Order Granting Application for Extension of a Temporary Conditional Exemption Pursuant to Section 36(a) of the Exchange Act by the International Securities Exchange, LLC Relating to the Ownership Interest of International Securities Exchange Holdings, Inc. in an Electronic Communications Network, 68294-68297 [E9-30426]
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68294
Federal Register / Vol. 74, No. 245 / Wednesday, December 23, 2009 / Notices
3. Within 90 days of the hiring of a
new Sub-Advisor, shareholders of the
relevant Subadvised Series will be
furnished all information about the new
Sub-Advisor that would be included in
a proxy statement, except as modified to
permit Aggregate Fee Disclosure. This
information will include Aggregate Fee
Disclosure and any change in disclosure
caused by the addition of a new SubAdvisor. To meet this obligation, the
Advisor will provide shareholders of the
applicable Subadvised Series within 90
days of the hiring of a new Sub-Advisor
with an information statement meeting
the requirements of Regulation 14C,
Schedule 14C and Item 22 of Schedule
14A under the Exchange Act, except as
modified by the order to permit
Aggregate Fee Disclosure.
4. The Advisor will not enter into a
Sub-Advisory Agreement with any
Affiliated Sub-Advisor without that
agreement, including the compensation
paid thereunder, being approved by the
shareholders of the applicable
Subadvised Series.
5. At all times, at least a majority of
the Board will be Independent Board
Members, and the nomination of new or
additional Independent Board Members
will be placed within the discretion of
the then-existing Independent Board
Members.
6. Independent Legal Counsel, as
defined in rule 0–1(a)(6) under the Act,
will be engaged to represent the
Independent Board Members. The
selection of such counsel will be within
the discretion of the then-existing
Independent Board Members.
7. Whenever a Sub-Advisor change is
proposed for a Subadvised Series with
an Affiliated Sub-Advisor, the Board,
including a majority of the Independent
Board Members, will make a separate
finding, reflected in the Board minutes,
that the change is in the best interests
of the Subadvised Series and its
shareholders, and does not involve a
conflict of interest from which the
Advisor or the Affiliated Sub-Advisor
derives an inappropriate advantage.
8. Whenever a Sub-Advisor is hired or
terminated, the Advisor will provide the
Board with information showing the
expected impact on the profitability of
the Advisor.
9. The Advisor will provide general
investment management services to
each Subadvised Series, including
overall supervisory responsibility for
the general management and investment
of the Subadvised Series’ assets, and
subject to review and approval of the
Board, will: (i) Set the Subadvised
Series’ overall investment strategies; (ii)
evaluate, select and recommend SubAdvisors to manage all or a portion of
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16:41 Dec 22, 2009
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the Subadvised Series’ assets; (iii)
allocate and when appropriate,
reallocate the Subadvised Series’ assets
among Sub-Advisors, (iv) monitor and
evaluate the Sub-Advisors’ performance;
and (v) implement procedures
reasonably designed to ensure that the
Sub-Advisors comply with the
Subadvised Series’ investment
objective, policies and restrictions.
10. The Advisor will provide the
Board, no less frequently than quarterly,
with information about the profitability
of the Advisor on a per-Subadvised
Series basis. The information will reflect
the impact on profitability of the hiring
or termination of any Sub-Advisor
during the applicable quarter.
11. No Board Member or officer of a
DWS Investment Company or director
or officer of the Advisor will own
directly or indirectly (other than
through a pooled investment vehicle
that is not controlled by such person)
any interest in a Sub-Advisor, except for
(i) ownership of interests in the Advisor
or any entity that controls, is controlled
by or is under common control with the
Advisor; or (ii) ownership of less than
1% of the outstanding securities of any
class of equity or debt of a publicly
traded company that is either a SubAdvisor or an entity that controls, is
controlled by, or is under common
control with a Sub-Advisor.
12. Each Subadvised Series will
disclose in its registration statement the
Aggregate Fee Disclosure.
13. In the event the Commission
adopts a rule under the Act providing
substantially similar relief to that in the
order requested in the application, the
requested order will expire on the
effective date of that rule.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–30429 Filed 12–22–09; 8:45 am]
BILLING CODE 8011–01–P
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–61174]
Order Granting Application for
Extension of a Temporary Conditional
Exemption Pursuant to Section 36(a) of
the Exchange Act by the International
Securities Exchange, LLC Relating to
the Ownership Interest of International
Securities Exchange Holdings, Inc. in
an Electronic Communications
Network
December 16, 2009.
I. Introduction
On December 22, 2008, the Securities
and Exchange Commission
(‘‘Commission’’) approved a proposal
filed by the International Securities
Exchange, LLC (‘‘ISE’’ or ‘‘Exchange’’) in
connection with corporate transactions
(the ‘‘Transactions’’) in which, among
other things, the parent company of ISE,
International Securities Exchange
Holdings, Inc. (‘‘ISE Holdings’’),
purchased a 31.54% ownership interest
in Direct Edge Holdings LLC (‘‘Direct
Edge’’), the owner and operator of Direct
Edge ECN (‘‘DECN’’), a registered
broker-dealer and electronic
communications network (‘‘ECN’’).1
Following the closing of the
Transactions (the ‘‘Closing’’), Direct
Edge’s wholly-owned subsidiary, Maple
Merger Sub LLC (‘‘Merger Sub’’) began
to operate a marketplace for the trading
of U.S. cash equity securities by Equity
Electronic Access Members of ISE (the
‘‘Facility’’), under ISE’s rules and as a
‘‘facility,’’ as defined in Section 3(a)(2)
of the Securities Exchange Act of 1934
(‘‘Exchange Act’’),2 of ISE.3
DECN, which operates as an ECN and
submits its limit orders to the Facility
for display and execution, is an affiliate
of ISE through ISE Holdings’ equity
interest in DE Holdings. DECN also is a
facility, as defined in Section 3(a)(2) of
the Exchange Act, of ISE because it is an
affiliate of ISE used for the purpose of
effecting and reporting securities
transactions. Because DECN is a facility
of ISE, ISE, absent exemptive relief,
1 See Securities Exchange Act Release No. 59135
(December 22, 2008), 73 FR 79954 (December 30,
2008) (order approving File No. SR–ISE–2008–85).
