Self-Regulatory Organizations; C2 Options Exchange, Incorporated; Notice of Filing of a Proposed Rule Change Relating to Corporate Structure, 29375-29381 [2010-12507]
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Federal Register / Vol. 75, No. 100 / Tuesday, May 25, 2010 / Notices
investors, or otherwise in furtherance of
the purposes of the Act.
SR–DTC–2010–08 and should be
submitted on or before June 15, 2010.
IV. Solicitation of Comments
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.10
Florence E. Harmon,
Deputy Secretary.
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Electronic comments may be
submitted by using the Commission’s
Internet comment form (https://
www.sec.gov/rules/sro.shtml), or
• Send an e-mail to rulecomments@sec.gov. Please include File
No. SR–DTC–2010–04 on the subject
line.
Paper Comments
[FR Doc. 2010–12508 Filed 5–24–10; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–62118; File No. SR–C2–
2010–002]
Self-Regulatory Organizations; C2
Options Exchange, Incorporated;
Notice of Filing of a Proposed Rule
Change Relating to Corporate
Structure
May 18, 2010.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’ or ‘‘Exchange Act’’),1 and Rule
19b–4 thereunder,2 notice is hereby
given that on May 14, 2010, C2 Options
Exchange, Incorporated (‘‘C2’’) filed with
All submissions should refer to File
the Securities and Exchange
Number SR–DTC–2010–08. This file
Commission (the ‘‘Commission’’ or
number should be included on the
‘‘SEC’’) the proposed rule change as
subject line if e-mail is used. To help the described in Items I, II, and III below,
Commission process and review your
which Items have been prepared by C2.
comments more efficiently, please use
The Commission is publishing this
only one method. The Commission will notice to solicit comments on the
post all comments on the Commission’s proposed rule change from interested
Internet Web site (https://www.sec.gov/
persons.
rules/sro.shtml). Copies of the
I. Self-Regulatory Organization’s
submission, all subsequent
Statement of the Terms of Substance of
amendments, all written statements
the Proposed Rule Change
with respect to the proposed rule
C2, a wholly-owned subsidiary of
change that are filed with the
Chicago Board Options Exchange,
Commission, and all written
Incorporated (‘‘CBOE’’), is filing this
communications relating to the
proposed rule change with the
proposed rule change between the
Commission and any person, other than Commission under Section 19(b)(1) of
the Act in connection with the plan of
those that may be withheld from the
CBOE to restructure from a Delaware
public in accordance with the
non-stock corporation to a Delaware
provisions of 5 U.S.C. 552, will be
stock corporation that will be a whollyavailable for Web site viewing and
owned subsidiary of CBOE Holdings,
printing in the Commission’s Public
Inc. (‘‘CBOE Holdings’’), a holding
Reference Section, 100 F Street, NE.,
company organized as a Delaware stock
Washington, DC 20549, on official
corporation.3 As a result of this
business days between the hours of 10
Restructuring Transaction, C2 will
a.m. and 3 p.m. Copies of such filings
also will be available for inspection and become a wholly-owned subsidiary
CBOE Holdings.4
copying at the principal office of DTC
and on DTC’s Web site at https://
10 17 CFR 200.30–3(a)(12).
www.dtcc.com/downloads/legal/
1 15 U.S.C. 78s(b)(1).
rule_filings/2010/dtc/2010-08.pdf. All
2 17 CFR 240.19b–4.
comments received will be posted
3 15 U.S.C. 78s(b)(1).
without change; the Commission does
4 The term ‘‘Restructuring Transaction’’ is defined
not edit personal identifying
in proposed CBOE Rule 1.1(hhh) in the proposed
rule change to effectuate the demutualization of
information from submissions. You
CBOE (the ‘‘CBOE Demutualization Filing’’) as ‘‘the
should submit only information that
a non-stock
you wish to make available publicly. All restructuring of the Exchange fromand whollycorporation to a stock corporation
submissions should refer to file number owned subsidiary of CBOE Holdings, Inc.’’ The
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• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
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29375
The text of the proposed Certificate of
Incorporation of CBOE Holdings, the
proposed Bylaws of CBOE Holdings, the
proposed amendments to C2’s
Certificate of Incorporation, the
proposed amendments to C2’s Bylaws,
the proposed amendments to C2’s Rules,
and the proposed Voting Agreement
between CBOE Holdings and C2 are
available on C2’s Web site (https://
www.cboe.org/Legal), on the
Commission’s Web site at https://
www.sec.gov, at C2’s Office of the
Secretary, and at the Commission’s
Public Reference Room.5
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, C2
included statements concerning the
purpose of and basis for the proposed
rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. C2 has prepared
summaries, set forth in Sections A, B,
and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
(1) The Restructuring Transaction
C2 is filing this proposed rule change
in connection with the plan of its parent
company CBOE to restructure from a
Delaware non-stock corporation owned
by its members to a Delaware stock
corporation that will be a wholly-owned
subsidiary of CBOE Holdings, a holding
company organized as a Delaware stock
corporation.6 After the Restructuring
Transaction, the owners of membership
Commission has noticed the CBOE Demutualization
Filing for comment, and has not received any
comments on it. See Exchange Act Release No.
58425 (Aug. 26, 2008), 73 FR 51652 (Sept. 4, 2008)
(File No. SR–CBOE–2008–88).
5 The CBOE Demutualization Filing also includes
the proposed Certificate of Incorporation and
Bylaws of CBOE Holdings, as well as the proposed
Certificate of Incorporation of CBOE, the proposed
Bylaws of CBOE, the proposed amendments to the
Rules of CBOE, and the proposed Voting Agreement
between CBOE Holdings and CBOE. C2 notes that
this rule filing includes and contains descriptions
of the most recent versions of the proposed
Certificate of Incorporation and Bylaws of CBOE
Holdings.
6 C2 was recently registered as a national
securities exchange under Section 6 of the
Exchange Act. See Exchange Act Release No. 61152
(Dec. 10, 2009), 74 FR 66699 (Dec. 16, 2009). When
operational, C2 will operate an all-electronic
marketplace for the trading of listed options. It will
not maintain a physical trading floor.
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Federal Register / Vol. 75, No. 100 / Tuesday, May 25, 2010 / Notices
interests in CBOE will become
stockholders of CBOE Holdings through
the conversion of their memberships
into shares of common stock of CBOE
Holdings. In addition, members of the
settlement class in the lawsuit brought
by The Board of Trade of the City of
Chicago, Inc., its parent company CME
Group, Inc. and a class of individuals
(collectively, the ‘‘CBOT Parties’’)
against CBOE and CBOE’s Board of
Directors will become stockholders of
CBOE Holdings.7
As noted above, C2 currently is a
wholly-owned subsidiary of CBOE. In
connection with the Restructuring
Transaction, CBOE will dividend up to
CBOE Holdings all of the shares of C2.
As a result of the Restructuring
Transaction, CBOE Holdings will hold
all of the outstanding common stock of
C2 and CBOE, as well as certain
subsidiaries of CBOE. C2 and CBOE will
continue to function as self-regulatory
organizations (‘‘SROs’’) and to operate
their exchange businesses and facilities.
(2) CBOE Holdings
After the Restructuring Transaction,
CBOE Holdings will be the parent
company and sole shareholder of C2
and CBOE. The Certificate of
Incorporation and the Bylaws of CBOE
Holdings will govern the activities of
CBOE Holdings.8
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(A) CBOE Holdings Board of Directors
The business and affairs of CBOE
Holdings will be managed by or under
the direction of its Board of Directors
(‘‘CBOE Holdings Board’’). The CBOE
Holdings Board will consist of between
7 CME Group Inc. et al. v. CBOE Inc. et al., Civil
Action No. 2369–VCN (Filed Aug. 23, 2006). CBOE
entered into a Stipulation of Settlement
(‘‘Stipulation’’) on August 20, 2008 with the CBOT
Parties to resolve this lawsuit. The Stipulation and
amendments to it can be found at (https://
www.cboe.org/Legal/).
8 While certain provisions of the Certificate of
Incorporation and Bylaws for CBOE Holdings are
not related to the operation of C2 or CBOE, for so
long as CBOE Holdings controls any Regulated
Securities Exchange Subsidiary (currently, C2 and
CBOE), before any amendment, alteration or repeal
of any provision of the Certificate of Incorporation
and Bylaws of CBOE Holdings becomes effective,
such amendment, alteration or repeal will be
submitted to the Board of Directors of each
Regulated Securities Exchange Subsidiary, and if
such amendment, alteration or repeal must be filed
with or filed with and approved by the
Commission, then such amendment, alteration or
repeal will not become effective until filed with or
filed with and approved by the Commission, as the
case may be. See proposed Article Eleventh of the
CBOE Holdings Certificate of Incorporation and
proposed Article 10.2 of the CBOE Holdings
Bylaws. The term ‘‘Regulated Securities Exchange
Subsidiary’’ is defined as ‘‘any national securities
exchange controlled, directly or indirectly, by
[CBOE Holdings], including, but not limited to
CBOE.’’ See proposed Article Fifth(a) of the CBOE
Holdings Certificate of Incorporation.
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11 and 23 directors, the exact number to
be fixed by the CBOE Holdings Board
from time to time pursuant to resolution
adopted by the Board.9 It is intended
that the initial CBOE Holdings Board
following the Restructuring Transaction
will be composed of the 22 individuals
that are the directors of CBOE
immediately prior to the Restructuring
Transaction. At all times at least twothirds of the CBOE Holdings directors
will satisfy the independence
requirements adopted by the CBOE
Holdings Board, as may be modified and
amended by the Board from time to
time, and which shall satisfy the
independence requirements contained
in the listing standards of NYSE or The
Nasdaq Stock Market.10
The CBOE Holdings Board will
appoint one of the directors on the
CBOE Holdings Board to serve as
Chairman of the CBOE Holdings
Board.11 The CBOE Holdings Bylaws do
not restrict the Chief Executive Officer
of CBOE Holdings from serving in this
role.12 The CBOE Holdings Board also
may appoint an independent director to
serve as Lead Director, who will
perform such duties and possess such
powers as the CBOE Holdings Board
may from time to time prescribe.13 All
CBOE Holdings directors will serve oneyear terms.14 There is no limit on the
number of terms a director may serve on
the CBOE Holdings Board.
The CBOE Holdings Board or a
committee thereof each year will
nominate CBOE Holdings director
candidates for election at the CBOE
Holdings annual meeting of
shareholders.15 In this regard, the
Nominating and Governance
Committee, which is described below,
will nominate candidates for the CBOE
Holdings Board. Each holder of CBOE
Holdings voting stock will be entitled to
one vote for each share of voting stock
he or she holds, except as otherwise
9 See proposed Article Seventh(b) of the CBOE
Holdings Certificate of Incorporation and proposed
Article 3.2 of the CBOE Holdings Bylaws.
