various away market centers, including
NYSE Arca and NYSE Alternext U.S. for
execution.
Policy and Procedure Regarding
Affiliation
In the past, the Commission has noted
the potential for informational
advantages that could place an affiliated
member of an exchange at a competitive
`
advantage vis-a-vis other non-affiliated
members.59 As a result, the Exchange
proposes to adopt Rule 1(b), which
mirrors in all material respects NYSE
Rule 2B(2). Specifically, NYSE
Alternext U.S. Rule 1(b) will provide as
follows: ‘‘The holding company owning
both the Exchange and Archipelago
Securities LLC shall establish and
maintain procedures and internal
controls reasonably designed to ensure
that Archipelago Securities, LLC does
not develop or implement changes to its
system on the basis of non-public
information regarding planned changes
to Exchange systems, obtained as a
result of its affiliation with the
Exchange, until such information is
available generally to similarly situated
members of the Exchange in connection
with the provision of inbound order
routing to the Exchange.’’ The Exchange
believes these measures will effectively
address the concerns the Commission
may have regarding the potential for
informational advantages favoring Arca
56 See Securities Exchange Act Release No. 55590
(April 5, 2007), 72 FR 18707 (April 13, 2007) (notice
of immediate effectiveness of SR–NYSE–2007–29).
57 See Rule 17(b)(1) of the NYSE.
58 Id.
59 See Securities Exchange Act Release No. 57648
(April 11, 2008), 73 FR 20981 (April 17, 2008)
(order abrogating NYSE Arca Rule 7.31(x)).
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Securities vis-a-vis other non-affiliated
NYSE Alternext U.S. members.
There is no member organization
which is an affiliate of NYSE Alternext
U.S. or an entity with which NYSE
Alternext U.S. is affiliated or in which
NYSE Alternext U.S. or an entity with
which NYSE Alternext U.S. is affiliated
holds ownership interest other than
Arca Securities.60
Record Keeping Procedure
The Exchange notes that the
Commission has previously expressed
concern regarding the potential for
conflicts of interest in instances where
a member firm is affiliated with an
exchange to which it is routing orders.61
In order to manage these concerns,
with respect to orders routed to NYSE
Alternext U.S. by Arca Securities, an
NYSE Alternext U.S. member, in its
capacity as a facility of either NYSE
Arca or the NYSE, the Exchange notes
that Arca Securities is subject to
independent oversight and enforcement
by the Financial Industry Regulatory
Authority (‘‘FINRA’’), an unaffiliated
SRO that is Arca Securities’ designated
examining authority. In this capacity,
FINRA is responsible for examining
Arca Securities with respect to its books
and records and capital obligations, and
shares with NYSE Regulation the
responsibility for reviewing Arca
Securities’ compliance with intermarket
trading rules such as SEC Regulation
NMS. In addition, through an agreement
by and among NYSE, FINRA and NYSE
Alternext U.S. pursuant to the
provisions of SEC Rule 17d–2 under the
Exchange Act (‘‘Umbrella 17d–2
Agreement’’), FINRA’s staff will review
for Arca Securities’ compliance with
other NYSE Alternext U.S. Rules
through FINRA’s examination
program 62. NYSE Regulation will
monitor Arca Securities for compliance
with NYSE Alternext U.S. trading rules,
subject, of course, to SEC oversight of
NYSE Regulation’s regulatory program.
In order to alleviate any residual
concerns the Commission may have
regarding the potential for conflicts of
60 Neither Seamount Trading LLC, a whollyowned subsidiary of the Exchange, nor Seamount
Execution Services LLC, a wholly-owned subsidiary
of Seamount Trading LLC, is currently operational.
If, in the future, one or both entities, neither of
which is an Amex member, become(s) operational,
NYSE Alternext U.S. will provide the Commission
with the details relating to the function performed
by such entity or entities for NYSE Alternext U.S.
and the conditions relating to the provision by such
entity of such services.
61 See supra note 59.
62 In the event the Umbrella 17d–2 Agreement is
not entered into at the Effective Time, Arca
Securities will be subject to the regulation of FINRA
with respect to its obligations as a member
organization of NYSE Alternext U.S. pursuant to the
New Multi-Party FINRA RSA (defined below).
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interest, the Exchange notes that NYSE
Regulation has agreed with NYSE
Alternext U.S. that it will collect and
maintain the following information of
which NYSE Regulation staff becomes
aware—namely, all alerts, complaints,
investigations and enforcement actions
where Arca Securities (in its capacity as
a facility of NYSE Arca or the NYSE,
routing orders to NYSE Alternext U.S.)
is identified as a participant that has
potentially violated NYSE Alternext
U.S. or applicable SEC rules—in an
easily accessible manner, so as to
facilitate any review conducted by the
SEC’s Office of Compliance Inspections
and Examinations.
Pilot Period
The Exchange proposes that the
Commission authorize NYSE Alternext
U.S. to receive inbound routes from
Arca Securities (in its capacity as a
facility of both NYSE Arca and the
NYSE, routing orders to NYSE Alternext
U.S.), for a pilot period of twelve
months from the date of the approval of
this rule filing. The Exchange believes
that this pilot period is of sufficient
length to permit both NYSE Alternext
U.S. and the Commission to assess the
impact of the rule change described
herein.
C. Trading Licenses or Permits
Upon the completion of the Holdings
Merger, all trading rights appurtenant to
either Regular Memberships or OPMs
existing immediately prior to the
Holdings Merger will be cancelled. In
addition, the lessees will cease to have
any trading rights under any applicable
leases upon the completion of the
Holdings Merger. Neither NYSE
Alternext U.S. nor NYSE Euronext will
have any obligations under the leases
that existed immediately prior to the
Holdings Merger to any party thereto.
Physical and electronic access to NYSE
Alternext U.S.’s trading facilities will be
made available to individuals and
organizations that obtain an 86 Trinity
Permit, an equity trading license or an
OTP from NYSE Alternext U.S.
For a period of one year following the
Effective Time, as long as the market
structure of NYSE Alternext U.S.
remains substantially the same as it was
on the date of the Merger Agreement,
the Exchange expects to make equity
trading licenses available at a price no
greater than the cost of licenses to trade
on the NYSE and to make NYSE
Alternext U.S. OTPs available at a price
no greater than the price of NYSE Arca
options trading permits. Only persons or
entities that are registered brokerdealers may be granted trading licenses
or permits by NYSE Alternext U.S.
through an application process and
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payment of applicable fees to be set
forth in a separate rule filing. Pursuant
to the requirements of Section 19 of the
Exchange Act, NYSE Alternext U.S.
intends to set forth in a separate rule
filing the qualifications for trading
license or permit holders and the
application process for trading licenses
or permits. The Exchange currently
expects that the qualifications for
trading license or permit holders 63 will
be based on the current requirements for
memberships on the NYSE or NYSE
Arca, respectively. Pursuant to the
requirements of Section 19 of the
Exchange Act, NYSE Alternext U.S. also
intends to set forth in a separate rule
filing the fees for a trading license or
permit that will be assessed.
Until such new trading licenses or
permits are issued, NYSE Alternext U.S.
intends to make available to persons
and entities that apply and meet certain
specified requirements 64 86 Trinity
Permits for which certain additional
fees 65 will be waived. 86 Trinity
Permits will allow the holders to trade
products currently traded on the
Exchange, including equities and
options, prior to relocation of the NYSE
Alternext U.S. equities and options
trading facilities to the NYSE trading
floor or the electronic trading platform
of the NYSE or NYSE Arca, as
applicable. To ensure continuity of
trading following the Mergers, persons
and entities who were authorized to
trade on the Exchange immediately
prior to the LLC Merger, including (i)
owners, lessees or nominees of Regular
Memberships or OPMs, (ii) limited
trading permit holders, and (iii)
associate members, in each case who
were authorized to trade on the
Exchange immediately prior to the LLC
Merger, will be deemed to have satisfied
applicable requirements necessary to
receive an 86 Trinity Permit. 86 Trinity
Permits will authorize owners, lessees
or nominees of Regular Memberships,
OPMs, limited trading permit holders
and associate members who were
authorized to trade on the Exchange
immediately prior to the LLC Merger, to
trade the products which they were
previously authorized to trade and,
subject to meeting the qualifications
currently in place for trading products
63 See
proposed NYSE Alternext U.S. Rule 353.
requirements for 86 Trinity Permits will be
the same as the current requirements for
memberships in the Amex Rules and such
requirements may be satisfied by persons or entities
that were not previously authorized to trade on the
Exchange immediately prior to the Mergers.
65 Certain application processing fees may be
charged for persons or entities that were not
previously authorized to trade on the Exchange
immediately prior to the Mergers. See proposed
NYSE Alternext U.S. Rule 358.
64 The
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which they previously were not
authorized to trade, to trade such other
products.
It is currently anticipated that NYSE
Alternext U.S. will issue the equity
trading licenses prior to the OTPs. Upon
the initial effective date of the equity
trading licenses, only holders of such
equity trading licenses will have the
right to trade equities and any other
products associated with such equity
trading licenses. Therefore, following
the initial effective date of the equity
trading licenses, a holder of an 86
Trinity Permit shall only be entitled to
trade products other than those
associated with the equity trading
licenses. Upon the initial effective date
of the OTPs, only holders of such OTPs
will have the right to trade in options,
and all 86 Trinity Permits will be
cancelled.
D. Amendment of the Amex Rules
The Amex Rules, which will become
the NYSE Alternext U.S. Rules upon the
completion of the LLC Merger, will be
amended to incorporate certain
provisions in the Amex Constitution,
which will be eliminated in connection
with the Mergers, and to reflect that
following the Mergers, among others, (i)
access to NYSE Alternext U.S.’s trading
facilities will be granted through the
issuance of 86 Trinity Permits, as
described in Section 1(c)(C) of this Item
II.A. above, until the equity trading
licenses and OTPs are issued by NYSE
Alternext U.S. (ii) the associate member
concept will be deleted and the term
‘‘member’’ shall mean the 86 Trinity
Permit Holders who are natural persons
and allied members 66 and the term
‘‘member organization’’ shall mean a
partnership, corporation or such other
entity as NYSE Alternext U.S. may, by
Rule, permit to become a member
organization, and which meets the
requirements specified in the Rules 67,
(iii) an owner, lessee or nominee of
regular membership or OPM, a limited
trading permit holder or an associate
member that was authorized to trade on
the Exchange immediately prior to the
LLC Merger will be deemed to satisfy
the requirements for receiving an 86
Trinity Permit, (iv) the procedures for
the re-allocation of equity securities to
specialists will be simplified with the
elimination of the mediation process
currently required when a listed
company requests a change of its
specialist firm, (v) the procedures for
the allocation of options will be
66 See proposed definition of ‘‘member’’ in the
NYSE Alternext U.S. Rules.
