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]

Download as PDF 46086 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 VerDate Aug<31>2005 16:49 Aug 06, 2008 Jkt 214001 PO 00000 Frm 00150 Fmt 4703 Sfmt 4703 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- E:\FR\FM\07AUN1.SGM 07AUN1 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. sroberts on PROD1PC70 with NOTICES (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. VerDate Aug<31>2005 16:49 Aug 06, 2008 Jkt 214001 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. PO 00000 Frm 00151 Fmt 4703 Sfmt 4703 46087 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 E:\FR\FM\07AUN1.SGM 07AUN1 46088 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, sroberts on PROD1PC70 with NOTICES 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. VerDate Aug<31>2005 16:49 Aug 06, 2008 Jkt 214001 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. PO 00000 Frm 00152 Fmt 4703 Sfmt 4703 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, E:\FR\FM\07AUN1.SGM 07AUN1 sroberts on PROD1PC70 with NOTICES Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Notices (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 VerDate Aug<31>2005 16:49 Aug 06, 2008 Jkt 214001 46089 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. PO 00000 Frm 00153 Fmt 4703 Sfmt 4703 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)). E:\FR\FM\07AUN1.SGM 07AUN1 46090 Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Notices sroberts on PROD1PC70 with NOTICES 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. VerDate Aug<31>2005 16:49 Aug 06, 2008 Jkt 214001 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. PO 00000 Frm 00154 32 Id. Fmt 4703 Sfmt 4703 E:\FR\FM\07AUN1.SGM 07AUN1 Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Notices sroberts on PROD1PC70 with NOTICES 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. VerDate Aug<31>2005 16:49 Aug 06, 2008 Jkt 214001 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. PO 00000 Frm 00155 Fmt 4703 Sfmt 4703 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. E:\FR\FM\07AUN1.SGM 07AUN1 46092 Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Notices 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. VerDate Aug<31>2005 16:49 Aug 06, 2008 Jkt 214001 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. PO 00000 Frm 00156 Fmt 4703 Sfmt 4703 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. E:\FR\FM\07AUN1.SGM 07AUN1 Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Notices 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 sroberts on PROD1PC70 with NOTICES 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. VerDate Aug<31>2005 16:49 Aug 06, 2008 Jkt 214001 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)). PO 00000 Frm 00157 Fmt 4703 Sfmt 4703 46093 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). E:\FR\FM\07AUN1.SGM 07AUN1 46094 Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Notices sroberts on PROD1PC70 with NOTICES 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 VerDate Aug<31>2005 16:49 Aug 06, 2008 Jkt 214001 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 PO 00000 Frm 00158 Fmt 4703 Sfmt 4703 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. E:\FR\FM\07AUN1.SGM 07AUN1 Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Notices sroberts on PROD1PC70 with NOTICES 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. VerDate Aug<31>2005 16:49 Aug 06, 2008 Jkt 214001 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. PO 00000 Frm 00159 Fmt 4703 Sfmt 4703 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). E:\FR\FM\07AUN1.SGM 07AUN1 sroberts on PROD1PC70 with NOTICES 46096 Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Notices 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. VerDate Aug<31>2005 16:49 Aug 06, 2008 Jkt 214001 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]


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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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange 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.
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    \3\ The term ``U.S. Regulated Subsidiary'' is defined under 
Article VII, Section 7.3(G) of the Bylaws 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 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.
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    \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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    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\
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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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    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.
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    \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\
---------------------------------------------------------------------------

    \14\ See Section 3.03 of the proposed NYSE Alternext U.S. 
Operating Agreement.
---------------------------------------------------------------------------

(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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \29\ Id.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \30\ Id.
    \31\ Id.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \32\ Id.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    \47\ See Article VIII of the proposed NYSE Euronext Bylaws and 
Article X of the proposed NYSE Group Charter.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    \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
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