2 15 U.S.C. 78c(a)(2).
3 Under Section 3(a)(2) of the Act, the term
‘‘facility,’’ when used with respect to an exchange,
includes ‘‘its premises, tangible or intangible
property whether on the premises or not, any right
to the use of such premises or property or any
service thereof for the purpose of effecting or
reporting a transaction on an exchange (including,
among other things, any system of communication
to or from the exchange, by ticker or otherwise,
maintained by or with the consent of the exchange),
and any right of the exchange to the use of any
property or service.’’
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would be obligated under Section 19(b)
of the Exchange Act to file with the
Commission proposed rules governing
the operation of DECN’s systems and
subscriber fees.
On December 22, 2008, the
Commission exercised its authority
under Section 36 of the Exchange Act to
grant ISE a temporary exemption,
subject to certain conditions, from the
requirements under Section 19(b) of the
Exchange Act with respect to DECN’s
proposed rules.4 On June 19, 2009, the
Commission extended this temporary
exemption for an additional 180 days,
subject to certain conditions.5
On November 16, 2009, ISE filed with
the Commission, pursuant to Rule 0–
12 6 under the Exchange Act, an
application under Section 36(a)(1) of the
Exchange Act 7 to extend the relief
granted in the June Extension for an
additional 180 days, subject to certain
conditions.8 This order grants ISE’s
request for a temporary extension of the
relief provided in the June Extension,
subject to the satisfaction of certain
conditions, which are outlined below.
srobinson on DSKHWCL6B1PROD with NOTICES
II. Application for an Extension of the
Temporary Conditional Exemption
From the Section 19(b) Rule Filing
Requirements
On November 16, 2009, ISE requested
that the Commission exercise its
authority under Section 36 of the
Exchange Act to temporarily extend,
subject to certain conditions, the
temporary conditional exemption
granted in the June Extension from the
rule filing procedures of Section 19(b) of
the Exchange Act in connection with
ISE Holdings’ equity ownership interest
in DE Holdings and the continued
operation of DECN as a facility of ISE.9
The Extension Request notes that on
May 7, 2009, EDGA Exchange, Inc., and
EDGX Exchange, Inc. (together, the
‘‘Exchange Subsidiaries’’), two whollyowned subsidiaries of DE Holdings,
filed with the Commission Form 1
applications (the ‘‘Form 1
Applications’’) to register as national
securities exchanges under Section 6 of
the Exchange Act.10 According to the
4 See Securities Exchange Act Release No. 59133
(December 22, 2008), 73 FR 79940 (December 30,
2008) (‘‘Exemption Order’’).
5 See Securities Exchange Act Release No. 60152
(June 19, 2009), 74 FR 30334 (June 25, 2009) (‘‘June
Extension’’).
6 17 CFR 240.0–12.
7 15 U.S.C. 78mm(a)(1).
8 See letter from Michael J. Simon, General
Counsel and Secretary, ISE, to Elizabeth M.
Murphy, Secretary, Commission, dated November
16, 2009 (‘‘Extension Request’’).
9 See Extension Request at 1.
10 Id. at 2. The Form 1 Applications have been
published for notice and comment. See Securities
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Extension Request, DECN intends to file
a ‘‘Cessation of Operations Report’’ with
the Commission and to cease operations
as an ECN shortly following any
Commission approval of the Form 1
Applications and the Exchange
Subsidiaries commencing operations as
national securities exchanges.11
Because DECN will cease operations
as an ECN if the Commission approves
the Form 1 Applications, ISE expects
that DECN will continue to operate as a
facility of ISE for a relatively brief
period.12 In addition, ISE believes that
it would be unduly burdensome and
inefficient to require DECN’s operating
rules to be separately subject to the
Section 19(b) rule filing process because
the published rules of the Exchange
Subsidiaries ‘‘substantially align with
DECN’s operations in practice and
DECN is only operating temporarily as
a facility of ISE while the Commission
considers the Form 1 Applications.’’ 13
ISE has asked the Commission to
exercise its authority under Section 36
of the Exchange Act to grant ISE a 180day extension of the June Extension’s
relief, subject to certain conditions, from
the Section 19(b) rule filing
requirements that otherwise would
apply to DECN as a facility of ISE.14 The
extended temporary conditional
exemption would commence
immediately and would permit the
continued operation of DECN while the
Commission considers the Form 1
Applications that, if approved, would
allow the Exchange Subsidiaries to
operate in place of DECN.15 ISE believes
that the extended temporary conditional
exemption will help to ensure an
orderly transition from DECN to the
proposed Exchange Subsidiaries.16
ISE states, in addition, that the
extended exemption will not diminish
the Commission’s ability to monitor ISE
and DECN.17 In this regard, ISE notes
that to the extent that ISE makes
changes to its systems, including the
Facility, during the extended temporary
exemption period, or thereafter, it
remains subject to Section 19(b) and
thus obligated to file proposed rule
changes with the Commission.18
Further, in the Extension Request, ISE
Exchange Act Release No. 60651 (September 11,
2009), 74 FR 47827 (September 17, 2009) (‘‘Form 1
Applications Notice’’).
11 See Extension Request at 2.
12 Id.
13 Id.
14 Id.
15 According to ISE, it would be impracticable for
DECN to display its limit orders other than on the
Facility. See Extension Request at 2–3.
