Self-Regulatory Organizations; EDGX Exchange, Inc; Order Approving a Proposed Rule Change Relating to Direct Edge, Inc., 43584-43587 [2010-18158]
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43584
Federal Register / Vol. 75, No. 142 / Monday, July 26, 2010 / Notices
The Commission notes that the
Exchange is not proposing to amend the
DE Holdings Operating Agreement.25
Accordingly, the DE Holdings Operating
Agreement that the Commission
reviewed in connection with the
Exchange’s application for registration
as a national securities exchange,
including the provisions in the DE
Holdings Operating Agreement relating
to the self-regulatory function of the
Exchange, will remain in place
following the Corporate Reorganization.
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C. Ownership and Control of the
Exchange, DEI, and DE Holdings
Following the Corporate
Reorganization, DEI will be the sole
stockholder of the Exchange. The
Exchange Bylaws identify this
ownership structure.26 Any changes to
the Exchange Bylaws, including any
change in the provision that identifies
DEI as the sole stockholder of the
Exchange, must be filed with and
approved by the Commission pursuant
to Section 19 of the Act.27 Similarly, the
DEI Certificate identifies DE Holdings as
the sole stockholder of DEI.28 For as
long as DEI directly or indirectly
controls the Exchange, any amendment
to the DEI Certificate, including an
amendment to the provision that
identifies DE Holdings as the sole
stockholder of DEI, must be submitted
to the Exchange Board and, if the
Exchange Board determines that the
amendment must be filed with, or filed
with and approved by the Commission,
before the amendment may be effective
under Section 19 of the Act, then the
proposed amendment will not be
effective until it is filed with, or filed
with and approved by, the
Commission.29
they are related to the operation or administration
of the Exchange; and (4) DE Holdings agrees to
provide the Commission and the Exchange with
access to DE Holdings’ books and records that are
related to the operation or administration of the
Exchange for so long as DE Holdings directly or
indirectly controls the Exchange. See DE Holdings
Operating Agreement, Article XI, Section 14.3; and
Article XI, Section 11.2. For a more complete
discussion of the DE Holdings Operating
Agreement, see Order, supra note 4, at notes 40—
47 and accompanying text.
25 For as long as DE Holdings directly or
indirectly controls the Exchange, any changes to the
DE Holdings Operating Agreement must be
submitted to the Exchange Board and, if the
Exchange Board determines that such amendment
is required to be filed with the Commission
pursuant to Section 19(b) of the Act, such change
will not be effective until filed with, or filed with
and approved by, the Commission. See DE Holdings
Operating Agreement, Article XV, Section 15.2(b).
See also Order, supra note 4, at note 47 and
accompanying text.
26 See Exchange Bylaws, Article I(kk).
27 See 15 U.S.C. 78s.
28 See DEI Certificate, Article EIGHTH(4).
29 See DEI Certificate, Article EIGHTH(3).
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In addition, as discussed in greater
detail in the Order,30 the DE Holdings
Operating Agreement includes
restrictions on the ability to own and
vote the capital stock of DE Holdings.31
These limitations apply for so long as
DE Holdings directly or indirectly
controls the Exchange.32 The
limitations, which are designed to
prevent any Member of DE Holdings
from exercising undue control over the
operation of the Exchange and to assure
that the Exchange and the Commission
are able to effectively carry out their
regulatory and oversight obligations
under the Act, generally prohibit any
person, other than International
Securities Exchange Holdings, Inc., from
owning interests representing more than
40% of DE Holdings or from voting
interests representing more than 20% of
DE Holdings. In addition, the
limitations prohibit any member of the
Exchange from owning interests
representing more than 20% of DE
Holdings.
The Commission believes that these
provisions in the governing documents
of the Exchange, DEI, and DE Holdings
should minimize the potential that a
person could improperly interfere with
or restrict the ability of the Commission
or the Exchange to effectively carry out
their regulatory and oversight
responsibilities under the Act.
D. Electing Directors and Certain
Committee Members of the Exchange
Currently, the DE Holdings Operating
Agreement requires DE Holdings, in its
capacity as the sole stockholder of the
Exchange, to vote all of the outstanding
equity of the Exchange owned by DE
Holdings and entitled to vote in an
election to be voted in favor of the
election of (1) those directors nominated
by the Nominating Committee of the
Exchange (‘‘Exchange Nominating
Committee’’); and (2) those nominees for
the Exchange Nominating Committee
and the Exchange Member Nominating
Committee nominated in accordance
with the governance documents of the
Exchange.33 Because DE Holdings will
no longer be a stockholder of the
Exchange following the Corporate
Reorganization, the Exchange notes that
these requirements will no longer apply
to DE Holdings.
However, the DEI Bylaws require DEI,
in its capacity as the sole stockholder of
30 See Order, supra note 4, at notes 65–88 and
accompanying text.
31 See DE Holdings Operating Agreement, Article
XII.
32 See DE Holdings Operating Agreement, Article
XII, Section 12.1(a).
33 See DE Holdings Operating Agreement, Article
VII, Section 7.3(b).