67 See proposed definition of ‘‘member
organization’’ in the NYSE Alternext U.S. Rules.
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streamlined, (vi) the Gratuity Fund will
be terminated, (vii) the responsibilities
of the Adjudicatory Council will be
transferred to the Committee for Review
of NYSE Regulation since NYSE
Regulation will be handling disciplinary
matters for NYSE Alternext U.S.68
through the replacement of Amex Rule
345 and the Rules of Procedure in
Disciplinary Matters with proposed
Rules 475, 476 and 477, which are
substantially identical to the
disciplinary rules of the NYSE with
certain changes necessary to apply such
rules to NYSE Alternext U.S. and to
reflect the application of the American
Stock Exchange Sanctions Guidelines,69
(viii) the concept of Floor Governors
will be eliminated and the functions of
the Floor Governors will be performed
by Senior Floor Officials or the Senior
Supervisory Officer, as the case may be,
as described in greater detail under
Section 1.(c).(A).f of this Item II.A.
above, (ix) the administrative decisions
regarding the approval of applications to
become a supplemental registered
options trader and determinations
regarding remote quoting rights for
remote registered options traders will be
handled by designated staff of NYSE
Alternext U.S. rather than by a
committee of members as set forth in
Rules 993—ANTE and 994—ANTE and
(x) members and member organizations
will be required to notify NYSE
Alternext U.S. of their branch offices,
but will not be required to seek approval
from NYSE Alternext U.S. to establish
68 The Committee for Review will be charged, in
the discretion of the NYSE Alternext U.S. Board of
Directors, with hearing appeals of disciplinary
decisions and advising the NYSE Alternext U.S.
Board of Directors thereof. With or without the
advice of the Committee for Review, the NYSE
Alternext U.S. Board of Directors, may affirm,
modify, reverse, or remand a hearing panel’s or a
hearing officer’s determination, penalty, or both.
Unless the NYSE Alternext U.S. Board of Directors
otherwise specifically directs further action, the
determination and penalty, if any, of the NYSE
Alternext U.S. Board of Directors after review shall
be final and conclusive subject to the provisions for
review under the Exchange Act.
69 Amex anticipates that a certain number of
Exchange disciplinary cases arising prior to the
closing of the Mergers will be pending at the time
of the closing of the Mergers. With respect to such
cases which have been formally commenced at or
prior to the time of the Effective Time, Amex Rule
345, the Rules of Procedure in Disciplinary Matters
and the disciplinary rules in the current Amex
Constitution (‘‘Legacy Disciplinary Procedural
Rules’’) will govern such pending disciplinary
cases. The Exchange will advise its members and
member organizations of changes to the disciplinary
procedures that will be implemented, including
application of the Legacy Disciplinary Procedural
Rules, through an Information Memorandum.
Please see the proposed rule filing that the
Exchange expects to file with the Commission in
connection with the Legacy Disciplinary Procedural
Rules for more detail.
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such branch offices 70. In addition,
certain obsolete rules, including the
rules relating to the Intermarket Trading
System Plan, certain rules which have
been replaced by Auction and
Electronic Market Integration Rules and
certain arbitration rules will be deleted.
E. Other Proposed Changes Relating to
the Mergers
a. Regulatory Service Agreement. The
Exchange is currently a party to a
regulatory services agreement with
FINRA, dated as of April 30, 2004, as
amended (‘‘FINRA RSA’’). Under the
FINRA RSA, FINRA performs market
and trade practice surveillance and
analysis, financial and operational
regulation, options sales practice
regulation, enforcement investigations
and disciplinary processes and dispute
resolution services for the Exchange.
Upon the consummation of the Mergers,
it is contemplated that NYSE Alternext
U.S. will contract with NYSE Regulation
for the performance of all of its
regulatory functions. NYSE Euronext
has agreed to provide adequate funding
to NYSE Regulation to conduct its
regulatory activities with respect to
NYSE, NYSE Arca and, from and after
closing of the transaction, NYSE
Alternext U.S. In addition, it is
contemplated that NYSE Alternext U.S.
will participate in a multi-party
regulatory services agreement by and
among NYSE Regulation, NYSE Arca,
FINRA and NYSE Alternext U.S. (‘‘New
Multi-Party FINRA RSA’’), pursuant to
which FINRA will in turn perform some
of NYSE Alternext U.S.’s regulatory
functions on an ongoing basis. NYSE
Regulation together with NYSE
Alternext U.S. may from time to time
contract out to a third party other than
FINRA certain of NYSE Alternext U.S.’s
regulatory functions. In doing so, NYSE
Regulation and NYSE Alternext U.S.
must comply with proposed Rule 1B,
which requires regulatory services
agreements may only be entered into by
NYSE Alternext U.S. with another SRO.
In addition, regardless of the fact that
NYSE Alternext U.S. will contract for
the provision of regulatory services from
70 See proposed NYSE Alternext U.S. Rule 320.
Currently, under Article IV, Section 2(m) of the
Amex Constitution, members and member
organizations are allowed to establish branch offices
with the consent of the Exchange; provided,
however, that the Exchange’s consent is not
required for members and member organizations of
the Exchange that are members or member
organizations of another exchange, which exchange
has comparable rules or regulations, unless the
Amex Board shall so direct. The change to Rule 320
to require notice without adopting the provision
from Article IV, Section 2(m) of the Amex
Constitution is consistent with the rules of other
SROs including NYSE Arca, Chicago Board Options
Exchange and Philadelphia Stock Exchange.
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46095
NYSE Regulation, FINRA and/or other
SROs, NYSE Alternext U.S. will retain
ultimate responsibility for the
fulfillment of its statutory and selfregulatory obligations under the
Exchange Act. In connection with such
responsibility, NYSE Alternext U.S. will
retain the authority to direct NYSE
Regulation, FINRA and any other SROs
that provide regulatory service to take
any action necessary to fulfill its
statutory and self-regulatory obligations,
consistent with the independence of the
regulatory functions performed by
NYSE Regulation, the NYSE Alternext
U.S. rules, policies and procedures and
the federal securities laws.
b. Gratuity Fund. In connection with
the Mergers, the Boards have approved
the termination of the Gratuity Fund. As
a result, the Gratuity Fund will be
terminated upon the LLC Merger and
neither NYSE Euronext nor NYSE
Alternext U.S. will offer a Gratuity Fund
following the Mergers. There will be no
further payment of gratuities other than
those related to any deaths that occurred
prior to the completion of the Mergers.
Upon the completion of the NYSE/
Amex Merger, NYSE Alternext U.S.
currently expects to allocate the assets
then remaining in the Gratuity Fund
(net of any administrative expenses
incurred in the distribution of such
amount), first to pay out any death
benefits that are accrued but unpaid as
of the completion of the NYSE/Amex
Merger, and then to distribute the
remaining balance, if any, in a manner
as the Boards deem appropriate, taking
into account the length of time each
person was a participant in the Gratuity
Fund.
c. Relief from the Exchange’s Periodic
Financial Reporting Undertaking. The
Exchange requests to be relieved from
the undertakings adopted by the Amex
Board on December 4, 2004 and
approved by the Commission as part of
an Amex proposed rule change filed
under Section 19 of the Exchange Act
(‘‘Undertakings’’).71 Section 1 of the
Undertakings prohibits Amex from
terminating the FINRA RSA unless on
or prior to the date of such termination,
Amex has entered into an alternative
arrangement relating to the provision of
regulatory services that has been
approved by the Commission pursuant
to the rule filing procedures of Rule 19b4 under the Exchange Act and requires
Amex to use its best efforts to comply
in all material respects with its
obligations under the FINRA RSA.
Under Section 2 of the Undertakings,
71 See Securities Exchange Act Release No. 50927
(December 23, 2004), 69 FR 78494 (December 30,
2004) (order approving SR–Amex–2004–50).
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Amex’s Chief Regulatory Officer is
required, and Amex is required to use
its reasonable efforts to cause the staff
of FINRA responsible for providing
services under the FINRA RSA, to
periodically confer with staff of the
Division of Trading and Markets and the
Office of Compliance Inspections and
Examinations regarding the status of
Amex’s regulatory program.
The reason for the request to be
relieved from Sections 1 and 2 of the
Undertakings is that the Exchange
believes that it has demonstrated that
Amex’s regulatory program has been
maintained consistent with the
guidelines of the Commission Staff
since the Exchange adopted such
undertaking and that the new
arrangements for contracting out
regulatory services through the NYSE
Regulation RSA, the New Multi-Party
FINRA RSA and the Umbrella 17d–2
agreement among NYSE, FINRA and
NYSE Alternext U.S. would ensure that
NYSE Alternext U.S.’s regulatory
program continues to be maintained
consistent with the guidelines of the
Commission Staff. In addition,
following the Mergers, NYSE Alternext
U.S. will be a wholly-owned U.S.
Regulated Subsidiary of NYSE Euronext
and other U.S. Regulated Subsidiaries of
NYSE Euronext are not subject to such
obligation.
The Exchange also requests to be
permanently relieved from Sections 3 of
the Undertakings.72 Section 3 of the
Undertakings mandates Amex to
provide to the Director of the Division
of Trading and Markets (i) within 75
days after the end of each fiscal year of
Amex (unless otherwise directed in
writing by the Director of the Division
of Trading and Markets), financial
statements certified by Amex’s chief
financial officer and reviewed by
Amex’s independent accountants,
together with evidence of such review,
(ii) within 40 days after the end of each
fiscal quarter of Amex (unless otherwise
directed in writing by the Director of the
Division of Trading and Markets),
unaudited financial statements certified
by Amex’s chief financial officer and
reviewed by Amex’s independent
accountants, together with evidence of
such review, (iii) within 30 days after
the end of each fiscal month of Amex
(unless otherwise directed in writing by
the Director of the Division of Trading
and Markets), (a) financial data of Amex
certified by Amex’s chief financial
officer, together with projected and
72 Id. In addition, Amex has separately submitted
a letter to the staff of Division of Trading and
Markets to request temporary waiver of Section 3(ii)
of the Undertakings for the calendar year 2008.
