Order Granting Application by EDGX Exchange, Inc. and EDGA Exchange, Inc. for a Conditional Exemption Pursuant to Section 36(a) of the Exchange Act From Certain Requirements of Rules 6a-1 and 6a-2 Under the Exchange Act, 47828-47831 [E9-22346]

Download as PDF 47828 Federal Register / Vol. 74, No. 179 / Thursday, September 17, 2009 / Notices cprice-sewell on DSK2BSOYB1PROD with NOTICES ‘‘Exchanges’’) submitted to the Securities and Exchange Commission (‘‘Commission’’) Form 1 applications under the Securities Exchange Act of 1934 (‘‘Exchange Act’’), seeking registration as national securities exchanges under Section 6 of the Exchange Act.1 On July 30, 2009, the Exchanges each submitted Amendment No. 1 to their Form 1 applications. The Commission is publishing this notice to solicit comments on the Exchanges’ Form 1 applications, as amended. The Commission will take these comments into consideration in making its determination about whether to grant the Exchanges’ requests to be registered as national securities exchanges. The Commission will grant the registrations if it finds that the requirements of the Exchange Act and the rules and regulations thereunder with respect to the Exchanges are satisfied.2 The Exchanges’ Form 1 applications, as amended, provide detailed information on how they propose to satisfy the requirements of the Exchange Act. In general, the Exchanges, which are wholly-owned subsidiaries of Direct Edge Holdings LLC, will each operate separate fully automated electronic books for orders to buy or sell securities with continuous, automated matching functions.3 Liquidity on the Exchanges will be derived from orders to buy and orders to sell submitted to the Exchanges electronically by their respective members from remote locations. Neither EDGX nor EDGA will have a trading floor, nor will they have exchange specialists or market makers. The Exchanges’ Form 1 applications, as amended, are available at the Commission’s Public Reference Room and https://www.sec.gov. Interested persons are invited to submit written data, views, and arguments concerning the Exchanges’ Form 1 applications, as amended, including whether the Exchanges’ applications, as amended, are consistent with the Exchange Act. Comments may 1 On September 11, 2009, the Commission issued an order granting EDGX and EDGA exemptive relief, subject to certain conditions, in connection with the filing of their Form 1 applications. See Securities Exchange Act Release No. 60650. 2 15 U.S.C. 78s(a). 3 EDGX and EDGA represented that the Step-Up functionality, set forth in the Form 1 applications, is the same functionality as Enhanced Liquidity Provider (‘‘ELP’’) functionality offered by Direct Edge ECN LLC (‘‘DECN’’). EDGX and EDGA also agreed to amend the Form 1 applications to comply with any Commission rulemaking in this area. See Letter from William O’Brien, Chief Executive Officer, Direct Edge Holdings LLC, DECN, EDGX, and EDGA, to James Brigagliano, Co-Acting Director, Division of Trading and Markets, Commission, dated August 10, 2009. VerDate Nov<24>2008 14:35 Sep 16, 2009 Jkt 217001 be submitted by any of the following methods: SECURITIES AND EXCHANGE COMMISSION Electronic Comments [Release No. 34–60650] • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/other.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number(s) 10–193 (for EDGX) and 10– 194 (for EDGA) on the subject line. Order Granting Application by EDGX Exchange, Inc. and EDGA Exchange, Inc. for a Conditional Exemption Pursuant to Section 36(a) of the Exchange Act From Certain Requirements of Rules 6a–1 and 6a–2 Under the Exchange Act Paper Comments September 11, 2009. • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549–1090. I. Introduction All submissions should refer to File Number(s) 10–193 (for EDGX) and 10– 194 (for EDGA). These file number(s) 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/other.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the Exchanges’ Form 1 applications filed with the Commission, and all written communications relating to the application between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for 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. 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(s) 10–193 (for EDGX) and 10– 194 (for EDGA) and should be submitted on or before November 2, 2009. By the Commission. Elizabeth M. Murphy, Secretary. [FR Doc. E9–22347 Filed 9–16–09; 8:45 am] BILLING CODE 8010–01–P PO 00000 Frm 00052 Fmt 4703 Sfmt 4703 EDGX Exchange, Inc. (‘‘EDGX’’) and EDGA Exchange, Inc. (‘‘EDGA,’’ and, together with EDGX, the ‘‘Applicants’’) each submitted to the Securities and Exchange Commission (‘‘Commission’’) an application on Form 1 under the Securities Exchange Act of 1934 (‘‘Exchange Act’’) to register as a national securities exchange. In addition, the Applicants, pursuant to Rule 0–12 1 under the Exchange Act, have requested an exemption under Section 36(a)(1) of the Exchange Act 2 from certain requirements of Rules 6a– 1(a) and 6a–2 under the Exchange Act.3 This order grants the Applicants’ request for exemptive relief, subject to the satisfaction of certain conditions, which are outlined below. II. Application for Conditional Exemption From Certain Requirements of Exchange Act Rules 6a–1 and 6a–2 A. Filing Requirements Under Exchange Act Rule 6a–1(a) Exchange Act Rule 6a–1(a) requires an applicant for registration as a national securities exchange to file an application with the Commission on Form 1. Exhibit C to Form 1 requires the applicant to provide certain information with respect to each of its subsidiaries and affiliates.4 For purposes of Form 1, 1 17 CFR 240.0–12. U.S.C. 78mm(a)(1). 3 17 CFR 240.6a–1(a) and 6a–2. See letter from Eric W. Hess, General Counsel and Secretary, EDGA and EDGX, to Elizabeth Murphy, Secretary, Commission, dated July 30, 2009 (‘‘Exemption Request’’). 4 Specifically, Exhibit C requires the applicant to provide, for each subsidiary or affiliate, and for any entity that operates an electronic trading system used to effect transactions on the exchange: (1) The name and address of the organization; (2) the form of organization; (3) the name of the State and statute citation under which it is organized, and the date of its incorporation in its present form; (4) a brief description of the nature and extent of the affiliation; (5) a brief description of the organization’s business or function; (6) a copy of the organization’s constitution; (7) a copy of the organization’s articles of incorporation or association, including all amendments; (8) a copy of the organization’s by-laws or corresponding rules or instruments; (9) the name and title of the 2 15 E:\FR\FM\17SEN1.SGM 17SEN1 Federal Register / Vol. 74, No. 179 / Thursday, September 17, 2009 / Notices an ‘‘affiliate’’ is ‘‘[a]ny person that, directly or indirectly, controls, is under common control with, or is controlled by, the national securities exchange * * * including any employees.’’ 5 Form 1 defines ‘‘control’’ as ‘‘[t]he power, directly or indirectly, to direct the management or policies of a company, whether through ownership of securities, by contract, or otherwise * * *.’’ 