16 See Extension Request at 3.
17 Id.
18 Id.
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68295
commits to satisfying certain conditions,
as outlined below, which are identical
to the conditions in the Exemption
Order and the June Extension.19 For
example, as a condition to the extended
temporary exemption, ISE will be
required to submit proposed rule
changes with respect to any material
changes to DECN’s functions during the
exemption period.20 ISE notes, however,
that neither ISE nor DECN anticipates
any material changes to DECN’s
functionality during the extended
temporary exemption period.21
III. Order Granting Extension of
Temporary Conditional Section 36
Exemption
In 1996, Congress gave the
Commission greater flexibility to
regulate trading systems, such as DECN,
by granting the Commission broad
authority to exempt any person from
any of the provisions of the Exchange
Act and to impose appropriate
conditions on their operation.22
Specifically, NSMIA added Section
36(a)(1) to the Exchange Act, which
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.’’ 23 In enacting Section 36,
Congress indicated that it expected that
‘‘the Commission will use this authority
to promote efficiency, competition and
capital formation.’’ 24 It particularly
intended to give the Commission
sufficient flexibility to respond to
changing market and competitive
conditions:
The Committee recognizes that the rapidly
changing marketplace dictates that effective
regulation requires a certain amount of
flexibility. Accordingly, the bill grants the
SEC general exemptive authority under both
the Securities Act and the Securities
Exchange Act. This exemptive authority will
allow the Commission the flexibility to
19 ISE also represents that it has complied with
the conditions in the Exemption Order and the June
Extension and that it will continue to comply with
these conditions during any extension of the relief
granted. See Extension Request at 3.
20 See Extension Request at note 6.
21 See Extension Request at note 5.
22 15 U.S.C. 78mm(a). Section 36 of the Exchange
Act was enacted as part of the National Securities
Markets Improvements Act 1996, Pub. L. No. 104–
290 (‘‘NSMIA’’).
23 15 U.S.C. 78mm(a)(1).
24 H.R. Rep. No. 104–622, 104th Cong., 2d Sess.
38 (1996).
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explore and adopt new approaches to
registration and disclosure. It will also enable
the Commission to address issues relating to
the securities markets more generally. For
example, the SEC could deal with the
regulatory concerns raised by the recent
proliferation of electronic trading systems,
which do not fit neatly into the existing
regulatory framework.25
srobinson on DSKHWCL6B1PROD with NOTICES
As noted above, in December 2008 the
Commission exercised its Section 36
exemptive authority to grant ISE a
temporary exemption, subject to certain
conditions, from the 19(b) rule filing
requirements in connection with the
Transaction.26 On June 19, 2009, the
Commission extended ISE’s temporary
exemption for an additional 180 days.27
In addition, the Commission previously
granted similar exemptive relief in
connection with Nasdaq’s acquisition of
Brut, LLC, the operator of the Brut
ECN.28
25 S. Rep. No. 104–293, 104th Cong., 2d Sess. 15
(1996).
26 See Exemption Order, supra note 4.
27 See June Extension, supra note 5.
28 See Securities Exchange Act Release No. 50311
(September 3, 2004), 69 FR 54818 (September 10,
2004). Although granting the ISE’s Extension
Request would result in a temporary exemption
longer than the exemption granted in connection
with Nasdaq’s acquisition of Brut, LLC, the
Commission believes that an extended exemption is
warranted, in this case, to provide adequate time to
address the regulatory issues raised by ISE’s
ownership structure. In this regard, the Commission
notes that, as a result of ISE’s equity ownership
interest in Direct Edge, the non-U.S. owners of ISE
will have an indirect ownership interest in Direct
Edge and in the Exchange Subsidiaries, as well as
in ISE. When the Commission approved the 2007
transaction in which ISE Holdings became a
wholly-owned indirect subsidiary of Eurex
Frankfurt AG, the corporate governing documents
of ISE Holdings and its parent company, U.S.
Exchange Holdings, and corporate resolutions
adopted by the non-U.S. owners, included
provisions (the ‘‘Regulatory Provisions’’) designed
to maintain the independence of the regulatory
function of ISE, the sole national securities
exchange then owned by ISE Holdings. See
Securities Exchange Act Release No. 56955
(December 13, 2007), 72 FR 71979 (December 19,
2007) (File No. SR–ISE–2007–101). In connection
with ISE Holdings’ subsequent purchase of an
ownership interest in Direct Edge, ISE has filed
proposed changes to the governing documents of
ISE Holdings and U.S. Exchange Holdings that
apply the Regulatory Provisions to any national
securities exchange, or facility thereof, controlled,
directly or indirectly, by ISE Holdings. See, e.g.,
Securities Exchange Act Release Nos. 59135
(December 22, 2008), 73 FR 79954 (December 30,
2008) (File No. SR–ISE–2008–85) (approving
changes to the Certificate of Incorporation and
Bylaws of ISE Holdings); and 61005 (November 16,
2009) (notice of filing of File No. SR–ISE–2009–90)
(proposing changes to Trust Agreement and to the
Certificate of Incorporation and Bylaws of U.S.
Exchange Holdings). Similarly, the Form 1
Applications included forms of supplemental
corporate resolutions, to be adopted by the non-U.S.
owners prior to any Commission approval of the
Form 1 Applications. These supplemental corporate
resolutions will apply the Regulatory Provisions to
the Exchange Subsidiaries. Accordingly, the
amended corporate governing documents of ISE
Holdings and U.S. Exchange Holdings, and the
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Section 19(b)(1) of the Exchange Act
requires a self-regulatory organization
(‘‘self-regulatory organization’’ or
‘‘SRO’’), including ISE, to file with the
Commission its proposed rule changes
accompanied by a concise general
statement of the basis and purpose of
the proposed rule change. Once a
proposed rule change has been filed
with the Commission, the Commission
is required to publish notice of it and
provide an opportunity for public
comment. The proposed rule change
may not take effect unless approved by
the Commission by order, unless the
rule change is within the class of rule
changes that are effective upon filing
pursuant to Section 19(b)(3)(A) of the
Act.29
Section 19(b)(1) of the Exchange Act
defines the term ‘‘proposed rule
change’’ to mean ‘‘any proposed rule or
rule change in, addition to, or deletion
from the rules of [a] self-regulatory
organization.’’ Pursuant to Section
3(a)(27) and 3(a)(28) of the Exchange
Act, the term ‘‘rules of a self-regulatory
organization’’ means (1) the
constitution, articles of incorporation,
bylaws and rules, or instruments
corresponding to the foregoing, of an
SRO, and (2) such stated policies,
practices and interpretations of an SRO
(other than the Municipal Securities
Rulemaking Board) as the Commission,
by rule, may determine to be necessary
or appropriate in the public interest or
for the protection of investors to be
deemed to be rules. Rule 19b–4(b) under
the Exchange Act,30 defines the term
‘‘stated policy, practice, or
interpretation’’ to mean generally ‘‘any
material aspect of the operation of the
facilities of the self-regulatory
organization or any statement made
available to the membership,
participants, or specified persons
thereof that establishes or changes any
standard, limit, or guideline with
respect to rights and obligations of
specified persons or the meaning,
administration, or enforcement of an
existing rule.’’