10 See proposed Article 3.3 of the CBOE Holdings
Bylaws.
11 See proposed Article 3.6 of the CBOE Holdings
Bylaws.
12 See proposed Article 5.1 of the CBOE Holdings
Bylaws.
13 See proposed Article 3.7 of the CBOE Holdings
Bylaws.
14 See proposed Article 3.2 of the CBOE Holdings
Bylaws. Directors will serve one-year terms ending
on the annual meeting following the meeting at
which such directors were elected or at such time
as their successors are elected or appointed and
qualified, except in the event of earlier death,
resignation or removal.
15 See proposed Article 2.11 of the CBOE
Holdings Bylaws. Subject to certain conditions,
stockholders also have the right under this
provision to nominate persons for the CBOE
Holdings Board.
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provided by the General Corporation
Law of the State of Delaware or the
Certificate of Incorporation or Bylaws of
CBOE Holdings.16 At each annual
meeting of the shareholders of CBOE
Holdings at which a quorum is present,
the individuals receiving a plurality of
the votes cast will be elected directors
of CBOE Holdings.17
(B) Committees of CBOE Holdings
CBOE Holdings will have an
Executive Committee, an Audit
Committee, a Compensation Committee,
a Nominating and Governance
Committee, as well as such other
committees that the CBOE Holdings
Board establishes.18 The Nominating
and Governance Committee will consist
of at least five directors, all of whom
will be Independent Directors and be
recommended by the Nominating and
Governance Committee for approval by
the CBOE Holdings Board.19 Members
of the Executive, Audit, and
Compensation Committees of CBOE
Holdings will be recommended by the
Nominating and Governance Committee
for approval by the CBOE Holdings
Board.20
The Executive Committee will have
and may exercise all the powers and
authority of the CBOE Holdings Board
in the management of the business and
affairs of CBOE Holdings, except it will
not have the power or authority of the
CBOE Holdings Board in reference to,
among other things, amending the CBOE
Holdings Certificate of Incorporation,
adopting an agreement of merger or
consolidation, approving the sale, lease
or exchange of all or substantially all of
the CBOE Holdings’ property and assets,
or approving the dissolution of CBOE
Holdings or a revocation of a
16 See proposed Article 2.8 of the CBOE Holdings
Bylaws.
17 See proposed Article 2.10 of the CBOE
Holdings Bylaws. Except as otherwise provided by
law or the Certificate of Incorporation or Bylaws of
CBOE Holdings, the holders of a majority in voting
power of the shares of the capital stock of CBOE
Holdings issued and outstanding and entitled to
vote at the meeting (after taking into account the
effect of any reduction of the number of shares
entitled to vote as a result of the voting limitations
imposed by Article Sixth of the Certificate of
Incorporation of CBOE Holdings, if any), present in
person or represented by proxy, will constitute a
quorum for the transaction of business. See
proposed Article 2.6 of the CBOE Holdings Bylaws.
The voting limitations in Article Sixth are
discussed below.
18 See proposed Article 4.1 of the CBOE Holdings
Bylaws. The CBOE Holdings Board will designate
the members of these other committees and may
designate a Chairman and a Vice-Chairman thereof.
19 See proposed Article 4.5 of the CBOE Holdings
Bylaws.
20 See proposed Articles 4.2, 4.3 and 4.4 of the
CBOE Holdings Bylaws.
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dissolution.21 The Audit,
Compensation, and Nominating and
Governance Committees will have such
duties and may exercise such authority
as may be prescribed by the CBOE
Holdings Board and their respective
Charters as adopted by resolution of the
CBOE Holdings Board.22
(C) Officers of CBOE Holdings
The officers of CBOE Holdings will be
the Chief Executive Officer, a Chief
Financial Officer, a President, one or
more Vice-Presidents (the number
thereof to be determined by the CBOE
Holdings Board), a Secretary, a
Treasurer, and such other officers as the
CBOE Holdings Board may determine,
including an Assistant Secretary or
Assistant Treasurer.23 The CBOE
Holdings Board by an affirmative vote of
the majority of the board will appoint
the Chief Executive Officer of CBOE
Holdings, who will have general charge
and supervision of the business of the
CBOE Holdings.24 In general, the other
officers of CBOE Holdings will have the
duties or powers or both set out in the
CBOE Holdings Bylaws, as well as such
other duties or powers or both as the
CBOE Holdings Board or the Chief
Executive Officer may from time to time
prescribe.25
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(D) Shareholder Restrictions
In addition to the restrictions on the
ability of certain CBOE Holdings
stockholders to transfer their shares
prior to and after an initial public
offering if such an offering were to
occur, the Certificate of Incorporation of
CBOE Holdings places certain
ownership and voting limits on the
holders of CBOE Holdings stock and
their Related Persons.26 These
restrictions are intended to address the
possibility that a person holding a
controlling interest in an SRO could use
that interest to affect the SRO’s
regulatory responsibilities under the
Exchange Act.27 In particular, these
restrictions provide that:
21 See proposed Article 4.2 of the CBOE Holdings
Bylaws.
22 See proposed Articles 4.3, 4.4 and 4.5 of the
CBOE Holdings Bylaws.
23 See proposed Article 5.1 of the CBOE Holdings
Bylaws.
24 See proposed Articles 5.1 and 5.2 of the CBOE
Holdings Bylaws.
25 See proposed Articles 5.3, 5.4, 5.5, 5.6 and 5.7
of the CBOE Holdings Bylaws.
26 The term ‘‘Related Person’’ is defined in
proposed Article Fifth(a) of the CBOE Holdings
Certificate of Incorporation and includes, among
other things, any ‘‘person associated with a
member’’ (as such term is defined in Section
3(a)(21) of the Exchange Act).
27 In 2004, the Commission proposed rules that
were designed to address conflicts of interest
relating to for-profit SROs. See, e.g., Securities
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Ownership
• No person (either alone or together
with its Related Persons) may
beneficially own directly or indirectly
shares of stock representing in the
aggregate more than 10% of the total
outstanding shares of CBOE Holdings
stock; provided, that, in the event a
public offering of common stock is
completed, the ownership percentage
that a person is permitted to beneficially
own will increase from 10% to 20% of
the total outstanding shares of CBOE
Holdings stock; 28 and
• In the event that a person, either
alone or together with its Related
Persons, beneficially owns shares of
stock representing more than 10% of the
outstanding shares of stock (or, in the
event that a public offering of common
stock has been completed, 20% of the
outstanding shares of stock), CBOE
Holdings will be obligated to redeem
promptly, at a price equal to the par
value of such shares of stock and to the
extent that funds are legally available
for such redemption, that number of
shares of stock necessary so that such
person, together with its Related
Persons, will beneficially own directly
or indirectly shares of stock
representing in the aggregate no more
than 10% of the outstanding shares of
stock (or, in the event that a public
offering of common stock has been
completed, 20% of the outstanding
shares of stock), after taking into
account that such repurchased shares
will become treasury shares and will no
longer be deemed to be outstanding.29
Voting
• No person (either alone or together
with its Related Persons) will be entitled
to vote or cause the voting of shares of
stock beneficially owned directly or
indirectly by that person or those
Related Persons to the extent that those
shares would represent in the aggregate
more than 10% of the total number of
votes entitled to be cast on any matter,
and no person (either alone or together
with its Related Persons) will be entitled
to vote more than 10% of the total
number of votes entitled to be cast on
Exchange Act Release No. 50699 (Nov. 18, 2004),
69 FR 71126 (Dec. 8, 2004).
28 See proposed Article Sixth(b) of the CBOE
Holdings Certificate of Incorporation.
29 See proposed Article Sixth(b) of the CBOE
Holdings Certificate of Incorporation. If and to the
extent that shares of CBOE Holdings stock
beneficially owned by any person or its Related
Persons are held of record by any other person, this
provision will be enforced against such record
owner by requiring the redemption of shares of
CBOE Holdings stock held by such record owner in
a manner that will accomplish the ownership
limitation applicable to such person and its Related
Persons.
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29377
any matter by virtue of agreements
entered into by that person or those
Related Persons with other persons not
to vote shares of outstanding stock;
provided, that, in the event a public
offering of common stock is completed,
the voting percentage that any person is
permitted to control, whether through
beneficial ownership or other
agreement, will increase from 10% to
20% of the total number of votes
entitled to be cast on any matter; 30 and
• In the event that a person, either
alone or together with its Related
Persons, is entitled to vote or cause the
voting of shares representing in the
aggregate more than 10% (or, in the
event that a public offering of common
stock has been completed, 20%) of the
total number of votes entitled to be cast
on any matter (including if it and its
Related Persons possess this voting
power by virtue of agreements entered
into with other persons not to vote
shares of stock), then such person,
either alone or together with its Related
Persons, will not be entitled to vote or
cause the voting of these shares of stock
to the extent that such shares represent
in the aggregate more than 10% (or, in
the event that a public offering of
common stock has been completed,
20%) of the total number of votes
entitled to be cast on any matter, and
any such votes purported to be cast in
excess of this percentage will be
disregarded.31
The CBOE Holdings Board of
Directors may waive the provisions
regarding ownership and voting limits
by a resolution expressly permitting
ownership or voting rights in excess of
such limits (which resolution must be
filed with and approved by the SEC
30 See proposed Article Sixth(a) of the CBOE
Holdings Certificate of Incorporation. The voting
limitation does not apply to a solicitation of a
revocable proxy by any CBOE Holdings stockholder
on behalf of CBOE Holdings or by directors or
officers of CBOE Holdings on behalf of CBOE
Holdings or to a solicitation of a revocable proxy
by a stockholder in accordance with Regulation 14A
under the Exchange Act. 17 CFR 240.14A. This
exception, however, would not apply to a
solicitation by a stockholder pursuant to Rule 14a–
2(b)(2) under the Exchange Act, which permits a
solicitation made otherwise than on behalf of CBOE
Holdings where the total number of persons
solicited is not more than 10.
31 See proposed Article Sixth(a) of the CBOE
Holdings Certificate of Incorporation. If and to the
extent that shares of CBOE Holdings stock
beneficially owned by any person or its Related
Persons are held of record by any other person, this
provision will be enforced against such record
owner by limiting the votes entitled to be cast by
such record owner in a manner that will
accomplish the voting limitation applicable to such
person and its Related Persons.