6 Form 1 provides, further, that any person that directly or indirectly has the right to vote 25% or more of a class of voting securities, or has the power to sell or direct the sale of 25% or more of a class of voting securities, is presumed to control the entity.7 Exhibit D to Form 1 requires an applicant for exchange registration to provide unconsolidated financial statements for the latest fiscal year for each subsidiary or affiliate. Exhibit D requires the financial statements to include, at a minimum, a balance sheet and an income statement with such footnotes and other disclosures as are necessary to avoid rendering the financial statements misleading. Exhibit D provides, in addition, that if any affiliate or subsidiary of the applicant is required by another Commission rule to submit annual financial statements, a statement to that effect, with a citation to the other Commission rule, may be provided in lieu of the financial statements required in Exhibit D. A Form 1 application is not considered filed until all necessary information, including financial statements and other required documents, have been furnished in the proper form.8 cprice-sewell on DSK2BSOYB1PROD with NOTICES B. Filing Requirements Under Exchange Act Rule 6a–2 Exchange Act Rule 6a–2(a)(2) requires a national securities exchange to update the information provided in Exhibit C within 10 days of any action that causes the information provided in Exhibit C to become inaccurate or incomplete. In addition, Exchange Act Rule 6a–2(b)(1) organization’s present officers, governors, members of all standing committees, or persons performing similar functions; and (10) an indication of whether the business or organization ceased to be associated with the applicant during the previous year, and a brief statement of the reasons for termination of the association. 5 Form 1 Instructions, Explanation of Terms, 17 CFR 249.1. 6 Id. 7 Id. 8 17 CFR 202.3(b)(2). Defective Form 1 applications may be returned with a request for correction or held until corrected before being accepted as a filing. See 17 CFR 202.3(b)(2). See also Securities Exchange Act Release No. 40760 (December 8, 1998), 63 FR 70844 (December 22, 1998) (‘‘Regulation ATS Adopting Release’’) at note 329 and accompanying text. VerDate Nov<24>2008 14:35 Sep 16, 2009 Jkt 217001 requires a national securities exchange to file Exhibit D on or before June 30 of each year, and Exchange Act Rule 6a– 2(c) requires a national securities exchange to file Exhibit C every three years. C. Exemption Request On July 23, 2009, the Applicants requested that the Commission grant an exemption under Section 36 of the Exchange Act, subject to the conditions set forth below, from the requirement under Exchange Act Rule 6a–1 to file the information requested in Exhibits C and D to Form 1 for the ‘‘Foreign Indirect Affiliates,’’ as defined below, of the Applicants.9 In addition, the Applicants requested an exemption, subject to certain conditions, with respect to the Foreign Indirect Affiliates from the requirements under: (1) Exchange Act Rule 6a–2(a)(2) to amend Exhibit C within 10 days if the information in Exhibit C becomes inaccurate or incomplete; and (2) Exchange Act Rules 6a–2(b)(1) and (c) to file periodic updates to Exhibits C and D. The Applicants are wholly-owned subsidiaries of Direct Edge Holdings LLC (‘‘DE Holdings’’). International Securities Exchange Holdings, Inc. (‘‘ISE Holdings’’) owns a 31.54% ownership interest in DE Holdings.10 ISE Holdings is a wholly-owned subsidiary of U.S. Exchange Holdings, Inc., which is wholly-owned by a German stock corporation, Eurex Frankfurt AG (‘‘Eurex Frankfurt’’). Eurex Frankfurt is wholly-owned by Eurex Zurich AG (‘‘Eurex Zurich’’), a Swiss stock corporation owned by SIX Swiss Exchange AG (‘‘SIX Swiss Exchange’’), and Deutsche Borse AG (‘‘Deutsche Borse’’).11 SIX Swiss Exchange is a wholly-owned subsidiary of SIX Group AG (‘‘SIX Group’’), a Swiss stock corporation. According to the Applicants, Eurex Frankfurt, Eurex Zurich, SIX Swiss Exchange, Deutsche Borse, and SIX Group (collectively, the ‘‘Foreign Direct Affiliates’’) hold ownership interests in excess of 25% in a large number of other foreign entities, some of which also own interests in excess of 25% in other entities (such Foreign Direct Affiliate-owned entities 9 See Exemption Request, supra note 3. Exemption Request, supra note 3, at 2–3. See also Securities Exchange Act Release No. 59135 (December 22, 2008), 73 FR 79954 (December 30, 2008) (File No. SR–ISE–2008–85) (order approving ISE Holdings’ purchase of an ownership interest in DE Holdings). 11 SIX Swiss Exchange, a Swiss stock corporation, and Deutsche Borse, a German stock corporation, each own approximately 50% of Eurex Zurich. See Exemption Request, supra note 3, at 2–3. 10 See PO 00000 Frm 00053 Fmt 4703 Sfmt 4703 47829 are referred to, collectively, as the ‘‘Foreign Indirect Affiliates’’).12 Because of the limited and indirect nature of their connection to the Foreign Indirect Affiliates, the Applicants believe that the corporate and financial information of the Foreign Indirect Affiliates required by Exhibits C and D of Form 1 would have little relevance to the Commission’s review of the Applicants’ Form 1 applications or to the Commission’s ongoing oversight of the Applicants as national securities exchanges if the Commission approves the Applicants’ Form 1 applications.13 In this regard, the Exemption Request states that the Foreign Indirect Affiliates have no ability to influence the management, policies, or finances of the Applicants and no obligation to provide funding to, or ability to materially affect the funding of, the Applicants.14 The Exemption Request also states that (1) the Foreign Indirect Affiliates have no ownership interest in the Applicants or in any of the controlling shareholders of the Applicants; and (2) there are no commercial dealings between the Applicants and the Foreign Indirect Affiliates.15 Further, the Exemption Request states that obtaining detailed corporate and financial information with respect to the Foreign Indirect Affiliates (1) is unnecessary for the protection of investors and the public interest and (2) would be unduly burdensome and inefficient because these affiliates are located in foreign jurisdictions and the disclosure of such information could implicate foreign information sharing restrictions in such jurisdictions.16 As a condition to the granting of exemptive relief, the Applicants have agreed to provide: (i) A listing of the names of the Foreign Indirect Affiliates; (ii) an organizational chart setting forth the affiliation of the Foreign Indirect Affiliates and the Foreign Direct Affiliates and the Applicants; and (iii) in Exhibit C of the Applicants’ respective Form 1 applications, a description of the nature of the Foreign Indirect Affiliates’ affiliation with the Foreign Direct Affiliates and the Applicants. In addition, as a condition to the granting of exemptive relief from the requirements of Exchange Act Rule 6a–2(a)(2), 6a–2(b)(1), and 6a–2(c), as 12 See Exemption Request, supra note 3, at 3. 