The term ‘‘facility’’ is defined in
Section 3(a)(2) of the Exchange Act,
with respect to an exchange, to include
‘‘its premises, tangible or intangible
property whether on the premises or
not, any right to use such premises or
supplemental corporate resolutions of the non-U.S.
owners, will apply to the Exchange Subsidiaries
following any Commission approval of the Form 1
Applications. In light of the time required to amend
the corporate governing documents of ISE Holdings
and U.S. Exchange Holdings, and to supplement the
corporate resolutions of the non-U.S. owners, the
Commission believes that it is appropriate to grant
the ISE’s Extension Request.
29 15 U.S.C. 78s(b)(3)(A).
30 17 CFR 240.19b–4(b).
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property or any service thereof for the
purpose of effecting or reporting a
transaction on an exchange (including,
among other things, any system of
communication to or from the exchange,
by ticker or otherwise, maintained by or
with the consent of the exchange), and
any right of the exchange to the use of
any property or service.’’
In its Extension Request, ISE
acknowledges that since the Closing,
Merger Sub has operated the Facility as
a facility of ISE.31 Absent an exemption,
Section 19(b) of the Exchange Act and
Rule 19b–4 thereunder would require
ISE to file proposed rules with the
Commission to allow ISE to operate
DECN as a facility of ISE.
In its Extension Request, ISE notes
that the Exchange Subsidiaries have
filed Form 1 Applications, which have
been published for comment,32 and that
DECN intends to cease operations as an
ECN shortly after any Commission
approval of the Form 1 Applications
and the Exchange Subsidiaries’
commencement of operations as
national securities exchanges.33
Accordingly, ISE expects that DECN
will continue to operate as a facility of
ISE for a relatively brief period of
time.34 ISE represents that it has
complied with the conditions in the
Exemption Order and the June
Extension and that it will continue to
comply with these conditions during an
extension of the relief granted in the
June Extension.35
The Commission believes that it is
appropriate to grant a temporary
extension of the relief provided in the
June Extension, subject to the
conditions described below, to allow
DECN to continue to operate as a facility
of ISE without being subject to the rule
filing requirements of Section 19(b) of
the Exchange Act for a temporary
period.36 Accordingly, the Commission
has determined to grant ISE’s request for
an extension of the relief provided in
the June Extension, subject to certain
conditions, for a period not to exceed
31 See Extension Request at 1. As discussed
above, ISE owns a 31.54% ownership interest in DE
Holdings, the sole owner of Merger Sub.
32 See Form 1 Applications Notice, supra note 10.
33 See Extension Request at 2. The Commission
must approve an application for registration as a
national securities exchange, or institute
proceedings to determine whether the application
should be denied, within 90 days of publication of
notice of filing of the application, or within such
longer period as to which the applicant consents.
See Exchange Act Section 19(a)(1), 15 U.S.C.
78s(a)(1).
34 Id. at 2.
35 Id. at 3.
36 In granting this relief, the Commission makes
no finding regarding whether ISE’s operation of
DECN as a facility would be consistent with the
Exchange Act.
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180 days. The Commission finds that
the temporary extended conditional
exemption from the provisions of
Section 19(b) of the Exchange Act is
appropriate in the public interest and is
consistent with the protection of
investors. In particular, the Commission
believes that the temporary extended
exemption should help promote
efficiency and competition in the
market by allowing DECN to continue to
operate as an ECN for a limited period
of time while the Commission considers
the Form 1 Applications. In this regard,
the Commission notes ISE’s belief that
it would be unduly burdensome and
inefficient to require DECN’s operating
rules to be separately subjected to the
Section 19(b) rule filing and approval
process because DECN will operate only
temporarily as a facility of ISE while the
Commission considers the Form 1
Applications. In addition, the
Commission notes that the Form 1
Applications, which include the rules of
the Exchange Subsidiaries, were
published for comment on September
17, 2009.37 According to ISE, the rules
of the Exchange Subsidiaries
‘‘substantially align’’ with DECN’s
operations in practice.38 Accordingly,
the publication of the Form 1
Applications should help to mitigate
any concerns regarding transparency
with respect to the rules under which
DECN operates temporarily as a facility
of ISE.
To provide the Commission with the
opportunity to review and act upon any
proposal to change DECN’s fees or to
make material changes to DECN’s
operations as an ECN during the period
covered by the extended temporary
exemption, as well as to ensure that the
Commission’s ability to monitor ISE and
DECN is not diminished by the
extended temporary exemption, the
Commission is imposing the following
conditions while the extended
temporary exemption is in effect.39 The
Commission believes such conditions
are necessary and appropriate in the
public interest for the protection of
investors. Therefore, the Commission is
granting to ISE an extended temporary
exemption, pursuant to Section 36 of
the Exchange Act, from the rule filing
requirements imposed by Section 19(b)
of the Exchange Act as set forth above,
provided that ISE and DECN comply
with the following conditions:
(1) DECN remains a registered brokerdealer under Section 15 of the Exchange
37 See Securities Exchange Act Release No. 60651
(September 11, 2009), 74 FR 47827 (September 17,
2009).
38 See Exemption Request at 2.
39 See Extension Request at note 6.
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19:26 Dec 22, 2009
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Act 40 and continues to operate as an
ECN;
(2) DECN operates in compliance with
the obligations set forth under
Regulation ATS;
(3) DECN and ISE continue to operate
as separate legal entities;
(4) ISE files a proposed rule change
under Section 19 of the Exchange Act 41
if any material changes are sought to be
made to DECN’s operations. A material
change would include any changes to a
stated policy, practice, or interpretation
regarding the operation of DECN or any
other event or action relating to DECN
that would require the filing of a
proposed rule change by an SRO or an
SRO facility; 42
(5) ISE files a proposed rule change
under Section 19 of the Exchange Act if
DECN’s fee schedule is sought to be
modified; and
(6) ISE treats DECN the same as other
ECNs that participate in the Facility,
and, in particular, ISE does not accord
DECN preferential treatment in how
DECN submits orders to the Facility or
in the way its orders are displayed or
executed.43
In addition, the Commission notes
that the Financial Industry Regulatory
Authority is currently the Designated
Examining Authority for DECN.