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stockholder beneficially owns, as well
as any other information relating to the
applicability to such stockholder of the
voting and ownership requirements
outlined above as may reasonably be
requested.35
CBOE has received a legal opinion
that the foregoing ownership and voting
rights limitations, as well as the
provisions providing for the redemption
of shares held by a person (either alone
or together with its Related Persons) in
excess of the ownership limitation, are
valid under Delaware law.
prior to being effective), subject to a
determination of the Board that: 32
• The acquisition of beneficial
ownership in excess of the ownership
limits or the exercise of voting rights in
excess of the voting limits will not
impair the ability of CBOE Holdings and
any Regulated Securities Exchange
Subsidiary to discharge their
responsibilities under the Exchange Act
and the rules and regulations under the
Exchange Act and is otherwise in the
best interests of CBOE Holdings and its
stockholders and the Regulated
Securities Exchange Subsidiaries;
• The acquisition of beneficial
ownership in excess of the ownership
limits or the exercise of voting rights in
excess of the voting limits will not
impair the SEC’s ability to enforce the
Exchange Act;
• Neither the person obtaining the
waiver nor any of its Related Persons is
subject to any statutory disqualification
(as defined in Section 3(a)(39) of the
Exchange Act) if such person is seeking
to obtain a waiver above the applicable
ownership or voting percentage level; 33
and
• For so long as CBOE Holdings
directly or indirectly controls any
Regulated Securities Exchange
Subsidiary, neither the person obtaining
the waiver nor any of its Related
Persons is a Trading Permit Holder in
any Regulated Securities Exchange
Subsidiary if such person is seeking to
obtain a waiver above the applicable
ownership or voting percentage level.
In making these determinations, the
CBOE Holdings Board may impose
conditions and restrictions on the
relevant stockholder and its Related
Persons that it deems necessary,
appropriate or desirable in furtherance
of the objectives of the Exchange Act
and the governance of CBOE
Holdings.34
The CBOE Holdings Certificate of
Incorporation also provides that the
CBOE Holdings Board has the right to
require any person and its Related
Persons that the Board reasonably
believes (i) to be subject to the
ownership or voting restrictions
summarized above, or (ii) to beneficially
own an aggregate of 5% or more of the
then outstanding shares of CBOE
Holdings stock entitled to vote on any
matter, which ownership has not been
reported to CBOE Holdings, to provide
to CBOE Holdings complete information
as to all shares of the stock that such
The CBOE Holdings Certificate of
Incorporation contains various
provisions designed to protect the
independence of the self-regulatory
function of any Regulated Securities
Exchange Subsidiary (currently, C2 and
CBOE) and to make clear the
Commission’s and each Regulated
Securities Exchange Subsidiary’s
jurisdiction with respect to CBOE
Holdings. For example, pursuant to the
CBOE Holdings Certificate of
Incorporation, for so long as CBOE
Holdings controls any Regulated
Securities Exchange Subsidiary, each
officer, director and employee of CBOE
Holdings must give due regard to the
preservation of the independence of the
self-regulatory function of the Regulated
Securities Exchange Subsidiaries and to
their obligations under the Exchange
Act.36 In addition, such officers,
directors and employees are specifically
prohibited from taking any actions that
they reasonably should have known
would interfere with the effectuation of
any decisions by the Board of Directors
of any Regulated Securities Exchange
Subsidiary relating to such Regulated
Securities Exchange Subsidiary’s
regulatory functions, including
disciplinary matters, or would adversely
affect the Regulated Securities Exchange
Subsidiary’s ability to carry out its
responsibilities under the Exchange
Act.37
The CBOE Holdings Certificate of
Incorporation also contains a specific
requirement that to the fullest extent
permitted by applicable law, all
confidential information pertaining to
the self-regulatory function of Regulated
Securities Exchange Subsidiaries
(including but not limited to
disciplinary matters, trading data,
trading practices and audit information)
32 See proposed Articles Sixth(a) and (b) of the
CBOE Holdings Certificate of Incorporation.
33 15 U.S.C. 78c(a)(39).
34 See proposed Articles Sixth(a) and (b) of the
CBOE Holdings Certificate of Incorporation.
35 See proposed Article Sixth(d) of the CBOE
Holdings Certificate of Incorporation.
36 See proposed Article Sixteenth(c) of the CBOE
Holdings Certificate of Incorporation.
37 Id.
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contained in the books and records of
any Regulated Securities Exchange
Subsidiary that comes into the
possession of CBOE Holdings will: (1)
Not be made available to any persons
other than to those officers, directors,
employees and agents of CBOE Holdings
that have a reasonable need to know the
contents thereof; (2) be retained in
confidence by CBOE Holdings and the
officers, directors, employees and agents
of CBOE Holdings; and (3) not be used
for any commercial purposes.38 The
CBOE Holdings Certificate of
Incorporation also provides that for so
long as CBOE Holdings controls any
Regulated Securities Exchange
Subsidiary, the books, records,
premises, officers, directors and
employees of CBOE Holdings will be
deemed to be the books, records,
premises, officers, directors and
employees of the Regulated Securities
Exchange Subsidiary for purposes of
and subject to oversight pursuant to the
Act, but only to the extent that such
books, records, premises, officers,
directors and employees of CBOE
Holdings relate to the exchange business
of such Regulated Securities Exchange
Subsidiary.39
Further, the CBOE Holdings
Certificate of Incorporation provides
that CBOE Holdings will take reasonable
steps necessary to cause its directors,
officers and employees, prior to
accepting such a position with CBOE
Holdings, to consent in writing to the
applicability to them of Article
Fourteenth, Article Fifteenth and
Sections (c) and (d) of Article Sixteenth
of the CBOE Holdings Certificate of
Incorporation, as applicable, with
respect to their activities related to any
of the Regulated Securities Exchange
Subsidiaries.40 In addition, CBOE
Holdings will take reasonable steps
necessary to cause its agents, prior to
38 Notwithstanding this restriction, nothing in the
CBOE Holdings Certificate of Incorporation will be
interpreted so as to limit or impede the rights of the
SEC or any Regulated Securities Exchange
Subsidiary to access and examine such confidential
information pursuant to the Federal securities laws
and the rules and regulations thereunder, or to limit
or impede the ability of any officers, directors,
employees or agents of CBOE Holdings to disclose
such confidential information to the SEC or any
Regulated Securities Exchange Subsidiary. See
proposed Article Fifteenth of the CBOE Holdings
Certificate of Incorporation.
39 The books and records related to the exchange
business of a Regulated Securities Exchange
Subsidiary will be subject at all times to inspection
and copying by the SEC and the Regulated
Securities Exchange Subsidiary. Id. In addition, the
CBOE Holdings Bylaws provide that the books of
CBOE Holdings must be kept within the United
States. See proposed Section 1.3 of the CBOE
Holdings Bylaws.
40 See proposed Article Sixteenth(b) of the CBOE
Holdings Certificate of Incorporation.
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accepting such a position with CBOE
Holdings, to be subject to the provisions
of Article Fourteenth, Article Fifteenth
and Sections (c) and (d) of Article
Sixteenth of the CBOE Holdings
Certificate of Incorporation, as
applicable, with respect to their
activities related to any of the Regulated
Securities Exchange Subsidiaries.
The CBOE Holdings Certificate of
Incorporation also provides that CBOE
Holdings, its directors, officers, agents
and employees, irrevocably submit to
the jurisdiction of the U.S. Federal
courts, the SEC, and the Regulated
Securities Exchange Subsidiaries, for
the purposes of any suit, action or
proceeding pursuant to U.S. Federal
securities laws or the rules or
regulations thereunder, commenced or
initiated by the SEC arising out of, or
relating to, the Regulated Securities
Exchange Subsidiaries’ activities.41
Further, the Certificate of Incorporation
provides that CBOE Holdings, its
directors, officers, agents and
employees, waive, and agree not to
assert by way of motion, as a defense or
otherwise in any such suit, action or
proceeding, any claims that they are not
personally subject to the jurisdiction of
the U.S. Federal courts, the SEC, and the
Regulated Securities Exchange
Subsidiaries, that the suit, action or
proceeding is an inconvenient forum or
that the venue of the suit, action or
proceeding is improper, or that the
subject matter thereof may not be
enforced in or by such courts or
agency.42
In addition, the CBOE Holdings
Certificate of Incorporation (and
Bylaws) provide that, before any
amendment or repeal of any provision
of the Certificate of Incorporation and
Bylaws of CBOE Holdings becomes
effective, such amendment or repeal
will be submitted to the Board of
Directors of each Regulated Securities
Exchange Subsidiary, and if such
amendment or repeal must be filed with
or filed with and approved by the
Commission, then such amendment or
repeal will not become effective until
filed with or filed with and approved by
the Commission, as the case may be.43
The CBOE Holdings Certificate of
Incorporation also contains a provision
that requires each director of the Board
of CBOE Holdings to take into
consideration the effect that CBOE
Holdings’ actions would have on each
Regulated Securities Exchange
41 See proposed Article Fourteenth of the CBOE
Holdings Certificate of Incorporation.
42 Id.
43 See proposed Article Eleventh of the CBOE
Holdings Certificate of Incorporation and proposed
Article 10.2 of the CBOE Holdings Bylaws.
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Subsidiary’s ability to carry out its
responsibilities under the Exchange
Act.44
(3) C2
CBOE Holdings will become the
parent company and sole shareholder of
C2 (and CBOE) in connection the
demutualization of CBOE. C2 (and
CBOE), and not CBOE Holdings, will
continue to be the entities registered as
national securities exchanges under
Section 6 of the Exchange Act.
(A) C2 Certificate of Incorporation and
Bylaws
The Commission recently approved
C2’s Certificate of Incorporation and
Bylaws, which are modeled after the
proposed Certificate of Incorporation
and Bylaws for CBOE after it
demutualizes and becomes a whollyowned subsidiary of CBOE Holdings.45
Accordingly, C2 is not proposing any
significant changes to its Certificate of
Incorporation and Bylaws. Rather, C2 is
proposing to make certain changes to
C2’s Certificate of Incorporation to effect
the change of ownership of C2 from
CBOE to CBOE Holdings, to clarify
certain aspects of C2’s Bylaws as a result
of this transfer of ownership, and to
make certain ministerial changes to C2’s
Certificate of Incorporation and Bylaws.
With respect to C2’s Certificate of
Incorporation, C2 is proposing to amend
Article Fourth of the certificate to
transfer the ownership of all of the
common stock of C2 from CBOE to
CBOE Holdings. As required in Article
Fourth, C2 is seeking in this proposed
rule change Commission approval for
this transfer of ownership of C2 from
CBOE to CBOE Holdings. C2 also is
amending Article Fourth to require
Commission approval if CBOE Holdings
sells, transfers or assigns any shares of
C2 common stock. In addition, C2 is
proposing to delete Article Twelfth of
the C2 Certificate of Incorporation
because it is no longer necessary. This
provision lists the incorporator of C2
and provides that once C2’s Certificate
of Incorporation is filed in Delaware, C2
is required to appoint its initial Board
of Directors, which is required to be
compromised of the same individuals
then-serving as the Board of Directors of
CBOE. These actions have already been
taken, and accordingly, Article Twelfth
is no longer necessary.