13 Id. 14 Id. 15 Id. 16 Id. The Applicants also believe that providing the information required by Exhibits C and D with respect to the Foreign Indirect Affiliates could raise confidentiality concerns because many of the Foreign Indirect Affiliates are not public companies. Id. E:\FR\FM\17SEN1.SGM 17SEN1 47830 Federal Register / Vol. 74, No. 179 / Thursday, September 17, 2009 / Notices described above, the Applicants have agreed to provide amendments to the information required under conditions (i) through (iii) above on or before June 30th of each year. Further, the Applicants note that they will provide the information required by Exhibits C and D for all of their affiliates other than the Foreign Indirect Affiliates, including the Foreign Direct Affiliates.17 III. Order Granting Conditional Section 36 Exemption Section 6 of the Exchange Act 18 sets forth a procedure for an exchange to register as a national securities exchange.19 Exchange Act Rule 6a– 1(a) 20 requires an application for registration as a national securities exchange to be filed on Form 1 in accordance with the instructions in Form 1. A Form 1 application is not considered filed until all necessary information, including financial statements and other required documents, have been furnished in the proper form.21 Exchange Act Rule 6a–2 establishes ongoing requirements to file certain amendments to Form 1. Section 36(a)(1) of the Exchange Act provides that ‘‘the Commission, by rule, regulation, or order, may conditionally or unconditionally exempt any person, security, or transaction, or any class or classes of persons, securities, or transactions, from any provision or provisions of [the Exchange Act] or of any rule or regulation thereunder, to the extent that such exemption is necessary or appropriate in the public interest, and is consistent with the protection of investors.’’ 22 For the reasons discussed below, the Commission believes that it is appropriate in the public interest and consistent with the protection of investors to exempt the Applicants from the requirement under Exchange Act Rule 6a–1 to provide the information required in Exhibits C and D to Form 1 with respect to the Foreign Indirect Affiliates, subject to the following conditions: 17 See Exemption Request, supra note 3, at 4. U.S.C. 78f. 19 Specifically, Section 6(a) of the Exchange Act states that ‘‘[a]n exchange may be registered as a national securities exchange * * * by filing with the Commission an application for registration in such form as the Commission, by rule, may prescribe containing the rules of the exchange and such other information and documents as the Commission, by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors.’’ Section 6 of the Exchange Act also sets forth various requirements to which a national securities exchange is subject. 20 17 CFR 240.6a–1(a). 21 17 CFR 202.3(b)(2). See also note 8, supra. 22 15 U.S.C. 78mm(a)(1). cprice-sewell on DSK2BSOYB1PROD with NOTICES 18 15 VerDate Nov<24>2008 14:35 Sep 16, 2009 Jkt 217001 (1) The Applicants must provide a list of the names of the Foreign Indirect Affiliates; (2) The Applicants must provide an organizational chart setting forth the affiliation of the Foreign Indirect Affiliates and the Foreign Direct Affiliates and the Applicants; and (3) As part of Exhibit C to the Applicants’ respective Form 1 Applications, the Applicants must provide a description of the nature of the affiliation between the Foreign Indirect Affiliates and the Foreign Direct Affiliates and the Applicants. The Commission believes, further, that it is appropriate in the public interest and consistent with the protection of investors to exempt the Applicants, with respect to the Foreign Indirect Affiliates, from the requirements under: (a) Exchange Act Rule 6a–2(a)(2) to amend Exhibit C within 10 days of any action that renders the information in Exhibit C inaccurate or incomplete; (b) Exchange Act Rules 6a–2(c) to provide periodic updates of Exhibit C; and (c) Exchange Act Rules 6a–2(b)(1) to provide periodic updates of Exhibits D, subject to the condition that the Applicants provide amendments to the information required under conditions (1) through (3) above on or before June 30th of each year. As part of an application for exchange registration, the information included in Exhibits C and D is designed to help the Commission make the determinations required under Sections 6(b) and 19(a) of the Exchange Act with respect to the application. The updated Exhibit C and D information required under Exchange Act Rule 6a–2 is designed to help the Commission exercise its oversight responsibilities with respect to registered national securities exchanges. Specifically, Exhibit D is designed to provide the Commission with information concerning the financial status of an exchange and its affiliates and subsidiaries,23 and Exhibit C provides the Commission with the names and organizational documents of these affiliates and subsidiaries.24 Such information is designed to help the Commission determine whether an applicant for exchange registration would have the ability to carry out its obligations under the Exchange Act, and whether a registered national securities exchange continues to have the ability to carry out its obligations under the Exchange Act. 23 See Securities Exchange Act Release No. 18843 (June 25, 1982), 47 FR 29259 (July 6, 1982) (proposing amendments to Form 1); see also Form 1, 17 CFR 249.1, and Section II.A., supra. 24 Form 1, 17 CFR 249.1. See also note 4, supra. PO 00000 Frm 00054 Fmt 4703 Sfmt 4703 Since the most recent amendments to Form 1 in 1998,25 many registered national securities exchanges that previously were member-owned organizations with few affiliated entities have demutualized. Some of these demutualized exchanges have been consolidated under holding companies with numerous affiliates that, in some cases, have only a limited and indirect connection to the registered national securities exchange, with no ability to influence the management or policies of the registered exchange and no obligation to fund, or to materially affect the funding of, the registered exchange. The Commission believes that, for these affiliated entities, the information required under Exhibits C and D would have limited relevance to the Commission’s review of an application for exchange registration or to its oversight of a registered exchange. Based on the Applicants’ representations, the indirect nature of the relationship between the Applicants and the Foreign Indirect Affiliates, and the information that the Applicants will provide with respect to the Foreign Direct Affiliates and the Foreign Indirect Affiliates, the Commission believes that it will have sufficient information to review the Applicants’ Form 1 applications and to make the determinations required under Sections 6(b) and 19(a) of the Exchange Act with respect to their applications for registration as national securities exchanges.26 The Commission believes, further, that it would have the information necessary to oversee the Applicants’ activities as national securities exchanges if the Commission approves the Applicants’ Form 1 applications. In particular, the Commission notes that the Applicants have represented that they have no direct connection to the Foreign Indirect Affiliates, that the Foreign Indirect Affiliates have no ability to influence the management or policies of the Applicants, and that the Foreign Indirect Affiliates have no obligation to fund, or ability to materially affect the funding of, the Applicants. In addition, the Commission notes that the Applicants represented that: (1) The Foreign Indirect Affiliates have no ownership interest in the Applicants or 25 See Regulation ATS Adopting Release, note 8, supra. 