Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to the Conversion of NASDAQ OMX PHLX, Inc. to a Limited Liability Company, 54204-54210 [2010-22023]
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Federal Register / Vol. 75, No. 171 / Friday, September 3, 2010 / Notices
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
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 rulecomments@sec.gov. Please include File
Number SR–NYSEArca–2010–78 on the
subject line.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–22111 Filed 9–2–10; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–62783; File No. SR–Phlx–
2010–104]
Self-Regulatory Organizations;
NASDAQ OMX PHLX, Inc.; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Relating to the
Conversion of NASDAQ OMX PHLX,
Inc. to a Limited Liability Company
August 27, 2010.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
• Send paper comments in triplicate
(‘‘Act’’) 1, and Rule 19b–4 2 thereunder,
to Elizabeth M. Murphy, Secretary,
notice is hereby given that on August
Securities and Exchange Commission,
16, 2010, NASDAQ OMX PHLX, Inc.
Station Place, 100 F Street, NE.,
(‘‘Phlx’’ or ‘‘Exchange’’) filed with the
Washington, DC 20549–1090.
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
All submissions should refer to File
rule change as described in Items I and
Number SR–NYSEArca–2010–78. This
II, below, which Items have been
file number should be included on the
subject line if e-mail is used. To help the prepared by the Exchange. The
Commission is publishing this notice to
Commission process and review your
solicit comments on the proposed rule
comments more efficiently, please use
only one method. The Commission will change from interested persons.
post all comments on the Commission’s I. Self-Regulatory Organization’s
Internet Web site (https://www.sec.gov/
Statement of the Terms of Substance of
rules/sro.shtml). Copies of the
the Proposed Rule Change
submission, all subsequent
The Exchange proposes to convert
amendments, all written statements
NASDAQ OMX PHLX, Inc. from a
with respect to the proposed rule
Delaware corporation to a Delaware
change that are filed with the
limited liability company (a ‘‘Delaware
Commission, and all written
LLC’’). This proposal is solely a
communications relating to the
technical rule change. There are no new
proposed rule change between the
regulatory issues implicated in this
Commission and any person, other than
proposal. Further, the Exchange is not
those that may be withheld from the
proposing any material changes, but
public in accordance with the
rather only amendments to make
provisions of 5 U.S.C. 552, will be
technical conforming changes to the
available for inspection and copying in
formation documents to correspond
the Commission’s Public Reference
with the LLC conversion. All
Room, 100 F Street, NE., Washington,
substantive provisions that govern an
DC 20549, on official business days
exchange are consistent with the Act
between the hours of 10 a.m. and 3 p.m.
and remain intact. The Exchange’s
Copies of such filing also will be
proposed formation documents,
available for inspection and copying at
including the Certificate of Formation,
the principal office of the Exchange. All
Limited Liability Agreement and Bycomments received will be posted
Laws, are consistent in form and scope
without change; the Commission does
with the most recent governing
not edit personal identifying
documents that were approved by the
information from submissions. You
Commission.
should submit only information that
The text of the proposed rule change
you wish to make publicly available. All
is available on the Exchange’s Web site
submissions should refer to File
Number SR–NYSEArca–2010–78 and
20 17 CFR 200.30–3(a)(12).
should be submitted on or before
1 15 U.S.C. 78s(b)(1).
September 24, 2010.
2 17 CFR 240.19b–4.
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Paper Comments
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at https://www.nasdaqtrader.com/
micro.aspx?id=PHLXRulefilings, at the
principal office of the Exchange, on the
Commission’s Web site at https://
www.sec.gov, 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
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to convert NASDAQ OMX
PHLX, Inc. from a Delaware corporation
to a Delaware LLC. The NASDAQ OMX
Group, Inc. acquired NASDAQ OMX
PHLX, Inc. (formerly the Philadelphia
Stock Exchange, Inc.) on July 24, 2008.3
At this time, The NASDAQ OMX Group,
Inc. proposes to convert NASDAQ OMX
PHLX, Inc., a Delaware corporation to
NASDAQ OMX PHLX LLC, a Delaware
limited liability company (the ‘‘LLC’’), to
more closely conform its organizational
structure to that of other NASDAQ OMX
entities. Pursuant to the Delaware
Limited Liability Company Act, as
amended from time to time (the ‘‘LLC
Act’’), the LLC will continue the
existence of NASDAQ OMX PHLX, Inc.
and all rights, privileges, powers,
property and liabilities shall vest in the
LLC at the time of conversion. As such,
this proposed rule change will merely
effect a change in entity form of the
Exchange and have no substantive effect
on the current rights and obligations of
the current members and owners of the
Exchange.4
3 See Securities Exchange Act Release Nos. 58179
(July 17, 2008), 73 FR 42874 (July 23, 2008) (SR–
Phlx–2008–31); and 58183 (July 17, 2008), 73 FR
42850 (July 23, 2008) (SR–NASDAQ–2008–035).
4 Additionally, the proposed limited liability
company agreement of the Exchange (the ‘‘LLC
Agreement’’) post-conversion is consistent in form
and scope with the Second Amended and Restated
Limited Liability Company Agreement of The
Nasdaq Stock Market LLC, dated as of July 9, 2009
(the ‘‘NSM LLC Agreement’’). See Securities
Exchange Act Release No. 34–53128 (Jan. 13, 2006),
71 FR 3550 (January 23, 2006), (approval of
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Following the conversion, the
Exchange proposes to be governed by a
Certificate of Formation, the LLC
Agreement and the By-Laws of the LLC
(the ‘‘LLC By-Laws’’) in accordance with
the LLC Act. These proposed formation
documents reflect all of the current
rights and obligations of the members
and owners of the Exchange in the
appropriate form of governing
documents of a Delaware LLC. The
specific changes to the current
documents are discussed in the
following sections.
Certificate of Formation
In order to convert from a Delaware
corporation to a Delaware LLC, a
Certificate of Conversion and a
Certificate of Formation of the LLC will
be filed with the Secretary of State of
the State of Delaware. The Certificate of
Conversion is necessary to effect the
conversion of the Exchange from a
Delaware corporation to a Delaware LLC
pursuant to the LLC Act. Further, the
LLC Act requires that a Certificate of
Formation of the LLC be filed to
accomplish the formation of the LLC.
Unlike a Certificate of Incorporation
which contains actual governing
provisions, a Certificate of Formation
only sets forth three pieces of
information, the name of the company,
the address of the registered office and
the name and address of the registered
agent. As such, only the information in
the FIRST and SECOND provisions of
the Certificate of Incorporation are
reflected in the Certificate of Formation
with certain minor changes. First, a
Delaware LLC must contain the words
‘‘LLC’’ in its name. In light of this
requirement, the name set forth in the
FIRST provision of the Certificate of
Formation of the LLC reflects the
proposed name ‘‘NASDAQ OMX PHLX
LLC’’ rather than ‘‘NASDAQ OMX
PHLX, Inc.’’ Additionally, the LLC is
referred to as a ‘‘limited liability
company’’ in this provision rather than
a ‘‘corporation.’’
The governing provisions of a
Delaware LLC need to be set forth in the
limited liability company agreement of
such Delaware LLC. As such, the
remaining provisions of the Certificate
of Incorporation are proposed to be
reflected in the LLC Agreement and the
LLC By-Laws, as together, these
documents are considered the limited
liability company agreement of the LLC
for purposes of the LLC Act (the
‘‘Agreement’’).5
Nasdaq’s application for registration as a national
securities exchange).
5 The LLC Act requires a limited liability
company agreement in order for an entity to be duly
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Limited Liability Company Agreement
Following the conversion of the
Exchange, it is proposed that the
Exchange adopt the Agreement. As
noted above, the Agreement will consist
of the LLC Agreement and the LLC ByLaws. The LLC By-Laws proposed to be
adopted are in substantially the same
form as the By-Laws currently in effect,
with certain modifications as further
explained below.
The LLC Agreement proposed by the
Exchange is similar to that of the NSM
LLC Agreement. Schedule A of the LLC
describes the proposed ownership of the
limited liability company interests
(designated therein as ‘‘shares’’ of the
LLC), which ownership structure is
identical to that currently in place. The
NASDAQ OMX Group, Inc. (‘‘NASDAQ
OMX Group’’) is the sole common
shareholder of NASDAQ OMX PHLX,
Inc. and is proposed to become a
member of the Exchange (within the
meaning of the LLC Act) and the sole
owner of all of the Common Stock (as
defined in the LLC Agreement) of the
LLC. There is also the PHLX Member
Voting Trust (the ‘‘Trust’’) which holds
the one (1) Series A Preferred Stock of
NASDAQ OMX PHLX, Inc. The Trust is
proposed to become a member of the
Exchange (within the meaning of the
LLC Act) 6 and the owner of the one (1)
Series A Preferred Stock (as defined in
the LLC Agreement) in the LLC.
The Exchange is incorporating the
current By-Laws of NASDAQ OMX
PHLX, Inc. into the LLC Agreement as
Exhibit A to that LLC Agreement. The
Exchange proposes to make minimal
conforming amendments to the current
By-Laws to comport with the conversion
to an LLC. Specifically, the Exchange
proposes to create an introductory
paragraph to the By-Laws to explain that
the By-Laws together with the LLC
Agreement constitute the LLC
Agreement within the meaning of the
LLC Act.7
Discussion of the Proposed LLC
Agreement
As mentioned above, the Exchange
proposes to adopt an LLC Agreement as
part of its conversion to a Delaware LLC.