For the reasons discussed above, the
Commission finds that the extended
temporary conditional exemptive relief
requested by ISE 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,44 that the
application for an extended temporary
conditional exemption is granted for a
period of 180 days, effective
immediately.
By the Commission.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–30426 Filed 12–22–09; 8:45 am]
BILLING CODE 8011–01–P
40 15
U.S.C. 78o.
U.S.C. 78s.
42 See Section 19(b) of the Exchange Act and Rule
19b–4 thereunder. The Commission notes that a
material change would include, among other things,
changes to DECN’s operating platform; the types of
securities traded on DECN; DECN’s types of
subscribers; or the reporting venue for trading that
takes place on DECN. The Commission also notes
that any rule filings must set forth the operation of
the DECN facility sufficiently so that the
Commission and the public are able to evaluate the
proposed changes.
43 See Extension Request at note 6.
44 15 U.S.C. 78mm.
41 15
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–61172; File No. SR–OC–
2009–03]
Self-Regulatory Organizations; One
Chicago, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change, as Modified by
Amendment No. 1, Changing Its Listing
Standards in Conformance With
Amended Joint Order
December 16, 2009.
Pursuant to Section 19(b)(7) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–7 under the
Act,2 notice is hereby given that on
December 2, 2009, One Chicago, LLC
(‘‘OneChicago’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the self-regulatory
organization. On December 3, 2009,
OneChicago filed Amendment No. 1 to
the proposed rule change. The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as modified, from interested
persons. OneChicago also filed the
proposed rule change with the
Commodity Futures Trading
Commission (‘‘CFTC’’) under Section
5c(c) of the Commodity Exchange Act 3
on December 2, 2009.
I. Self-Regulatory Organization’s
Description of the Proposed Rule
Change
OneChicago is proposing to amend
Rule 906(a)(1) and (4) to conform its
listing standards to those approved by
both the SEC and the CFTC (together the
‘‘Commissions’’) in their Joint Order
dated November 19, 2009 (‘‘JO–2009’’).4
The text of the proposed rule change is
available on the Exchange’s Web site at
https://www.onechicago.com, on the
Commission’s Web site at https://
www.sec.gov, at OneChicago, and at the
Commission’s Public Reference Room.
A copy of this filing is available on the
Exchange’s Web site at https://
www.onechicago.com, at the Exchange’s
principal office and at the Commission’s
Public Reference Room.
1 15
U.S.C. 78s(b)(7).
CFR 240.19b–7.
3 7 U.S.C. 7a–2(c).
4 Securities and Exchange Commission Release
No. 34–61027 (November 19, 2009). Joint Order
Modifying the Listing Standards Requirements
under Section 6(h) of the Securities Exchange Act
of 1934 and the Criteria under Section 2(a)(1) of the
Commodity Exchange Act.
2 17
E:\FR\FM\23DEN1.SGM
23DEN1
]]>Agencies
[Federal Register Volume 74, Number 245 (Wednesday, December 23, 2009)]
[Notices]
[Pages 68294-68297]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-30426]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61174]
Order Granting Application for Extension of a Temporary
Conditional Exemption Pursuant to Section 36(a) of the Exchange Act by
the International Securities Exchange, LLC Relating to the Ownership
Interest of International Securities Exchange Holdings, Inc. in an
Electronic Communications Network
December 16, 2009.
I. Introduction
On December 22, 2008, the Securities and Exchange Commission
(``Commission'') approved a proposal filed by the International
Securities Exchange, LLC (``ISE'' or ``Exchange'') in connection with
corporate transactions (the ``Transactions'') in which, among other
things, the parent company of ISE, International Securities Exchange
Holdings, Inc. (``ISE Holdings''), purchased a 31.54% ownership
interest in Direct Edge Holdings LLC (``Direct Edge''), the owner and
operator of Direct Edge ECN (``DECN''), a registered broker-dealer and
electronic communications network (``ECN'').\1\ Following the closing
of the Transactions (the ``Closing''), Direct Edge's wholly-owned
subsidiary, Maple Merger Sub LLC (``Merger Sub'') began to operate a
marketplace for the trading of U.S. cash equity securities by Equity
Electronic Access Members of ISE (the ``Facility''), under ISE's rules
and as a ``facility,'' as defined in Section 3(a)(2) of the Securities
Exchange Act of 1934 (``Exchange Act''),\2\ of ISE.\3\
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\1\ See Securities Exchange Act Release No. 59135 (December 22,
2008), 73 FR 79954 (December 30, 2008) (order approving File No. SR-
ISE-2008-85).
\2\ 15 U.S.C. 78c(a)(2).
\3\ Under Section 3(a)(2) of the Act, the term ``facility,''
when used with respect to an exchange, includes ``its premises,
tangible or intangible property whether on the premises or not, any
right to the use of such premises or property or any service thereof
for the purpose of effecting or reporting a transaction on an
exchange (including, among other things, any system of communication
to or from the exchange, by ticker or otherwise, maintained by or
with the consent of the exchange), and any right of the exchange to
the use of any property or service.''
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DECN, which operates as an ECN and submits its limit orders to the
Facility for display and execution, is an affiliate of ISE through ISE
Holdings' equity interest in DE Holdings. DECN also is a facility, as
defined in Section 3(a)(2) of the Exchange Act, of ISE because it is an
affiliate of ISE used for the purpose of effecting and reporting
securities transactions. Because DECN is a facility of ISE, ISE, absent
exemptive relief,
[[Page 68295]]
would be obligated under Section 19(b) of the Exchange Act to file with
the Commission proposed rules governing the operation of DECN's systems
and subscriber fees.