26 15 U.S.C. 78f(b) and 78s(a). Section 6(b) of the Exchange Act enumerates certain determinations that the Commission must make with respect to an exchange before registering the exchange as a national securities exchange. The Commission will not register an exchange as a national securities exchange unless it is satisfied that the exchange meets these requirements. See Regulation ATS Adopting Release, supra note 8, at IV.B. E:\FR\FM\17SEN1.SGM 17SEN1 Federal Register / Vol. 74, No. 179 / Thursday, September 17, 2009 / Notices in any of the controlling shareholders of the Applicants; and (2) there are no commercial dealings between the Applicants and the Foreign Indirect Affiliates.27 The Commission also believes that, based on the Applicants’ representations, it could be burdensome for the Applicants to obtain detailed corporate and financial information with respect to the Foreign Indirect Affiliates because these affiliates are located in foreign jurisdictions and the disclosure of such information could implicate foreign information sharing restrictions in such jurisdictions.28 Given the limited and indirect relationship between the Applicants and the Foreign Indirect Affiliates and the location of the Foreign Indirect Affiliates in foreign jurisdictions, as described above, the Commission believes that the detailed corporate and financial information required in Exhibits C and D with respect to the Foreign Indirect Affiliates is unnecessary for the Commission’s review of the Applicants’ Form 1 applications and would be unnecessary for the Commission’s oversight of the Applicants as registered national securities exchanges following any Commission approval of their Form 1 applications. For the reasons discussed above, the Commission finds that the conditional exemptive relief requested by the Applicants is appropriate in the public interest and is consistent with the protection of investors. It is ordered, pursuant to Section 36 of the Exchange Act,29 and subject to the conditions described above, that the Applicants are exempt from the requirements to: (1) Include in their Form 1 applications the information required in Exhibits C and D to Form 1 with respect to the Foreign Indirect Affiliates; and (2) with respect to the Foreign Indirect Affiliates, update the information in Exhibits C and D to Form 1 as required by Exchange Act Rules 6a– 2(a)(2), 6a–2(b)(1), and 6a–2(c). cprice-sewell on DSK2BSOYB1PROD with NOTICES By the Commission. Elizabeth M. Murphy, Secretary. [FR Doc. E9–22346 Filed 9–16–09; 8:45 am] SECURITIES AND EXCHANGE COMMISSION [Release No. 34–60653; File No. SR–NYSE– 2009–89] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change As Modified by Amendment No. 1 To Amend Certain Corporate Governance Requirements September 11, 2009 Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on August 26, 2009, New York Stock Exchange LLC (‘‘NYSE’’ or the ‘‘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 prepared by the selfregulatory organization. NYSE filed Amendment No. 1 to the proposed rule change on September 10, 2009.4 The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend certain of its corporate governance requirements set forth in Section 303A of the Listed Company Manual (the ‘‘Manual’’). The text of the proposed rule change is available on the Exchange’s Web site (https:// www.nyse.com), at the Exchange’s Office of the Secretary, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, Proposed Rule Change In its filing with the Commission, the self-regulatory organization 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 those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, 1 15 BILLING CODE 8010–01–P U.S.C. 78s(b)(1). U.S.C. 78a. 3 17 CFR 240.19b–4. 4 In Amendment No. 1, NYSE added a sentence to the purpose section describing where a copy of the proposed rule change may be obtained; clarified a sentence in the purpose section; revised the statutory basis section; and underlined a parenthetical in the proposed rule text to show new text. 2 15 27 See Exemption Request, supra note 3, at 3. id. 29 15 U.S.C. 78mm. 28 See VerDate Nov<24>2008 14:35 Sep 16, 2009 Jkt 217001 PO 00000 Frm 00055 Fmt 4703 Sfmt 4703 47831 set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose On November 4, 2003, the U.S. Securities and Exchange Commission (the ‘‘SEC’’) approved Section 303A of the Listed Company Manual. This section imposed significant corporate governance requirements on the Exchange’s listed companies and focused mainly on director independence and the duties of the audit, nomination and compensation committees of the board. The Exchange now proposes to amend Section 303A to clarify some of the disclosure requirements, to codify certain interpretations made since the rules were enacted, and to replace certain disclosure requirements by incorporating into the Exchange’s rules the applicable disclosure requirements of Regulation S–K. In addition, the Exchange is proposing to eliminate the current requirements of Section 307.00 and redesignate Section 303A.14 as Section 307. The proposed changes to Sections 303A and 307.00 will not take effect until January 1, 2010. Consequently, the existing text of these sections will remain in the Listed Company Manual through December 31, 2009 and will be removed immediately thereafter. Upon approval of this filing, the amended versions of those sections will also be included in the Listed Company Manual, with introductory text indicating that the revised text does not become operative until January 1, 2010. The Exchange proposes to amend references to the ‘‘company’’ throughout Section 303A to the ‘‘listed company,’’ wherever the context makes that change appropriate. The discussion below begins with a description of the proposed approach to corporate governance disclosures, as this approach is adopted consistently in numerous instances throughout Section 303A. There then follows a detailed section-by-section description of all of the other proposed changes. Corporate Governance Disclosures: On August 29, 2006, in connection with amendments to its executive compensation and related person disclosure, the SEC adopted Item 407 of Regulation S–K to consolidate director independence and related corporate governance disclosure requirements under a single item and update such E:\FR\FM\17SEN1.SGM 17SEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 74, Number 179 (Thursday, September 17, 2009)]
[Notices]
[Pages 47828-47831]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-22346]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60650]