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the Exchange, to cause all outstanding
equity of the Exchange owned by DEI
and entitled to vote in an election to be
voted in favor of the election of (1) those
directors nominated by the Exchange
Nominating Committee; and (2) those
nominees for the Exchange Nominating
Committee and the Exchange Member
Nominating Committee nominated in
accordance with the governance
documents of the Exchange.34 Through
these requirements in the DEI Bylaws,
the Commission believes that the same
procedures governing the election of
Exchange directors and Exchange
member directors that the Commission
approved in the Order will continue to
apply following the Corporate
Reorganization.35 Accordingly, the
Commission finds that the proposal is
consistent with the requirement in
Section 6(b)(3) of the Act that the rules
of the Exchange provide for the fair
representation of its members in the
selection of directors and the
administration of the Exchange.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,36 that the
proposed rule change (File No. SR–
ED37GA–2010–02) is approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–18157 Filed 7–23–10; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–62515; File No. SR–EDGX–
2010–02]
Self-Regulatory Organizations; EDGX
Exchange, Inc; Order Approving a
Proposed Rule Change Relating to
Direct Edge, Inc.
July 16, 2010.
I. Introduction
On June 3, 2010, EDGX Exchange, Inc.
(‘‘EDGX’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (the ‘‘Act’’),1 and Rule 19b–4
34 See
DEI Bylaws, Article II, Section 2.15(b).
Order, supra note 4, at notes 94—120 and
accompanying text, for a discussion of the
Exchange’s procedures for nominating directors and
Exchange member directors.
36 15 U.S.C. 78s(b)(2).
37 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
35 See
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Federal Register / Vol. 75, No. 142 / Monday, July 26, 2010 / Notices
thereunder,2 a proposed rule change
relating to a corporate reorganization
(‘‘Corporate Reorganization’’) in which
the Exchange will become a whollyowned subsidiary of Direct Edge, Inc.
(‘‘DEI’’). The proposed rule change was
published for comment in the Federal
Register on June 16, 2010.3 The
Commission received no comments
regarding the proposal. This order
approves the proposed rule change.
II. Description of the Proposal
Currently, the Exchange is a whollyowned subsidiary of Direct Edge
Holdings, LLC (‘‘DE Holdings’’).4 DE
Holdings, a Delaware limited liability
company, is overseen by a Board of
Managers, and ownership in DE
Holdings is represented by limited
liability membership interests. The
Fourth Amended and Restated Limited
Liability Company Operating Agreement
of DE Holdings (‘‘DE Holdings Operating
Agreement’’) refers to the holders of
these membership interests as
‘‘Members.’’ 5
The Exchange proposes a Corporate
Reorganization in which DE Holdings
will transfer all of its equity interest in
the Exchange to DEI, a Delaware
corporation.6 As a result, the Exchange
will be a direct, wholly-owned
subsidiary of DEI following the
Corporate Reorganization. DEI, in turn,
will be a direct, wholly-owned
subsidiary of DE Holdings, and DE
Holdings will be the sole stockholder of
DEI. The self-regulatory functions of the
Exchange will remain with the
Exchange following the Corporate
Reorganization. Direct Edge ECN, LLC
d/b/a DE Route, the Exchange’s routing
broker/dealer, will continue to be a
wholly-owned subsidiary of DE
Holdings.
The Exchange has included in its
proposal the Certificate of Incorporation
2 17
CFR 240.19b–4.
Securities Exchange Act Release No. 62256
(June 10, 2010), 75 FR 34196.
4 The Amended and Restated Bylaws of EDGX
(‘‘Exchange Bylaws’’) identify this ownership
structure. See Exchange Bylaws, Article I(kk). Any
changes to the Exchange Bylaws, including a
change to the provision that identifies DE Holdings
as the sole owner of the Exchange, must be filed
with the Commission pursuant to Section 19 of the
Act. See 15 U.S.C. 78s. See also Securities Exchange
Act Release No. 61698 (March 12, 2010), 75 FR
13151 (March 18, 2010) (File Nos. 10–194 and 10–
196) (order granting the exchange registration
applications of the Exchange and EDGA Exchange,
Inc. (‘‘EDGA’’)) (‘‘Order’’), at note 77 and
accompanying text.
5 DE Holdings is described in greater detail in the
Order, supra note 4.
6 The Exchange’s affiliate exchange, EDGA, also
will become a wholly-owned subsidiary of DEI. See
Securities Exchange Act Release No. 62514 (July 16,
2010) (order approving File No. SR–EDGA–2010–
02).
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3 See
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of DEI (‘‘DEI Certificate’’); the Bylaws of
DEI (‘‘DEI Bylaws’’); and changes to the
Amended and Restated Bylaws of EDGX
(‘‘Exchange Bylaws’’) to indicate that DEI
will be the sole stockholder of the
Exchange.
III. Discussion and Commission
Findings
The Commission finds that the
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder
applicable to a national securities
exchange.7 In particular, the
Commission finds that the proposal is
consistent with Section 6(b) of the Act,8
in general, and furthers the objectives of
Section 6(b)(1) of the Act,9 in particular,
in that it is designed to enable the
Exchange to be so organized as to have
the capacity to be able to carry out the
purposes of the Act and to comply, and
to enforce compliance by its members
and persons associated with its
members with the provisions of the Act,
the rules and regulations thereunder,
and the rules of the Exchange. In
addition, the Commission finds that the
proposal is consistent with Section
6(b)(5) of the Act 10 in that it will result
in an exchange governance structure
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 a national market
system, and, in general, to protect
investors and the public interest. In
particular, the Commission believes that
the corporate governing documents of
DEI, DE Holdings, and the Exchange are
designed to protect and maintain the
integrity of the self-regulatory functions
of the Exchange and to facilitate the
ability of the Exchange and the
Commission to carry out their regulatory
and oversight obligations under the Act.