On December 22, 2008, the Commission exercised its authority under
Section 36 of the Exchange Act to grant ISE a temporary exemption,
subject to certain conditions, from the requirements under Section
19(b) of the Exchange Act with respect to DECN's proposed rules.\4\ On
June 19, 2009, the Commission extended this temporary exemption for an
additional 180 days, subject to certain conditions.\5\
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\4\ See Securities Exchange Act Release No. 59133 (December 22,
2008), 73 FR 79940 (December 30, 2008) (``Exemption Order'').
\5\ See Securities Exchange Act Release No. 60152 (June 19,
2009), 74 FR 30334 (June 25, 2009) (``June Extension'').
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On November 16, 2009, ISE filed with the Commission, pursuant to
Rule 0-12 \6\ under the Exchange Act, an application under Section
36(a)(1) of the Exchange Act \7\ to extend the relief granted in the
June Extension for an additional 180 days, subject to certain
conditions.\8\ This order grants ISE's request for a temporary
extension of the relief provided in the June Extension, subject to the
satisfaction of certain conditions, which are outlined below.
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\6\ 17 CFR 240.0-12.
\7\ 15 U.S.C. 78mm(a)(1).
\8\ See letter from Michael J. Simon, General Counsel and
Secretary, ISE, to Elizabeth M. Murphy, Secretary, Commission, dated
November 16, 2009 (``Extension Request'').
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II. Application for an Extension of the Temporary Conditional Exemption
From the Section 19(b) Rule Filing Requirements
On November 16, 2009, ISE requested that the Commission exercise
its authority under Section 36 of the Exchange Act to temporarily
extend, subject to certain conditions, the temporary conditional
exemption granted in the June Extension from the rule filing procedures
of Section 19(b) of the Exchange Act in connection with ISE Holdings'
equity ownership interest in DE Holdings and the continued operation of
DECN as a facility of ISE.\9\
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\9\ See Extension Request at 1.
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The Extension Request notes that on May 7, 2009, EDGA Exchange,
Inc., and EDGX Exchange, Inc. (together, the ``Exchange
Subsidiaries''), two wholly-owned subsidiaries of DE Holdings, filed
with the Commission Form 1 applications (the ``Form 1 Applications'')
to register as national securities exchanges under Section 6 of the
Exchange Act.\10\ According to the Extension Request, DECN intends to
file a ``Cessation of Operations Report'' with the Commission and to
cease operations as an ECN shortly following any Commission approval of
the Form 1 Applications and the Exchange Subsidiaries commencing
operations as national securities exchanges.\11\
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\10\ Id. at 2. The Form 1 Applications have been published for
notice and comment. See Securities Exchange Act Release No. 60651
(September 11, 2009), 74 FR 47827 (September 17, 2009) (``Form 1
Applications Notice'').
\11\ See Extension Request at 2.
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Because DECN will cease operations as an ECN if the Commission
approves the Form 1 Applications, ISE expects that DECN will continue
to operate as a facility of ISE for a relatively brief period.\12\ In
addition, ISE believes that it would be unduly burdensome and
inefficient to require DECN's operating rules to be separately subject
to the Section 19(b) rule filing process because the published rules of
the Exchange Subsidiaries ``substantially align with DECN's operations
in practice and DECN is only operating temporarily as a facility of ISE
while the Commission considers the Form 1 Applications.'' \13\
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\12\ Id.
\13\ Id.
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ISE has asked the Commission to exercise its authority under
Section 36 of the Exchange Act to grant ISE a 180-day extension of the
June Extension's relief, subject to certain conditions, from the
Section 19(b) rule filing requirements that otherwise would apply to
DECN as a facility of ISE.\14\ The extended temporary conditional
exemption would commence immediately and would permit the continued
operation of DECN while the Commission considers the Form 1
Applications that, if approved, would allow the Exchange Subsidiaries
to operate in place of DECN.\15\ ISE believes that the extended
temporary conditional exemption will help to ensure an orderly
transition from DECN to the proposed Exchange Subsidiaries.\16\
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\14\ Id.
\15\ According to ISE, it would be impracticable for DECN to
display its limit orders other than on the Facility. See Extension
Request at 2-3.
\16\ See Extension Request at 3.
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ISE states, in addition, that the extended exemption will not
diminish the Commission's ability to monitor ISE and DECN.\17\ In this
regard, ISE notes that to the extent that ISE makes changes to its
systems, including the Facility, during the extended temporary
exemption period, or thereafter, it remains subject to Section 19(b)
and thus obligated to file proposed rule changes with the
Commission.\18\ Further, in the Extension Request, ISE commits to
satisfying certain conditions, as outlined below, which are identical
to the conditions in the Exemption Order and the June Extension.\19\
For example, as a condition to the extended temporary exemption, ISE
will be required to submit proposed rule changes with respect to any
material changes to DECN's functions during the exemption period.\20\
ISE notes, however, that neither ISE nor DECN anticipates any material
changes to DECN's functionality during the extended temporary exemption
period.\21\
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\17\ Id.
\18\ Id.
\19\ ISE also represents that it has complied with the
conditions in the Exemption Order and the June Extension and that it
will continue to comply with these conditions during any extension
of the relief granted. See Extension Request at 3.
\20\ See Extension Request at note 6.
\21\ See Extension Request at note 5.
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III. Order Granting Extension of Temporary Conditional Section 36
Exemption
In 1996, Congress gave the Commission greater flexibility to
regulate trading systems, such as DECN, by granting the Commission
broad authority to exempt any person from any of the provisions of the
Exchange Act and to impose appropriate conditions on their
operation.\22\ Specifically, NSMIA added Section 36(a)(1) to the
Exchange Act, which 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.'' \23\ In enacting
Section 36, Congress indicated that it expected that ``the Commission
will use this authority to promote efficiency, competition and capital
formation.'' \24\ It particularly intended to give the Commission
sufficient flexibility to respond to changing market and competitive
conditions:
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\22\ 15 U.S.C. 78mm(a). Section 36 of the Exchange Act was
enacted as part of the National Securities Markets Improvements Act
1996, Pub. L. No. 104-290 (``NSMIA'').
\23\ 15 U.S.C. 78mm(a)(1).
\24\ H.R. Rep. No. 104-622, 104th Cong., 2\d\ Sess. 38 (1996).