Such LLC Agreement will contain many
provisions set forth in the Certificate of
formed (see Section 18–201(d) of the LLC Act).
Additionally, a limited liability company agreement
is defined in Section 18–101(7) as an agreement that
governs the affairs of the LLC. Both the LLC ByLaws and the LLC Agreement together constitute
the limited liability company agreement for
purposes of the LLC Act.
6 Neither NASDAQ OMX Group nor the Trust is
a member organization of the Exchange within the
meaning of the By-Laws.
7 See 6 Del. C. § 18–101(7).
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Incorporation of the Exchange, with
such modifications as are necessary to
reflect the new entity form. NASDAQ
OMX Group and the Trust, the current
common and preferred stockholders of
the Exchange, respectively, would each
be admitted to, and become a member
of, the LLC. As a member of the LLC,
each such person will hold limited
liability company interests in the LLC,
denoted in the LLC Agreement as
Common Stock and Preferred Stock.8
The proposed LLC Agreement begins
with an introductory paragraph
identifying the parties to the LLC
Agreement and certain recitals. Such
recitals set forth the conversion process
generally, including (i) the applicable
Delaware law 9 by which the conversion
is effected, (ii) the conversion of all of
the shares of the capital stock of the
NASDAQ OMX PHLX, Inc. into limited
liability company interests of the LLC
(designated therein as Common Stock
and Preferred Stock), (iv) the admission
of NASDAQ OMX Group and the PHLX
Trust to the LLC as members thereof,
and (v) the ownership structure postconversion. As provided for in the LLC
Agreement, NASDAQ OMX Group and
the Trust will hold Common Stock and
Preferred Stock, respectively, in the
LLC, with the same rights and
obligations as such entities had under
the Certificate of Incorporation and the
By-Laws immediately prior to the
conversion. With respect to the other
sections of the LLC Agreement, the
changes from or additions to the
existing organizational documents of the
Exchange are discussed below by
Section.
Section 1 of the LLC Agreement, titled
‘‘Name; Conversion’’, specifies the name
of the entity in addition to other
information with respect to the
conversion process. As discussed above,
the name of the Exchange, ‘‘NASDAQ
OMX PHLX, Inc.’’, set forth in provision
FIRST of the Certificate of
Incorporation, is proposed to be
changed to ‘‘NASDAQ OMX PHLX LLC’’
as required by the LLC Act. Section 1 of
the LLC Agreement also notes that the
organization documents, namely the
Certificate of Formation and LLC
Agreement with attachments, supersede
the former organizational documents, in
this case the Certificate of Incorporation
8 Interests in a Delaware LLC are referred to as
limited liability company interests under the LLC
Act rather than stock or shares. However, these
interests can be referred to by whatever term the
limited liability company agreement provides. The
LLC Agreement defines such interests as Common
Stock and Preferred Stock.
9 NASDAQ OMX PHLX would be converted
pursuant to Section 18–214 of the Delaware LLC
Act (6 Del. C. § 18–101, et seq.).
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and the By-Laws of NASDAQ OMX
PHLX, Inc. Further Section 1 of the LLC
Agreement reiterates the conversion of
all of the shares of the capital stock of
the Exchange and the admission of the
members of the LLC as generally set
forth in the recitals of the LLC
Agreement. The LLC Act provision
which provides for the continued
existence of the Exchange as a Delaware
LLC is noted in the last sentence of this
Section as well. This sentence, while
not identical to, is similar in nature to
the perpetual existence of the Exchange
set forth in provision FIFTH of the
Certificate of Incorporation in that it
recognizes the continuation of the
Exchange without a set term. This
language was used in lieu of the
language of provision FIFTH of the
Certificate of Incorporation as it derives
from the LLC Act and is more
appropriate to the proposed new entity
form of the Exchange. Identical language
can be found in Section 6 of the NSM
LLC Agreement.
Section 2 of the LLC Agreement, titled
Principal Business Office, lists the
principal business office of the
Exchange and provides notice of such
information to those reviewing the LLC
Agreement. Such provision is standard
in limited liability company agreements
of Delaware LLCs 10 and such addition
will have no material substantive effect
on the current operations or governance
of the Exchange.
Section 3 of the LLC Agreement, titled
Registered Office; Registered Agent, lists
the Exchange’s registered office and
registered agent, which was formerly
reflected in provision SECOND of the
Certificate of Incorporation. The entity
acting as the registered agent and the
place of the registered office will remain
unchanged post-conversion.
Section 4 of the LLC Agreement, titled
Members, sets out the name and mailing
address of each Stockholder, providing
notice of such information to those
reviewing the LLC Agreement. Such
provision is standard in limited liability
company agreements of Delaware
LLCs 11 and such addition will have no
material substantive effect on the
current operations or governance of the
Exchange.
Section 5 of the LLC Agreement, titled
Certificates, refers to the filing of
Certificate of Formation and the
Certificate of Conversion of the LLC.
Such provision acknowledges and
confirms that such filings, which were
necessary for the conversion to be
10 For example, see Section 2 of the NSM LLC
Agreement.
11 For example, see Section 3 and 4 of the NSM
LLC Agreement.
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effected, were authorized by the LLC.
This Section additionally sets forth
those person(s) who have the authority
to file any other certificates with the
Delaware Secretary of State on behalf of
the LLC pursuant to the LLC Act. This
provision has no analog under the
existing organizational documents of the
Exchange but given its administrative
nature, such change will have no
material substantive effect on the
current operations of the Exchange.
Section 6 of the LLC Agreement, titled
Purpose, discusses the Exchange’s
business purpose. This provision is
virtually identical to provision THIRD
of the Certificate of Incorporation with
the following modifications: (i) This
Section references a limited liability
company instead of a corporation to
reflect the appropriate entity form of the
Exchange post-conversion, and (ii) this
section also includes standard language
to clarify that not only can the LLC
engage in the general purpose set forth
therein but it can also engage in those
activities necessary or incidental to such
purpose. This clarifying language is
common in limited liability company
agreements of Delaware LLCs 12 and
such addition will have no material
substantive effect on the current
operations or governance of the
Exchange.
Section 7 of the LLC Agreement, titled
Powers, discusses the general powers of
the Exchange, the Board of Governors
and the Officers and largely defers to the
applicable provisions set forth in the
LLC By-Laws. The LLC By-Laws at
Article IV, Section 4–4 delineate in
more detail the powers of the Board of
Governors which are referred to in
Section 7 of the LLC Agreement.
Similarly, the LLC By-Laws delineate in
more detail the powers of the Officers of
the Exchange in Article V. Article IV,
Section 4–4 and Article V of the LLC
By-Laws are identical to the
corresponding provisions in the current
By-Laws of the Exchange.
Section 8 of the LLC Agreement, titled
Management, sets forth the general
management structure of the Exchange.
It is proposed that the management
structure of the LLC be the same as
currently in effect under the governing
documents of NASDAQ OMX PHLX,
Inc. As proposed, the management
would remain vested with the Board of
Governors, the general powers,
composition and removal of which are
set forth in Section 8 of the LLC
Agreement. Such provision is
substantially identical to that of
provision SIXTH of the Certificate of
12 For example, see Section 7 of the NSM LLC
Agreement.
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Incorporation.13 Certain additions have
been made to the language retained from
provision SIXTH of the Certificate of
Incorporation, including (i) a provision
referencing the applicable provisions of
the By-Laws and their incorporation
into the LLC Agreement in order to
acknowledge the inter-relationship of
these two documents in the governance
of the LLC, (iii) a sentence denoting
each Governor as a ‘‘manager’’ of the LLC
for purposes of the LLC Act,14 and (iv)
a provision acknowledging that the
Governors are agents of the LLC in
performing their duties as prescribed by
the Agreement. Each such addition
represents standard language typically
contained in limited liability company
agreements of Delaware LLCs 15 and
such additions will have no material
substantive effect on the current
operations or governance of the
Exchange.
Section 9 of the LLC Agreement, titled
Officers, discusses generally the officers
of the LLC and their appointment, role
as agent and duties but defaults to the
By-Laws for a more detailed description
of such topics. The applicable
provisions of the LLC By-Laws are in
Article V and remain identical to the
description provided in Article V of the
By-Laws currently in effect.
Section 10 of the LLC Agreement,
titled Limited Liability, corresponds, in
part, with provision FIFTEENTH of the
Certificate of Incorporation and Article
IV, Section 4–18 of the current By-Laws
in that it limits the personal liability of
Governors for the debts and obligations
of the Exchange. The Exchange also
proposes to include, in Section 10 of the
LLC Agreement, standard language,
which is consistent with, and reflective
of, the limitation on liability of members
provided for in the LLC Act, to limit the
personal liability of the Stockholders for
the debts and obligations of the
Exchange. Similar language is contained
in the NSM LLC Agreement in Section
11 therein.
Sections 11 through 14 of the LLC
Agreement are equity-related provisions
which encompass the topics of capital
contributions, additional capital
13 The introductory paragraph of provision SIXTH
of the Certificate of Incorporation is reflected in
Section 8(a) and (b) of the LLC Agreement.
Subsection (a) of provision SIXTH of the Certificate
of Incorporation is reflected in Section 8(c) of the
LLC Agreement. Subsection (b) of provision SIXTH
of the Certificate of Incorporation is reflected in
Section 8(f) of the LLC Agreement.
14 As the term ‘‘Governor’’ is not a term used in
the LLC Act, to ensure that provisions of the LLC
Act that relate to ‘‘managers’’ of a Delaware LLC (i.e.
those Persons who manage a Delaware LLC), the
Governors have been denoted as such solely for this
purpose.