Finally, the Commission finds that the
proposal is consistent with the
requirement under Section 6(b)(3) of the
Act 11 that the rules of an exchange
assure fair representation of the
exchange’s members in the selection of
its directors and administration of its
affairs.
A. DEI
Following the Corporate
Reorganization, DEI will be the sole
7 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
8 15 U.S.C. 78f(b).
9 15 U.S.C. 78f(b)(1).
10 15 U.S.C. 78f(b)(5).
11 15 U.S.C. 78f(b)(3).
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43585
stockholder of the Exchange.12
Although DEI will not carry out any
regulatory functions, its activities with
respect to the operation of the Exchange
must be consistent with, and must not
interfere with, the self-regulatory
obligations of the Exchange. The DEI
Certificate and DEI Bylaws include
certain provisions that are designed to
maintain the independence of the
Exchange’s self-regulatory function from
DEI, enable the Exchange to operate in
a manner that complies with the Federal
securities laws, including the objectives
of Sections 6(b) and 19(g) of the Act,13
and facilitate the ability of the Exchange
and the Commission to fulfill their
regulatory and oversight obligations
under the Act.
For example, DEI submits to the
jurisdiction of the Commission and the
Exchange with respect to activities
relating to the Exchange,14 and agrees to
provide the Commission and the
Exchange with access to its books and
records that are related to the operation
or administration of the Exchange.15 In
addition, to the extent they are related
to the operation or administration of the
Exchange, the books, records, premises,
officers, directors, agents, and
employees of DEI will be deemed to be
the books, records, premises, officers,
directors, agents, and employees of the
Exchange for the purpose of, and subject
to oversight pursuant to, the Act.16 DEI
also agrees to keep confidential nonpublic information relating to the selfregulatory function 17 of the Exchange
and not to use such information for any
non-regulatory purpose.18 In addition,
the Board of Directors of DEI, and DEI’s
officers, employees, and agents, are
required to give due regard to the
preservation of the independence of the
self-regulatory function of the
Exchange.19
Article VII, Section 7.7 of the DE
Holdings Operating Agreement requires
the approval of the DE Holdings Board
of Managers and/or Members of DE
Holdings in connection with certain
actions taken by DE Holdings or a
subsidiary of DE Holdings. Article
12 See
Exchange Bylaws, Article I(kk).
U.S.C. 78f(b) and 15 U.S.C. 78s(g).
14 See DEI Bylaws, Article VII, Section 7.3.
15 See DEI Bylaws, Article V, Section 5.8(b).
16 Id.
17 This requirement to keep confidential nonpublic information relating to the self-regulatory
function of the Exchange will not limit the
Commission’s or the Exchange’s ability to access
and examine such information or limit the ability
of any officers, directors, agents, or employees of
DEI to disclose such information to the Commission
or to the Exchange. See DEI Bylaws, Article V,
Section 5.8(a).
18 See DEI Bylaws, Article VII, Section 7.1.
19 See DEI Bylaws, Article V, Section 5.8(b).
13 15
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Federal Register / Vol. 75, No. 142 / Monday, July 26, 2010 / Notices
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SIXTH of the DEI Certificate states that
any action that specifically requires the
approval of the DE Holdings Board of
Managers and/or Members of DE
Holdings pursuant to Article VII,
Section 7.7 of the DE Holdings
Operating Agreement will require the
approval of the stockholders of DEI.20
Article SIXTH of the DEI Certificate
further provides, however, that nothing
contained in Article VII, Section 7.7 of
the DE Holdings Operating Agreement
will be applicable where the application
of that provision would interfere with
the effectuation of any decisions of the
DEI Board of Directors (‘‘DEI Board’’)
relating to regulatory functions of the
Exchange (including disciplinary
matters) or the structure of the market
the Exchange regulates, or would
interfere with the ability of the
Exchange to carry out its responsibilities
under the Act or to oversee the structure
of the market the Exchange regulates.21
For as long as DEI directly or indirectly
controls the Exchange, any change to
the DEI Certificate must be submitted to
the Exchange’s Board of Directors
(‘‘Exchange Board’’) and, if the
amendment is required to be filed with
the Commission pursuant to Section
19(b) of the Act, the change will not be
effective until filed with, or filed with
and approved by, the Commission.22
The Commission finds that these
provisions in the DEI Bylaws and DEI
Certificate are consistent with the Act,
and that they will assist the Exchange in
fulfilling its self-regulatory obligations
and in administering and complying
with the requirements of the Act.
B. DE Holdings
In the Corporate Reorganization, DE
Holdings, which currently is the sole
stockholder of the Exchange, will
transfer its stock in the Exchange to DE
Holdings’ wholly-owned subsidiary,
DEI, which will become the sole
stockholder of the Exchange.
Accordingly, DE Holdings will be an
indirect owner of the Exchange
following the Corporate Reorganization.
Although DE Holdings will not carry out
any regulatory functions, its activities
with respect to the operation of the
Exchange must be consistent with, and
not interfere with, the self-regulatory
obligations of the Exchange.
The DE Holdings Operating
Agreement, which the Commission
reviewed in connection with the
Exchange’s application for registration
as a national securities exchange,23
20 See
DEI Certificate, Article SIXTH(1).
DEI Certificate, Article SIXTH(2).