The Committee recognizes that the rapidly changing marketplace
dictates that effective regulation requires a certain amount of
flexibility. Accordingly, the bill grants the SEC general exemptive
authority under both the Securities Act and the Securities Exchange
Act. This exemptive authority will allow the Commission the
flexibility to
[[Page 68296]]
explore and adopt new approaches to registration and disclosure. It
will also enable the Commission to address issues relating to the
securities markets more generally. For example, the SEC could deal
with the regulatory concerns raised by the recent proliferation of
electronic trading systems, which do not fit neatly into the
existing regulatory framework.\25\
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\25\ S. Rep. No. 104-293, 104th Cong., 2\d\ Sess. 15 (1996).
As noted above, in December 2008 the Commission exercised its
Section 36 exemptive authority to grant ISE a temporary exemption,
subject to certain conditions, from the 19(b) rule filing requirements
in connection with the Transaction.\26\ On June 19, 2009, the
Commission extended ISE's temporary exemption for an additional 180
days.\27\ In addition, the Commission previously granted similar
exemptive relief in connection with Nasdaq's acquisition of Brut, LLC,
the operator of the Brut ECN.\28\
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\26\ See Exemption Order, supra note 4.
\27\ See June Extension, supra note 5.
\28\ See Securities Exchange Act Release No. 50311 (September 3,
2004), 69 FR 54818 (September 10, 2004). Although granting the ISE's
Extension Request would result in a temporary exemption longer than
the exemption granted in connection with Nasdaq's acquisition of
Brut, LLC, the Commission believes that an extended exemption is
warranted, in this case, to provide adequate time to address the
regulatory issues raised by ISE's ownership structure. In this
regard, the Commission notes that, as a result of ISE's equity
ownership interest in Direct Edge, the non-U.S. owners of ISE will
have an indirect ownership interest in Direct Edge and in the
Exchange Subsidiaries, as well as in ISE. When the Commission
approved the 2007 transaction in which ISE Holdings became a wholly-
owned indirect subsidiary of Eurex Frankfurt AG, the corporate
governing documents of ISE Holdings and its parent company, U.S.
Exchange Holdings, and corporate resolutions adopted by the non-U.S.
owners, included provisions (the ``Regulatory Provisions'') designed
to maintain the independence of the regulatory function of ISE, the
sole national securities exchange then owned by ISE Holdings. See
Securities Exchange Act Release No. 56955 (December 13, 2007), 72 FR
71979 (December 19, 2007) (File No. SR-ISE-2007-101). In connection
with ISE Holdings' subsequent purchase of an ownership interest in
Direct Edge, ISE has filed proposed changes to the governing
documents of ISE Holdings and U.S. Exchange Holdings that apply the
Regulatory Provisions to any national securities exchange, or
facility thereof, controlled, directly or indirectly, by ISE
Holdings. See, e.g., Securities Exchange Act Release Nos. 59135
(December 22, 2008), 73 FR 79954 (December 30, 2008) (File No. SR-
ISE-2008-85) (approving changes to the Certificate of Incorporation
and Bylaws of ISE Holdings); and 61005 (November 16, 2009) (notice
of filing of File No. SR-ISE-2009-90) (proposing changes to Trust
Agreement and to the Certificate of Incorporation and Bylaws of U.S.
Exchange Holdings). Similarly, the Form 1 Applications included
forms of supplemental corporate resolutions, to be adopted by the
non-U.S. owners prior to any Commission approval of the Form 1
Applications. These supplemental corporate resolutions will apply
the Regulatory Provisions to the Exchange Subsidiaries. Accordingly,
the amended corporate governing documents of ISE Holdings and U.S.
Exchange Holdings, and the supplemental corporate resolutions of the
non-U.S. owners, will apply to the Exchange Subsidiaries following
any Commission approval of the Form 1 Applications. In light of the
time required to amend the corporate governing documents of ISE
Holdings and U.S. Exchange Holdings, and to supplement the corporate
resolutions of the non-U.S. owners, the Commission believes that it
is appropriate to grant the ISE's Extension Request.
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Section 19(b)(1) of the Exchange Act requires a self-regulatory
organization (``self-regulatory organization'' or ``SRO''), including
ISE, to file with the Commission its proposed rule changes accompanied
by a concise general statement of the basis and purpose of the proposed
rule change. Once a proposed rule change has been filed with the
Commission, the Commission is required to publish notice of it and
provide an opportunity for public comment. The proposed rule change may
not take effect unless approved by the Commission by order, unless the
rule change is within the class of rule changes that are effective upon
filing pursuant to Section 19(b)(3)(A) of the Act.\29\
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\29\ 15 U.S.C. 78s(b)(3)(A).
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Section 19(b)(1) of the Exchange Act defines the term ``proposed
rule change'' to mean ``any proposed rule or rule change in, addition
to, or deletion from the rules of [a] self-regulatory organization.''
Pursuant to Section 3(a)(27) and 3(a)(28) of the Exchange Act, the term
``rules of a self-regulatory organization'' means (1) the constitution,
articles of incorporation, bylaws and rules, or instruments
corresponding to the foregoing, of an SRO, and (2) such stated
policies, practices and interpretations of an SRO (other than the
Municipal Securities Rulemaking Board) as the Commission, by rule, may
determine to be necessary or appropriate in the public interest or for
the protection of investors to be deemed to be rules. Rule 19b-4(b)
under the Exchange Act,\30\ defines the term ``stated policy, practice,
or interpretation'' to mean generally ``any material aspect of the
operation of the facilities of the self-regulatory organization or any
statement made available to the membership, participants, or specified
persons thereof that establishes or changes any standard, limit, or
guideline with respect to rights and obligations of specified persons
or the meaning, administration, or enforcement of an existing rule.''
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\30\ 17 CFR 240.19b-4(b).
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The term ``facility'' is defined in Section 3(a)(2) of the Exchange
Act, with respect to an exchange, to include ``its premises, tangible
or intangible property whether on the premises or not, any right to use
such premises or property or any service thereof for the purpose of
effecting or reporting a transaction on an exchange (including, among
other things, any system of communication to or from the exchange, by
ticker or otherwise, maintained by or with the consent of the
exchange), and any right of the exchange to the use of any property or
service.''