With respect to C2’s Bylaws, C2 is
making several clarifying and
ministerial changes to them. In
particular, C2 is proposing to delete the
44 See proposed Article Sixteenth(d) of the CBOE
Holdings Certificate of Incorporation.
45 See supra note 5.
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29379
second sentence of the first paragraph of
Section 3.1 of the C2 Bylaws, which
provides that ‘‘[t]he Board shall initially
consist of 23 directors, including the
Chief Executive Officer, twelve NonIndustry Directors and ten Industry
Directors,’’ because the initial Board of
Directors of C2 (‘‘C2 Board’’) has already
been appointed.46 Similarly, C2 is
proposing to delete a reference in the
last sentence of the first paragraph
regarding the initial C2 Board because
that Board has already been appointed.
C2 is proposing to amend the sixth
paragraph of Section 3.1 of the C2
Bylaws to provide that all directors of
the C2 Board will serve one-year
terms.47 Previously, the C2 directors
were divided into two classes, with each
class serving staggered two-year terms.
C2 is proposing to make this change
because CBOE has decided to convert
all of the terms of the directors of CBOE
Holdings and CBOE to one-year terms
after the demutualization. Similarly, C2
is proposing to amend the fifth
paragraph of Section 3.2 of the C2
Bylaws to remove a reference to electing
a class of directors because C2 will no
longer have different classes of
directors.
C2 is proposing to amend paragraph
(c) of Section 3.4 of the C2 Bylaws to
clarify that Representative Directors (as
opposed to any Director) can be
removed for cause, which will include,
but not be limited to (i) a breach of a
Representative Director’s duty of loyalty
to C2 or its stockholders, (ii) acts or
omissions not in good faith or which
involve intentional misconduct or a
knowing violation of law, (iii)
transactions from which a
Representative Director derived an
improper personal benefit, or (iv) a
failure of a Representative Director to be
free from a statutory disqualification (as
defined in Section 3(a)(39) of the Act).48
C2 is further amending this paragraph to
provide that any Representative Director
46 C2 also is changing the reference to the ‘‘Board
of the Corporation’’ in that sentence to the ‘‘Board.’’
47 C2 also is proposing to amend this paragraph
to clarify that C2 directors can be replaced if they
become disqualified (e.g., a ‘‘Non-Industry Director’’
becomes an ‘‘Industry Director’’). Similarly, C2 is
proposing to amend paragraph (a) of Section 3.5 of
the C2 Bylaws to clarify that a director elected to
fill a vacancy will not serve until the next annual
meeting of stockholders if he or she becomes
disqualified. In addition, C2 is proposing to move
a reference to ‘‘Representative Directors’’ (described
below) in the first sentence of the seventh
paragraph of Section 3.1 of the C2 Bylaws to clarify
the intent of that sentence.
48 At least 20% of the directors on the Board will
be nominated (or otherwise selected by a petition
of C2 Permit Holders) by the Industry-Director
Subcommittee of the Nominating and Governance
Committee (such directors are referred to
collectively as the ‘‘Representative Directors’’). See
Section 3.2 of the C2 Bylaws.
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Federal Register / Vol. 75, No. 100 / Tuesday, May 25, 2010 / Notices
CBOE Rules),50 (2) a CBOE
‘‘membership’’ with the term ‘‘CBOE
Trading Permit’’ (or ‘‘Trading Permit’’ in
certain instances where there is a direct
cross-reference to CBOE Rules),51 and
(3) a CBOE ‘‘Clearing Member’’ (or
variations of it) with the term ‘‘Clearing
Trading Permit Holder.’’ 52 C2 is making
these changes to reflect in the C2 Rules
certain changes that will be made to
CBOE Rules in connection with the
demutualization.
C2 also is making a few minor, nonsubstantive fixes to its Rules. For
example, C2 is replacing references to a
C2 ‘‘member’’ in its Rules with the term
‘‘Permit Holder’’ or ‘‘Participant’’ (which
both have the same meaning under C2
Rules).53 C2 also is deleting a reference
in C2 Rule 3.3(b) regarding member
organizations not registered as brokerdealers because C2 does not have such
organizations (i.e., all Permit Holders of
C2 are required to be registered as
broker-dealers). In addition, C2 is fixing
some of some of the cross-references in
its Rules to CBOE Rules. For instance,
C2 is amending Chapter 15 of its Rules,
which cross-references Chapter XV of
CBOE’s Rules, to provide that references
to ‘‘Trading Permit Holder’’ (i.e., CBOE
Trading Permit Holder) in Chapter XV
of CBOE’s Rules mean ‘‘Participant’’ or
‘‘Permit Holder’’ for purposes of Chapter
15 of C2’s Rules.
(B) C2 Rules
srobinson on DSKHWCL6B1PROD with NOTICES
may be removed for cause by the
holders of a majority of the shares of
stock then entitled to be voted at an
election of directors.49 C2 is making
these changes since it is no longer
proposed that C2 have a classified Board
(this change also will make C2’s Bylaws
consistent in this regard with CBOE’s
post-demutualization Bylaws).
C2 is proposing to amend Section 4.6
of the C2 Bylaws to provide that the C2
Regulatory Oversight Committee will
consist of at least three directors instead
of at least four directors. C2 believes
that the Regulatory Oversight
Committee will be able to function just
as effectively with three or more
members as it would with four or more
members and is proposing this change
to provide for greater flexibility in the
designation of C2 Board committees.
C2 is proposing to amend Section 5.8
of the C2 Bylaws to modify the
responsibilities of the Treasurer of C2.
Specifically, C2 is proposing to delete
the second sentence in this section,
which reads ‘‘[i]n addition, the
Treasurer shall perform such duties and
have such powers that are incident to
the office of Treasurer, including
without limitation the duty to keep and
be responsible for all funds of the
Corporation,’’ to make this section
consistent with the Treasurer provision
in CBOE’s proposed postdemutualization Bylaws.
C2 currently has in place a Voting
Agreement with CBOE in which CBOE
agrees to vote in favor of those
individuals nominated by C2’s
Nominating and Governance Committee
for election as C2 Representative
Directors. After the demutualization,
CBOE Holdings, and not CBOE, will be
the sole stockholder of C2. Accordingly,
C2 is proposing to enter into a new
Voting Agreement with CBOE Holdings
that similarly will require CBOE
Holding to vote in favor of those
individuals nominated by C2’s
Nominating and Governance Committee
for election as C2 Representative
Directors. This new agreement will be
modeled after and virtually identical the
current CBOE agreement. Accordingly,
C2 proposes to change the references in
the current CBOE agreement from
‘‘CBOE’’ to ‘‘Holdings.’’ This will have
the effect of requiring CBOE Holdings to
vote in favor of those individuals
nominated by C2’s Nominating and
Because the C2 Rules use terms from
and incorporate by reference CBOE
Rules, C2 is proposing to make certain
minor, non-substantive changes to its
Rules to reflect the changes that CBOE
will make to its Rules in connection
with the demutualization. In this regard,
CBOE is proposing to replace the term
‘‘member’’ (or variations of it) with the
term ‘‘Trading Permit Holder’’ (or
variations of it) throughout its Rules in
connection with the demutualization.
Accordingly, C2 is proposing to adopt
in C2 Rule 1.1 the term ‘‘CBOE Trading
Permit,’’ which is defined as a ‘‘Trading
Permit’’ as such term is defined in
CBOE’s Bylaws and Rules, and the term
‘‘CBOE Trading Permit Holder,’’ which
is defined as a ‘‘Trading Permit Holder’’
as such term is defined in CBOE’s
Bylaws and Rules. C2 proposes to
replace references in its Rules to (1) a
CBOE ‘‘member’’ with the term ‘‘CBOE
Trading Permit Holder’’ (or ‘‘Trading
Permit Holder’’ in certain instances
where there is a direct cross-reference to
49 C2 is amending paragraph (b) of Section 3.4 of
the Bylaws to replace a reference to ‘‘SEC’’ with
‘‘Securities and Exchange Commission (‘‘SEC’’).’’
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(C) C2 Voting Agreement With CBOE
50 See, e.g., proposed C2 Rule 3.1(a) and Chapter
4 of the C2 Rules.
51 See, e.g., proposed C2 Rule 3.1(c) and Chapter
16 of the C2 Rules.
52 See, e.g., proposed Chapter 11 of the C2 Rules.
53 See, e.g., proposed C2 Rules 6.55.
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Governance Committee for election as
C2 Representative Directors.
In addition, C2 is adding a provision
in the Voting Agreement to reflect the
‘‘for cause’’ removal standard for
Representative Directors in C2’s Bylaws,
which is discussed above. This
provision will provide that CBOE
Holdings agrees that it will not take
action to remove any Representative
Director of C2 from office at any time
unless CBOE Holdings believes there is
cause to remove such director. For
purposes of this section ‘‘cause’’ will
include, but not be limited to, (i) a
breach of a Representative Director’s
duty of loyalty to C2 or its stockholders,
(ii) acts or omissions not in good faith
or which involve intentional
misconduct or a knowing violation of
law, (iii) transactions from which a
Representative Director derived an
improper personal benefit, or (iv) a
failure of a Representative Director to be
free from a statutory disqualification (as
defined in Section 3(a)(39) of the Act).
2. Statutory Basis
For the reasons set forth above, C2
believes that this filing is consistent
with Section 6(b) of the Exchange Act,54
in general, and furthers the objectives of
Section 6(b)(1) of the Exchange Act,55 in
particular, in that it enables C2 to be so
organized as to have the capacity to be
able to carry out the purposes of the
Exchange Act and to comply, and to
enforce compliance by its members and
persons associated with its members,
with the provisions of the Exchange Act,
the rules and regulations thereunder,
and the rules of C2. C2 also believes that
this filing furthers the objectives of
Section 6(b)(5) of the Exchange Act
because the rules summarized herein
would create a governance and
regulatory structure that is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to remove
impediments to, and perfect the
mechanism of a free and open market
and, in general, to protect investors and
the public interest.56 Among other
things, the Certificate of Incorporation
and Bylaws of CBOE Holdings and C2
are designed to protect and maintain the
integrity of the SRO functions of C2, and
to allow it to carry out it regulatory
responsibilities under the Exchange Act.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
C2 does not believe that the proposed
rule change will impose any burden on
54 15
U.S.C. 78f(b).