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budget financial information concerning
Amex, (b) a schedule reflecting the
available borrowings under each of
Amex’s credit facilities, together with
computations of compliance with all
financial covenants contained therein,
certified by Amex’s chief financial
officer, (c) a schedule of projected cash
and working capital trends, including
calculations of Amex’s working capital
and current ratio, (d) a schedule of
actual year-to-date and inception-to-date
expenditures in connection with any
material trading technology system or
platform being implemented by Amex,
certified by Amex’s chief financial
officer, together with a narrative
summary of the status of such
implementation, (e) a schedule of
material off-balance sheet liabilities, if
any, certified by Amex’s chief financial
officer and (f) a narrative summary of
Amex’s financial results for such month
and for then year-to-date, certified by
Amex’s chief financial officer, and (iv)
such other financial information as may
be reasonably requested by the Director
of the Division of Trading and Markets.
The reason for the request is that
following the Mergers, NYSE Alternext
U.S. will be a wholly-owned subsidiary
of NYSE Euronext. As such, NYSE
Alternext U.S.’s financial results will be
consolidated with those of NYSE
Euronext. Furthermore, NYSE Euronext
is a reporting company under the
Exchange Act with obligations to report
its financial results.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the
requirements of the Exchange Act and
the rules and regulations thereunder
that are applicable to a national
securities exchange, and, in particular,
with the requirements of Section 6(b) of
the Exchange Act.73 The Exchange
believes the proposal is consistent with
Section 6(b)(3) of the Exchange Act 74 in
that it would assure a fair representation
of its members in the selection of the
Non-Affiliated Directors of NYSE
Alternext U.S. and administration of its
affairs. The candidates for directors that
will serve on the NYSE Alternext U.S.
Board will include at least one person
intended to allow the NYSE Alternext
U.S. Board to meet the requirements of
Section 6(b)(3) of the Exchange Act
concerning issuers and at least one
person intended to allow the NYSE
Alternext U.S. Board to meet the
requirements of Section 6(b)(3) of the
Exchange Act concerning investors.
73 15
74 15
PO 00000
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
Frm 00160
Fmt 4703
The Exchange believes the proposal is
also consistent with Section 6(b)(5) of
the Exchange Act 75 in that it would
create a governance and regulatory
structure of NYSE Alternext U.S. that is
designed to promote just and equitable
principles of trade, to remove
impediments, and to 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 represents
that it remains committed to its role as
a national securities exchange and does
not believe that the proposed change to
a for-profit institution will undermine
its responsibilities for regulating its
marketplace. Indeed, as described
above, following the Mergers, the
regulatory functions of NYSE Alternext
U.S. will be carried out by NYSE
Regulation, whose status as a New York
Type A not-for-profit entity will
facilitate NYSE Alternext U.S. in
managing conflicts between its business
and regulatory objectives, maintaining
regulatory standards and complying
with its obligations as a registered
national securities exchange and SRO.
Further, the Exchange believes that it
has proposed specific provisions in the
NYSE Alternext U.S. Operating
Agreement that reinforce the
responsibility of NYSE Alternext U.S.
for its self-regulatory obligations.
The Exchange also believes that the
proposed rule change is consistent with
Section 6(b)(8) of the Exchange Act 76
which requires that the rules of the
Exchange do not impose any burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Exchange Act. With a
new corporate and governance
structure, NYSE Alternext U.S. will be
better positioned to improve its
technology and engage in valueenhancing transactions designed to
facilitate its long-term success.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any inappropriate burden on
competition.
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
75 Id.
76 15
Sfmt 4703
E:\FR\FM\07AUN1.SGM
U.S.C. 78f(b)(8).
07AUN1
Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Notices
persons or entities that trade on the
Exchange or other interested parties.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which Amex consents, the
Commission will:
(A) By order approve such proposed
rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
The Exchange is targeting a closing
date of August 29, 2008 for the Mergers.
In the event that it is necessary in order
to facilitate that timetable, the Exchange
requests that the Commission accelerate
effectiveness of the filing pursuant to
Section 19(b)(2) to a date no later than
August 29, 2008.
IV. Solicitation of Comments
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–Amex–2008–62 on the
subject line.
sroberts on PROD1PC70 with NOTICES
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street, NE.,
Washington, DC 20549.
All submissions should refer to File
Number SR–Amex–2008–62. This file
number should be included on the
subject line if e-mail 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 (https://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
16:49 Aug 06, 2008
Jkt 214001
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.77
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–18145 Filed 8–6–08; 8:45 am]
BILLING CODE 8010–01–P
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change, as amended, is consistent with
the Act. Comments may be submitted by
any of the following methods:
VerDate Aug<31>2005
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 inspection and copying in
the Commission’s Public Reference
Room, 100 F Street, NE., Washington,
DC 20549, on official business days
between the hours of 10 a.m. and 3 p.m.
Copies of such filing also will be
available for inspection and copying at
the principal office 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–Amex–2008–62 and should
be submitted on or before August 28,
2008.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–58286; File No. SR–Amex–
2008–64]
Self-Regulatory Organizations;
American Stock Exchange LLC; Notice
of Filing of Proposed Rule Change To
Adopt New Rule 478T To Set Forth the
Temporary Procedures That Will Apply
to Disciplinary Proceedings Pending
as of the Closing Date of the
Acquisition of the Exchange by NYSE
Euronext
August 1, 2008.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on July 28,
2008, American Stock Exchange LLC, a
Delaware limited liability company
(‘‘Amex’’ or ‘‘Exchange’’), 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
substantially prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
77 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00161
Fmt 4703
Sfmt 4703
46097
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
In connection with its pending
acquisition by NYSE Euronext, the
parent company of the New York Stock
Exchange LLC (‘‘NYSE’’) and NYSE
Arca, Inc. (‘‘NYSE Arca’’), Amex is
seeking to revise its procedural rules
governing disciplinary proceedings to
more closely align such rules with the
NYSE’s disciplinary procedural rules.
The rule changes that would implement
this change are proposed in SR–Amex–
2008–62. However, in order to avoid
any potential confusion to respondents
in pending disciplinary matters that
have been commenced prior to the date
of closing of the transaction, the
Exchange believes it is advisable to
apply its current procedural rules
governing disciplinary proceedings to
such matters. Accordingly, the
Exchange proposes to adopt new Rule
478T to set forth the temporary
procedures that will apply to those
pending disciplinary proceedings, and
which rule will only become operative
as of the closing of the acquisition.
The text of the proposed rule change
is available on the Amex’s Web site at
https://www.amex.com, the Office of the
Secretary, the Amex and at the
Commission’s Public Reference Room.
The text of Exhibit 5 is available on the
Commission’s Web site (https://
www.sec.gov/rules/sro.shtml).
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
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Pursuant to an agreement dated
January 17, 2008, the Amex is being
acquired by NYSE Euronext—the parent
company of the NYSE and NYSE Arca—
through a series of mergers as described
in SR–Amex–2008–62 (the
‘‘Transaction’’). Following completion
of the Transaction, Amex will be
E:\FR\FM\07AUN1.SGM
07AUN1
]]>Agencies
[Federal Register Volume 73, Number 153 (Thursday, August 7, 2008)]
[Notices]
[Pages 46086-46097]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-18145]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-58284; File No. SR-Amex-2008-62]
Self-Regulatory Organizations; American Stock Exchange LLC;
Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto
Relating to the Acquisition of the Exchange by NYSE Euronext
August 1, 2008.
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 July 23, 2008, American Stock Exchange LLC, a Delaware
limited liability company (``Amex'' or the ``Exchange''), filed with
the Securities and Exchange Commission (``Commission'' or ``SEC'') the
proposed rule change as described in Items I, II, and III below, which
Items have been substantially prepared by the Exchange. On July 30,
2008, the Exchange filed Amendment No. 1 to the proposed rule change.
The Commission is publishing this notice to solicit comments on the
proposed rule change, as amended, from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is submitting the proposed rule change in connection
with the AMCAS Merger, the Holdings Merger, the LLC Merger and the
NYSE/Amex Merger (each as defined in Section 1.(a). of Item II.A. below
and collectively, the ``Mergers'') and related transactions which will
result in the successor to Amex, to be renamed ``NYSE Alternext U.S.
LLC'' (``NYSE Alternext U.S.''), becoming an indirect wholly-owned
subsidiary of NYSE Euronext, a Delaware Corporation (``NYSE
Euronext'').
In connection with the Mergers, New York Stock Exchange LLC
(``NYSE''), an indirect wholly-owned subsidiary of NYSE Euronext, is
proposing that certain organizational documents of NYSE Euronext and
its wholly-owned subsidiaries, NYSE Group, Inc. (``NYSE Group'') and
NYSE Regulation, Inc. (``NYSE Regulation'') and the Independence Policy
of NYSE Euronext (``NYSE Euronext Independence Policy'') be amended
substantially concurrently with the Mergers. In addition, Amex is
proposing to adopt the operating agreement of NYSE Alternext U.S.
(``NYSE Alternext U.S. Operating Agreement'') and to amend its rules
(``Amex Rules''), which will become the rules of NYSE Alternext U.S.
(``NYSE Alternext U.S. Rules''), to reflect the Mergers and related
transactions. In connection with the Mergers, Amex also proposes that
the present Constitution of Amex (``Amex Constitution'') will be
eliminated and relevant provisions thereof will be included in the NYSE
Alternext U.S. Operating Agreement or the NYSE Alternext U.S. Rules, as
applicable.
The text of the proposed rule change is available at Amex, the
Commission's Public Reference Room, and on Amex's Web site at https://
www.amex.com. The text of Exhibits 5A through 5J is also available on
the Commission's Web site (https://www.sec.gov/rules/sro.shtml).
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. 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to permit the Mergers as
well as certain other changes relating to corporate governance and
other items to accommodate the transformation of the Exchange from its
current status as a subsidiary of a not-for-profit member-
[[Page 46087]]
owned corporation into its post-merger status as a U.S. Regulated
Subsidiary \3\ of NYSE Euronext.