22 See DEI Certificate, Article EIGHTH(3).
23 See Order, supra note 4.
21 See
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includes certain provisions that are
designed to maintain the independence
of the Exchange’s self-regulatory
function from DE Holdings, enable the
Exchange to operate in a manner that
complies with the Federal securities
laws, including the objectives of
Sections 6(b) and 19(g) of the Act, and
facilitate the ability of the Exchange and
the Commission to fulfill their
regulatory and oversight obligations
under the Act. For example, the DE
Holdings Operating Agreement provides
that, for so long as DE Holdings directly
or indirectly controls the Exchange, the
Managers, officers, employees, and
agents of DE Holdings shall give due
regard to the preservation of the
independence of the self-regulatory
function of the Exchange and shall not
take any actions that would interfere
with the effectuation of any decisions by
the Exchange Board relating to the
Exchange’s regulatory functions
(including disciplinary matters) or
which would interfere with the ability
of the Exchange to carry out its
responsibilities under the Act.24
The Commission notes that the
Exchange is not proposing to amend the
DE Holdings Operating Agreement.25
Accordingly, the DE Holdings Operating
Agreement that the Commission
24 See DE Holdings Operating Agreement Article
XIV, Section 14.1. In addition, the DE Holdings
Operating Agreement further specifies, among other
things, that: (1) DE Holdings and its officers,
Managers, employees, and agents submit to the
Commission’s and the Exchange’s jurisdiction with
respect to activities relating to the Exchange; (2) DE
Holdings agrees to retain in confidence information
in the books and records of the Exchange reflecting
confidential information pertaining to the selfregulatory function of the Exchange (including
disciplinary matters, trading data, trading practices,
and audit information) that comes into DE
Holdings’ possession; (3) the books, records,
premises, officers, Managers, agents, and employees
of DE Holdings are deemed to be the books, records,
premises, officers, Managers, agents, and employees
of the Exchange for purposes of, and subject to
oversight pursuant to, the Act, to the extent that
they are related to the operation or administration
of the Exchange; and (4) DE Holdings agrees to
provide the Commission and the Exchange with
access to DE Holdings’ books and records that are
related to the operation or administration of the
Exchange for so long as DE Holdings directly or
indirectly controls the Exchange. See DE Holdings
Operating Agreement, Article XI, Section 14.3; and
Article XI, Section 11.2. For a more complete
discussion of the DE Holdings Operating
Agreement, see Order, supra note 4, at notes 40—
47 and accompanying text.
25 For as long as DE Holdings directly or
indirectly controls the Exchange, any changes to the
DE Holdings Operating Agreement must be
submitted to the Exchange Board and, if the
Exchange Board determines that such amendment
is required to be filed with the Commission
pursuant to Section 19(b) of the Act, such change
will not be effective until filed with, or filed with
and approved by, the Commission. See DE Holdings
Operating Agreement, Article XV, Section 15.2(b).
See also Order, supra note 4, at note 47 and
accompanying text.
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reviewed in connection with the
Exchange’s application for registration
as a national securities exchange,
including the provisions in the DE
Holdings Operating Agreement relating
to the self-regulatory function of the
Exchange, will remain in place
following the Corporate Reorganization.
C. Ownership and Control of the
Exchange, DEI, and DE Holdings
Following the Corporate
Reorganization, DEI will be the sole
stockholder of the Exchange. The
Exchange Bylaws identify this
ownership structure.26 Any changes to
the Exchange Bylaws, including any
change in the provision that identifies
DEI as the sole stockholder of the
Exchange, must be filed with and
approved by the Commission pursuant
to Section 19 of the Act.27 Similarly, the
DEI Certificate identifies DE Holdings as
the sole stockholder of DEI.28 For as
long as DEI directly or indirectly
controls the Exchange, any amendment
to the DEI Certificate, including an
amendment to the provision that
identifies DE Holdings as the sole
stockholder of DEI, must be submitted
to the Exchange Board and, if the
Exchange Board determines that the
amendment must be filed with, or filed
with and approved by the Commission,
before the amendment may be effective
under Section 19 of the Act, then the
proposed amendment will not be
effective until it is filed with, or filed
with and approved by, the
Commission.29
In addition, as discussed in greater
detail in the Order,30 the DE Holdings
Operating Agreement includes
restrictions on the ability to own and
vote the capital stock of DE Holdings.31
These limitations apply for so long as
DE Holdings directly or indirectly
controls the Exchange.32 The
limitations, which are designed to
prevent any Member of DE Holdings
from exercising undue control over the
operation of the Exchange and to assure
that the Exchange and the Commission
are able to effectively carry out their
regulatory and oversight obligations
under the Act, generally prohibit any
person, other than International
Securities Exchange Holdings, Inc., from
owning interests representing more than
26 See
Exchange Bylaws, Article I(kk).
15 U.S.C. 78s.
28 See DEI Certificate, Article EIGHTH(4).
29 See DEI Certificate, Article EIGHTH(3).
30 See Order, supra note 4, at notes 65–88 and
accompanying text.
31 See DE Holdings Operating Agreement, Article
XII.
32 See DE Holdings Operating Agreement, Article
XII, Section 12.1(a).
27 See
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Federal Register / Vol. 75, No. 142 / Monday, July 26, 2010 / Notices
jlentini on DSKJ8SOYB1PROD with NOTICES
40% of DE Holdings or from voting
interests representing more than 20% of
DE Holdings. In addition, the
limitations prohibit any member of the
Exchange from owning interests
representing more than 20% of DE
Holdings.