Order Granting Application by EDGX Exchange, Inc. and EDGA 
Exchange, Inc. for a Conditional Exemption Pursuant to Section 36(a) of 
the Exchange Act From Certain Requirements of Rules 6a-1 and 6a-2 Under 
the Exchange Act

September 11, 2009.

I. Introduction

    EDGX Exchange, Inc. (``EDGX'') and EDGA Exchange, Inc. (``EDGA,'' 
and, together with EDGX, the ``Applicants'') each submitted to the 
Securities and Exchange Commission (``Commission'') an application on 
Form 1 under the Securities Exchange Act of 1934 (``Exchange Act'') to 
register as a national securities exchange. In addition, the 
Applicants, pursuant to Rule 0-12 \1\ under the Exchange Act, have 
requested an exemption under Section 36(a)(1) of the Exchange Act \2\ 
from certain requirements of Rules 6a-1(a) and 6a-2 under the Exchange 
Act.\3\ This order grants the Applicants' request for exemptive relief, 
subject to the satisfaction of certain conditions, which are outlined 
below.
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    \1\ 17 CFR 240.0-12.
    \2\ 15 U.S.C. 78mm(a)(1).
    \3\ 17 CFR 240.6a-1(a) and 6a-2. See letter from Eric W. Hess, 
General Counsel and Secretary, EDGA and EDGX, to Elizabeth Murphy, 
Secretary, Commission, dated July 30, 2009 (``Exemption Request'').
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II. Application for Conditional Exemption From Certain Requirements of 
Exchange Act Rules 6a-1 and 6a-2

A. Filing Requirements Under Exchange Act Rule 6a-1(a)

    Exchange Act Rule 6a-1(a) requires an applicant for registration as 
a national securities exchange to file an application with the 
Commission on Form 1. Exhibit C to Form 1 requires the applicant to 
provide certain information with respect to each of its subsidiaries 
and affiliates.\4\ For purposes of Form 1,