---------------------------------------------------------------------------
\3\ The term ``U.S. Regulated Subsidiary'' is defined under
Article VII, Section 7.3(G) of the Bylaws of NYSE Euronext.
---------------------------------------------------------------------------
(a) Description of the Mergers
Amex is a wholly-owned subsidiary of The Amex Membership
Corporation, a New York not-for-profit corporation (``MC'').\4\ MC owns
99% of Amex's ownership interest directly and owns the remaining 1%
ownership interest indirectly through MC's direct wholly-owned
subsidiary, AMC Acquisition Sub, Inc., a Delaware corporation
(``AMCAS''). To effect the Mergers, MC has established: (i) A new
direct wholly-owned subsidiary of MC, American Stock Exchange Holdings,
Inc., a Delaware for-profit, stock corporation (``Holdings''); and (ii)
a new direct wholly-owned subsidiary of Holdings, American Stock
Exchange 2, LLC, a Delaware limited liability company (``Amex 2'').
Consummation of the Mergers, which have been approved by MC members,\5\
is conditioned upon satisfaction or waiver (subject to applicable law)
of the conditions set forth in the terms of the Agreement and Plan of
Merger, dated as of January 17, 2008 (as may be amended, ``Merger
Agreement''), by and among NYSE Euronext, Amsterdam Merger Sub, LLC, a
Delaware limited liability company and a wholly-owned subsidiary of
NYSE Euronext created by NYSE Euronext in connection with the Mergers
(``Amsterdam Merger Sub''), MC, AMCAS, Holdings, Amex and Amex 2. The
proxy statement/prospectus sent to MC members in connection with their
approval of the Mergers has been filed with the Commission by NYSE
Euronext. The Mergers were approved by the requisite vote of MC members
at the special meeting of MC members held on June 17, 2008. In
addition, the Board of Governors of Amex (``Amex Board'') approved the
proposed rule change on May 21, 2008.
---------------------------------------------------------------------------
\4\ For a discussion of the current governance structure of MC
and Amex, see Securities Exchange Act Release No. 50057 (July 22,
2004) (Notice of filing of proposed rule change relating to the
NASD's sale of its interest in Amex to MC) and Securities Exchange
Act Release No. 50927 (December 23, 2004) (Order approving proposed
rule change relating to the NASD's sale of its interest in Amex to
MC). SR-Amex-2004-50.
\5\ The term ``MC members'' herein refers to persons eligible to
vote on the Mergers.
---------------------------------------------------------------------------
The following transactions are contemplated to effect the Mergers:
(i) AMCAS Merger. Prior to the Effective Time (as defined below),
AMCAS will be merged with and into MC (``AMCAS Merger'') and the
separate corporate existence of AMCAS will thereupon cease. MC will be
the surviving entity in the AMCAS Merger and will hold 100 percent of
the ownership interest in Amex. At the effective time of the AMCAS
Merger, each outstanding share of AMCAS common stock, par value $.01
per share, will be cancelled and retired without payment of any
consideration therefor and will cease to exist or be outstanding.
(ii) Holdings Merger. Following the effective time of the AMCAS
Merger but prior to the Effective Time (as defined below), MC will be
merged with and into Holdings (``Holdings Merger'') and the separate
corporate existence of MC will thereupon cease. Holdings will be the
surviving entity in the Holdings Merger. At the effective time of the
Holdings Merger, shares of Holding common stock, par value $0.01 per
share (``Holdings Common Stock''), will be issued to persons owning MC
memberships \6\ immediately prior to the Holdings Merger, with each
Regular Membership and each Options Principal Membership (``OPM'')
receiving a certain number of shares of Holdings Common Stock, as
determined in the manner set forth in the Merger Agreement, which,
among other things, takes into account a $36,000 discount on the
consideration issued to each OPM vis-a-vis each Regular Membership.
Upon the Holdings Merger, each Regular Membership and OPM held by MC
will be cancelled and retired without payment of any consideration
therefor and will cease to exist or be outstanding.
---------------------------------------------------------------------------
\6\ ``Memberships'' used herein refer to Regular Memberships and
OPMs (defined below) and not to the membership interests held by
allied members or associate members, which membership interest
granted certain limited rights but did not grant voting rights.
---------------------------------------------------------------------------
(iii) LLC Merger. Contemporaneously with the Holdings Merger, Amex
will be merged with and into Amex 2 (``LLC Merger''), and the separate
limited liability company existence of Amex will thereupon cease. At
the effective time of the LLC Merger, each outstanding ownership
interest in Amex held by MC will be cancelled and retired without
payment of any consideration therefor and will cease to exist or be
outstanding. Amex 2 will be renamed NYSE Alternext U.S. LLC.
(iv) NYSE/Amex Merger. Following the completion of the AMCAS
Merger, the Holdings Merger and the LLC Merger, Holdings (as the
surviving corporation of the Holdings Merger) will be merged with and
into Amsterdam Merger Sub (``NYSE/Amex Merger'') and the separate
corporate existence of Holdings shall thereupon cease. At the effective
time of the NYSE/Amex Merger (``Effective Time''), each share of
Holdings Common Stock issued and outstanding immediately prior to the
Effective Time will be converted into the right to receive one fully
paid and nonassessable share of the common stock of NYSE Euronext and
cash in lieu of fractional shares, if any, into which such shares of
Holdings Common Stock has been converted. In addition, under the terms
of the Merger Agreement, persons owning MC memberships immediately
prior to the Holdings Merger will be entitled to receive additional
shares of NYSE Euronext common stock measured by reference to the ``Net
Building Sale Proceeds'' (as defined in the Merger Agreement), if any,
from the sale of two buildings in New York City currently owned by
Amex's realty subsidiary, to the extent such sale occurs prior to the
date that is four years and 240 days following the Effective Time and
certain other conditions are satisfied, as set forth in the Merger
Agreement. Immediately following the NYSE/Amex Merger, NYSE Euronext
will contribute 100% of the limited liability company interest of
Amsterdam Merger Sub to NYSE Group (such contribution, the
``Contribution''), causing Amsterdam Merger Sub to become a direct
wholly-owned subsidiary of NYSE Group. Immediately following the
Contribution, Amsterdam Merger Sub will merge with and into NYSE
Alternext U.S. a direct wholly-owned subsidiary of Amsterdam Merger Sub
(``Internal Merger''). As a result of the Contribution and the Internal
Merger, NYSE Alternext U.S. will become a direct wholly-owned
subsidiary of NYSE Group.
The NYSE Euronext Bylaws, the NYSE Group Charter, the NYSE Group
Bylaws, the NYSE Regulation Bylaws, the Trust Agreement (each as
defined in Section 1.(c). of this Item II.A. below) and the NYSE
Euronext Independence Policy will be amended in connection with the
Mergers. The NYSE Euronext Bylaws, the NYSE Euronext Independence
Policy, the NYSE Regulation Bylaws and the Trust Agreement will become
effective at the Effective Time. The NYSE Group Charter and the NYSE
Group Bylaws will become effective at or prior to the time of the
Contribution. In addition, upon the Contribution and the Internal
Merger, the NYSE Alternext U.S. Operating Agreement will become
effective.
Upon completion of the NYSE/Amex Merger, NYSE Alternext U.S. will
continue to engage in the business of operating a national securities
exchange
[[Page 46088]]
registered under Section 6 of the Exchange Act,\7\ and will continue to
have self-regulatory responsibilities over its members. NYSE Alternext
U.S. will contract for the performance of its regulatory
responsibilities with NYSE Regulation, an indirect wholly-owned
subsidiary of NYSE Euronext, pursuant to a regulatory services
agreement (``NYSE Regulation RSA''), as further described in Section
1.(c).(E).a. of this Item II.A. below.\8\
---------------------------------------------------------------------------
\7\ 15 U.S.C. 78f.
\8\ Following the Mergers, NYSE Alternext U.S. will not use any
regulatory fees, fines or penalties collected by NYSE Regulation for
commercial purposes. Earnings of NYSE Alternext U.S. not retained in
its business, other than regulatory fees, fines or penalties will be
distributed to its parent, NYSE Group, which may in turn distribute
such earnings to its parent, NYSE Euronext. See Section 4.05 of the
proposed NYSE Alternext U.S. Operating Agreement. NYSE Euronext, at
its discretion, may use such distributions from NYSE Alternext U.S.
to pay dividends to its stockholders.
---------------------------------------------------------------------------
The Mergers will have the effect of ``demutualizing'' MC because
equity ownership will be separated from the rights to trade on NYSE
Alternext U.S. As described in greater detail above, in connection with
the Mergers, persons owning MC memberships immediately prior to the
Holdings Merger will receive shares and cash in lieu of fractional
shares, if any, of the common stock of NYSE Euronext. Upon the
completion of the Holdings Merger, all trading rights appurtenant to
either Regular Memberships or OPMs existing immediately prior to the
Holdings Merger will be cancelled. In addition, the lessees will cease
to have any trading rights under any applicable leases upon the
completion of the Holdings Merger. Neither NYSE Alternext U.S. nor NYSE
Euronext will have any obligations under any leases that existed
immediately prior to the Holdings Merger to any party thereto. Physical
and electronic access to NYSE Alternext U.S.'s trading facilities will
be made available to individuals and organizations that obtain an
equity trading license, an options trading permit (``OTP'') or prior to
the issuance of the equity trading licenses and OTPs, a temporary
trading permit (to be known as an ``86 Trinity Permit''), from NYSE
Alternext U.S. Unless the context otherwise requires, persons or
entities to whom such trading licenses or permits are issued following
the Mergers are referred to as ``trading license or permit holders.''