The Commission believes that these
provisions in the governing documents
of the Exchange, DEI, and DE Holdings
should minimize the potential that a
person could improperly interfere with
or restrict the ability of the Commission
or the Exchange to effectively carry out
their regulatory and oversight
responsibilities under the Act.
D. Electing Directors and Certain
Committee Members of the Exchange
Currently, the DE Holdings Operating
Agreement requires DE Holdings, in its
capacity as the sole stockholder of the
Exchange, to vote all of the outstanding
equity of the Exchange owned by DE
Holdings and entitled to vote in an
election to be voted in favor of the
election of (1) those directors nominated
by the Nominating Committee of the
Exchange (‘‘Exchange Nominating
Committee’’); and (2) those nominees for
the Exchange Nominating Committee
and the Exchange Member Nominating
Committee nominated in accordance
with the governance documents of the
Exchange.33 Because DE Holdings will
no longer be a stockholder of the
Exchange following the Corporate
Reorganization, the Exchange notes that
these requirements will no longer apply
to DE Holdings.
However, the DEI Bylaws require DEI,
in its capacity as the sole stockholder of
the Exchange, to cause all outstanding
equity of the Exchange owned by DEI
and entitled to vote in an election to be
voted in favor of the election of (1) those
directors nominated by the Exchange
Nominating Committee; and (2) those
nominees for the Exchange Nominating
Committee and the Exchange Member
Nominating Committee nominated in
accordance with the governance
documents of the Exchange.34 Through
these requirements in the DEI Bylaws,
the Commission believes that the same
procedures governing the election of
Exchange directors and Exchange
member directors that the Commission
approved in the Order will continue to
apply following the Corporate
Reorganization.35 Accordingly, the
Commission finds that the proposal is
33 See DE Holdings Operating Agreement, Article
VII, Section 7.3(b).
34 See DEI Bylaws, Article II, Section 2.15(b).
35 See Order, supra note 4, at notes 94–120 and
accompanying text, for a discussion of the
Exchange’s procedures for nominating directors and
Exchange member directors.
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consistent with the requirement in
Section 6(b)(3) of the Act that the rules
of the Exchange provide for the fair
representation of its members in the
selection of directors and the
administration of the Exchange.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,36 that the
proposed rule change (File No. SR–
EDGX–2010–02) is approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.37
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–18158 Filed 7–23–10; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–62526; File No. SR–
NYSEAmex–2010–68]
Self-Regulatory Organizations; NYSE
Amex LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending Its Fee
Schedule
July 19, 2010.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on July 7,
2010, NYSE Amex LLC (the ‘‘Exchange’’
or the ‘‘NYSE Amex’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which items have been
prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to temporarily
suspend the collection of marketing
charges on Customer orders that trade
within the Complex Matching Engine
contra to a Market Maker. Concurrent
with this change we are also proposing
to reduce some of the transaction fees
associated with executions in the
Complex Matching Engine.
A copy of this filing is available on
the Exchange’s Web site at https://
www.nyse.com, on the Commission’s
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36 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
37 17
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43587
Internet Web site at https://www.sec.gov,
at the Exchange’s principal office, 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
The Exchange is proposing to
temporarily suspend the collection of
marketing charges on Customer orders
that trade within the Complex Matching
Engine contra to a Market Maker. At
present, our marketing charges program
is designed to allow for the collection of
marketing charges from Market Makers
who trade contra to electronic Customer
orders. The marketing charges accrue to
either the Directed Order Market Maker
or in the case of a non-directed order,
the Specialist or e-Specialist that is in
control of the pool of marketing charge
monies that accrue from non-directed
order flow.
Within our Complex Matching Engine
we presently do not have functionality
that would permit Market Makers to
receive Directed Orders and therefore
control the marketing charges associated
with those directed Customer orders.
Given this limitation, the Exchange feels
it is appropriate to suspend the
collection of marketing charges for
electronic Customer orders executed in
the Complex Matching Engine until
such a time that we can offer Directed
Order functionality within the Complex
Matching Engine. Once we create
functionality that will allow Directed
Order Market Makers can [sic] receive
Complex Directed Orders that execute
within the Complex Matching Engine,
the Exchange will file at that time to
reinstate the collection of marketing
charges.
Concurrent with this change in
marketing charges, the Exchange is also
proposing to reduce the transaction
charges associated with receiving an
E:\FR\FM\26JYN1.SGM
26JYN1
]]>Agencies
[Federal Register Volume 75, Number 142 (Monday, July 26, 2010)]
[Notices]
[Pages 43584-43587]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-18158]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62515; File No. SR-EDGX-2010-02]
Self-Regulatory Organizations; EDGX Exchange, Inc; Order
Approving a Proposed Rule Change Relating to Direct Edge, Inc.
July 16, 2010.
I. Introduction
On June 3, 2010, EDGX Exchange, Inc. (``EDGX'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4
[[Page 43585]]
thereunder,\2\ a proposed rule change relating to a corporate
reorganization (``Corporate Reorganization'') in which the Exchange
will become a wholly-owned subsidiary of Direct Edge, Inc. (``DEI'').
The proposed rule change was published for comment in the Federal
Register on June 16, 2010.\3\ The Commission received no comments
regarding the proposal. This order approves the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 62256 (June 10,
2010), 75 FR 34196.