15 For example, see Section 9(a), (c) and (j) of the
NSM LLC Agreement.
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contributions, allocations of profits and
losses and distributions. These
provisions set forth the basic economic
arrangement of the Stockholders and
remain consistent with the economic
arrangement under the current corporate
documents. For example, NASDAQ
OMX Group, as the sole common
shareholder, is generally entitled to all
dividends declared by the Exchange. As
the sole economic member of the LLC,
NASDAQ OMX Group is entitled to all
distributions made by the LLC. Profits
and losses will also be allocated to
NASDAQ OMX Group. This is a slight
change from the current allocation
structure, which allocates such profits
and losses to the Exchange rather than
directly to its stockholders. However,
the LLC is a disregarded entity for tax
purposes unlike a corporation, and as
such profits and losses need to be
allocated to the appropriate members of
the LLC. The Trust does not share in
such allocation as it has no economic
rights associated with the Series A
Preferred Stock it holds.16 Additionally,
these Sections of the LLC Agreement
require that NASDAQ OMX Group’s
contributions be noted in the books and
records of the LLC and that no member
shall be required to make any additional
capital contribution to the LLC without
its consent and the consent of the Board
of Governors. These provisions are
virtually identical to provisions 12
through 15 of the NSM LLC Agreement,
and given their administrative nature
shall have no material substantive effect
on the operations of the Exchange.
Section 14(b) also incorporates the
language of Article FOURTEENTH of
the Certificate of Incorporation, relating
to distributions to foreign currency
options participants, with certain
modifications necessary in light of
distribution limitations contained in the
LLC Act. For example, the entire
provision, which discusses certain
distributions to foreign currency option
participants, is ‘‘subject to’’ the LLC Act
to ensure that the mandatory limitations
on distributions contained in Sections
18–607 and 18–804 of the LLC Act will
be respected in contemplating any
distribution under Section 14(b) of the
LLC Agreement to the extent such
provisions would be applicable to such
distributions.
The first sentence of Section 15 of the
LLC Agreement, titled Books and
Records, is reflective of Article
TWELFTH of the Certificate of
16 Currently, pursuant to the Certificate of
Incorporation at provision FOURTH at (b), the
Series A Preferred is entitled to no dividends and
a de minimis amount in a liquidation preference.
The Series A Preferred Shareholder retains these
rights in the LLC Agreement at Section 16 (c)(iii).
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Incorporation. Section 15 of the LLC
Agreement also sets forth certain
additional information relating to
general administrative matters with
respect to the books and records of the
LLC including that (i) the Board of
Governors will keep and maintain
complete books and records of the LLC,
(ii) the Stockholders have the right to
inspect such books and records, and (iii)
the Board of Governors has the right to
select method by which the books will
be kept and the public accounting firm
who will provide any independent audit
of such books and records. Given the
general administrative nature of such
additions, none of these additions shall
have any material substantive effect on
the manner in which the Exchange is
governed by the Board of Governors or
the general operations of the
Exchange.17
Section 16 of the LLC Agreement,
titled Limited Liability Company
Interests, sets forth the classes of limited
liability company interests, denoted as
shares, of the LLC and the rights and
obligations of each class. The language
pertaining to the authorized shares,
classes, rights and obligations of the
Stockholders contained in this section is
virtually identical to the language
contained in provision FOURTH of the
Certificate of Incorporation, which
relates to the current shares and classes
of the Exchange. There has been no
material change to any of the rights and
obligations of the Stockholders. A
sentence has been added to allow for the
Exchange to issue additional interests or
securities in the Exchange upon
approval by the Board of Governors.18
This gives the Exchange versatility in
issuing the various ‘‘interests’’ to the
members utilizing the Exchange, which
are otherwise not contemplated
generally in the LLC context. Any such
‘‘interests’’ would be limited in the
manner prescribed by the Board of
Governors. Also, this Section includes
language tracing the conversion of the
corporate shares held by the
Stockholders into shares of the LLC.
Finally, the term ‘‘dividend’’ has been
17 A virtually identical provision is set forth in
Section 16 of the NSM LLC Agreement.
18 Specifically, the last sentence of Section 16(a)
of the LLC Agreement would state: ‘‘The Exchange
may issue or establish such other interests in the
Exchange or such other Exchange securities as the
Board determines in accordance with this
Agreement and the By-Laws.’’ With respect to this
proposed sentence, the Exchange notes that if it
decided to issue or establish such other interests in
the Exchange or other Exchange securities, the
Exchange would take the necessary corporate
actions and would seek the necessary approvals to
do so. See E-mail from Angela S. Dunn, Assistant
General Counsel, Phlx, to Richard Holley, Assistant
Director, Division of Trading and Markets,
Commission, dated August 25, 2010.
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54207
changed to ‘‘distribution’’ as, under the
LLC Act, a Delaware LLC makes
distributions whereas a Delaware
corporation would declare a dividend.
This change does not affect the
underlying right of the Stockholder to
such property; it is merely a change in
terminology. The information contained
in Section 16 of the LLC Agreement is
also set forth in Article XXIX, Section
29–4 of the LLC By-Laws. The definition
for ‘‘Designated Independent Governors’’
contained in provision FOURTH of the
Certificate of Incorporation is not
defined in Section 16, as the definition
of this term is already set forth in in [sic]
Article I of the By-Laws of the LLC.
Such definition, other than updating the
reference to the applicable governing
documents, remains unchanged postconversion.
Section 17 of the LLC Agreement,
titled Other Business, is standard
language in the limited liability
company context and merely states that
the Stockholders may engage in other
business other than their interest in the
LLC and that the LLC has no rights to
such other business or the proceeds
derived therefrom. This concept is
consistent with that of a stockholder of
a corporation in that a stockholder,
generally, has no obligation to present
opportunities to the corporation or turn
over proceeds derived from other
ventures of the stockholder. A similar
provision is contained in Section 18 of
the NSM LLC Agreement.
Section 18 of the LLC Agreement,
titled Exculpation and Indemnification,
provides for the exculpation and the
indemnification of the Stockholders and
related persons. The inclusion of such a
provision in the limited liability context
is not uncommon as it reflects the fact
that Stockholders, under the LLC Act,
can act on behalf of the LLC to the
extent authorized under the LLC
Agreement and the LLC By-Laws. As
such, it is proposed to provide the same
level of exculpation and
indemnification for such persons as is
given to the Board of Governors to the
extent such persons are authorized to
act on behalf of the LLC. As such, the
same standard of conduct applicable to
the Board of Governors under Article
SIXTEENTH of the Certificate of
Incorporation is proposed to be used in
Section 18 of the LLC Agreement.
Articles FIFTEENTH and SIXTEENTH
of the Certificate of Incorporation,
relating to the exculpation and
indemnification of the Board of
Governors, have been set forth in Article
IV, Sections 4–18(g) and 4–18(h) of the
LLC By-Laws.
Section 19 of the LLC Agreement is
merely a general statement that any
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transfer of an interest in the LLC must
be made in accordance with the ByLaws and the LLC Agreement. The LLC
Agreement addresses transfers in
Section 16 thereof. Such section
provides certain conditions to the
transfer of the outstanding Common
Stock and Preferred Stock and, as noted
previously, such conditions are virtually
identical to those conditions currently
contained in provision FOURTH of the
Certificate of Incorporation.
Additionally, Article XXIX, Section 29–
4 of the LLC By-Laws also addresses the
transfer of shares in the Exchange. With
minor modifications addressing limited
liability company specific issues,
Article XXIX, Section 29–4 of the LLC
By-Laws remains identical to Article
XXIX, Section 29–4 of the By-Laws
currently in effect.19
Section 21 of the LLC Agreement sets
forth the events which will cause the
dissolution of the LLC, as prescribed by
mandatory provisions of the LLC Act or
as otherwise agreed among the parties.
A similar provision is contained in
Section 21 of the NSM LLC Agreement.
Sections 22 through 26 and 28 of the
LLC Agreement are general provisions
which are relatively standard in limited
liability company agreements of
Delaware LLCs.20 These provisions
include: A benefits of agreement clause,
a severability clause, a binding
agreement clause, an entire agreement
clause, a governing law clause and a
notice provision. We note that the
Trustee, Members and Member
Organizations are acknowledged as
holding rights under the Agreement and
included as third-party beneficiaries to
the LLC Agreement as is similarly
provided in the NSM LLC Agreement.
Section 27 of the LLC Agreement
contains the necessary vote under
which the LLC Agreement may be
amended. Under the Certificate of
Incorporation, the Board of Governors
had the right to amend the By-Laws
currently in effect. Such By-Laws
provide for amendment in the manner
prescribed in Article XXII, Section 22–
1. This same amendment vote has been
set forth in Section 27 of the LLC
Agreement so that the authority of the
Board of Governors to amend will
remain unchanged following the
conversion.
The provisions in the Certificate of
Incorporation have been incorporated
into the Certificate of Formation, LLC
19 Section
20 of the LLC Agreement is
intentionally omitted and may be used at a future
date. The Exchange would file a proposed rule
change with the Commission if it intended to
amend this provision.
20 For example, see Sections 22 through 26, and
28 of the NSM LLC Agreement.
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Agreement and By-Laws as indicated
herein but for provisions FIFTH and
TENTH. The language used in provision
FIFTH of the Certificate of Incorporation
was not incorporated verbatim into the
LLC Agreement; however, as noted
previously, the general concept of this
provision is reflected in the last
sentence of Section 5 of the LLC
Agreement. Additionally, provision
TENTH of the Certificate of
Incorporation was not carried over to
the proposed Agreement because such
provision is not consistent with
applicable Delaware law in the limited
liability company context.