NYSE Alternext U.S. intends to issue equity trading licenses and
OTPs upon relocation of the NYSE Alternext U.S. equities and options
trading facilities to the NYSE trading floor or the electronic trading
platform of NYSE or NYSE Arca, Inc. (``NYSE Arca''), as applicable.\9\
Until such new trading licenses or permits are issued, NYSE Alternext
U.S. intends to make available to persons and entities that apply and
meet certain specified requirements \10\ 86 Trinity Permits for which
certain additional fees \11\ will be waived. 86 Trinity Permits will
allow the holders to trade products currently traded on the Exchange,
including equities and options, prior to relocation of the NYSE
Alternext U.S. equities and options trading facilities. To ensure
continuity of trading following the Mergers, persons and entities who
were authorized to trade on the Exchange immediately prior to the LLC
Merger, including: (i) Owners, lessees or nominees of Regular
Memberships or OPMs; (ii) limited trading permit holders; and (iii)
associate members, in each case who were authorized to trade on the
Exchange immediately prior to the LLC Merger, will be deemed to have
satisfied applicable requirements necessary to receive an 86 Trinity
Permit. 86 Trinity Permits will authorize owners, lessees or nominees
of Regular Memberships, OPMs, limited trading permit holders and
associate members who were authorized to trade on the Exchange
immediately prior to the LLC Merger, to trade the products which they
were previously authorized to trade and, subject to meeting the
qualifications currently in place for trading products which they
previously were not authorized to trade, to trade such other products.
---------------------------------------------------------------------------
\9\ Separate filings will be made to the Commission relating to
the rule changes associated with such relocation.
\10\ The requirements for 86 Trinity Permits in the NYSE
Alternext U.S. Rules will be the same as the current requirements
for memberships in the Amex Rules and such requirements may be
satisfied by persons or entities that were not previously authorized
to trade on the Exchange immediately prior to the Mergers.
\11\ Certain application processing fees may be charged for
persons or entities that were not previously authorized to trade on
the Exchange immediately prior to the Mergers. In addition, certain
charges may be applicable to the 86 Trinity Permits once issued. See
proposed NYSE Alternext U.S. Rule 358.
---------------------------------------------------------------------------
It is currently anticipated that NYSE Alternext U.S. will issue
equity trading licenses prior to OTPs. Upon the initial effective date
of the equity trading licenses, only holders of such equity trading
licenses will have the right to trade equities and any other products
associated with such equity trading licenses. Therefore, following the
initial effective date of the equity trading licenses, a holder of an
86 Trinity Permit shall only be entitled to trade products other than
those associated with the equity trading licenses. Upon the initial
effective date of the OTPs, only holders of such OTPs will have the
right to trade in options, and all 86 Trinity Permits will be
cancelled.
Pursuant to the requirements of Section 19 of the Exchange Act,
NYSE Alternext U.S. intends to set forth in a separate rule filing the
qualifications for equity trading licenses and OTPs and the application
process for such trading licenses or permits. The Exchange currently
expects that the qualifications for trading license or permit holders
\12\ will be based on the current requirements for memberships on the
NYSE or NYSE Arca, respectively. Pursuant to the requirements of
Section 19 of the Exchange Act, NYSE Alternext U.S. also intends to set
forth in a separate rule filing the fees for a trading license or
permit that will be assessed. For a more detailed discussion of the 86
Trinity Permits, the equity trading licenses and OTPs, see Section
1(c)(C) of this Item II.A. below.
---------------------------------------------------------------------------
\12\ See proposed NYSE Alternext U.S. Rule 353.
---------------------------------------------------------------------------
Finally, in connection with the Mergers, the Board of Directors of
MC and the Amex Board (collectively, the ``Boards'') have approved the
termination of the Gratuity Fund.\13\ As a result, the Gratuity Fund
will be terminated upon the LLC Merger and neither NYSE Euronext nor
NYSE Alternext U.S. will offer a Gratuity Fund following the Mergers.
There will be no further payment of gratuities other than those related
to any deaths that occurred prior to the completion of the Mergers.
Upon the completion of the NYSE/Amex Merger, NYSE Alternext U.S.
currently expects to allocate the assets then remaining in the Gratuity
Fund (net of any administrative expenses incurred in the distribution
of such amount), first to pay out any death benefits that are accrued
but unpaid as of the completion of the NYSE/Amex Merger, and then to
distribute the remaining balance, if any, in a manner as the Boards
deem appropriate, taking into account the length of time each person
was a participant in the Gratuity Fund.
---------------------------------------------------------------------------
\13\ Currently, the Amex Constitution provides for a Gratuity
Fund which makes an assessment on the participants upon the death of
a participant and provides benefit to the surviving family of the
deceased participant. Active traders on Amex who may be the owner,
lessee, or nominee of a membership are eligible to participate in
the Gratuity Fund. Certain owners of a membership who are not
currently active are also eligible through the operation of certain
transition provisions in the Amex Constitution. See Article IX of
the current Amex Constitution for the provisions relating to the
Gratuity Fund currently in place.
---------------------------------------------------------------------------
[[Page 46089]]
(b) Reasons for the Proposed Mergers
The Mergers will have the effect of ``demutualizing'' MC and
causing Amex to become and operate as a for-profit subsidiary market of
NYSE Euronext (other than with respect to the regulatory
responsibilities currently conducted by Amex, which will be carried out
by NYSE Regulation, a not-for-profit entity). The Exchange believes
that changing its focus to that of a for-profit business and joining
the group of exchanges operated by NYSE Euronext along with modifying
its corporate and governance structures to reflect its status as a
subsidiary of NYSE Euronext will provide the Exchange with greater
flexibility to respond to the demands of a rapidly changing business
environment. In addition, the NYSE Euronext common stock issued in the
NYSE/Amex Merger will provide the MC members with greater liquidity
than the MC memberships they currently hold. Furthermore, by bringing
NYSE Euronext's leadership together with Amex's historically strong
position in options, exchange traded funds, closed-end funds,
structured products and cash equities, the combined company will be in
a position to create a diversified business model, ensuring its ability
to grow into, and compete using, new products and services, such as a
second U.S. options exchange license, which will enable the combined
company to operate a compelling dual market structure making available
to all customers the choice of price-time priority on NYSE Arca and
Amex's traditional market-maker model and a third, complementary U.S.
cash equities exchange, in addition to NYSE and NYSE Arca.
The Exchange remains committed to its role as a national securities
exchange and does not believe that the Mergers will undermine its
responsibilities for regulating its marketplace. While it is currently
contemplated that NYSE Alternext U.S. will contract for the performance
of its regulatory responsibilities with NYSE Regulation through the
NYSE Regulation RSA, as further described in Section 1(c)(E) a. of this
Item II.A. below, NYSE Alternext U.S. will retain ultimate
responsibility for the fulfillment of its statutory and self-regulatory
obligations under the Exchange Act. Indeed, as further described below,
the NYSE Alternext U.S. Operating Agreement and the NYSE Alternext U.S.
Rules will have specific provisions that reinforce the responsibility
of NYSE Alternext U.S. for its self-regulatory obligations, including,
without limitation, the requirement that NYSE Group seek the
Commission's consent before transferring its limited liability company
interests in NYSE Alternext U.S.\14\
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\14\ See Section 3.03 of the proposed NYSE Alternext U.S.
Operating Agreement.
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(c) Summary of Proposed Rule Change
The proposed rule change is outlined below. In general, the
proposed rule change consists of: (i) The Amended and Restated
Certificate of Incorporation of NYSE Euronext (``NYSE Euronext
Charter''),\15\ (ii) the adoption of the Amended and Restated Bylaws of
NYSE Euronext (the ``NYSE Euronext Bylaws''), which will become
effective at the Effective Time,\16\ (iii) the adoption of the Second
Amended and Restated Certificate of Incorporation of NYSE Group (the
``NYSE Group Charter''), which will become effective at or prior to the
time of the Contribution,\17\ (iv) the adoption of the Second Amended
and Restated Bylaws of NYSE Group (``NYSE Group Bylaws''), which will
become effective at or prior to the time of the Contribution,\18\ (v)
the adoption of the NYSE Euronext Independence Policy, to become
effective at the Effective Time,\19\ (vi) the adoption of the Third
Amended and Restated Bylaws of NYSE Regulation (``NYSE Regulation
Bylaws''), to become effective at the Effective Time,\20\ (vii) the
adoption of certain amendments to the Trust Agreement of the NYSE Group
Trust I by and among NYSE Euronext, NYSE Group, Wilmington Trust
Company, as Delaware Trustee, Jacques de Larosiore de Champfeu, as
Trustee, Charles K. Gifford, as Trustee and John Shepard Reed, as
Trustee and the Amendment No. 1 thereto (such Trust Agreement, as
amended, the ``Trust Agreement''), which will become effective at the
Effective Time,\21\ (viii) the adoption of the NYSE Alternext U.S.
Operating Agreement, to become effective upon the Internal Merger,\22\
and (ix) the amendment of the Amex Rules, which will become the NYSE
Alternext U.S. Rules upon the completion of the LLC Merger, necessary
to issue trading licenses or permits following the Mergers, to
incorporate certain provisions in the Amex Constitution, which will be
eliminated in connection with the Mergers and to effect certain other
changes as described more fully below.\23\ The proposed rule change
will become operative upon completion of the Internal Merger. The
proposed NYSE Alternext U.S. Operating Agreement will reflect that Amex
2, to be renamed ``NYSE Alternext U.S. LLC'' upon the consummation of
the Mergers, will be a wholly-owned Regulated Subsidiary of NYSE Group
and a wholly-owned U.S. Regulated Subsidiary of NYSE Euronext.
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\15\ The NYSE Euronext Charter is not being amended in
connection with the Mergers.
\16\ The NYSE Euronext Bylaws are being amended to provide
similar protections to NYSE Alternext U.S. relating to its self-
regulatory functions as are currently provided to the NYSE and NYSE
Arca. Please see the proposed rule filing that the NYSE has filed
with the Commission in connection with the Mergers for more detail.
\17\ The NYSE Group Charter is being amended to provide similar
protections to NYSE Alternext U.S. relating to its self-regulatory
functions as are currently provided to NYSE and NYSE Arca. Please
see the proposed rule filing that the NYSE has filed with the
Commission in connection with the Mergers for more detail.
\18\ The NYSE Group Bylaws are being amended to provide that any
amendment to or repeal of the bylaws of NYSE Group must either be
(i) filed with or filed with and approved by the Commission, or (ii)
submitted to the boards of directors of NYSE Alternext U.S., as well
as the other Regulated Subsidiaries of NYSE Group, to the extent
that such entity continues to be controlled by NYSE Group, and if
any or all of such boards of directors shall determine that such
amendment or repeal must be filed with or filed with and approved by
the Commission before such amendment or repeal may be effectuated,
then such amendment or repeal shall not be effectuated until filed
with or filed with and approved by the Commission, as the case may
be. Please see the proposed rule filing that the NYSE has filed with
the Commission in connection with the Mergers for more detail.