U.S.C. 78f(b)(1).
56 15 U.S.C. 78f(b)(5).
55 15
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competition that is not necessary or
appropriate in furtherance of the
purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve such proposed
rule change, or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
The Commission is considering
granting accelerated approval of the
proposed rule change at the end of a 15day comment period.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
srobinson on DSKHWCL6B1PROD with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–C2–2010–002 on the
subject line.
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
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 Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of such filing
also will be available for inspection and
copying at the principal office of the C2.
All comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–C2–2010–002 and should
be submitted on or before June 9, 2010.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.57
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–12507 Filed 5–24–10; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–62117; File No. SR–ISE–
2010–34]
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Notice of Filing of Proposed Rule
Change Relating to Fees for the ISE
Order Feed
May 18, 2010.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
Paper Comments
notice is hereby given that on May 11,
• Send paper comments in triplicate
2010, the International Securities
to Elizabeth M. Murphy, Secretary,
Exchange, LLC (the ‘‘Exchange’’ or the
Securities and Exchange Commission,
‘‘ISE’’) filed with the Securities and
100 F Street, NE., Washington, DC
Exchange Commission the proposed
20549–1090.
rule change as described in Items I, II,
All submissions should refer to File
and III below, which items have been
Number SR–C2–2010–002. This file
prepared by the self-regulatory
number should be included on the
organization. The Commission is
subject line if e-mail is used. To help the publishing this notice to solicit
Commission process and review your
comments on the proposed rule change
comments more efficiently, please use
from interested persons.
only one method. The Commission will
post all comments on the Commission’s
57 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
Internet Web site (https://www.sec.gov/
2 17 CFR 240.19b–4.
rules/sro.shtml). Copies of the
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29381
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The ISE is proposing to amend its
Schedule of Fees to adopt subscription
fees for the sale of a new market data
offering called the ISE Order Feed. The
text of the proposed rule change is
available on the Exchange’s Web site
(https://www.ise.com), at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
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 these statements may be examined at
the places specified in Item IV below.
The self-regulatory organization has
prepared summaries, set forth in
sections A, B and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
ISE proposes to amend its Schedule of
Fees to adopt subscription fees for the
sale of the ISE Order Feed. These
proposed fee changes will be operative
on July 1, 2010, pending regulatory
approval.
The ISE Order Feed provides realtime updates every time a new limit
order that is not immediately executable
at the best bid/offer (BBO) is placed on
the ISE order book. This feed does not
include market orders, immediate or
cancel (IOC) orders, quotes or any nondisplayed interest.
While the Options Price Reporting
Authority (OPRA) feed provides
aggregated ISE BBO order information,
the ISE Order Feed provides each
individual order. The information
included on the ISE Order Feed
includes the order type (buy/sell), the
order price, the order size, and customer
indicator (which reflects whether the
order is a customer order), as well as
details for each instrument series,
including the symbols (series and
underlying security), put or call
indicator, the expiration and the strike
price of the series.
The ISE BBO on the OPRA feed
includes all quotes provided by ISE
market makers and all orders provided
by members which are then aggregated
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]]>Agencies
[Federal Register Volume 75, Number 100 (Tuesday, May 25, 2010)]
[Notices]
[Pages 29375-29381]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-12507]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62118; File No. SR-C2-2010-002]
Self-Regulatory Organizations; C2 Options Exchange, Incorporated;
Notice of Filing of a Proposed Rule Change Relating to Corporate
Structure
May 18, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act'' or ``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\
notice is hereby given that on May 14, 2010, C2 Options Exchange,
Incorporated (``C2'') filed with the Securities and Exchange Commission
(the ``Commission'' or ``SEC'') the proposed rule change as described
in Items I, II, and III below, which Items have been prepared by C2.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
C2, a wholly-owned subsidiary of Chicago Board Options Exchange,
Incorporated (``CBOE''), is filing this proposed rule change with the
Commission under Section 19(b)(1) of the Act in connection with the
plan of CBOE to restructure from a Delaware non-stock corporation to a
Delaware stock corporation that will be a wholly-owned subsidiary of
CBOE Holdings, Inc. (``CBOE Holdings''), a holding company organized as
a Delaware stock corporation.\3\ As a result of this Restructuring
Transaction, C2 will become a wholly-owned subsidiary CBOE Holdings.\4\
---------------------------------------------------------------------------
\3\ 15 U.S.C. 78s(b)(1).
\4\ The term ``Restructuring Transaction'' is defined in
proposed CBOE Rule 1.1(hhh) in the proposed rule change to
effectuate the demutualization of CBOE (the ``CBOE Demutualization
Filing'') as ``the restructuring of the Exchange from a non-stock
corporation to a stock corporation and wholly-owned subsidiary of
CBOE Holdings, Inc.'' The Commission has noticed the CBOE
Demutualization Filing for comment, and has not received any
comments on it. See Exchange Act Release No. 58425 (Aug. 26, 2008),
73 FR 51652 (Sept. 4, 2008) (File No. SR-CBOE-2008-88).
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The text of the proposed Certificate of Incorporation of CBOE
Holdings, the proposed Bylaws of CBOE Holdings, the proposed amendments
to C2's Certificate of Incorporation, the proposed amendments to C2's
Bylaws, the proposed amendments to C2's Rules, and the proposed Voting
Agreement between CBOE Holdings and C2 are available on C2's Web site
(https://www.cboe.org/Legal), on the Commission's Web site at https://www.sec.gov, at C2's Office of the Secretary, and at the Commission's
Public Reference Room.\5\
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\5\ The CBOE Demutualization Filing also includes the proposed
Certificate of Incorporation and Bylaws of CBOE Holdings, as well as
the proposed Certificate of Incorporation of CBOE, the proposed
Bylaws of CBOE, the proposed amendments to the Rules of CBOE, and
the proposed Voting Agreement between CBOE Holdings and CBOE. C2
notes that this rule filing includes and contains descriptions of
the most recent versions of the proposed Certificate of
Incorporation and Bylaws of CBOE Holdings.
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, C2 included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. C2 has prepared summaries, set forth in Sections A, B,
and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
(1) The Restructuring Transaction
C2 is filing this proposed rule change in connection with the plan
of its parent company CBOE to restructure from a Delaware non-stock
corporation owned by its members to a Delaware stock corporation that
will be a wholly-owned subsidiary of CBOE Holdings, a holding company
organized as a Delaware stock corporation.\6\ After the Restructuring
Transaction, the owners of membership
[[Page 29376]]
interests in CBOE will become stockholders of CBOE Holdings through the
conversion of their memberships into shares of common stock of CBOE
Holdings. In addition, members of the settlement class in the lawsuit
brought by The Board of Trade of the City of Chicago, Inc., its parent
company CME Group, Inc. and a class of individuals (collectively, the
``CBOT Parties'') against CBOE and CBOE's Board of Directors will
become stockholders of CBOE Holdings.\7\
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\6\ C2 was recently registered as a national securities exchange
under Section 6 of the Exchange Act. See Exchange Act Release No.
61152 (Dec. 10, 2009), 74 FR 66699 (Dec. 16, 2009). When
operational, C2 will operate an all-electronic marketplace for the
trading of listed options. It will not maintain a physical trading
floor.
\7\ CME Group Inc. et al. v. CBOE Inc. et al., Civil Action No.
2369-VCN (Filed Aug. 23, 2006). CBOE entered into a Stipulation of
Settlement (``Stipulation'') on August 20, 2008 with the CBOT
Parties to resolve this lawsuit. The Stipulation and amendments to
it can be found at (https://www.cboe.org/Legal/).
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As noted above, C2 currently is a wholly-owned subsidiary of CBOE.
In connection with the Restructuring Transaction, CBOE will dividend up
to CBOE Holdings all of the shares of C2. As a result of the
Restructuring Transaction, CBOE Holdings will hold all of the
outstanding common stock of C2 and CBOE, as well as certain
subsidiaries of CBOE. C2 and CBOE will continue to function as self-
regulatory organizations (``SROs'') and to operate their exchange
businesses and facilities.
(2) CBOE Holdings
After the Restructuring Transaction, CBOE Holdings will be the
parent company and sole shareholder of C2 and CBOE. The Certificate of
Incorporation and the Bylaws of CBOE Holdings will govern the
activities of CBOE Holdings.\8\
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\8\ While certain provisions of the Certificate of Incorporation
and Bylaws for CBOE Holdings are not related to the operation of C2
or CBOE, for so long as CBOE Holdings controls any Regulated
Securities Exchange Subsidiary (currently, C2 and CBOE), before any
amendment, alteration or repeal of any provision of the Certificate
of Incorporation and Bylaws of CBOE Holdings becomes effective, such
amendment, alteration or repeal will be submitted to the Board of
Directors of each Regulated Securities Exchange Subsidiary, and if
such amendment, alteration or repeal must be filed with or filed
with and approved by the Commission, then such amendment, alteration
or repeal will not become effective until filed with or filed with
and approved by the Commission, as the case may be. See proposed
Article Eleventh of the CBOE Holdings Certificate of Incorporation
and proposed Article 10.2 of the CBOE Holdings Bylaws. The term
``Regulated Securities Exchange Subsidiary'' is defined as ``any
national securities exchange controlled, directly or indirectly, by
[CBOE Holdings], including, but not limited to CBOE.'' See proposed
Article Fifth(a) of the CBOE Holdings Certificate of Incorporation.
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(A) CBOE Holdings Board of Directors
The business and affairs of CBOE Holdings will be managed by or
under the direction of its Board of Directors (``CBOE Holdings
Board''). The CBOE Holdings Board will consist of between 11 and 23
directors, the exact number to be fixed by the CBOE Holdings Board from
time to time pursuant to resolution adopted by the Board.\9\ It is
intended that the initial CBOE Holdings Board following the
Restructuring Transaction will be composed of the 22 individuals that
are the directors of CBOE immediately prior to the Restructuring
Transaction. At all times at least two-thirds of the CBOE Holdings
directors will satisfy the independence requirements adopted by the
CBOE Holdings Board, as may be modified and amended by the Board from
time to time, and which shall satisfy the independence requirements
contained in the listing standards of NYSE or The Nasdaq Stock
Market.\10\
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\9\ See proposed Article Seventh(b) of the CBOE Holdings
Certificate of Incorporation and proposed Article 3.2 of the CBOE
Holdings Bylaws.
\10\ See proposed Article 3.3 of the CBOE Holdings Bylaws.