III. Proposed By-Laws of the LLC
As noted above, the Exchange
proposes to adopt the By-Laws of
NASDAQ OMX PHLX, Inc. as the LLC
By-Laws with the changes noted below.
It is proposed to incorporate certain
global changes to the By-Laws currently
in effect including (i) referencing the
Certificate of Formation of the LLC, the
LLC By-Laws and/or the LLC
Agreement, as applicable, instead of the
Certificate of Incorporation as such
documents will replace and supersede
the Certificate of Incorporation and
existing By-Laws, (ii) deleting references
to the DGCL (including the definition
thereof) throughout the By-Laws as such
law will no longer be applicable to the
Exchange post-conversion and
substituting in lieu thereof the phrase
‘‘applicable law,’’ and (iii) updating all
references to ‘‘NASDAQ OMX PHLX,
Inc.’’ to ‘‘NASDAQ OMX PHLX LLC’’
consistent with the name change
associated with the conversion.
Specifically, in Article I, titled
Definitions, the Exchange proposes to
delete the reference to Section 1–1
Definitions. The Exchange proposes to
reference the LLC By-Laws, the LLC
Agreement and the Trust Agreement in
the definition for both Designated
Governors and Designated Independent
Governor, in lieu of the reference to
provision FOURTH of the Certificate of
Incorporation, which will no longer be
effective post-conversion. None of these
changes will have a material substantive
effect but are merely reflective of the
proposed change in applicable
governing documents.
Further, the Exchange proposes to
include in the text associated with the
term ‘‘Member’’ a sentence that such
term as used in the LLC By-Laws is
distinct from the usage of member
within the meaning of the LLC
Agreement and the LLC Act.21 Again
this change has no material substantive
21 The meaning of ‘‘Member’’ as set forth in the
LLC By-Laws is not proposed to change.
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effect but merely reflects that the term
‘‘member’’ is a term of art under the LLC
Act, with rights and obligations
associated with it that are distinct from
how the term ‘‘Member’’ is used in the
LLC By-Laws. The Exchange also
proposes to amend the text in the term
‘‘Demutualized [sic] Merger’’ to be
historically accurate in that NASDAQ
OMX PHLX, Inc. was a party to such
transaction rather than the LLC, which
was not in existence on the date of such
merger.
The term ‘‘Stockholder’’ is proposed to
be modified to reflect that NASDAQ
OMX Group and the Trust are no longer
stockholders of a corporation but
members of a Delaware LLC. Such
change does not have material
substantive effect but is merely a
conforming change to the new entity
form of the Exchange. The rights and
obligations of these persons remain
unchanged following the conversion,
only the terminology is proposed to be
revised. Such definition is consistent
with the meaning given to such term in
the LLC Agreement.
The Exchange proposes to define
‘‘NASDAQ OMX Conversion’’ to refer to
the conversion proposed and described
herein from the Delaware corporation,
‘‘NASDAQ OMX PHLX, Inc.’’ to the
Delaware LLC, ‘‘NASDAQ OMX PHLX
LLC.’’ The Exchange proposes to
eliminate references to the Merger
Subsidiary 22 and replace those
references with language referencing the
conversion to an LLC.
The Exchange proposes to amend
Article III, titled Member and Member
Organization Nominations—Member
and Member Organization Annual
Elections—Member and Member
Organization Meetings, to remove
references to the Certificate of
Incorporation and instead reference the
By-Laws, as the By-Laws, following the
conversion, will be the appropriate
governing document.
Section 3–3 of Article III, titled
Removal of Designated Governors, is
proposed to refer to a special meeting in
the first sentence thereof in lieu of the
current reference to an annual meeting.
The reference to an ‘‘annual’’ meeting is
inconsistent with the remainder of the
first sentence in Section 3–3. Such
sentence discusses a meeting called in
accordance with Section 3–2(e). Section
3–2(e) sets forth the procedure to call a
22 This language was added to the By-Laws at the
time of the merger between a wholly owned
subsidiary of NASDAQ OMX Group and the
Philadelphia Stock Exchange, Inc. See Securities
Exchange Act Release Nos. 58179 (July 17, 2008),
73 FR 42874 (July 23, 2008) (SR–Phlx–2008–31);
and 58183 (July 17, 2008), 73 FR 42850 (July 23,
2008) (SR–NASDAQ–2008–035).
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‘‘special’’ meeting not an ‘‘annual’’
meeting. As such, the correct meeting
reference is to a ‘‘special’’ meeting not an
‘‘annual’’ meeting. The Exchange
proposes to make this change so that the
sentence is consistent throughout. This
proposal does not amend the
composition of the Board of Governors.
The Exchange proposes to amend
Article IV, titled Board of Governors, to
remove references to the Merger and
Merger Subsidiary and instead reference
the Conversion. Section 4–18 of Article
IV of the LLC By-Laws, titled
Indemnification, is proposed to reflect
the relevant indemnification standard
provided in provision FIFTEENTH of
the Certificate of Incorporation
pertaining to the indemnification of
Governors. It is proposed to include in
Section 4–21 of Article IV of the LLC
By-Laws clarifying language regarding
the necessary purpose behind a books
and records inspection request. Such
language is consistent with and
provided by the LLC Act.
The Exchange proposes to add a
Section 4–24 to Article IV of the LLC
By-Laws. This provision, entitled
‘‘Interested Transactions’’ is
substantially identical to the language
used in provision ELEVENTH of the
Certificate of Incorporation and ensures
that the guidelines relating to the types
of transactions described therein are
retained following the conversion of the
Exchange.
The Exchange proposes to remove the
reference to ‘‘corporate’’ in each instance
where the phrase ‘‘corporate seal’’ is
used in Article V of the current ByLaws, specifically Section 5–8. The term
‘‘corporate’’ is not applicable to the
Exchange post-conversion.
The Exchange proposes certain
changes to Article VIII, titled Presiding
Officials of the Exchange, Article X,
titled Standing Committees, Article XII,
titled Permits-Eligibility-ElectionInitiation Fee, Article XV, titled
Transfer of Foreign Currency Options
Participations, Article XVII, titled
Insolvency-Suspension-Reinstatement,
and Article XVIII, titled Offenses,
Discipline, Penalties and Business
Connections [sic], to add clarifying
language, correct minor inconsistencies
and remove extraneous language within
these sections. These changes have no
material substantive effect on the above
noted provisions or the operations of the
Exchange but are merely clerical in
nature.
The Exchange proposes to make
certain clerical changes to Article XV,
titled Transfer of Foreign Currency
Options Participations. These changes
are not substantive in nature and merely
reflect a reorganization of the existing
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provisions. Specifically, the terms
ordering Section 15–3 (e.g. ‘‘First’’) have
been deleted as such terms are
redundant in light of the phrase ‘‘in the
following order of seniority’’ contained
in Section 15–3(a). Additionally, the
sub-sections of Section 15–3(a)(iii) have
been given a letter ordering designation.
Finally, the sub-section of Section 15–
3 entitled ‘‘Balance of Proceeds’’ has
been moved to follow the last paragraph
relating to the priority of payments in
order to have such sub-section be in the
appropriate payment priority. Such subsection was not otherwise modified.
The Exchange proposes to incorporate
additional language to the transfer
provision contained in Article XXIX,
Section 29–4(b) to address Delaware
LLC-specific issues. The existing
conditions to transfers previously set
forth in Section 29–4(b) remain
unchanged. Rather, the additional
language in the first sentence of Section
29–4(b) merely adds a new requirement
to the effectiveness of a transfer. Under
the proposed Section 29–4(b), a written
instrument in which the transferee
agrees to be bound by the LLC
Agreement must be delivered along with
the other instruments noted in Section
29–4(b) prior to a transfer being
effective. This will ensure that any
transferee is aware of, and bound by, all
relevant governing provisions.
Additionally, two sentences have been
added to this subsection in order to
address the admission of any transferee
who complies with this Section to the
LLC. Unlike a stockholder in the
corporation, a transferee needs to be
admitted to the LLC before it can obtain
the rights of a member thereof. This is
an additional formality in the limited
liability company context that needs to
be provided for; however, the provision
for admission contained in Section 29–
4(b) does not effect a material
substantive change on the transfer
provision as a whole but is merely
reflective of a nuance specific to the
limited liability company form. To the
extent that a transferee complies with
Section 29–4, the additional language
provides that they will automatically be
admitted to the LLC.
IV. Other Provisions of the Certificate of
Incorporation
There are two other Articles of the
Certificate of Incorporation of NASDAQ
OMX PHLX, Inc. which are reflected in
the By-Laws of the Exchange. Article
SEVENTH is set forth in By-Law Article
XXVIII, Section 28–13 and titled Action
Without a Meeting. Also, Article
EIGHTH of the Certificate of
Incorporation is set forth in By-Law
Article XXVIII, Section 28–1 and titled
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54209
Place of Stockholder Meetings. The LLC
Agreement and attached By-Laws
provide the Board the ability to amend
documents as set forth in By-Law
Article XXII, Section 22–1,
Amendments to By-Laws as well as
Section 27 of the LLC Agreement.