[[Page 47829]]

an ``affiliate'' is ``[a]ny person that, directly or indirectly, 
controls, is under common control with, or is controlled by, the 
national securities exchange * * * including any employees.'' \5\ Form 
1 defines ``control'' as ``[t]he power, directly or indirectly, to 
direct the management or policies of a company, whether through 
ownership of securities, by contract, or otherwise * * *.'' \6\ Form 1 
provides, further, that any person that directly or indirectly has the 
right to vote 25% or more of a class of voting securities, or has the 
power to sell or direct the sale of 25% or more of a class of voting 
securities, is presumed to control the entity.\7\
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    \4\ Specifically, Exhibit C requires the applicant to provide, 
for each subsidiary or affiliate, and for any entity that operates 
an electronic trading system used to effect transactions on the 
exchange: (1) The name and address of the organization; (2) the form 
of organization; (3) the name of the State and statute citation 
under which it is organized, and the date of its incorporation in 
its present form; (4) a brief description of the nature and extent 
of the affiliation; (5) a brief description of the organization's 
business or function; (6) a copy of the organization's constitution; 
(7) a copy of the organization's articles of incorporation or 
association, including all amendments; (8) a copy of the 
organization's by-laws or corresponding rules or instruments; (9) 
the name and title of the organization's present officers, 
governors, members of all standing committees, or persons performing 
similar functions; and (10) an indication of whether the business or 
organization ceased to be associated with the applicant during the 
previous year, and a brief statement of the reasons for termination 
of the association.
    \5\ Form 1 Instructions, Explanation of Terms, 17 CFR 249.1.
    \6\ Id.
    \7\ Id.
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    Exhibit D to Form 1 requires an applicant for exchange registration 
to provide unconsolidated financial statements for the latest fiscal 
year for each subsidiary or affiliate. Exhibit D requires the financial 
statements to include, at a minimum, a balance sheet and an income 
statement with such footnotes and other disclosures as are necessary to 
avoid rendering the financial statements misleading. Exhibit D 
provides, in addition, that if any affiliate or subsidiary of the 
applicant is required by another Commission rule to submit annual 
financial statements, a statement to that effect, with a citation to 
the other Commission rule, may be provided in lieu of the financial 
statements required in Exhibit D.
    A Form 1 application is not considered filed until all necessary 
information, including financial statements and other required 
documents, have been furnished in the proper form.\8\
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    \8\ 17 CFR 202.3(b)(2). Defective Form 1 applications may be 
returned with a request for correction or held until corrected 
before being accepted as a filing. See 17 CFR 202.3(b)(2). See also 
Securities Exchange Act Release No. 40760 (December 8, 1998), 63 FR 
70844 (December 22, 1998) (``Regulation ATS Adopting Release'') at 
note 329 and accompanying text.
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B. Filing Requirements Under Exchange Act Rule 6a-2

    Exchange Act Rule 6a-2(a)(2) requires a national securities 
exchange to update the information provided in Exhibit C within 10 days 
of any action that causes the information provided in Exhibit C to 
become inaccurate or incomplete. In addition, Exchange Act Rule 6a-
2(b)(1) requires a national securities exchange to file Exhibit D on or 
before June 30 of each year, and Exchange Act Rule 6a-2(c) requires a 
national securities exchange to file Exhibit C every three years.

C. Exemption Request

    On July 23, 2009, the Applicants requested that the Commission 
grant an exemption under Section 36 of the Exchange Act, subject to the 
conditions set forth below, from the requirement under Exchange Act 
Rule 6a-1 to file the information requested in Exhibits C and D to Form 
1 for the ``Foreign Indirect Affiliates,'' as defined below, of the 
Applicants.\9\ In addition, the Applicants requested an exemption, 
subject to certain conditions, with respect to the Foreign Indirect 
Affiliates from the requirements under: (1) Exchange Act Rule 6a-
2(a)(2) to amend Exhibit C within 10 days if the information in Exhibit 
C becomes inaccurate or incomplete; and (2) Exchange Act Rules 6a-
2(b)(1) and (c) to file periodic updates to Exhibits C and D.
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    \9\ See Exemption Request, supra note 3.
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    The Applicants are wholly-owned subsidiaries of Direct Edge 
Holdings LLC (``DE Holdings''). International Securities Exchange 
Holdings, Inc. (``ISE Holdings'') owns a 31.54% ownership interest in 
DE Holdings.\10\ ISE Holdings is a wholly-owned subsidiary of U.S. 
Exchange Holdings, Inc., which is wholly-owned by a German stock 
corporation, Eurex Frankfurt AG (``Eurex Frankfurt''). Eurex Frankfurt 
is wholly-owned by Eurex Zurich AG (``Eurex Zurich''), a Swiss stock 
corporation owned by SIX Swiss Exchange AG (``SIX Swiss Exchange''), 
and Deutsche Borse AG (``Deutsche Borse'').\11\ SIX Swiss Exchange is a 
wholly-owned subsidiary of SIX Group AG (``SIX Group''), a Swiss stock 
corporation. According to the Applicants, Eurex Frankfurt, Eurex 
Zurich, SIX Swiss Exchange, Deutsche Borse, and SIX Group 
(collectively, the ``Foreign Direct Affiliates'') hold ownership 
interests in excess of 25% in a large number of other foreign entities, 
some of which also own interests in excess of 25% in other entities 
(such Foreign Direct Affiliate-owned entities are referred to, 
collectively, as the ``Foreign Indirect Affiliates'').\12\
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    \10\ See Exemption Request, supra note 3, at 2-3. See also 
Securities Exchange Act Release No. 59135 (December 22, 2008), 73 FR 
79954 (December 30, 2008) (File No. SR-ISE-2008-85) (order approving 
ISE Holdings' purchase of an ownership interest in DE Holdings).
    \11\ SIX Swiss Exchange, a Swiss stock corporation, and Deutsche 
Borse, a German stock corporation, each own approximately 50% of 
Eurex Zurich. See Exemption Request, supra note 3, at 2-3.
    \12\ See Exemption Request, supra note 3, at 3.
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    Because of the limited and indirect nature of their connection to 
the Foreign Indirect Affiliates, the Applicants believe that the 
corporate and financial information of the Foreign Indirect Affiliates 
required by Exhibits C and D of Form 1 would have little relevance to 
the Commission's review of the Applicants' Form 1 applications or to 
the Commission's ongoing oversight of the Applicants as national 
securities exchanges if the Commission approves the Applicants' Form 1 
applications.\13\ In this regard, the Exemption Request states that the 
Foreign Indirect Affiliates have no ability to influence the 
management, policies, or finances of the Applicants and no obligation 
to provide funding to, or ability to materially affect the funding of, 
the Applicants.\14\ The Exemption Request also states that (1) the 
Foreign Indirect Affiliates have no ownership interest in the 
Applicants or in any of the controlling shareholders of the Applicants; 
and (2) there are no commercial dealings between the Applicants and the 
Foreign Indirect Affiliates.\15\ Further, the Exemption Request states 
that obtaining detailed corporate and financial information with 
respect to the Foreign Indirect Affiliates (1) is unnecessary for the 
protection of investors and the public interest and (2) would be unduly 
burdensome and inefficient because these affiliates are located in 
foreign jurisdictions and the disclosure of such information could 
implicate foreign information sharing restrictions in such 
jurisdictions.\16\
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    \13\ Id.
    \14\ Id.
    \15\ Id.
    \16\ Id. The Applicants also believe that providing the 
information required by Exhibits C and D with respect to the Foreign 
Indirect Affiliates could raise confidentiality concerns because 
many of the Foreign Indirect Affiliates are not public companies. 
Id.
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    As a condition to the granting of exemptive relief, the Applicants 
have agreed to provide: (i) A listing of the names of the Foreign 
Indirect Affiliates; (ii) an organizational chart setting forth the 
affiliation of the Foreign Indirect Affiliates and the Foreign Direct 
Affiliates and the Applicants; and (iii) in Exhibit C of the 
Applicants' respective Form 1 applications, a description of the nature 
of the Foreign Indirect Affiliates' affiliation with the Foreign Direct 
Affiliates and the Applicants. In addition, as a condition to the 
granting of exemptive relief from the requirements of Exchange Act Rule 
6a-2(a)(2), 6a-2(b)(1), and 6a-2(c), as