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II. Description of the Proposal
Currently, the Exchange is a wholly-owned subsidiary of Direct Edge
Holdings, LLC (``DE Holdings'').\4\ DE Holdings, a Delaware limited
liability company, is overseen by a Board of Managers, and ownership in
DE Holdings is represented by limited liability membership interests.
The Fourth Amended and Restated Limited Liability Company Operating
Agreement of DE Holdings (``DE Holdings Operating Agreement'') refers
to the holders of these membership interests as ``Members.'' \5\
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\4\ The Amended and Restated Bylaws of EDGX (``Exchange
Bylaws'') identify this ownership structure. See Exchange Bylaws,
Article I(kk). Any changes to the Exchange Bylaws, including a
change to the provision that identifies DE Holdings as the sole
owner of the Exchange, must be filed with the Commission pursuant to
Section 19 of the Act. See 15 U.S.C. 78s. See also Securities
Exchange Act Release No. 61698 (March 12, 2010), 75 FR 13151 (March
18, 2010) (File Nos. 10-194 and 10-196) (order granting the exchange
registration applications of the Exchange and EDGA Exchange, Inc.
(``EDGA'')) (``Order''), at note 77 and accompanying text.
\5\ DE Holdings is described in greater detail in the Order,
supra note 4.
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The Exchange proposes a Corporate Reorganization in which DE
Holdings will transfer all of its equity interest in the Exchange to
DEI, a Delaware corporation.\6\ As a result, the Exchange will be a
direct, wholly-owned subsidiary of DEI following the Corporate
Reorganization. DEI, in turn, will be a direct, wholly-owned subsidiary
of DE Holdings, and DE Holdings will be the sole stockholder of DEI.
The self-regulatory functions of the Exchange will remain with the
Exchange following the Corporate Reorganization. Direct Edge ECN, LLC
d/b/a DE Route, the Exchange's routing broker/dealer, will continue to
be a wholly-owned subsidiary of DE Holdings.
---------------------------------------------------------------------------
\6\ The Exchange's affiliate exchange, EDGA, also will become a
wholly-owned subsidiary of DEI. See Securities Exchange Act Release
No. 62514 (July 16, 2010) (order approving File No. SR-EDGA-2010-
02).
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The Exchange has included in its proposal the Certificate of
Incorporation of DEI (``DEI Certificate''); the Bylaws of DEI (``DEI
Bylaws''); and changes to the Amended and Restated Bylaws of EDGX
(``Exchange Bylaws'') to indicate that DEI will be the sole stockholder
of the Exchange.
III. Discussion and Commission Findings
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange.\7\ In
particular, the Commission finds that the proposal is consistent with
Section 6(b) of the Act,\8\ in general, and furthers the objectives of
Section 6(b)(1) of the Act,\9\ in particular, in that it is designed to
enable the Exchange to be so organized as to have the capacity to be
able to carry out the purposes of the Act and to comply, and to enforce
compliance by its members and persons associated with its members with
the provisions of the Act, the rules and regulations thereunder, and
the rules of the Exchange. In addition, the Commission finds that the
proposal is consistent with Section 6(b)(5) of the Act \10\ in that it
will result in an exchange governance structure 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 a national market system, and,
in general, to protect investors and the public interest. In
particular, the Commission believes that the corporate governing
documents of DEI, DE Holdings, and the Exchange are designed to protect
and maintain the integrity of the self-regulatory functions of the
Exchange and to facilitate the ability of the Exchange and the
Commission to carry out their regulatory and oversight obligations
under the Act. Finally, the Commission finds that the proposal is
consistent with the requirement under Section 6(b)(3) of the Act \11\
that the rules of an exchange assure fair representation of the
exchange's members in the selection of its directors and administration
of its affairs.
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\7\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(1).
\10\ 15 U.S.C. 78f(b)(5).
\11\ 15 U.S.C. 78f(b)(3).
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A. DEI
Following the Corporate Reorganization, DEI will be the sole
stockholder of the Exchange.\12\ Although DEI will not carry out any
regulatory functions, its activities with respect to the operation of
the Exchange must be consistent with, and must not interfere with, the
self-regulatory obligations of the Exchange. The DEI Certificate and
DEI Bylaws include certain provisions that are designed to maintain the
independence of the Exchange's self-regulatory function from DEI,
enable the Exchange to operate in a manner that complies with the
Federal securities laws, including the objectives of Sections 6(b) and
19(g) of the Act,\13\ and facilitate the ability of the Exchange and
the Commission to fulfill their regulatory and oversight obligations
under the Act.
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\12\ See Exchange Bylaws, Article I(kk).
\13\ 15 U.S.C. 78f(b) and 15 U.S.C. 78s(g).
---------------------------------------------------------------------------
For example, DEI submits to the jurisdiction of the Commission and
the Exchange with respect to activities relating to the Exchange,\14\
and agrees to provide the Commission and the Exchange with access to
its books and records that are related to the operation or
administration of the Exchange.\15\ In addition, to the extent they are
related to the operation or administration of the Exchange, the books,
records, premises, officers, directors, agents, and employees of DEI
will be deemed to be the books, records, premises, officers, directors,
agents, and employees of the Exchange for the purpose of, and subject
to oversight pursuant to, the Act.\16\ DEI also agrees to keep
confidential non-public information relating to the self-regulatory
function \17\ of the Exchange and not to use such information for any
non-regulatory purpose.\18\ In addition, the Board of Directors of DEI,
and DEI's officers, employees, and agents, are required to give due
regard to the preservation of the independence of the self-regulatory
function of the Exchange.\19\
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\14\ See DEI Bylaws, Article VII, Section 7.3.