The Exchange intends for this
proposal to be operative upon filing
with the State of Delaware.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 23 in general, and furthers the
objectives of Section 6(b)(5) of the Act 24
in particular, in that it is designed 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, by
streamlining all subsidiary selfregulatory organizations of NASDAQ
OMX Group to conform the corporate
documents and provide clarity to its
members. The proposed amendments
will not impact the rights of members or
the sole shareholder, both of which will
continue to be entitled to all rights and
privileges that exist under the governing
documents of NASDAQ OMX PHLX,
Inc.25
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition 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 either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days after the date of
the filing, or such shorter time as the
Commission may designate, it has
become effective pursuant to
23 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
25 ‘‘The conversion of any entity into a domestic
limited liability company shall not be deemed to
affect any obligations or liabilities of the other
entity prior to its conversion to a domestic limited
liability company * * *’’ See 6 Del. C. § 18–214(e).
24 15
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19(b)(3)(A)(ii) of the Act 26 and Rule
19b–4(f)(6) 27 thereunder.
A proposed rule change filed under
Rule 19b–4(f)(6) 28 normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b–4(f)(6)(iii),29 the
Commission may designate a shorter
time if such action is consistent with the
protection of investors and the public
interest. The Exchange has asked the
Commission to waive the 30-day
operative delay so that the proposal may
become operative immediately upon
filing. The Commission believes that
waiving the 30-day operative delay is
consistent with the protection of
investors and the public interest.30 The
Exchange represents that the proposal
‘‘does not impact either the members of
NASDAQ OMX PHLX, Inc. or the
public’’ and only ‘‘impacts the
administrative functions of the
Exchange.’’ 31 Additionally, the
Commission notes that the Exchange
represents that the proposed Certificate
of Formation, LLC Agreement, and ByLaws reflect all of the current rights and
obligations of the members and owners
of the Exchange, and that the proposed
LLC Agreement is consistent in form
and scope with the limited liability
company agreement of another selfregulatory organization previously
approved by the Commission.32
Accordingly, the Commission waives
the 30-day operative delay requirement
and designates the proposed rule change
to be operative on September 1, 2010.
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
26 15
U.S.C. 78s(b)(3)(A)(ii).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
28 17 CFR 240.19b–4(f)(6).
29 17 CFR 240.19b–4(f)(6)(iii).
30 For purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
31 See SR–PHLX–2010–104 at Item 7.
32 See supra note 4 and accompanying text, and
discussion in Section II.A.1.
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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 rulecomments@sec.gov. Please include File
Number SR–Phlx–2010–104 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–Phlx–2010–104. 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
Exchange. All comments received will
be posted without change; the
Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–Phlx–
2010–104 and should be submitted on
or before September 24, 2010.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.33
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–22023 Filed 9–2–10; 8:45 am]
BILLING CODE 8011–01–P
33 17
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–62798; File No. SR–FINRA–
2010–032]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Designation
of a Longer Period for Commission
Action on Proposed Rule Change
Relating to Clearly Erroneous
Transactions
August 30, 2010.
On June 17, 2010, the Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) filed with the Securities and
Exchange Commission (‘‘Commission’’),
pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’),2 and Rule 19b–4 thereunder,3 a
proposed rule change to amend its rules
to set forth clearer standards and curtail
its discretion with respect to breaking
erroneous trades.
Section 19(b)(2) of the Act 4 provides
that within thirty-five days of the
publication of notice of the filing of a
proposed rule change, or within such
longer period as the Commission may
designate up to ninety days of such date
if it finds such longer period to be
appropriate and publishes its reasons
for so finding, the Commission shall
either approve the proposed rule change
or institute proceedings to determine
whether the proposed rule change
should be disapproved. The 35th day for
this filing was August 2, 2010.5 The
Commission had received an extension
of time from FINRA until August 16,
2010.6 The Commission extended this
time period until August 30, 2010.7 The
Commission is again extending this time
period.
The Commission finds it appropriate
to designate a longer period within
which to take action on the proposed
rule change so that it has sufficient time
to consider this proposed rule change,
relating to the amendment of clearly
erroneous execution rules to provide
greater transparency and certainty to the
process of breaking trades, and the
comment letters that have been
submitted in connection with the filing.
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 62341
(June 21, 2010), 75 FR 36756 (June 28, 2010).
6 FINRA submitted through the Commission’s
Electronic Form 19b–4 Filing System an extension
of time period for Commission action through
August 16, 2010.
7 See Securities Exchange Act Release No. 62729
(August 16, 2010), 75 FR 52384 (August 25, 2010).
2 15
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[Federal Register Volume 75, Number 171 (Friday, September 3, 2010)]
[Notices]
[Pages 54204-54210]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-22023]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62783; File No. SR-Phlx-2010-104]
Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
the Conversion of NASDAQ OMX PHLX, Inc. to a Limited Liability Company
August 27, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\, and Rule 19b-4 \2\ thereunder, notice is hereby given
that on August 16, 2010, NASDAQ OMX PHLX, Inc. (``Phlx'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I and II, below, which Items have been prepared by the Exchange.
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
The Exchange proposes to convert NASDAQ OMX PHLX, Inc. from a
Delaware corporation to a Delaware limited liability company (a
``Delaware LLC''). This proposal is solely a technical rule change.
There are no new regulatory issues implicated in this proposal.
Further, the Exchange is not proposing any material changes, but rather
only amendments to make technical conforming changes to the formation
documents to correspond with the LLC conversion. All substantive
provisions that govern an exchange are consistent with the Act and
remain intact. The Exchange's proposed formation documents, including
the Certificate of Formation, Limited Liability Agreement and By-Laws,
are consistent in form and scope with the most recent governing
documents that were approved by the Commission.
The text of the proposed rule change is available on the Exchange's
Web site at https://www.nasdaqtrader.com/micro.aspx?id=PHLXRulefilings,
at the principal office of the Exchange, on the Commission's Web site
at https://www.sec.gov, 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 Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to convert NASDAQ OMX
PHLX, Inc. from a Delaware corporation to a Delaware LLC. The NASDAQ
OMX Group, Inc. acquired NASDAQ OMX PHLX, Inc. (formerly the
Philadelphia Stock Exchange, Inc.) on July 24, 2008.\3\ At this time,
The NASDAQ OMX Group, Inc. proposes to convert NASDAQ OMX PHLX, Inc., a
Delaware corporation to NASDAQ OMX PHLX LLC, a Delaware limited
liability company (the ``LLC''), to more closely conform its
organizational structure to that of other NASDAQ OMX entities. Pursuant
to the Delaware Limited Liability Company Act, as amended from time to
time (the ``LLC Act''), the LLC will continue the existence of NASDAQ
OMX PHLX, Inc. and all rights, privileges, powers, property and
liabilities shall vest in the LLC at the time of conversion. As such,
this proposed rule change will merely effect a change in entity form of
the Exchange and have no substantive effect on the current rights and
obligations of the current members and owners of the Exchange.\4\
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release Nos. 58179 (July 17,
2008), 73 FR 42874 (July 23, 2008) (SR-Phlx-2008-31); and 58183
(July 17, 2008), 73 FR 42850 (July 23, 2008) (SR-NASDAQ-2008-035).
\4\ Additionally, the proposed limited liability company
agreement of the Exchange (the ``LLC Agreement'') post-conversion is
consistent in form and scope with the Second Amended and Restated
Limited Liability Company Agreement of The Nasdaq Stock Market LLC,
dated as of July 9, 2009 (the ``NSM LLC Agreement''). See Securities
Exchange Act Release No. 34-53128 (Jan. 13, 2006), 71 FR 3550
(January 23, 2006), (approval of Nasdaq's application for
registration as a national securities exchange).
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[[Page 54205]]
Following the conversion, the Exchange proposes to be governed by a
Certificate of Formation, the LLC Agreement and the By-Laws of the LLC
(the ``LLC By-Laws'') in accordance with the LLC Act. These proposed
formation documents reflect all of the current rights and obligations
of the members and owners of the Exchange in the appropriate form of
governing documents of a Delaware LLC. The specific changes to the
current documents are discussed in the following sections.
Certificate of Formation
In order to convert from a Delaware corporation to a Delaware LLC,
a Certificate of Conversion and a Certificate of Formation of the LLC
will be filed with the Secretary of State of the State of Delaware. The
Certificate of Conversion is necessary to effect the conversion of the
Exchange from a Delaware corporation to a Delaware LLC pursuant to the
LLC Act. Further, the LLC Act requires that a Certificate of Formation
of the LLC be filed to accomplish the formation of the LLC. Unlike a
Certificate of Incorporation which contains actual governing
provisions, a Certificate of Formation only sets forth three pieces of
information, the name of the company, the address of the registered
office and the name and address of the registered agent. As such, only
the information in the FIRST and SECOND provisions of the Certificate
of Incorporation are reflected in the Certificate of Formation with
certain minor changes. First, a Delaware LLC must contain the words
``LLC'' in its name. In light of this requirement, the name set forth
in the FIRST provision of the Certificate of Formation of the LLC
reflects the proposed name ``NASDAQ OMX PHLX LLC'' rather than ``NASDAQ
OMX PHLX, Inc.'' Additionally, the LLC is referred to as a ``limited
liability company'' in this provision rather than a ``corporation.''
The governing provisions of a Delaware LLC need to be set forth in
the limited liability company agreement of such Delaware LLC. As such,
the remaining provisions of the Certificate of Incorporation are
proposed to be reflected in the LLC Agreement and the LLC By-Laws, as
together, these documents are considered the limited liability company
agreement of the LLC for purposes of the LLC Act (the
``Agreement'').\5\
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\5\ The LLC Act requires a limited liability company agreement
in order for an entity to be duly formed (see Section 18-201(d) of
the LLC Act). Additionally, a limited liability company agreement is
defined in Section 18-101(7) as an agreement that governs the
affairs of the LLC. Both the LLC By-Laws and the LLC Agreement
together constitute the limited liability company agreement for
purposes of the LLC Act.