[[Page 47830]]

described above, the Applicants have agreed to provide amendments to 
the information required under conditions (i) through (iii) above on or 
before June 30th of each year. Further, the Applicants note that they 
will provide the information required by Exhibits C and D for all of 
their affiliates other than the Foreign Indirect Affiliates, including 
the Foreign Direct Affiliates.\17\
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    \17\ See Exemption Request, supra note 3, at 4.
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III. Order Granting Conditional Section 36 Exemption

    Section 6 of the Exchange Act \18\ sets forth a procedure for an 
exchange to register as a national securities exchange.\19\ Exchange 
Act Rule 6a-1(a) \20\ requires an application for registration as a 
national securities exchange to be filed on Form 1 in accordance with 
the instructions in Form 1. A Form 1 application is not considered 
filed until all necessary information, including financial statements 
and other required documents, have been furnished in the proper 
form.\21\ Exchange Act Rule 6a-2 establishes ongoing requirements to 
file certain amendments to Form 1.
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    \18\ 15 U.S.C. 78f.
    \19\ Specifically, Section 6(a) of the Exchange Act states that 
``[a]n exchange may be registered as a national securities exchange 
* * * by filing with the Commission an application for registration 
in such form as the Commission, by rule, may prescribe containing 
the rules of the exchange and such other information and documents 
as the Commission, by rule, may prescribe as necessary or 
appropriate in the public interest or for the protection of 
investors.'' Section 6 of the Exchange Act also sets forth various 
requirements to which a national securities exchange is subject.
    \20\ 17 CFR 240.6a-1(a).
    \21\ 17 CFR 202.3(b)(2). See also note 8, supra.
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    Section 36(a)(1) of the Exchange Act provides that ``the 
Commission, by rule, regulation, or order, may conditionally or 
unconditionally exempt any person, security, or transaction, or any 
class or classes of persons, securities, or transactions, from any 
provision or provisions of [the Exchange Act] or of any rule or 
regulation thereunder, to the extent that such exemption is necessary 
or appropriate in the public interest, and is consistent with the 
protection of investors.'' \22\
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    \22\ 15 U.S.C. 78mm(a)(1).
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    For the reasons discussed below, the Commission believes that it is 
appropriate in the public interest and consistent with the protection 
of investors to exempt the Applicants from the requirement under 
Exchange Act Rule 6a-1 to provide the information required in Exhibits 
C and D to Form 1 with respect to the Foreign Indirect Affiliates, 
subject to the following conditions:
    (1) The Applicants must provide a list of the names of the Foreign 
Indirect Affiliates;
    (2) The Applicants must provide an organizational chart setting 
forth the affiliation of the Foreign Indirect Affiliates and the 
Foreign Direct Affiliates and the Applicants; and
    (3) As part of Exhibit C to the Applicants' respective Form 1 
Applications, the Applicants must provide a description of the nature 
of the affiliation between the Foreign Indirect Affiliates and the 
Foreign Direct Affiliates and the Applicants.
    The Commission believes, further, that it is appropriate in the 
public interest and consistent with the protection of investors to 
exempt the Applicants, with respect to the Foreign Indirect Affiliates, 
from the requirements under: (a) Exchange Act Rule 6a-2(a)(2) to amend 
Exhibit C within 10 days of any action that renders the information in 
Exhibit C inaccurate or incomplete; (b) Exchange Act Rules 6a-2(c) to 
provide periodic updates of Exhibit C; and (c) Exchange Act Rules 6a-
2(b)(1) to provide periodic updates of Exhibits D, subject to the 
condition that the Applicants provide amendments to the information 
required under conditions (1) through (3) above on or before June 30th 
of each year.
    As part of an application for exchange registration, the 
information included in Exhibits C and D is designed to help the 
Commission make the determinations required under Sections 6(b) and 
19(a) of the Exchange Act with respect to the application. The updated 
Exhibit C and D information required under Exchange Act Rule 6a-2 is 
designed to help the Commission exercise its oversight responsibilities 
with respect to registered national securities exchanges. Specifically, 
Exhibit D is designed to provide the Commission with information 
concerning the financial status of an exchange and its affiliates and 
subsidiaries,\23\ and Exhibit C provides the Commission with the names 
and organizational documents of these affiliates and subsidiaries.\24\ 
Such information is designed to help the Commission determine whether 
an applicant for exchange registration would have the ability to carry 
out its obligations under the Exchange Act, and whether a registered 
national securities exchange continues to have the ability to carry out 
its obligations under the Exchange Act.
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    \23\ See Securities Exchange Act Release No. 18843 (June 25, 