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The CBOE Holdings Board will appoint one of the directors on the
CBOE Holdings Board to serve as Chairman of the CBOE Holdings
Board.\11\ The CBOE Holdings Bylaws do not restrict the Chief Executive
Officer of CBOE Holdings from serving in this role.\12\ The CBOE
Holdings Board also may appoint an independent director to serve as
Lead Director, who will perform such duties and possess such powers as
the CBOE Holdings Board may from time to time prescribe.\13\ All CBOE
Holdings directors will serve one-year terms.\14\ There is no limit on
the number of terms a director may serve on the CBOE Holdings Board.
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\11\ See proposed Article 3.6 of the CBOE Holdings Bylaws.
\12\ See proposed Article 5.1 of the CBOE Holdings Bylaws.
\13\ See proposed Article 3.7 of the CBOE Holdings Bylaws.
\14\ See proposed Article 3.2 of the CBOE Holdings Bylaws.
Directors will serve one-year terms ending on the annual meeting
following the meeting at which such directors were elected or at
such time as their successors are elected or appointed and
qualified, except in the event of earlier death, resignation or
removal.
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The CBOE Holdings Board or a committee thereof each year will
nominate CBOE Holdings director candidates for election at the CBOE
Holdings annual meeting of shareholders.\15\ In this regard, the
Nominating and Governance Committee, which is described below, will
nominate candidates for the CBOE Holdings Board. Each holder of CBOE
Holdings voting stock will be entitled to one vote for each share of
voting stock he or she holds, except as otherwise provided by the
General Corporation Law of the State of Delaware or the Certificate of
Incorporation or Bylaws of CBOE Holdings.\16\ At each annual meeting of
the shareholders of CBOE Holdings at which a quorum is present, the
individuals receiving a plurality of the votes cast will be elected
directors of CBOE Holdings.\17\
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\15\ See proposed Article 2.11 of the CBOE Holdings Bylaws.
Subject to certain conditions, stockholders also have the right
under this provision to nominate persons for the CBOE Holdings
Board.
\16\ See proposed Article 2.8 of the CBOE Holdings Bylaws.
\17\ See proposed Article 2.10 of the CBOE Holdings Bylaws.
Except as otherwise provided by law or the Certificate of
Incorporation or Bylaws of CBOE Holdings, the holders of a majority
in voting power of the shares of the capital stock of CBOE Holdings
issued and outstanding and entitled to vote at the meeting (after
taking into account the effect of any reduction of the number of
shares entitled to vote as a result of the voting limitations
imposed by Article Sixth of the Certificate of Incorporation of CBOE
Holdings, if any), present in person or represented by proxy, will
constitute a quorum for the transaction of business. See proposed
Article 2.6 of the CBOE Holdings Bylaws. The voting limitations in
Article Sixth are discussed below.
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(B) Committees of CBOE Holdings
CBOE Holdings will have an Executive Committee, an Audit Committee,
a Compensation Committee, a Nominating and Governance Committee, as
well as such other committees that the CBOE Holdings Board
establishes.\18\ The Nominating and Governance Committee will consist
of at least five directors, all of whom will be Independent Directors
and be recommended by the Nominating and Governance Committee for
approval by the CBOE Holdings Board.\19\ Members of the Executive,
Audit, and Compensation Committees of CBOE Holdings will be recommended
by the Nominating and Governance Committee for approval by the CBOE
Holdings Board.\20\
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\18\ See proposed Article 4.1 of the CBOE Holdings Bylaws. The
CBOE Holdings Board will designate the members of these other
committees and may designate a Chairman and a Vice-Chairman thereof.
\19\ See proposed Article 4.5 of the CBOE Holdings Bylaws.
\20\ See proposed Articles 4.2, 4.3 and 4.4 of the CBOE Holdings
Bylaws.
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The Executive Committee will have and may exercise all the powers
and authority of the CBOE Holdings Board in the management of the
business and affairs of CBOE Holdings, except it will not have the
power or authority of the CBOE Holdings Board in reference to, among
other things, amending the CBOE Holdings Certificate of Incorporation,
adopting an agreement of merger or consolidation, approving the sale,
lease or exchange of all or substantially all of the CBOE Holdings'
property and assets, or approving the dissolution of CBOE Holdings or a
revocation of a
[[Page 29377]]
dissolution.\21\ The Audit, Compensation, and Nominating and Governance
Committees will have such duties and may exercise such authority as may
be prescribed by the CBOE Holdings Board and their respective Charters
as adopted by resolution of the CBOE Holdings Board.\22\
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\21\ See proposed Article 4.2 of the CBOE Holdings Bylaws.
\22\ See proposed Articles 4.3, 4.4 and 4.5 of the CBOE Holdings
Bylaws.
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(C) Officers of CBOE Holdings
The officers of CBOE Holdings will be the Chief Executive Officer,
a Chief Financial Officer, a President, one or more Vice-Presidents
(the number thereof to be determined by the CBOE Holdings Board), a
Secretary, a Treasurer, and such other officers as the CBOE Holdings
Board may determine, including an Assistant Secretary or Assistant
Treasurer.\23\ The CBOE Holdings Board by an affirmative vote of the
majority of the board will appoint the Chief Executive Officer of CBOE
Holdings, who will have general charge and supervision of the business
of the CBOE Holdings.\24\ In general, the other officers of CBOE
Holdings will have the duties or powers or both set out in the CBOE
Holdings Bylaws, as well as such other duties or powers or both as the
CBOE Holdings Board or the Chief Executive Officer may from time to
time prescribe.\25\
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\23\ See proposed Article 5.1 of the CBOE Holdings Bylaws.
\24\ See proposed Articles 5.1 and 5.2 of the CBOE Holdings
Bylaws.
\25\ See proposed Articles 5.3, 5.4, 5.5, 5.6 and 5.7 of the
CBOE Holdings Bylaws.
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(D) Shareholder Restrictions
In addition to the restrictions on the ability of certain CBOE
Holdings stockholders to transfer their shares prior to and after an
initial public offering if such an offering were to occur, the
Certificate of Incorporation of CBOE Holdings places certain ownership
and voting limits on the holders of CBOE Holdings stock and their
Related Persons.\26\ These restrictions are intended to address the
possibility that a person holding a controlling interest in an SRO
could use that interest to affect the SRO's regulatory responsibilities
under the Exchange Act.\27\ In particular, these restrictions provide
that:
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\26\ The term ``Related Person'' is defined in proposed Article
Fifth(a) of the CBOE Holdings Certificate of Incorporation and
includes, among other things, any ``person associated with a
member'' (as such term is defined in Section 3(a)(21) of the
Exchange Act).
\27\ In 2004, the Commission proposed rules that were designed
to address conflicts of interest relating to for-profit SROs. See,
e.g., Securities Exchange Act Release No. 50699 (Nov. 18, 2004), 69
FR 71126 (Dec. 8, 2004).
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Ownership
No person (either alone or together with its Related
Persons) may beneficially own directly or indirectly shares of stock
representing in the aggregate more than 10% of the total outstanding
shares of CBOE Holdings stock; provided, that, in the event a public
offering of common stock is completed, the ownership percentage that a
person is permitted to beneficially own will increase from 10% to 20%
of the total outstanding shares of CBOE Holdings stock; \28\ and
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\28\ See proposed Article Sixth(b) of the CBOE Holdings
Certificate of Incorporation.
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In the event that a person, either alone or together with
its Related Persons, beneficially owns shares of stock representing
more than 10% of the outstanding shares of stock (or, in the event that
a public offering of common stock has been completed, 20% of the
outstanding shares of stock), CBOE Holdings will be obligated to redeem
promptly, at a price equal to the par value of such shares of stock and
to the extent that funds are legally available for such redemption,
that number of shares of stock necessary so that such person, together
with its Related Persons, will beneficially own directly or indirectly
shares of stock representing in the aggregate no more than 10% of the
outstanding shares of stock (or, in the event that a public offering of
common stock has been completed, 20% of the outstanding shares of
stock), after taking into account that such repurchased shares will
become treasury shares and will no longer be deemed to be
outstanding.\29\
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\29\ See proposed Article Sixth(b) of the CBOE Holdings
Certificate of Incorporation. If and to the extent that shares of
CBOE Holdings stock beneficially owned by any person or its Related
Persons are held of record by any other person, this provision will
be enforced against such record owner by requiring the redemption of
shares of CBOE Holdings stock held by such record owner in a manner
that will accomplish the ownership limitation applicable to such
person and its Related Persons.
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Voting
No person (either alone or together with its Related
Persons) will be entitled to vote or cause the voting of shares of
stock beneficially owned directly or indirectly by that person or those
Related Persons to the extent that those shares would represent in the
aggregate more than 10% of the total number of votes entitled to be
cast on any matter, and no person (either alone or together with its
Related Persons) will be entitled to vote more than 10% of the total
number of votes entitled to be cast on any matter by virtue of
agreements entered into by that person or those Related Persons with
other persons not to vote shares of outstanding stock; provided, that,
in the event a public offering of common stock is completed, the voting
percentage that any person is permitted to control, whether through
beneficial ownership or other agreement, will increase from 10% to 20%
of the total number of votes entitled to be cast on any matter; \30\
and
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\30\ See proposed Article Sixth(a) of the CBOE Holdings
Certificate of Incorporation. The voting limitation does not apply
to a solicitation of a revocable proxy by any CBOE Holdings
stockholder on behalf of CBOE Holdings or by directors or officers
of CBOE Holdings on behalf of CBOE Holdings or to a solicitation of
a revocable proxy by a stockholder in accordance with Regulation 14A
under the Exchange Act. 17 CFR 240.14A. This exception, however,
would not apply to a solicitation by a stockholder pursuant to Rule
14a-2(b)(2) under the Exchange Act, which permits a solicitation
made otherwise than on behalf of CBOE Holdings where the total
number of persons solicited is not more than 10.
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In the event that a person, either alone or together with
its Related Persons, is entitled to vote or cause the voting of shares
representing in the aggregate more than 10% (or, in the event that a
public offering of common stock has been completed, 20%) of the total
number of votes entitled to be cast on any matter (including if it and
its Related Persons possess this voting power by virtue of agreements
entered into with other persons not to vote shares of stock), then such
person, either alone or together with its Related Persons, will not be
entitled to vote or cause the voting of these shares of stock to the
extent that such shares represent in the aggregate more than 10% (or,
in the event that a public offering of common stock has been completed,
20%) of the total number of votes entitled to be cast on any matter,
and any such votes purported to be cast in excess of this percentage
will be disregarded.\31\
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\31\ See proposed Article Sixth(a) of the CBOE Holdings
Certificate of Incorporation. If and to the extent that shares of
CBOE Holdings stock beneficially owned by any person or its Related
Persons are held of record by any other person, this provision will
be enforced against such record owner by limiting the votes entitled
to be cast by such record owner in a manner that will accomplish the
voting limitation applicable to such person and its Related Persons.