\15\ See DEI Bylaws, Article V, Section 5.8(b).
\16\ Id.
\17\ This requirement to keep confidential non-public
information relating to the self-regulatory function of the Exchange
will not limit the Commission's or the Exchange's ability to access
and examine such information or limit the ability of any officers,
directors, agents, or employees of DEI to disclose such information
to the Commission or to the Exchange. See DEI Bylaws, Article V,
Section 5.8(a).
\18\ See DEI Bylaws, Article VII, Section 7.1.
\19\ See DEI Bylaws, Article V, Section 5.8(b).
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Article VII, Section 7.7 of the DE Holdings Operating Agreement
requires the approval of the DE Holdings Board of Managers and/or
Members of DE Holdings in connection with certain actions taken by DE
Holdings or a subsidiary of DE Holdings. Article
[[Page 43586]]
SIXTH of the DEI Certificate states that any action that specifically
requires the approval of the DE Holdings Board of Managers and/or
Members of DE Holdings pursuant to Article VII, Section 7.7 of the DE
Holdings Operating Agreement will require the approval of the
stockholders of DEI.\20\ Article SIXTH of the DEI Certificate further
provides, however, that nothing contained in Article VII, Section 7.7
of the DE Holdings Operating Agreement will be applicable where the
application of that provision would interfere with the effectuation of
any decisions of the DEI Board of Directors (``DEI Board'') relating to
regulatory functions of the Exchange (including disciplinary matters)
or the structure of the market the Exchange regulates, or would
interfere with the ability of the Exchange to carry out its
responsibilities under the Act or to oversee the structure of the
market the Exchange regulates.\21\ For as long as DEI directly or
indirectly controls the Exchange, any change to the DEI Certificate
must be submitted to the Exchange's Board of Directors (``Exchange
Board'') and, if the amendment is required to be filed with the
Commission pursuant to Section 19(b) of the Act, the change will not be
effective until filed with, or filed with and approved by, the
Commission.\22\
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\20\ See DEI Certificate, Article SIXTH(1).
\21\ See DEI Certificate, Article SIXTH(2).
\22\ See DEI Certificate, Article EIGHTH(3).
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The Commission finds that these provisions in the DEI Bylaws and
DEI Certificate are consistent with the Act, and that they will assist
the Exchange in fulfilling its self-regulatory obligations and in
administering and complying with the requirements of the Act.
B. DE Holdings
In the Corporate Reorganization, DE Holdings, which currently is
the sole stockholder of the Exchange, will transfer its stock in the
Exchange to DE Holdings' wholly-owned subsidiary, DEI, which will
become the sole stockholder of the Exchange. Accordingly, DE Holdings
will be an indirect owner of the Exchange following the Corporate
Reorganization. Although DE Holdings will not carry out any regulatory
functions, its activities with respect to the operation of the Exchange
must be consistent with, and not interfere with, the self-regulatory
obligations of the Exchange.
The DE Holdings Operating Agreement, which the Commission reviewed
in connection with the Exchange's application for registration as a
national securities exchange,\23\ includes certain provisions that are
designed to maintain the independence of the Exchange's self-regulatory
function from DE Holdings, enable the Exchange to operate in a manner
that complies with the Federal securities laws, including the
objectives of Sections 6(b) and 19(g) of the Act, and facilitate the
ability of the Exchange and the Commission to fulfill their regulatory
and oversight obligations under the Act. For example, the DE Holdings
Operating Agreement provides that, for so long as DE Holdings directly
or indirectly controls the Exchange, the Managers, officers, employees,
and agents of DE Holdings shall give due regard to the preservation of
the independence of the self-regulatory function of the Exchange and
shall not take any actions that would interfere with the effectuation
of any decisions by the Exchange Board relating to the Exchange's
regulatory functions (including disciplinary matters) or which would
interfere with the ability of the Exchange to carry out its
responsibilities under the Act.\24\
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\23\ See Order, supra note 4.
\24\ See DE Holdings Operating Agreement Article XIV, Section
14.1. In addition, the DE Holdings Operating Agreement further
specifies, among other things, that: (1) DE Holdings and its
officers, Managers, employees, and agents submit to the Commission's
and the Exchange's jurisdiction with respect to activities relating
to the Exchange; (2) DE Holdings agrees to retain in confidence
information in the books and records of the Exchange reflecting
confidential information pertaining to the self-regulatory function
of the Exchange (including disciplinary matters, trading data,
trading practices, and audit information) that comes into DE
Holdings' possession; (3) the books, records, premises, officers,
Managers, agents, and employees of DE Holdings are deemed to be the
books, records, premises, officers, Managers, agents, and employees
of the Exchange for purposes of, and subject to oversight pursuant
to, the Act, to the extent that they are related to the operation or
administration of the Exchange; and (4) DE Holdings agrees to
provide the Commission and the Exchange with access to DE Holdings'
books and records that are related to the operation or
administration of the Exchange for so long as DE Holdings directly
or indirectly controls the Exchange. See DE Holdings Operating
Agreement, Article XI, Section 14.3; and Article XI, Section 11.2.
For a more complete discussion of the DE Holdings Operating
Agreement, see Order, supra note 4, at notes 40--47 and accompanying
text.