In its Extension Request, ISE acknowledges that since the Closing,
Merger Sub has operated the Facility as a facility of ISE.\31\ Absent
an exemption, Section 19(b) of the Exchange Act and Rule 19b-4
thereunder would require ISE to file proposed rules with the Commission
to allow ISE to operate DECN as a facility of ISE.
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\31\ See Extension Request at 1. As discussed above, ISE owns a
31.54% ownership interest in DE Holdings, the sole owner of Merger
Sub.
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In its Extension Request, ISE notes that the Exchange Subsidiaries
have filed Form 1 Applications, which have been published for
comment,\32\ and that DECN intends to cease operations as an ECN
shortly after any Commission approval of the Form 1 Applications and
the Exchange Subsidiaries' commencement of operations as national
securities exchanges.\33\ Accordingly, ISE expects that DECN will
continue to operate as a facility of ISE for a relatively brief period
of time.\34\ ISE represents that it has complied with the conditions in
the Exemption Order and the June Extension and that it will continue to
comply with these conditions during an extension of the relief granted
in the June Extension.\35\
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\32\ See Form 1 Applications Notice, supra note 10.
\33\ See Extension Request at 2. The Commission must approve an
application for registration as a national securities exchange, or
institute proceedings to determine whether the application should be
denied, within 90 days of publication of notice of filing of the
application, or within such longer period as to which the applicant
consents. See Exchange Act Section 19(a)(1), 15 U.S.C. 78s(a)(1).
\34\ Id. at 2.
\35\ Id. at 3.
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The Commission believes that it is appropriate to grant a temporary
extension of the relief provided in the June Extension, subject to the
conditions described below, to allow DECN to continue to operate as a
facility of ISE without being subject to the rule filing requirements
of Section 19(b) of the Exchange Act for a temporary period.\36\
Accordingly, the Commission has determined to grant ISE's request for
an extension of the relief provided in the June Extension, subject to
certain conditions, for a period not to exceed
[[Page 68297]]
180 days. The Commission finds that the temporary extended conditional
exemption from the provisions of Section 19(b) of the Exchange Act is
appropriate in the public interest and is consistent with the
protection of investors. In particular, the Commission believes that
the temporary extended exemption should help promote efficiency and
competition in the market by allowing DECN to continue to operate as an
ECN for a limited period of time while the Commission considers the
Form 1 Applications. In this regard, the Commission notes ISE's belief
that it would be unduly burdensome and inefficient to require DECN's
operating rules to be separately subjected to the Section 19(b) rule
filing and approval process because DECN will operate only temporarily
as a facility of ISE while the Commission considers the Form 1
Applications. In addition, the Commission notes that the Form 1
Applications, which include the rules of the Exchange Subsidiaries,
were published for comment on September 17, 2009.\37\ According to ISE,
the rules of the Exchange Subsidiaries ``substantially align'' with
DECN's operations in practice.\38\ Accordingly, the publication of the
Form 1 Applications should help to mitigate any concerns regarding
transparency with respect to the rules under which DECN operates
temporarily as a facility of ISE.
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\36\ In granting this relief, the Commission makes no finding
regarding whether ISE's operation of DECN as a facility would be
consistent with the Exchange Act.
\37\ See Securities Exchange Act Release No. 60651 (September
11, 2009), 74 FR 47827 (September 17, 2009).
\38\ See Exemption Request at 2.
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To provide the Commission with the opportunity to review and act
upon any proposal to change DECN's fees or to make material changes to
DECN's operations as an ECN during the period covered by the extended
temporary exemption, as well as to ensure that the Commission's ability
to monitor ISE and DECN is not diminished by the extended temporary
exemption, the Commission is imposing the following conditions while
the extended temporary exemption is in effect.\39\ The Commission
believes such conditions are necessary and appropriate in the public
interest for the protection of investors. Therefore, the Commission is
granting to ISE an extended temporary exemption, pursuant to Section 36
of the Exchange Act, from the rule filing requirements imposed by
Section 19(b) of the Exchange Act as set forth above, provided that ISE
and DECN comply with the following conditions:
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\39\ See Extension Request at note 6.
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(1) DECN remains a registered broker-dealer under Section 15 of the
Exchange Act \40\ and continues to operate as an ECN;
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\40\ 15 U.S.C. 78o.
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(2) DECN operates in compliance with the obligations set forth
under Regulation ATS;
(3) DECN and ISE continue to operate as separate legal entities;
(4) ISE files a proposed rule change under Section 19 of the
Exchange Act \41\ if any material changes are sought to be made to
DECN's operations. A material change would include any changes to a
stated policy, practice, or interpretation regarding the operation of
DECN or any other event or action relating to DECN that would require
the filing of a proposed rule change by an SRO or an SRO facility; \42\
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\41\ 15 U.S.C. 78s.
\42\ See Section 19(b) of the Exchange Act and Rule 19b-4
thereunder. The Commission notes that a material change would
include, among other things, changes to DECN's operating platform;
the types of securities traded on DECN; DECN's types of subscribers;
or the reporting venue for trading that takes place on DECN. The
Commission also notes that any rule filings must set forth the
operation of the DECN facility sufficiently so that the Commission
and the public are able to evaluate the proposed changes.
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(5) ISE files a proposed rule change under Section 19 of the
Exchange Act if DECN's fee schedule is sought to be modified; and
(6) ISE treats DECN the same as other ECNs that participate in the
Facility, and, in particular, ISE does not accord DECN preferential
treatment in how DECN submits orders to the Facility or in the way its
orders are displayed or executed.\43\
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\43\ See Extension Request at note 6.
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In addition, the Commission notes that the Financial Industry
Regulatory Authority is currently the Designated Examining Authority
for DECN.
For the reasons discussed above, the Commission finds that the
extended temporary conditional exemptive relief requested by ISE 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,\44\ that
the application for an extended temporary conditional exemption is
granted for a period of 180 days, effective immediately.
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\44\ 15 U.S.C. 78mm.
By the Commission.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-30426 Filed 12-22-09; 8:45 am]
BILLING CODE 8011-01-P