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The CBOE Holdings Board of Directors may waive the provisions
regarding ownership and voting limits by a resolution expressly
permitting ownership or voting rights in excess of such limits (which
resolution must be filed with and approved by the SEC
[[Page 29378]]
prior to being effective), subject to a determination of the Board
that: \32\
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\32\ See proposed Articles Sixth(a) and (b) of the CBOE Holdings
Certificate of Incorporation.
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The acquisition of beneficial ownership in excess of the
ownership limits or the exercise of voting rights in excess of the
voting limits will not impair the ability of CBOE Holdings and any
Regulated Securities Exchange Subsidiary to discharge their
responsibilities under the Exchange Act and the rules and regulations
under the Exchange Act and is otherwise in the best interests of CBOE
Holdings and its stockholders and the Regulated Securities Exchange
Subsidiaries;
The acquisition of beneficial ownership in excess of the
ownership limits or the exercise of voting rights in excess of the
voting limits will not impair the SEC's ability to enforce the Exchange
Act;
Neither the person obtaining the waiver nor any of its
Related Persons is subject to any statutory disqualification (as
defined in Section 3(a)(39) of the Exchange Act) if such person is
seeking to obtain a waiver above the applicable ownership or voting
percentage level; \33\ and
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\33\ 15 U.S.C. 78c(a)(39).
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For so long as CBOE Holdings directly or indirectly
controls any Regulated Securities Exchange Subsidiary, neither the
person obtaining the waiver nor any of its Related Persons is a Trading
Permit Holder in any Regulated Securities Exchange Subsidiary if such
person is seeking to obtain a waiver above the applicable ownership or
voting percentage level.
In making these determinations, the CBOE Holdings Board may impose
conditions and restrictions on the relevant stockholder and its Related
Persons that it deems necessary, appropriate or desirable in
furtherance of the objectives of the Exchange Act and the governance of
CBOE Holdings.\34\
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\34\ See proposed Articles Sixth(a) and (b) of the CBOE Holdings
Certificate of Incorporation.
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The CBOE Holdings Certificate of Incorporation also provides that
the CBOE Holdings Board has the right to require any person and its
Related Persons that the Board reasonably believes (i) to be subject to
the ownership or voting restrictions summarized above, or (ii) to
beneficially own an aggregate of 5% or more of the then outstanding
shares of CBOE Holdings stock entitled to vote on any matter, which
ownership has not been reported to CBOE Holdings, to provide to CBOE
Holdings complete information as to all shares of the stock that such
stockholder beneficially owns, as well as any other information
relating to the applicability to such stockholder of the voting and
ownership requirements outlined above as may reasonably be
requested.\35\
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\35\ See proposed Article Sixth(d) of the CBOE Holdings
Certificate of Incorporation.
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CBOE has received a legal opinion that the foregoing ownership and
voting rights limitations, as well as the provisions providing for the
redemption of shares held by a person (either alone or together with
its Related Persons) in excess of the ownership limitation, are valid
under Delaware law.
(E) Self-Regulatory Function and Oversight
The CBOE Holdings Certificate of Incorporation contains various
provisions designed to protect the independence of the self-regulatory
function of any Regulated Securities Exchange Subsidiary (currently, C2
and CBOE) and to make clear the Commission's and each Regulated
Securities Exchange Subsidiary's jurisdiction with respect to CBOE
Holdings. For example, pursuant to the CBOE Holdings Certificate of
Incorporation, for so long as CBOE Holdings controls any Regulated
Securities Exchange Subsidiary, each officer, director and employee of
CBOE Holdings must give due regard to the preservation of the
independence of the self-regulatory function of the Regulated
Securities Exchange Subsidiaries and to their obligations under the
Exchange Act.\36\ In addition, such officers, directors and employees
are specifically prohibited from taking any actions that they
reasonably should have known would interfere with the effectuation of
any decisions by the Board of Directors of any Regulated Securities
Exchange Subsidiary relating to such Regulated Securities Exchange
Subsidiary's regulatory functions, including disciplinary matters, or
would adversely affect the Regulated Securities Exchange Subsidiary's
ability to carry out its responsibilities under the Exchange Act.\37\
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\36\ See proposed Article Sixteenth(c) of the CBOE Holdings
Certificate of Incorporation.
\37\ Id.
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The CBOE Holdings Certificate of Incorporation also contains a
specific requirement that to the fullest extent permitted by applicable
law, all confidential information pertaining to the self-regulatory
function of Regulated Securities Exchange Subsidiaries (including but
not limited to disciplinary matters, trading data, trading practices
and audit information) contained in the books and records of any
Regulated Securities Exchange Subsidiary that comes into the possession
of CBOE Holdings will: (1) Not be made available to any persons other
than to those officers, directors, employees and agents of CBOE
Holdings that have a reasonable need to know the contents thereof; (2)
be retained in confidence by CBOE Holdings and the officers, directors,
employees and agents of CBOE Holdings; and (3) not be used for any
commercial purposes.\38\ The CBOE Holdings Certificate of Incorporation
also provides that for so long as CBOE Holdings controls any Regulated
Securities Exchange Subsidiary, the books, records, premises, officers,
directors and employees of CBOE Holdings will be deemed to be the
books, records, premises, officers, directors and employees of the
Regulated Securities Exchange Subsidiary for purposes of and subject to
oversight pursuant to the Act, but only to the extent that such books,
records, premises, officers, directors and employees of CBOE Holdings
relate to the exchange business of such Regulated Securities Exchange
Subsidiary.\39\
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\38\ Notwithstanding this restriction, nothing in the CBOE
Holdings Certificate of Incorporation will be interpreted so as to
limit or impede the rights of the SEC or any Regulated Securities
Exchange Subsidiary to access and examine such confidential
information pursuant to the Federal securities laws and the rules
and regulations thereunder, or to limit or impede the ability of any
officers, directors, employees or agents of CBOE Holdings to
disclose such confidential information to the SEC or any Regulated
Securities Exchange Subsidiary. See proposed Article Fifteenth of
the CBOE Holdings Certificate of Incorporation.
\39\ The books and records related to the exchange business of a
Regulated Securities Exchange Subsidiary will be subject at all
times to inspection and copying by the SEC and the Regulated
Securities Exchange Subsidiary. Id. In addition, the CBOE Holdings
Bylaws provide that the books of CBOE Holdings must be kept within
the United States. See proposed Section 1.3 of the CBOE Holdings
Bylaws.
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Further, the CBOE Holdings Certificate of Incorporation provides
that CBOE Holdings will take reasonable steps necessary to cause its
directors, officers and employees, prior to accepting such a position
with CBOE Holdings, to consent in writing to the applicability to them
of Article Fourteenth, Article Fifteenth and Sections (c) and (d) of
Article Sixteenth of the CBOE Holdings Certificate of Incorporation, as
applicable, with respect to their activities related to any of the
Regulated Securities Exchange Subsidiaries.\40\ In addition, CBOE
Holdings will take reasonable steps necessary to cause its agents,
prior to
[[Page 29379]]
accepting such a position with CBOE Holdings, to be subject to the
provisions of Article Fourteenth, Article Fifteenth and Sections (c)
and (d) of Article Sixteenth of the CBOE Holdings Certificate of
Incorporation, as applicable, with respect to their activities related
to any of the Regulated Securities Exchange Subsidiaries.
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\40\ See proposed Article Sixteenth(b) of the CBOE Holdings
Certificate of Incorporation.
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The CBOE Holdings Certificate of Incorporation also provides that
CBOE Holdings, its directors, officers, agents and employees,
irrevocably submit to the jurisdiction of the U.S. Federal courts, the
SEC, and the Regulated Securities Exchange Subsidiaries, for the
purposes of any suit, action or proceeding pursuant to U.S. Federal
securities laws or the rules or regulations thereunder, commenced or
initiated by the SEC arising out of, or relating to, the Regulated
Securities Exchange Subsidiaries' activities.\41\ Further, the
Certificate of Incorporation provides that CBOE Holdings, its
directors, officers, agents and employees, waive, and agree not to
assert by way of motion, as a defense or otherwise in any such suit,
action or proceeding, any claims that they are not personally subject
to the jurisdiction of the U.S. Federal courts, the SEC, and the
Regulated Securities Exchange Subsidiaries, that the suit, action or
proceeding is an inconvenient forum or that the venue of the suit,
action or proceeding is improper, or that the subject matter thereof
may not be enforced in or by such courts or agency.\42\
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\41\ See proposed Article Fourteenth of the CBOE Holdings
Certificate of Incorporation.
\42\ Id.
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In addition, the CBOE Holdings Certificate of Incorporation (and
Bylaws) provide that, before any amendment or repeal of any provision
of the Certificate of Incorporation and Bylaws of CBOE Holdings becomes
effective, such amendment or repeal will be submitted to the Board of
Directors of each Regulated Securities Exchange Subsidiary, and if such
amendment or repeal must be filed with or filed with and approved by
the Commission, then such amendment or repeal will not become effective
until filed with or filed with and approved by the Commission, as the
case may be.\43\ The CBOE Holdings Certificate of Incorporation also
contains a provision that requires each director of the Board of CBOE
Holdings to take into consideration the effect that CBOE Holdings'
actions would have on each Regulated Securities Exchange Subsidiary's
ability to carry out its responsibilities under the Exchange Act.\44\
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\43\ See proposed Article Eleventh of the CBOE Holdings
Certificate of Incorporation and proposed Article 10.2 of the CBOE
Holdings Bylaws.
\44\ See proposed Article Sixteenth(d) of the CBOE Holdings
Certificate of Incorporation.
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(3) C2
CBOE Holdings will become the parent company and sole shareholder
of C2 (and CBOE) in connection the demutualization of CBOE. C2 (and
CBOE), and not CBOE Holdings, will continue to be the entities
registered as national securities exchanges under Section 6 of the
Exchange Act.
(A) C2 Certificate of Incorporation and Bylaws
The Commission recently approved C2's Certificate of Incorporation
and Bylaws, which are modeled after the proposed Certificate of
Incorporation and Bylaws for CBOE after it demutualizes and becomes a
wholly-owned subsidiary of CBOE Holdings.\45\ Accordingly, C2 is not
proposing any significant changes to its Certificate of Incorporation
and Bylaws. Rather, C2 is proposing to make certain changes to C2's
Certificate of Incorporation to effect the change of ownership of C2
from CBOE to CBOE Holdings, to clarify certain aspects of C2's Bylaws
as a result of this transfer of ownership, and to make certain
ministerial changes to C2's Certificate of Incorporation and Bylaws.
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\45\ See supra note 5.