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Limited Liability Company Agreement
Following the conversion of the Exchange, it is proposed that the
Exchange adopt the Agreement. As noted above, the Agreement will
consist of the LLC Agreement and the LLC By-Laws. The LLC By-Laws
proposed to be adopted are in substantially the same form as the By-
Laws currently in effect, with certain modifications as further
explained below.
The LLC Agreement proposed by the Exchange is similar to that of
the NSM LLC Agreement. Schedule A of the LLC describes the proposed
ownership of the limited liability company interests (designated
therein as ``shares'' of the LLC), which ownership structure is
identical to that currently in place. The NASDAQ OMX Group, Inc.
(``NASDAQ OMX Group'') is the sole common shareholder of NASDAQ OMX
PHLX, Inc. and is proposed to become a member of the Exchange (within
the meaning of the LLC Act) and the sole owner of all of the Common
Stock (as defined in the LLC Agreement) of the LLC. There is also the
PHLX Member Voting Trust (the ``Trust'') which holds the one (1) Series
A Preferred Stock of NASDAQ OMX PHLX, Inc. The Trust is proposed to
become a member of the Exchange (within the meaning of the LLC Act) \6\
and the owner of the one (1) Series A Preferred Stock (as defined in
the LLC Agreement) in the LLC.
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\6\ Neither NASDAQ OMX Group nor the Trust is a member
organization of the Exchange within the meaning of the By-Laws.
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The Exchange is incorporating the current By-Laws of NASDAQ OMX
PHLX, Inc. into the LLC Agreement as Exhibit A to that LLC Agreement.
The Exchange proposes to make minimal conforming amendments to the
current By-Laws to comport with the conversion to an LLC. Specifically,
the Exchange proposes to create an introductory paragraph to the By-
Laws to explain that the By-Laws together with the LLC Agreement
constitute the LLC Agreement within the meaning of the LLC Act.\7\
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\7\ See 6 Del. C. Sec. 18-101(7).
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Discussion of the Proposed LLC Agreement
As mentioned above, the Exchange proposes to adopt an LLC Agreement
as part of its conversion to a Delaware LLC. Such LLC Agreement will
contain many provisions set forth in the Certificate of Incorporation
of the Exchange, with such modifications as are necessary to reflect
the new entity form. NASDAQ OMX Group and the Trust, the current common
and preferred stockholders of the Exchange, respectively, would each be
admitted to, and become a member of, the LLC. As a member of the LLC,
each such person will hold limited liability company interests in the
LLC, denoted in the LLC Agreement as Common Stock and Preferred
Stock.\8\
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\8\ Interests in a Delaware LLC are referred to as limited
liability company interests under the LLC Act rather than stock or
shares. However, these interests can be referred to by whatever term
the limited liability company agreement provides. The LLC Agreement
defines such interests as Common Stock and Preferred Stock.
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The proposed LLC Agreement begins with an introductory paragraph
identifying the parties to the LLC Agreement and certain recitals. Such
recitals set forth the conversion process generally, including (i) the
applicable Delaware law \9\ by which the conversion is effected, (ii)
the conversion of all of the shares of the capital stock of the NASDAQ
OMX PHLX, Inc. into limited liability company interests of the LLC
(designated therein as Common Stock and Preferred Stock), (iv) the
admission of NASDAQ OMX Group and the PHLX Trust to the LLC as members
thereof, and (v) the ownership structure post-conversion. As provided
for in the LLC Agreement, NASDAQ OMX Group and the Trust will hold
Common Stock and Preferred Stock, respectively, in the LLC, with the
same rights and obligations as such entities had under the Certificate
of Incorporation and the By-Laws immediately prior to the conversion.
With respect to the other sections of the LLC Agreement, the changes
from or additions to the existing organizational documents of the
Exchange are discussed below by Section.
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\9\ NASDAQ OMX PHLX would be converted pursuant to Section 18-
214 of the Delaware LLC Act (6 Del. C. Sec. 18-101, et seq.).
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Section 1 of the LLC Agreement, titled ``Name; Conversion'',
specifies the name of the entity in addition to other information with
respect to the conversion process. As discussed above, the name of the
Exchange, ``NASDAQ OMX PHLX, Inc.'', set forth in provision FIRST of
the Certificate of Incorporation, is proposed to be changed to ``NASDAQ
OMX PHLX LLC'' as required by the LLC Act. Section 1 of the LLC
Agreement also notes that the organization documents, namely the
Certificate of Formation and LLC Agreement with attachments, supersede
the former organizational documents, in this case the Certificate of
Incorporation
[[Page 54206]]
and the By-Laws of NASDAQ OMX PHLX, Inc. Further Section 1 of the LLC
Agreement reiterates the conversion of all of the shares of the capital
stock of the Exchange and the admission of the members of the LLC as
generally set forth in the recitals of the LLC Agreement. The LLC Act
provision which provides for the continued existence of the Exchange as
a Delaware LLC is noted in the last sentence of this Section as well.
This sentence, while not identical to, is similar in nature to the
perpetual existence of the Exchange set forth in provision FIFTH of the
Certificate of Incorporation in that it recognizes the continuation of
the Exchange without a set term. This language was used in lieu of the
language of provision FIFTH of the Certificate of Incorporation as it
derives from the LLC Act and is more appropriate to the proposed new
entity form of the Exchange. Identical language can be found in Section
6 of the NSM LLC Agreement.
Section 2 of the LLC Agreement, titled Principal Business Office,
lists the principal business office of the Exchange and provides notice
of such information to those reviewing the LLC Agreement. Such
provision is standard in limited liability company agreements of
Delaware LLCs \10\ and such addition will have no material substantive
effect on the current operations or governance of the Exchange.
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\10\ For example, see Section 2 of the NSM LLC Agreement.
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Section 3 of the LLC Agreement, titled Registered Office;
Registered Agent, lists the Exchange's registered office and registered
agent, which was formerly reflected in provision SECOND of the
Certificate of Incorporation. The entity acting as the registered agent
and the place of the registered office will remain unchanged post-
conversion.
Section 4 of the LLC Agreement, titled Members, sets out the name
and mailing address of each Stockholder, providing notice of such
information to those reviewing the LLC Agreement. Such provision is
standard in limited liability company agreements of Delaware LLCs \11\
and such addition will have no material substantive effect on the
current operations or governance of the Exchange.
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\11\ For example, see Section 3 and 4 of the NSM LLC Agreement.
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Section 5 of the LLC Agreement, titled Certificates, refers to the
filing of Certificate of Formation and the Certificate of Conversion of
the LLC. Such provision acknowledges and confirms that such filings,
which were necessary for the conversion to be effected, were authorized
by the LLC. This Section additionally sets forth those person(s) who
have the authority to file any other certificates with the Delaware
Secretary of State on behalf of the LLC pursuant to the LLC Act. This
provision has no analog under the existing organizational documents of
the Exchange but given its administrative nature, such change will have
no material substantive effect on the current operations of the
Exchange.
Section 6 of the LLC Agreement, titled Purpose, discusses the
Exchange's business purpose. This provision is virtually identical to
provision THIRD of the Certificate of Incorporation with the following
modifications: (i) This Section references a limited liability company
instead of a corporation to reflect the appropriate entity form of the
Exchange post-conversion, and (ii) this section also includes standard
language to clarify that not only can the LLC engage in the general
purpose set forth therein but it can also engage in those activities
necessary or incidental to such purpose. This clarifying language is
common in limited liability company agreements of Delaware LLCs \12\
and such addition will have no material substantive effect on the
current operations or governance of the Exchange.
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\12\ For example, see Section 7 of the NSM LLC Agreement.
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Section 7 of the LLC Agreement, titled Powers, discusses the
general powers of the Exchange, the Board of Governors and the Officers
and largely defers to the applicable provisions set forth in the LLC
By-Laws. The LLC By-Laws at Article IV, Section 4-4 delineate in more
detail the powers of the Board of Governors which are referred to in
Section 7 of the LLC Agreement. Similarly, the LLC By-Laws delineate in
more detail the powers of the Officers of the Exchange in Article V.
Article IV, Section 4-4 and Article V of the LLC By-Laws are identical
to the corresponding provisions in the current By-Laws of the Exchange.
Section 8 of the LLC Agreement, titled Management, sets forth the
general management structure of the Exchange. It is proposed that the
management structure of the LLC be the same as currently in effect
under the governing documents of NASDAQ OMX PHLX, Inc. As proposed, the
management would remain vested with the Board of Governors, the general
powers, composition and removal of which are set forth in Section 8 of
the LLC Agreement. Such provision is substantially identical to that of
provision SIXTH of the Certificate of Incorporation.\13\ Certain
additions have been made to the language retained from provision SIXTH
of the Certificate of Incorporation, including (i) a provision
referencing the applicable provisions of the By-Laws and their
incorporation into the LLC Agreement in order to acknowledge the inter-
relationship of these two documents in the governance of the LLC, (iii)
a sentence denoting each Governor as a ``manager'' of the LLC for
purposes of the LLC Act,\14\ and (iv) a provision acknowledging that
the Governors are agents of the LLC in performing their duties as
prescribed by the Agreement. Each such addition represents standard
language typically contained in limited liability company agreements of
Delaware LLCs \15\ and such additions will have no material substantive
effect on the current operations or governance of the Exchange.