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The Commission notes that the Exchange is not proposing to amend
the DE Holdings Operating Agreement.\25\ Accordingly, the DE Holdings
Operating Agreement that the Commission reviewed in connection with the
Exchange's application for registration as a national securities
exchange, including the provisions in the DE Holdings Operating
Agreement relating to the self-regulatory function of the Exchange,
will remain in place following the Corporate Reorganization.
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\25\ For as long as DE Holdings directly or indirectly controls
the Exchange, any changes to the DE Holdings Operating Agreement
must be submitted to the Exchange Board and, if the Exchange Board
determines that such amendment is required to be filed with the
Commission pursuant to Section 19(b) of the Act, such change will
not be effective until filed with, or filed with and approved by,
the Commission. See DE Holdings Operating Agreement, Article XV,
Section 15.2(b). See also Order, supra note 4, at note 47 and
accompanying text.
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C. Ownership and Control of the Exchange, DEI, and DE Holdings
Following the Corporate Reorganization, DEI will be the sole
stockholder of the Exchange. The Exchange Bylaws identify this
ownership structure.\26\ Any changes to the Exchange Bylaws, including
any change in the provision that identifies DEI as the sole stockholder
of the Exchange, must be filed with and approved by the Commission
pursuant to Section 19 of the Act.\27\ Similarly, the DEI Certificate
identifies DE Holdings as the sole stockholder of DEI.\28\ For as long
as DEI directly or indirectly controls the Exchange, any amendment to
the DEI Certificate, including an amendment to the provision that
identifies DE Holdings as the sole stockholder of DEI, must be
submitted to the Exchange Board and, if the Exchange Board determines
that the amendment must be filed with, or filed with and approved by
the Commission, before the amendment may be effective under Section 19
of the Act, then the proposed amendment will not be effective until it
is filed with, or filed with and approved by, the Commission.\29\
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\26\ See Exchange Bylaws, Article I(kk).
\27\ See 15 U.S.C. 78s.
\28\ See DEI Certificate, Article EIGHTH(4).
\29\ See DEI Certificate, Article EIGHTH(3).
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In addition, as discussed in greater detail in the Order,\30\ the
DE Holdings Operating Agreement includes restrictions on the ability to
own and vote the capital stock of DE Holdings.\31\ These limitations
apply for so long as DE Holdings directly or indirectly controls the
Exchange.\32\ The limitations, which are designed to prevent any Member
of DE Holdings from exercising undue control over the operation of the
Exchange and to assure that the Exchange and the Commission are able to
effectively carry out their regulatory and oversight obligations under
the Act, generally prohibit any person, other than International
Securities Exchange Holdings, Inc., from owning interests representing
more than
[[Page 43587]]
40% of DE Holdings or from voting interests representing more than 20%
of DE Holdings. In addition, the limitations prohibit any member of the
Exchange from owning interests representing more than 20% of DE
Holdings.
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\30\ See Order, supra note 4, at notes 65-88 and accompanying
text.
\31\ See DE Holdings Operating Agreement, Article XII.
\32\ See DE Holdings Operating Agreement, Article XII, Section
12.1(a).
---------------------------------------------------------------------------
The Commission believes that these provisions in the governing
documents of the Exchange, DEI, and DE Holdings should minimize the
potential that a person could improperly interfere with or restrict the
ability of the Commission or the Exchange to effectively carry out
their regulatory and oversight responsibilities under the Act.
D. Electing Directors and Certain Committee Members of the Exchange
Currently, the DE Holdings Operating Agreement requires DE
Holdings, in its capacity as the sole stockholder of the Exchange, to
vote all of the outstanding equity of the Exchange owned by DE Holdings
and entitled to vote in an election to be voted in favor of the
election of (1) those directors nominated by the Nominating Committee
of the Exchange (``Exchange Nominating Committee''); and (2) those
nominees for the Exchange Nominating Committee and the Exchange Member
Nominating Committee nominated in accordance with the governance
documents of the Exchange.\33\ Because DE Holdings will no longer be a
stockholder of the Exchange following the Corporate Reorganization, the
Exchange notes that these requirements will no longer apply to DE
Holdings.
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\33\ See DE Holdings Operating Agreement, Article VII, Section
7.3(b).
---------------------------------------------------------------------------
However, the DEI Bylaws require DEI, in its capacity as the sole
stockholder of the Exchange, to cause all outstanding equity of the
Exchange owned by DEI and entitled to vote in an election to be voted
in favor of the election of (1) those directors nominated by the
Exchange Nominating Committee; and (2) those nominees for the Exchange
Nominating Committee and the Exchange Member Nominating Committee
nominated in accordance with the governance documents of the
Exchange.\34\ Through these requirements in the DEI Bylaws, the
Commission believes that the same procedures governing the election of
Exchange directors and Exchange member directors that the Commission
approved in the Order will continue to apply following the Corporate
Reorganization.\35\ Accordingly, the Commission finds that the proposal
is consistent with the requirement in Section 6(b)(3) of the Act that
the rules of the Exchange provide for the fair representation of its
members in the selection of directors and the administration of the
Exchange.
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\34\ See DEI Bylaws, Article II, Section 2.15(b).
\35\ See Order, supra note 4, at notes 94-120 and accompanying
text, for a discussion of the Exchange's procedures for nominating
directors and Exchange member directors.
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\36\ that the proposed rule change (File No. SR-EDGX-2010-02) is
approved.
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\36\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\37\
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\37\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-18158 Filed 7-23-10; 8:45 am]
BILLING CODE 8010-01-P