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With respect to C2's Certificate of Incorporation, C2 is proposing
to amend Article Fourth of the certificate to transfer the ownership of
all of the common stock of C2 from CBOE to CBOE Holdings. As required
in Article Fourth, C2 is seeking in this proposed rule change
Commission approval for this transfer of ownership of C2 from CBOE to
CBOE Holdings. C2 also is amending Article Fourth to require Commission
approval if CBOE Holdings sells, transfers or assigns any shares of C2
common stock. In addition, C2 is proposing to delete Article Twelfth of
the C2 Certificate of Incorporation because it is no longer necessary.
This provision lists the incorporator of C2 and provides that once C2's
Certificate of Incorporation is filed in Delaware, C2 is required to
appoint its initial Board of Directors, which is required to be
compromised of the same individuals then-serving as the Board of
Directors of CBOE. These actions have already been taken, and
accordingly, Article Twelfth is no longer necessary.
With respect to C2's Bylaws, C2 is making several clarifying and
ministerial changes to them. In particular, C2 is proposing to delete
the second sentence of the first paragraph of Section 3.1 of the C2
Bylaws, which provides that ``[t]he Board shall initially consist of 23
directors, including the Chief Executive Officer, twelve Non-Industry
Directors and ten Industry Directors,'' because the initial Board of
Directors of C2 (``C2 Board'') has already been appointed.\46\
Similarly, C2 is proposing to delete a reference in the last sentence
of the first paragraph regarding the initial C2 Board because that
Board has already been appointed.
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\46\ C2 also is changing the reference to the ``Board of the
Corporation'' in that sentence to the ``Board.''
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C2 is proposing to amend the sixth paragraph of Section 3.1 of the
C2 Bylaws to provide that all directors of the C2 Board will serve one-
year terms.\47\ Previously, the C2 directors were divided into two
classes, with each class serving staggered two-year terms. C2 is
proposing to make this change because CBOE has decided to convert all
of the terms of the directors of CBOE Holdings and CBOE to one-year
terms after the demutualization. Similarly, C2 is proposing to amend
the fifth paragraph of Section 3.2 of the C2 Bylaws to remove a
reference to electing a class of directors because C2 will no longer
have different classes of directors.
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\47\ C2 also is proposing to amend this paragraph to clarify
that C2 directors can be replaced if they become disqualified (e.g.,
a ``Non-Industry Director'' becomes an ``Industry Director'').
Similarly, C2 is proposing to amend paragraph (a) of Section 3.5 of
the C2 Bylaws to clarify that a director elected to fill a vacancy
will not serve until the next annual meeting of stockholders if he
or she becomes disqualified. In addition, C2 is proposing to move a
reference to ``Representative Directors'' (described below) in the
first sentence of the seventh paragraph of Section 3.1 of the C2
Bylaws to clarify the intent of that sentence.
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C2 is proposing to amend paragraph (c) of Section 3.4 of the C2
Bylaws to clarify that Representative Directors (as opposed to any
Director) can be removed for cause, which will include, but not be
limited to (i) a breach of a Representative Director's duty of loyalty
to C2 or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law,
(iii) transactions from which a Representative Director derived an
improper personal benefit, or (iv) a failure of a Representative
Director to be free from a statutory disqualification (as defined in
Section 3(a)(39) of the Act).\48\ C2 is further amending this paragraph
to provide that any Representative Director
[[Page 29380]]
may be removed for cause by the holders of a majority of the shares of
stock then entitled to be voted at an election of directors.\49\ C2 is
making these changes since it is no longer proposed that C2 have a
classified Board (this change also will make C2's Bylaws consistent in
this regard with CBOE's post-demutualization Bylaws).
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\48\ At least 20% of the directors on the Board will be
nominated (or otherwise selected by a petition of C2 Permit Holders)
by the Industry-Director Subcommittee of the Nominating and
Governance Committee (such directors are referred to collectively as
the ``Representative Directors''). See Section 3.2 of the C2 Bylaws.
\49\ C2 is amending paragraph (b) of Section 3.4 of the Bylaws
to replace a reference to ``SEC'' with ``Securities and Exchange
Commission (``SEC'').''
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C2 is proposing to amend Section 4.6 of the C2 Bylaws to provide
that the C2 Regulatory Oversight Committee will consist of at least
three directors instead of at least four directors. C2 believes that
the Regulatory Oversight Committee will be able to function just as
effectively with three or more members as it would with four or more
members and is proposing this change to provide for greater flexibility
in the designation of C2 Board committees.
C2 is proposing to amend Section 5.8 of the C2 Bylaws to modify the
responsibilities of the Treasurer of C2. Specifically, C2 is proposing
to delete the second sentence in this section, which reads ``[i]n
addition, the Treasurer shall perform such duties and have such powers
that are incident to the office of Treasurer, including without
limitation the duty to keep and be responsible for all funds of the
Corporation,'' to make this section consistent with the Treasurer
provision in CBOE's proposed post-demutualization Bylaws.
(B) C2 Rules
Because the C2 Rules use terms from and incorporate by reference
CBOE Rules, C2 is proposing to make certain minor, non-substantive
changes to its Rules to reflect the changes that CBOE will make to its
Rules in connection with the demutualization. In this regard, CBOE is
proposing to replace the term ``member'' (or variations of it) with the
term ``Trading Permit Holder'' (or variations of it) throughout its
Rules in connection with the demutualization.
Accordingly, C2 is proposing to adopt in C2 Rule 1.1 the term
``CBOE Trading Permit,'' which is defined as a ``Trading Permit'' as
such term is defined in CBOE's Bylaws and Rules, and the term ``CBOE
Trading Permit Holder,'' which is defined as a ``Trading Permit
Holder'' as such term is defined in CBOE's Bylaws and Rules. C2
proposes to replace references in its Rules to (1) a CBOE ``member''
with the term ``CBOE Trading Permit Holder'' (or ``Trading Permit
Holder'' in certain instances where there is a direct cross-reference
to CBOE Rules),\50\ (2) a CBOE ``membership'' with the term ``CBOE
Trading Permit'' (or ``Trading Permit'' in certain instances where
there is a direct cross-reference to CBOE Rules),\51\ and (3) a CBOE
``Clearing Member'' (or variations of it) with the term ``Clearing
Trading Permit Holder.'' \52\ C2 is making these changes to reflect in
the C2 Rules certain changes that will be made to CBOE Rules in
connection with the demutualization.
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\50\ See, e.g., proposed C2 Rule 3.1(a) and Chapter 4 of the C2
Rules.
\51\ See, e.g., proposed C2 Rule 3.1(c) and Chapter 16 of the C2
Rules.
\52\ See, e.g., proposed Chapter 11 of the C2 Rules.
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C2 also is making a few minor, non-substantive fixes to its Rules.
For example, C2 is replacing references to a C2 ``member'' in its Rules
with the term ``Permit Holder'' or ``Participant'' (which both have the
same meaning under C2 Rules).\53\ C2 also is deleting a reference in C2
Rule 3.3(b) regarding member organizations not registered as broker-
dealers because C2 does not have such organizations (i.e., all Permit
Holders of C2 are required to be registered as broker-dealers). In
addition, C2 is fixing some of some of the cross-references in its
Rules to CBOE Rules. For instance, C2 is amending Chapter 15 of its
Rules, which cross-references Chapter XV of CBOE's Rules, to provide
that references to ``Trading Permit Holder'' (i.e., CBOE Trading Permit
Holder) in Chapter XV of CBOE's Rules mean ``Participant'' or ``Permit
Holder'' for purposes of Chapter 15 of C2's Rules.
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\53\ See, e.g., proposed C2 Rules 6.55.
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(C) C2 Voting Agreement With CBOE
C2 currently has in place a Voting Agreement with CBOE in which
CBOE agrees to vote in favor of those individuals nominated by C2's
Nominating and Governance Committee for election as C2 Representative
Directors. After the demutualization, CBOE Holdings, and not CBOE, will
be the sole stockholder of C2. Accordingly, C2 is proposing to enter
into a new Voting Agreement with CBOE Holdings that similarly will
require CBOE Holding to vote in favor of those individuals nominated by
C2's Nominating and Governance Committee for election as C2
Representative Directors. This new agreement will be modeled after and
virtually identical the current CBOE agreement. Accordingly, C2
proposes to change the references in the current CBOE agreement from
``CBOE'' to ``Holdings.'' This will have the effect of requiring CBOE
Holdings to vote in favor of those individuals nominated by C2's
Nominating and Governance Committee for election as C2 Representative
Directors.
In addition, C2 is adding a provision in the Voting Agreement to
reflect the ``for cause'' removal standard for Representative Directors
in C2's Bylaws, which is discussed above. This provision will provide
that CBOE Holdings agrees that it will not take action to remove any
Representative Director of C2 from office at any time unless CBOE
Holdings believes there is cause to remove such director. For purposes
of this section ``cause'' will include, but not be limited to, (i) a
breach of a Representative Director's duty of loyalty to C2 or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii)
transactions from which a Representative Director derived an improper
personal benefit, or (iv) a failure of a Representative Director to be
free from a statutory disqualification (as defined in Section 3(a)(39)
of the Act).
2. Statutory Basis
For the reasons set forth above, C2 believes that this filing is
consistent with Section 6(b) of the Exchange Act,\54\ in general, and
furthers the objectives of Section 6(b)(1) of the Exchange Act,\55\ in
particular, in that it enables C2 to be so organized as to have the
capacity to be able to carry out the purposes of the Exchange Act and
to comply, and to enforce compliance by its members and persons
associated with its members, with the provisions of the Exchange Act,
the rules and regulations thereunder, and the rules of C2. C2 also
believes that this filing furthers the objectives of Section 6(b)(5) of
the Exchange Act because the rules summarized herein would create a
governance and regulatory structure that is designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to remove impediments to, and perfect
the mechanism of a free and open market and, in general, to protect
investors and the public interest.\56\ Among other things, the
Certificate of Incorporation and Bylaws of CBOE Holdings and C2 are
designed to protect and maintain the integrity of the SRO functions of
C2, and to allow it to carry out it regulatory responsibilities under
the Exchange Act.
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\54\ 15 U.S.C. 78f(b).
\55\ 15 U.S.C. 78f(b)(1).
\56\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
C2 does not believe that the proposed rule change will impose any
burden on
[[Page 29381]]
competition that is not necessary or appropriate in furtherance of the
purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
The Commission is considering granting accelerated approval of the
proposed rule change at the end of a 15-day comment period.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-C2-2010-002 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-C2-2010-002. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the 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 Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of the C2. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-C2-2010-002 and should be
submitted on or before June 9, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\57\
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\57\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-12507 Filed 5-24-10; 8:45 am]
BILLING CODE 8010-01-P