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\13\ The introductory paragraph of provision SIXTH of the
Certificate of Incorporation is reflected in Section 8(a) and (b) of
the LLC Agreement. Subsection (a) of provision SIXTH of the
Certificate of Incorporation is reflected in Section 8(c) of the LLC
Agreement. Subsection (b) of provision SIXTH of the Certificate of
Incorporation is reflected in Section 8(f) of the LLC Agreement.
\14\ As the term ``Governor'' is not a term used in the LLC Act,
to ensure that provisions of the LLC Act that relate to ``managers''
of a Delaware LLC (i.e. those Persons who manage a Delaware LLC),
the Governors have been denoted as such solely for this purpose.
\15\ For example, see Section 9(a), (c) and (j) of the NSM LLC
Agreement.
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Section 9 of the LLC Agreement, titled Officers, discusses
generally the officers of the LLC and their appointment, role as agent
and duties but defaults to the By-Laws for a more detailed description
of such topics. The applicable provisions of the LLC By-Laws are in
Article V and remain identical to the description provided in Article V
of the By-Laws currently in effect.
Section 10 of the LLC Agreement, titled Limited Liability,
corresponds, in part, with provision FIFTEENTH of the Certificate of
Incorporation and Article IV, Section 4-18 of the current By-Laws in
that it limits the personal liability of Governors for the debts and
obligations of the Exchange. The Exchange also proposes to include, in
Section 10 of the LLC Agreement, standard language, which is consistent
with, and reflective of, the limitation on liability of members
provided for in the LLC Act, to limit the personal liability of the
Stockholders for the debts and obligations of the Exchange. Similar
language is contained in the NSM LLC Agreement in Section 11 therein.
Sections 11 through 14 of the LLC Agreement are equity-related
provisions which encompass the topics of capital contributions,
additional capital
[[Page 54207]]
contributions, allocations of profits and losses and distributions.
These provisions set forth the basic economic arrangement of the
Stockholders and remain consistent with the economic arrangement under
the current corporate documents. For example, NASDAQ OMX Group, as the
sole common shareholder, is generally entitled to all dividends
declared by the Exchange. As the sole economic member of the LLC,
NASDAQ OMX Group is entitled to all distributions made by the LLC.
Profits and losses will also be allocated to NASDAQ OMX Group. This is
a slight change from the current allocation structure, which allocates
such profits and losses to the Exchange rather than directly to its
stockholders. However, the LLC is a disregarded entity for tax purposes
unlike a corporation, and as such profits and losses need to be
allocated to the appropriate members of the LLC. The Trust does not
share in such allocation as it has no economic rights associated with
the Series A Preferred Stock it holds.\16\ Additionally, these Sections
of the LLC Agreement require that NASDAQ OMX Group's contributions be
noted in the books and records of the LLC and that no member shall be
required to make any additional capital contribution to the LLC without
its consent and the consent of the Board of Governors. These provisions
are virtually identical to provisions 12 through 15 of the NSM LLC
Agreement, and given their administrative nature shall have no material
substantive effect on the operations of the Exchange. Section 14(b)
also incorporates the language of Article FOURTEENTH of the Certificate
of Incorporation, relating to distributions to foreign currency options
participants, with certain modifications necessary in light of
distribution limitations contained in the LLC Act. For example, the
entire provision, which discusses certain distributions to foreign
currency option participants, is ``subject to'' the LLC Act to ensure
that the mandatory limitations on distributions contained in Sections
18-607 and 18-804 of the LLC Act will be respected in contemplating any
distribution under Section 14(b) of the LLC Agreement to the extent
such provisions would be applicable to such distributions.
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\16\ Currently, pursuant to the Certificate of Incorporation at
provision FOURTH at (b), the Series A Preferred is entitled to no
dividends and a de minimis amount in a liquidation preference. The
Series A Preferred Shareholder retains these rights in the LLC
Agreement at Section 16 (c)(iii).
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The first sentence of Section 15 of the LLC Agreement, titled Books
and Records, is reflective of Article TWELFTH of the Certificate of
Incorporation. Section 15 of the LLC Agreement also sets forth certain
additional information relating to general administrative matters with
respect to the books and records of the LLC including that (i) the
Board of Governors will keep and maintain complete books and records of
the LLC, (ii) the Stockholders have the right to inspect such books and
records, and (iii) the Board of Governors has the right to select
method by which the books will be kept and the public accounting firm
who will provide any independent audit of such books and records. Given
the general administrative nature of such additions, none of these
additions shall have any material substantive effect on the manner in
which the Exchange is governed by the Board of Governors or the general
operations of the Exchange.\17\
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\17\ A virtually identical provision is set forth in Section 16
of the NSM LLC Agreement.
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Section 16 of the LLC Agreement, titled Limited Liability Company
Interests, sets forth the classes of limited liability company
interests, denoted as shares, of the LLC and the rights and obligations
of each class. The language pertaining to the authorized shares,
classes, rights and obligations of the Stockholders contained in this
section is virtually identical to the language contained in provision
FOURTH of the Certificate of Incorporation, which relates to the
current shares and classes of the Exchange. There has been no material
change to any of the rights and obligations of the Stockholders. A
sentence has been added to allow for the Exchange to issue additional
interests or securities in the Exchange upon approval by the Board of
Governors.\18\ This gives the Exchange versatility in issuing the
various ``interests'' to the members utilizing the Exchange, which are
otherwise not contemplated generally in the LLC context. Any such
``interests'' would be limited in the manner prescribed by the Board of
Governors. Also, this Section includes language tracing the conversion
of the corporate shares held by the Stockholders into shares of the
LLC. Finally, the term ``dividend'' has been changed to
``distribution'' as, under the LLC Act, a Delaware LLC makes
distributions whereas a Delaware corporation would declare a dividend.
This change does not affect the underlying right of the Stockholder to
such property; it is merely a change in terminology. The information
contained in Section 16 of the LLC Agreement is also set forth in
Article XXIX, Section 29-4 of the LLC By-Laws. The definition for
``Designated Independent Governors'' contained in provision FOURTH of
the Certificate of Incorporation is not defined in Section 16, as the
definition of this term is already set forth in in [sic] Article I of
the By-Laws of the LLC. Such definition, other than updating the
reference to the applicable governing documents, remains unchanged
post-conversion.
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\18\ Specifically, the last sentence of Section 16(a) of the LLC
Agreement would state: ``The Exchange may issue or establish such
other interests in the Exchange or such other Exchange securities as
the Board determines in accordance with this Agreement and the By-
Laws.'' With respect to this proposed sentence, the Exchange notes
that if it decided to issue or establish such other interests in the
Exchange or other Exchange securities, the Exchange would take the
necessary corporate actions and would seek the necessary approvals
to do so. See E-mail from Angela S. Dunn, Assistant General Counsel,
Phlx, to Richard Holley, Assistant Director, Division of Trading and
Markets, Commission, dated August 25, 2010.
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Section 17 of the LLC Agreement, titled Other Business, is standard
language in the limited liability company context and merely states
that the Stockholders may engage in other business other than their
interest in the LLC and that the LLC has no rights to such other
business or the proceeds derived therefrom. This concept is consistent
with that of a stockholder of a corporation in that a stockholder,
generally, has no obligation to present opportunities to the
corporation or turn over proceeds derived from other ventures of the
stockholder. A similar provision is contained in Section 18 of the NSM
LLC Agreement.
Section 18 of the LLC Agreement, titled Exculpation and
Indemnification, provides for the exculpation and the indemnification
of the Stockholders and related persons. The inclusion of such a
provision in the limited liability context is not uncommon as it
reflects the fact that Stockholders, under the LLC Act, can act on
behalf of the LLC to the extent authorized under the LLC Agreement and
the LLC By-Laws. As such, it is proposed to provide the same level of
exculpation and indemnification for such persons as is given to the
Board of Governors to the extent such persons are authorized to act on
behalf of the LLC. As such, the same standard of conduct applicable to
the Board of Governors under Article SIXTEENTH of the Certificate of
Incorporation is proposed to be used in Section 18 of the LLC
Agreement. Articles FIFTEENTH and SIXTEENTH of the Certificate of
Incorporation, relating to the exculpation and indemnification of the
Board of Governors, have been set forth in Article IV, Sections 4-18(g)
and 4-18(h) of the LLC By-Laws.
Section 19 of the LLC Agreement is merely a general statement that
any
[[Page 54208]]
transfer of an interest in the LLC must be made in accordance with the
By-Laws and the LLC Agreement. The LLC Agreement addresses transfers in
Section 16 thereof. Such section provides certain conditions to the
transfer of the outstanding Common Stock and Preferred Stock and, as
noted previously, such conditions are virtually identical to those
conditions currently contained in provision FOURTH of the Certificate
of Incorporation. Additionally, Article XXIX, Section 29-4 of the LLC
By-Laws also addresses the transfer of shares in the Exchange. With
minor modifications addressing limited liability company specific
issues, Article XXIX, Section 29-4 of the LLC By-Laws remains identical
to Article XXIX, Section 29-4 of the By-Laws currently in effect.\19\
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\19\ Section 20 of the LLC Agreement is intentionally omitted
and may be used at a future date. The Exchange would file a proposed
rule change with the Commission if it intended to amend this
provision.
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Section 21 of the LLC Agreement sets forth the events which will
cause the dissolution of the LLC, as prescribed by mandatory provisions
of the LLC Act or as otherwise agreed among the parties. A similar
provision is contained in Section 21 of the NSM LLC Agreement.