\19\ The NYSE Euronext Independence Policy is being amended to
ensure independence of the NYSE Euronext directors from NYSE
Alternext U.S., similar to the independence from NYSE and NYSE Arca.
Please see the proposed rule filing that the NYSE has filed with the
Commission in connection with the Mergers for more detail.
\20\ NYSE Regulation Bylaws are being amended to provide that
the Committee for Review be expanded to include certain individuals
who are associated with member organizations of NYSE Alternext U.S.
Please see the proposed rule filing that the NYSE has filed with the
Commission in connection with the Mergers for more detail.
\21\ The Trust Agreement is being amended to make certain
technical changes designed to provide NYSE Alternext U.S. with the
same protections against certain material adverse changes in
European Law that it currently provides for NYSE and NYSE Arca.
Please see the proposed rule filing that the NYSE has filed with the
Commission in connection with the Mergers for more detail.
\22\ Following the Holdings Merger and the LLC Merger, Holdings
will be the sole member of Amex 2, as the successor of Amex. Upon
the effectiveness of the NYSE/Amex Merger, Amsterdam Merger Sub, as
the successor to Holdings, will become the sole member of Amex 2,
whose name will then be changed to ``NYSE Alternext U.S. LLC.''
Following the Contribution and upon the effectiveness of the
Internal Merger, NYSE Group will be substituted as the sole member
of NYSE Alternext U.S. The discussion of the NYSE Alternext U.S.
Operating Agreement herein refers to the operating agreement that
will become effective upon the Internal Merger.
\23\ The Exchange is also proposing, in connection with the
Mergers, the elimination of the undertakings made by the Exchange to
the Commission (Securities Exchange Act Release No. 50927 (December
23, 2004), 69 FR 78494 (December 30, 2004)).
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[[Page 46090]]
A. Governance Structure of NYSE Alternext U.S. Following the Mergers
Following the Mergers, the governance structure of NYSE Alternext
U.S. will be substantially similar to that of the NYSE, a New York
limited liability company and an indirect wholly-owned subsidiary of
NYSE Euronext.
a. Board of Directors of NYSE Alternext U.S. Upon the effectiveness
of the Mergers, the Contribution and the Internal Merger, the Board of
Directors of NYSE Alternext U.S. (``NYSE Alternext U.S. Board'') will
consist of a number of directors as determined by NYSE Group from time
to time; provided that: (i) A majority of the directors of the NYSE
Alternext U.S. Board shall be U.S. Persons (as defined below) who are
members of the NYSE Euronext board that satisfy the independence
requirements of the board of directors of NYSE Euronext (each a ``NYSE
Euronext Independent Director''); and (ii) at least 20 percent of the
directors shall be persons who are not members of the board of
directors of NYSE Euronext and who do not need to be independent under
the independence policy of the board of directors of NYSE Euronext \24\
(``Non-Affiliated Directors'').\25\ Such Non-Affiliated Directors shall
be appointed and nominated pursuant to the procedures set forth in
Section 1.(c).(A).c. of this Item II.A. below. For purposes of
calculation of the minimum number of Non-Affiliated Directors, if 20
percent of the directors is not a whole number, such number of
directors to be nominated and selected by NYSE Alternext U.S. members
\26\ will be rounded up to the next whole number.\27\ A ``U.S. Person''
shall mean, as of the date of his or her most recent election or
appointment as a director any person whose domicile as of such date is
and for the immediately preceding 24 months shall have been the United
States.\28\
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\24\ A copy of the current independence policy of the NYSE
Euronext board of directors is available at https://www.nyse.com/
pdfs/director_independence_policy.pdf. See also the proposed NYSE
Euronext Independence Policy. See also Section 3.4 of the proposed
NYSE Euronext Bylaws for the independence requirements of the board
of director of NYSE Euronext.
\25\ See Section 2.03 of the proposed NYSE Alternext U.S.
Operating Agreement.
\26\ The term ``NYSE Alternext U.S. members'' refers to the
persons or entities that trade on Amex after the Mergers, including
the 86 Trinity Permit Holders, to the extent such permits are
outstanding.
\27\ See Section 2.03 of the proposed NYSE Alternext U.S.
Operating Agreement.
\28\ Id.
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Immediately following the Mergers, the Contribution and the
Internal Merger, the NYSE Alternext U.S. Board will have five
directors, one of which shall be a Non-Affiliated Director selected by
NYSE Group from among the Industry Governors serving on the Amex Board
immediately prior to the NYSE/Amex Merger.
b. Board Term. Following the Mergers, the Contribution and the
Internal Merger, the directors of NYSE Alternext U.S. will serve for
one-year terms and will hold office until their successors are
elected.\29\ There will be no limit on the number of terms a director
may serve on the NYSE Alternext U.S. Board.
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\29\ Id.
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c. Nomination and Election of the NYSE Alternext U.S. Directors. i.
General. Following the Internal Merger, NYSE Group will effectively
appoint as directors of NYSE Alternext U.S.: (i) The NYSE Euronext
Independent Directors designated by it; and (ii) the Non-Affiliated
Directors nominated by the nominating and governance committee of the
board of directors of NYSE Euronext (``NYSE Euronext NGC'').\30\ To
ensure fair representation of NYSE Alternext U.S. members, the NYSE
Euronext NGC shall be obligated to designate as Non-Affiliated Director
candidates the persons recommended by the Director Candidate
Recommendation Committee of NYSE Alternext U.S. (``NYSE Alternext U.S.
DCRC''), as described more fully under Section 1.(c).(A).e. of this
Item II.A. below; provided, however, if there are candidates who have
received a plurality of the votes cast by the NYSE Alternext U.S.
members in accordance with the provisions set forth in the NYSE
Alternext U.S. Operating Agreement relating to the petition process and
described in the paragraph immediately below, the NYSE Euronext NGC
will be obligated to designate such candidates as Non-Affiliated
Director candidates.\31\ Notwithstanding the forgoing, as described
under Section 1(c)(A) a. of this Item II.A. above, one Non-Affiliated
Director on the initial NYSE Alternext U.S. Board will be selected by
NYSE Group from among the six Industry Governors serving on the Amex
Board immediately prior to the Mergers. The initial NYSE Alternext U.S.
Board will serve one-year terms until their successors are duly
elected.
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\30\ Id.
\31\ Id.
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ii. Petition by the NYSE Alternext U.S. Members. To ensure fair
representation of members on the NYSE Alternext U.S. Board, at the end
of the initial one-year term of each of the directors on the NYSE
Alternext U.S. Board, the Non-Affiliated Directors will be nominated
and elected in the following manner.\32\ A newly established NYSE
Alternext U.S. DCRC will announce to the NYSE Euronext NGC on a date in
each year sufficient to accommodate the process described, the names of
candidates nominated by the NYSE Alternext U.S. DCRC as Non-Affiliated
Director candidates.
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\32\ Id.
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NYSE Alternext U.S. members may nominate candidates for Non-
Affiliated Director by written petition filed with NYSE Alternext U.S.
within two weeks after the announcement. For any such petition to be
valid, it must be, among other things, endorsed by at least 10 percent
of the signatures eligible to endorse a candidate. For purposes of
determining whether a person has been endorsed by the requisite 10
percent, each trading license or permit holder in good standing shall
be entitled to one signature for each trading license or permit held by
it; provided, however, that no trading license or permit holder, either
alone or together with its affiliates may account for more than 50
percent of the signatures endorsing a particular candidate, and any
signatures of such trading license or permit holder, either alone or
together with its affiliates, in excess of such 50 percent limitation
shall be disregarded.
Each petition must include a completed questionnaire used to gather
information concerning Non-Affiliated Director candidates. The
eligibility of any Non-Affiliated Director candidate nominated in any
such petition will be determined by the NYSE Euronext NGC, in its sole
discretion.
If no petitions are submitted within two weeks after the
dissemination of the report of the NYSE Euronext NGC, the NYSE Euronext
NGC will nominate the candidates for Non-Affiliated Director that the
NYSE Alternext U.S. DCRC initially identified. If one or more valid
petitions are submitted, NYSE Alternext U.S. members will be allowed to
vote on the entire group of potential candidates. Each trading license
or permit holder will have one vote per trading license or permit held
by it; provided, however, that no trading license or permit holder,
either alone or together with its affiliates, may account for more than
20 percent of the votes cast for a particular candidate, and any votes
cast by such trading license or permit holder, either alone or together
with its affiliates, in excess of such 20 percent limitation will be
disregarded. The persons with the highest number of votes will be
nominated.
[[Page 46091]]
d. Officers of NYSE Alternext U.S. The day-to-day business of NYSE
Alternext U.S. will be managed by the officers of NYSE Alternext U.S.
appointed by, and subject to the directions of, the NYSE Alternext U.S.
Board.\33\ NYSE Alternext U.S. will have such officers as its Board may
deem advisable. The NYSE Alternext U.S. Operating Agreement provides
that for so long as NYSE Euronext directly or indirectly owns all of
the equity interest of NYSE Group and NYSE Group holds 100 percent of
the limited liability company interest of NYSE Alternext U.S. the Chief
Executive Officer of NYSE Alternext U.S. shall be a U.S. Person.\34\
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\33\ See Section 2.04 of the proposed NYSE Alternext U.S.
Operating Agreement.
\34\ See Section 2.03 of the proposed NYSE Alternext U.S.
Operating Agreement.
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NYSE Alternext U.S. will also have a Chief Regulatory Officer, who
will either be the Chief Executive Officer of NYSE Regulation or an
employee of NYSE Regulation who reports to the Chief Executive Officer
of NYSE Regulation. Such Chief Regulatory Officer will also be an
officer of NYSE Alternext U.S. appointed by the NYSE Alternext U.S.
Board, with reporting obligation to the NYSE Alternext U.S. Board.
e. Committees of NYSE Alternext U.S. Board of Directors. Following
the Mergers, the NYSE Alternext U.S. Board may create one or more
committees comprised of NYSE Alternext U.S. directors.\35\ It is
expected that the committees of the NYSE Euronext board of directors
will perform the board committee functions relating to audit,
governance and compensation. The NYSE Alternext U.S. Board may also
create committees comprised in whole or in part of individuals who are
not directors.\36\
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\35\ See Section 2.03(h) of the proposed NYSE Alternext U.S.