1982), 47 FR 29259 (July 6, 1982) (proposing amendments to Form 1); 
see also Form 1, 17 CFR 249.1, and Section II.A., supra.
    \24\ Form 1, 17 CFR 249.1. See also note 4, supra.
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    Since the most recent amendments to Form 1 in 1998,\25\ many 
registered national securities exchanges that previously were member-
owned organizations with few affiliated entities have demutualized. 
Some of these demutualized exchanges have been consolidated under 
holding companies with numerous affiliates that, in some cases, have 
only a limited and indirect connection to the registered national 
securities exchange, with no ability to influence the management or 
policies of the registered exchange and no obligation to fund, or to 
materially affect the funding of, the registered exchange. The 
Commission believes that, for these affiliated entities, the 
information required under Exhibits C and D would have limited 
relevance to the Commission's review of an application for exchange 
registration or to its oversight of a registered exchange.
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    \25\ See Regulation ATS Adopting Release, note 8, supra.
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    Based on the Applicants' representations, the indirect nature of 
the relationship between the Applicants and the Foreign Indirect 
Affiliates, and the information that the Applicants will provide with 
respect to the Foreign Direct Affiliates and the Foreign Indirect 
Affiliates, the Commission believes that it will have sufficient 
information to review the Applicants' Form 1 applications and to make 
the determinations required under Sections 6(b) and 19(a) of the 
Exchange Act with respect to their applications for registration as 
national securities exchanges.\26\ The Commission believes, further, 
that it would have the information necessary to oversee the Applicants' 
activities as national securities exchanges if the Commission approves 
the Applicants' Form 1 applications. In particular, the Commission 
notes that the Applicants have represented that they have no direct 
connection to the Foreign Indirect Affiliates, that the Foreign 
Indirect Affiliates have no ability to influence the management or 
policies of the Applicants, and that the Foreign Indirect Affiliates 
have no obligation to fund, or ability to materially affect the funding 
of, the Applicants. In addition, the Commission notes that the 
Applicants represented that: (1) The Foreign Indirect Affiliates have 
no ownership interest in the Applicants or

[[Page 47831]]

in any of the controlling shareholders of the Applicants; and (2) there 
are no commercial dealings between the Applicants and the Foreign 
Indirect Affiliates.\27\ The Commission also believes that, based on 
the Applicants' representations, it could be burdensome for the 
Applicants to obtain detailed corporate and financial information with 
respect to the Foreign Indirect Affiliates because these affiliates are 
located in foreign jurisdictions and the disclosure of such information 
could implicate foreign information sharing restrictions in such 
jurisdictions.\28\ Given the limited and indirect relationship between 
the Applicants and the Foreign Indirect Affiliates and the location of 
the Foreign Indirect Affiliates in foreign jurisdictions, as described 
above, the Commission believes that the detailed corporate and 
financial information required in Exhibits C and D with respect to the 
Foreign Indirect Affiliates is unnecessary for the Commission's review 
of the Applicants' Form 1 applications and would be unnecessary for the 
Commission's oversight of the Applicants as registered national 
securities exchanges following any Commission approval of their Form 1 
applications.
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    \26\ 15 U.S.C. 78f(b) and 78s(a). Section 6(b) of the Exchange 
Act enumerates certain determinations that the Commission must make 
with respect to an exchange before registering the exchange as a 
national securities exchange. The Commission will not register an 
exchange as a national securities exchange unless it is satisfied 
that the exchange meets these requirements. See Regulation ATS 
Adopting Release, supra note 8, at IV.B.
    \27\ See Exemption Request, supra note 3, at 3.
    \28\ See id.
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    For the reasons discussed above, the Commission finds that the 
conditional exemptive relief requested by the Applicants is appropriate 
in the public interest and is consistent with the protection of 
investors.
    It is ordered, pursuant to Section 36 of the Exchange Act,\29\ and 
subject to the conditions described above, that the Applicants are 
exempt from the requirements to: (1) Include in their Form 1 
applications the information required in Exhibits C and D to Form 1 
with respect to the Foreign Indirect Affiliates; and (2) with respect 
to the Foreign Indirect Affiliates, update the information in Exhibits 
C and D to Form 1 as required by Exchange Act Rules 6a-2(a)(2), 6a-
2(b)(1), and 6a-2(c).
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    \29\ 15 U.S.C. 78mm.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-22346 Filed 9-16-09; 8:45 am]
BILLING CODE 8010-01-P

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