Operating Agreement.
\36\ It is currently anticipated that NYSE Alternext U.S. will
retain the Committee on Securities, but will not retain the
Committee for Appointment and Approval of Supplemental Registered
Options Traders and Remote Registered Options Traders, each a non-
board committee of Amex. The Exchange, along with NYSE Euronext, are
currently evaluating whether other non-board committees of Amex
should be retained by NYSE Alternext U.S. and what changes to the
NYSE Alternext U.S. Rules such decision may require. NYSE Alternext
U.S. will submit a separate rule filing as necessary.\
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In addition, as described under Section 1(c)(A)c.i. of this Item
II.A. above, the NYSE Alternext U.S. Board will, on an annual basis,
appoint a new standing committee, the NYSE Alternext U.S. DCRC, which
will be charged with the responsibility of recommending the Non-
Affiliated Director candidates to the NYSE Euronext NGC. The NYSE
Alternext U.S. Operating Agreement provides that the NYSE Alternext
U.S. DCRC shall include individuals who are (i) associated with a
member organization that engages in a business involving substantial
direct contact with securities customers, (ii) associated with a member
organization and registered as a specialist and spend a substantial
part of their time on the NYSE Alternext U.S. trading floor, (iii)
associated with a member organization and spend a majority of their
time on the NYSE Alternext U.S. trading floor and have as a substantial
part of their business the execution of transactions on the NYSE
Alternext U.S. trading floor for other than their own account or the
account of their member organization, but are not registered as a
specialist, or (iv) associated with a member organization and spend a
majority of their time on the NYSE Alternext U.S. trading floor and
have as a substantial part of their business the execution of
transactions on the NYSE Alternext U.S. trading floor for their own
account or the account of their member organization, but are not
registered as a specialist. The NYSE Alternext U.S. Board will appoint
such individuals after appropriate consultation with representatives of
member organizations.
f. Floor Officials, Senior Floor Officials, Exchange Officials and
Senior Supervisory Officer. The Floor Officials, Senior Floor
Officials, and Exchange Officials in place at Amex immediately prior to
the Mergers will continue in such capacity for the period prior to the
relocation of the NYSE Alternext U.S. equities and options trading
facilities to the NYSE trading floor or the electronic trading platform
of the NYSE or NYSE Arca, as applicable.\37\ However, the Exchange's
Rule 21, which provides for the appointment of such officials, is
proposed to be amended to reflect that such appointments will be made
by the Chief Executive Officer or the Chief Regulatory Officer of NYSE
Alternext U.S. or their respective designee rather than the Chairman of
the Board of Directors or the Chief Executive Officer (if delegated by
the Chairman) and to allow qualified NYSE Alternext U.S. employees who
spend a substantial portion of their time on the trading floor to be
appointed to serve as Floor Officials. Rule 21 will be further amended
to reflect the elimination of the two Floor Governors, i.e., the
Industry Governors on the Amex Board who are required to spend a
substantial portion of their time on the trading floor. Rule 21
currently provides that Floor Governors are deemed to be Senior Floor
Officials and if one of the Floor Governors is also the vice chairman
of the Amex Board, he is the Senior Supervisory Officer on the trading
floor. Rule 21 further provides that if the vice chairman is not a
Floor Governor, then one of the Floor Governors is appointed Senior
Supervisory Officer. Rule 22(a) describes the authority of the Senior
Supervisory Officer, which includes among other duties, the supervision
of Floor Officials and Senior Floor Officials in the performance of
their responsibilities. As described in Section 1(c)(A)a. of this Item
II.A. above, the NYSE Alternext U.S. Board of Directors will not have a
category of directors who are required to spend a substantial portion
of their time on the trading floor. Therefore, Rule 21, which describes
the appointment of the Senior Supervisory Officer and Floor Officials,
and other rules referencing Floor Governor are proposed to be amended.
For the most part when the reference to Floor Governor in a rule
relates to the approval or review of activities on the trading floor
and the chairing of certain committees (e.g., the Performance and
Allocation committees), it is proposed that Senior Floor Officials
replace the Floor Governors.\38\ Pursuant to current Rule 21(a), a
Senior Floor Official has the same authority and responsibilities as a
Floor Governor with respect to matters that arise on the Floor and
require review or action by a Floor Governor or Senior Floor Official.
Thus, these changes will not expand the authority or responsibilities
of Senior Floor Officials, but will simply eliminate the concept of
Floor Governors. In situations where a rule calls upon the Floor
Governors to advise the Chief Executive Officer of the Exchange in
connection with floor facilities and administration, it is proposed
that the Senior Supervisory Officer replace the Floor Governors.\39\
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\37\ Rule 22 describes the authority and responsibilities of
Floor Officials, Senior Floor Officials, and the Senior Supervisory
Officer, which responsibilities are to generally promote fair and
orderly operations on the floor of the Exchange.
\38\ For example, the proposed Rule 118-AEMI will require the
approval of a Senior Floor Official for the dissemination of price
indicators prior to 9:30 a.m. and the proposed Rule 933-ANTE will
provide for the determination by a Senior Floor Official that quotes
from another options exchange are not reliable before those quotes
can be excluded from the National Best Bid and Offer (NBBO).
\39\ For example, the proposed Rule 27(g) will require the Chief
Executive Officer to consult the Senior Supervisory Officer prior to
restoring to a specialist a specialty security previously
reallocated under emergency circumstances.
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[[Page 46092]]
B. Provisions Relating to, or Arising From, the Self-Regulatory
Functions of the Exchange
The NYSE Alternext U.S. Operating Agreement will contain specific
provisions relating to the self-regulatory function of NYSE Alternext
U.S. In addition, the NYSE Group Charter and the NYSE Group Bylaws
currently contain specific provisions relating to the self-regulatory
functions of its Regulated Subsidiaries, and the definition of
Regulated Subsidiaries will be amended in connection with the Mergers
to also include NYSE Alternext U.S.\40\ Furthermore, the ultimate
parent, NYSE Euronext has provisions in place relating to the self-
regulatory functions of the U.S. Regulated Subsidiaries of NYSE
Euronext and such provisions will be amended in connection with the
Mergers to provide that NYSE Alternext U.S. will thereafter be
considered to be one of the NYSE Euronext's U.S. Regulated
Subsidiaries.\41\
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\40\ See Article IV, Section 4(b)(1)(A)(w) of the proposed NYSE
Group Charter for the definition of Regulated Subsidiaries.
\41\ See Article VII, Section 7.3(G) of the proposed NYSE
Euronext Bylaws.
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a. Management of NYSE Alternext U.S.
As is the case with the Amex Board, the NYSE Alternext U.S. Board
must consider applicable requirements under Section 6(b) of the
Exchange Act \42\ in connection with the management of NYSE Alternext
U.S. The NYSE Alternext U.S. Operating Agreement, for instance, imposes
obligations on the NYSE Alternext U.S. Board, officers and employees
relating to the self-regulatory functions of NYSE Alternext U.S. The
NYSE Alternext U.S. Operating Agreement requires that, in discharging
his or her responsibilities as a member of the Board of Directors of
NYSE Alternext U.S., each member of the Board of Directors shall take
into consideration the effect that his or her actions would have on the
ability of NYSE Alternext U.S. to carry out its responsibilities under
the Exchange Act.\43\ In addition, the NYSE Euronext Bylaws \44\ and
the NYSE Group Charter \45\ also impose obligations on NYSE Euronext's
and NYSE Group's respective boards, officers and employees relating to
the self-regulatory functions of their Regulated Subsidiaries, and the
definition of ``Regulated Subsidiaries'' will be amended in connection
with the Mergers to also include NYSE Alternext U.S.
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\42\ 15 U.S.C. 78f(b). Section 6(b) of the Exchange Act
requires, among other things, that the Exchange's Rules must be
designed to protect investors and the public interest. It also
requires that the Exchange be organized so that it can carry out the
purposes of the Exchange Act and enforce compliance by its
participants with the Exchange Act, the rules and regulations under
that Act, and the Rules of the Exchange.
\43\ See Section 2.03(k) of the proposed NYSE Alternext U.S.
Operating Agreement.
\44\ See Articles VII, VIII and IX of the proposed NYSE Euronext
Bylaws.
\45\ See Article XI, Sections 2 and 3 of the proposed NYSE Group
Charter.
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b. Confidentiality.
As is the case with the Amex Constitution, under the NYSE Alternext
U.S. Operating Agreement, all confidential information of NYSE
Alternext U.S. pertaining to the self-regulatory function of NYSE
Alternext U.S., including all books and records of NYSE Alternext U.S.
reflecting such confidential information (including but not limited to
disciplinary matters, trading data, trading practices and audit
information) will (i) not be made available to any persons (including,
without limitation, any NYSE Alternext U.S. members) other than to
those officers, directors, employees and agents of NYSE Alternext U.S.
that have a reasonable need to know the contents thereof; (ii) be
retained in confidence by NYSE Alternext U.S. and the officers,
directors, employees and agents of NYSE Alternext U.S.; and (iii) not
be used for any commercial purposes.\46\ The purpose of this provision
is to help ensure that confidential information relating to NYSE
Alternext U.S.'s self-regulatory function is accorded appropriate
confidential treatment and is not misused.
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\46\ See Article VII of the proposed NYSE Alternext U.S.
Operating Agreement.
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Notwithstanding the foregoing, such confidential information of
NYSE Alternext U.S. shall be subject at all times to inspection and
copying by the Commission at no cost to the Commission. Nothing in the
NYSE Alternext U.S. Operating Agreement shall be interpreted as to
limit or impede the rights of the Commission to access and examine such
confidential information of NYSE Alternext U.S. pursuant to the U.S.
federal securities laws and the rules thereunder, or to limit or impede
the ability of a director, NYSE Alternext U.S. and its personnel to
disclose such confidential information to the Commission. In addition,
the NYSE Euronext Bylaws and the NYSE Group Charter also currently
contain similar provisions relating to protecting the confidential
information of its Regulated Subsidiaries,\47\ and the definition of
Regulated Subsidiaries will be amended in connection with the Mergers
to also include NYSE Alternext U.S.
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\47\ See Article VIII of the proposed NYSE Euronext Bylaws and
Article X of the proposed NYSE Group Charter.
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c. Ownership and Voting Limitations
General The NYSE Alternext U.S. Operating Agreement will provide
that NYSE Group, which will be the sole member of NYSE Alternext U.S.
may not transfer or assign its limited liability company interest in
NYSE Alternext U.S. in whole or in part, to any person or entity,
unless such transfer or assignment shall be filed with and approved by
the Commission under Section 19 of the Exchange Act and the rules
promulgated thereunder.\48\ In addition, the NYSE Group Charter
provides that NYSE Euronext, as the owner of all the issued and
outstanding shares of stock of NYSE Group, may not transfer or assign
its ownership interest in NYSE Group, in whole or in part, to any
person or entity, unless such transfer or assignment shall be filed
with and approved by the Commission under Section 19 of the Exchange
Act and the rules promulgated thereunder.\49\
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\48\ See Section 3.03 of the proposed NYSE Alternext U.S.
Operating Agreement.
\49\ See Article IV, Section 4 of the proposed NYSE Group
Charter.
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The NYSE Euronext Charter,\50\ in turn, imposes, and the NYSE
Euronext Bylaws,\51\ which will be amended in connection with the
Mergers to include NYSE Alternext U.S. in the definition of U.S.
Regulated Subsidiaries and which will become effective upon the closing
of the Mergers, will impose, specific limitations on the ability to own
and vote shares of NYSE Euronext stock, which are designed to protect
the independence of the self-regulatory function of NYSE Euronext's
U.S. Regulated Subsidiaries (as defined in the NYSE Euronext
Bylaws),\52\ including NYSE Alternext U.S. following the Mergers.
Following the Mergers, for so long as NYSE Euronext shall control,
directly or indirectly, NYSE Alternext U.S. the board of directors of
NYSE Euronext shall not adopt any resolution to repeal or amend any
provision of the NYSE Euronext Charter or the NYSE Euronext Bylaws
unless such amendment or repeal has been (i) filed with or filed with
and approved by the Commission, or (ii) submitted to the boards of
directors of NYSE Alternext U.S. as well as the other U.S. Regulated
Subsidiaries of NYSE Euronext, and if any or all of such boards of
directors shall determine that such amendment or repeal must be filed
[[Page 46093]]
with or filed with and approved by the Commission before such amendment
or repeal may be effectuated, then such amendment or repeal shall not
be effectuated until filed with or filed with and approved by the
Commission, as the case may be.
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\50\ See Article V of NYSE Euronext Charter.
\51\ See Section 10.12 of the proposed NYSE Euronext Bylaws.
\52\ See Section 7.3(G) of the proposed NYSE Euronext Bylaws.
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Finally, the Exchange proposes to adopt Rule 1, which will mirror
in all material respects NYSE Rule 2B. According to Rule 1(a), without
prior SEC approval, NYSE Alternext U.S. or any entity with which it is
affiliated shall not, directly or indirectly, acquire or maintain an
ownership interest in a member organization. The Exchange notes,
however, that upon completion of the Mergers, Archipelago Securities,
LLC (``Arca Securities''), which is a member organization of the
Exchange, will be an affiliate of NYSE Alternext U.S. Accordingly, the
Exchange requests that the Commission approve NYSE Alternext U.S.'s
affiliation with Arca Securities following the Mergers. Arca Securities
is the approved outbound routing facility of both NYSE Arca and the
NYSE. In its Order approving the merger of the Archipelago Exchange
(``ArcaEx'') with the Pacific Exchange (``PCX''),\53\ the Commission
permitted ArcaEx's holding company, Archipelago Holdings, Inc.
(``Archipelago''), to own and operate Arca Securities, in its capacity
as a facility of the PCX that routes orders from ArcaEx to other market
centers.\54\ This approval remains in effect insofar as Arca Securities
acts in the capacity of a facility of NYSE Arca for the routing of
orders from NYSE Arca to other market centers, including the NYSE and
NYSE Alternext U.S. subject to the applicable conditions.\55\
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\53\ Following the ArcaEx-PCX merger, Archipelago merged with
the NYSE and the PCX was later renamed NYSE Arca.
\54\ See Securities Exchange Act Release No. 52497 (Sept. 22,
2005), 70 FR 56949 (Sept. 29, 2005) (order approving SR-PCX-2005-
90). The Commission's approval was subject to several conditions and
undertakings which remain in effect, specifically that: (1) Arca
Securities would continue to operate and be regulated as a facility
of the PCX; (2) the scope of the exception would be limited to
outbound routing; (3) the primary regulatory responsibility for Arca
Securities would lie with an unaffiliated SRO; and (4) the use of
Arca Securities for outbound routing is only available to--and
optional for--other PCX members.
\55\ Id.
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Arca Securities performs a similar outbound routing function on
behalf of the NYSE. On April 5, 2007, in a notice of immediate
effectiveness, the Commission published the NYSE's rule change that
established Arca Securities as a facility of the NYSE for purposes of
routing orders to away market centers for execution in compliance with
NYSE Rules and Regulation NMS.\56\ Pursuant to NYSE Rule 17, Arca
Securities receives its routing instructions from the NYSE and reports
any such executions back to the NYSE.\57\ Arca Securities has no
discretion and cannot change the terms of an order or the routing
instructions.\58\ Moreover, each type of order is subject to the same
principles governing the NYSE's authority to route orders to away
market centers, namely: use of Arca Securities for outbound routing is
only available to--and is optional for--NYSE members, the primary
regulatory responsibility for Arca Securities lies with an unaffiliated
self-regulatory organization (``SRO''), and, as clarified herein,
appropriate procedures are in place to manage any conflicts of interest
or potential information advantages. In this capacity as a facility of
the NYSE, Arca Securities receives the routing instructions from the
NYSE and routes the orders to various away market centers, including
NYSE Arca and NYSE Alternext U.S. for execution.
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\56\ See Securities Exchange Act Release No. 55590 (April 5,
2007), 72 FR 18707 (April 13, 2007) (notice of immediate
effectiveness of SR-NYSE-2007-29).
\57\ See Rule 17(b)(1) of the NYSE.
\58\ Id.
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Policy and Procedure Regarding Affiliation
In the past, the Commission has noted the potential for
informational advantages that could place an affiliated member of an
exchange at a competitive advantage vis-[agrave]-vis other non-
affiliated members.\59\ As a result, the Exchange proposes to adopt
Rule 1(b), which mirrors in all material respects NYSE Rule 2B(2).
Specifically, NYSE Alternext U.S. Rule 1(b) will provide as follows:
``The holding company owning both the Exchange and Archipelago
Securities LLC shall establish and maintain procedures and internal
controls reasonably designed to ensure that Archipelago Securities, LLC
does not develop or implement changes to its system on the basis of
non-public information regarding planned changes to Exchange systems,
obtained as a result of its affiliation with the Exchange, until such
information is available generally to similarly situated members of the
Exchange in connection with the provision of inbound order routing to
the Exchange.'' The Exchange believes these measures will effectively
address the concerns the Commission may have regarding the potential
for informational advantages favoring Arca Securities vis-a-vis other
non-affiliated NYSE Alternext U.S. members.
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\59\ See Securities Exchange Act Release No. 57648 (April 11,
2008), 73 FR 20981 (April 17, 2008) (order abrogating NYSE Arca Rule
7.31(x)).
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There is no member organization which is an affiliate of NYSE
Alternext U.S. or an entity with which NYSE Alternext U.S. is
affiliated or in which NYSE Alternext U.S. or an entity with which NYSE
Alternext U.S. is affiliated holds ownership interest other than Arca
Securities.\60\
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\60\ Neither Seamount Trading LLC, a wholly-owned subsidiary of
the Exchange, nor Seamount Execution Services LLC, a wholly-owned
subsidiary of Seamount Trading LLC, is currently operational. If, in
the future, one or both entities, neither of which is an Amex
member, become(s) operational, NYSE Alternext U.S. will provide the
Commission with the details relating to the function performed by
such entity or entities for NYSE Alternext U.S. and the conditions
relating to the provision by such entity of such services.
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Record Keeping Procedure
The Exchange notes that the Commission has previously expressed
concern regarding the potential for conflicts of interest in instances
where a member firm is affiliated with an exchange to which it is
routing orders.\61\
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\61\ See supra note 59.
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In order to manage these concerns, with respect to orders routed to
NYSE Alternext U.S. by Arca Securities, an NYSE Alternext U.S. member,
in its capacity as a facility of either NYSE Arca or the NYSE, the
Exchange notes that Arca Securities is subject to independent oversight
and enforcement by the Financial Industry Regulatory Authority
(``FINRA''), an unaffiliated SRO that is Arca Securities' designated
examining authority. In this capacity, FINRA is responsible for
examining Arca Securities with respect to its books and records and
capital obligations, and shares with NYSE Regulation the responsibility
for reviewing Arca Securities' compliance with intermarket trading
rules such as SEC Regulation NMS. In addition, through an agreement by
and among NYSE, FINRA and NYSE Alternext U.S. pursuant to the
provisions of SEC Rule 17d-2 under the Exchange Act (``Umbrella 17d-2
Agreement''), FINRA's staff will review for Arca Securities' compliance
with other NYSE Alternext U.S. Rules through FINRA's examination
program \62.\ NYSE Regulation will monitor Arca Securities for
compliance with NYSE Alternext U.S. trading rules, subject, of course,
to SEC oversight of NYSE Regulation's regulatory program.
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\62\ In the event the Umbrella 17d-2 Agreement is not entered
into at the Effective Time, Arca Securities will be subject to the
regulation of FINRA with respect to its obligations as a member
organization of NYSE Alternext U.S. pursuant to the New Multi-Party
FINRA RSA (defined below).
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In order to alleviate any residual concerns the Commission may have
regarding the potential for conflicts of
[[Page 46094]]
interest, the Exchange notes that NYSE Regulation has agreed with NYSE
Alternext U.S. that it will collect and maintain the following
information of which NYSE Regulation staff becomes aware--namely, all
alerts, complaints, investigations and enforcement actions where Arca
Securities (in its capa