Sections 22 through 26 and 28 of the LLC Agreement are general
provisions which are relatively standard in limited liability company
agreements of Delaware LLCs.\20\ These provisions include: A benefits
of agreement clause, a severability clause, a binding agreement clause,
an entire agreement clause, a governing law clause and a notice
provision. We note that the Trustee, Members and Member Organizations
are acknowledged as holding rights under the Agreement and included as
third-party beneficiaries to the LLC Agreement as is similarly provided
in the NSM LLC Agreement.
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\20\ For example, see Sections 22 through 26, and 28 of the NSM
LLC Agreement.
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Section 27 of the LLC Agreement contains the necessary vote under
which the LLC Agreement may be amended. Under the Certificate of
Incorporation, the Board of Governors had the right to amend the By-
Laws currently in effect. Such By-Laws provide for amendment in the
manner prescribed in Article XXII, Section 22-1. This same amendment
vote has been set forth in Section 27 of the LLC Agreement so that the
authority of the Board of Governors to amend will remain unchanged
following the conversion.
The provisions in the Certificate of Incorporation have been
incorporated into the Certificate of Formation, LLC Agreement and By-
Laws as indicated herein but for provisions FIFTH and TENTH. The
language used in provision FIFTH of the Certificate of Incorporation
was not incorporated verbatim into the LLC Agreement; however, as noted
previously, the general concept of this provision is reflected in the
last sentence of Section 5 of the LLC Agreement. Additionally,
provision TENTH of the Certificate of Incorporation was not carried
over to the proposed Agreement because such provision is not consistent
with applicable Delaware law in the limited liability company context.
III. Proposed By-Laws of the LLC
As noted above, the Exchange proposes to adopt the By-Laws of
NASDAQ OMX PHLX, Inc. as the LLC By-Laws with the changes noted below.
It is proposed to incorporate certain global changes to the By-Laws
currently in effect including (i) referencing the Certificate of
Formation of the LLC, the LLC By-Laws and/or the LLC Agreement, as
applicable, instead of the Certificate of Incorporation as such
documents will replace and supersede the Certificate of Incorporation
and existing By-Laws, (ii) deleting references to the DGCL (including
the definition thereof) throughout the By-Laws as such law will no
longer be applicable to the Exchange post-conversion and substituting
in lieu thereof the phrase ``applicable law,'' and (iii) updating all
references to ``NASDAQ OMX PHLX, Inc.'' to ``NASDAQ OMX PHLX LLC''
consistent with the name change associated with the conversion.
Specifically, in Article I, titled Definitions, the Exchange
proposes to delete the reference to Section 1-1 Definitions. The
Exchange proposes to reference the LLC By-Laws, the LLC Agreement and
the Trust Agreement in the definition for both Designated Governors and
Designated Independent Governor, in lieu of the reference to provision
FOURTH of the Certificate of Incorporation, which will no longer be
effective post-conversion. None of these changes will have a material
substantive effect but are merely reflective of the proposed change in
applicable governing documents.
Further, the Exchange proposes to include in the text associated
with the term ``Member'' a sentence that such term as used in the LLC
By-Laws is distinct from the usage of member within the meaning of the
LLC Agreement and the LLC Act.\21\ Again this change has no material
substantive effect but merely reflects that the term ``member'' is a
term of art under the LLC Act, with rights and obligations associated
with it that are distinct from how the term ``Member'' is used in the
LLC By-Laws. The Exchange also proposes to amend the text in the term
``Demutualized [sic] Merger'' to be historically accurate in that
NASDAQ OMX PHLX, Inc. was a party to such transaction rather than the
LLC, which was not in existence on the date of such merger.
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\21\ The meaning of ``Member'' as set forth in the LLC By-Laws
is not proposed to change.
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The term ``Stockholder'' is proposed to be modified to reflect that
NASDAQ OMX Group and the Trust are no longer stockholders of a
corporation but members of a Delaware LLC. Such change does not have
material substantive effect but is merely a conforming change to the
new entity form of the Exchange. The rights and obligations of these
persons remain unchanged following the conversion, only the terminology
is proposed to be revised. Such definition is consistent with the
meaning given to such term in the LLC Agreement.
The Exchange proposes to define ``NASDAQ OMX Conversion'' to refer
to the conversion proposed and described herein from the Delaware
corporation, ``NASDAQ OMX PHLX, Inc.'' to the Delaware LLC, ``NASDAQ
OMX PHLX LLC.'' The Exchange proposes to eliminate references to the
Merger Subsidiary \22\ and replace those references with language
referencing the conversion to an LLC.
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\22\ This language was added to the By-Laws at the time of the
merger between a wholly owned subsidiary of NASDAQ OMX Group and the
Philadelphia Stock Exchange, Inc. See Securities Exchange Act
Release Nos. 58179 (July 17, 2008), 73 FR 42874 (July 23, 2008) (SR-
Phlx-2008-31); and 58183 (July 17, 2008), 73 FR 42850 (July 23,
2008) (SR-NASDAQ-2008-035).
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The Exchange proposes to amend Article III, titled Member and
Member Organization Nominations--Member and Member Organization Annual
Elections--Member and Member Organization Meetings, to remove
references to the Certificate of Incorporation and instead reference
the By-Laws, as the By-Laws, following the conversion, will be the
appropriate governing document.
Section 3-3 of Article III, titled Removal of Designated Governors,
is proposed to refer to a special meeting in the first sentence thereof
in lieu of the current reference to an annual meeting. The reference to
an ``annual'' meeting is inconsistent with the remainder of the first
sentence in Section 3-3. Such sentence discusses a meeting called in
accordance with Section 3-2(e). Section 3-2(e) sets forth the procedure
to call a
[[Page 54209]]
``special'' meeting not an ``annual'' meeting. As such, the correct
meeting reference is to a ``special'' meeting not an ``annual''
meeting. The Exchange proposes to make this change so that the sentence
is consistent throughout. This proposal does not amend the composition
of the Board of Governors.
The Exchange proposes to amend Article IV, titled Board of
Governors, to remove references to the Merger and Merger Subsidiary and
instead reference the Conversion. Section 4-18 of Article IV of the LLC
By-Laws, titled Indemnification, is proposed to reflect the relevant
indemnification standard provided in provision FIFTEENTH of the
Certificate of Incorporation pertaining to the indemnification of
Governors. It is proposed to include in Section 4-21 of Article IV of
the LLC By-Laws clarifying language regarding the necessary purpose
behind a books and records inspection request. Such language is
consistent with and provided by the LLC Act.
The Exchange proposes to add a Section 4-24 to Article IV of the
LLC By-Laws. This provision, entitled ``Interested Transactions'' is
substantially identical to the language used in provision ELEVENTH of
the Certificate of Incorporation and ensures that the guidelines
relating to the types of transactions described therein are retained
following the conversion of the Exchange.
The Exchange proposes to remove the reference to ``corporate'' in
each instance where the phrase ``corporate seal'' is used in Article V
of the current By-Laws, specifically Section 5-8. The term
``corporate'' is not applicable to the Exchange post-conversion.
The Exchange proposes certain changes to Article VIII, titled
Presiding Officials of the Exchange, Article X, titled Standing
Committees, Article XII, titled Permits-Eligibility-Election-Initiation
Fee, Article XV, titled Transfer of Foreign Currency Options
Participations, Article XVII, titled Insolvency-Suspension-
Reinstatement, and Article XVIII, titled Offenses, Discipline,
Penalties and Business Connections [sic], to add clarifying language,
correct minor inconsistencies and remove extraneous language within
these sections. These changes have no material substantive effect on
the above noted provisions or the operations of the Exchange but are
merely clerical in nature.
The Exchange proposes to make certain clerical changes to Article
XV, titled Transfer of Foreign Currency Options Participations. These
changes are not substantive in nature and merely reflect a
reorganization of the existing provisions. Specifically, the terms
ordering Section 15-3 (e.g. ``First'') have been deleted as such terms
are redundant in light of the phrase ``in the following order of
seniority'' contained in Section 15-3(a). Additionally, the sub-
sections of Section 15-3(a)(iii) have been given a letter ordering
designation. Finally, the sub-section of Section 15-3 entitled
``Balance of Proceeds'' has been moved to follow the last paragraph
relating to the priority of payments in order to have such sub-section
be in the appropriate payment priority. Such sub-section was not
otherwise modified.
The Exchange proposes to incorporate additional language to the
transfer provision contained in Article XXIX, Section 29-4(b) to
address Delaware LLC-specific issues. The existing conditions to
transfers previously set forth in Section 29-4(b) remain unchanged.
Rather, the additional language in the first sentence of Section 29-
4(b) merely adds a new requirement to the effectiveness of a transfer.
Under the proposed Section 29-4(b), a written instrument in which the
transferee agrees to be bound by the LLC Agreement must be delivered
along with the other instruments noted in Section 29-4(b) prior to a
transfer being effective. This will ensure that any transferee is aware
of, and bound by, all relevant governing provisions. Additionally, two
sentences have been added to this subsection in order to address the
admission of any transferee who complies with this Section to the LLC.
Unlike a stockholder in the corporation, a transferee needs to be
admitted to the LLC before it can obtain the rights of a member
thereof. This is an additional formality in the limited liability
company context that needs to be provided for; however, the provision
for admission contained in Section 29-4(b) does not effect a material
substantive change on the transfer provision as a whole but is merely
reflective of a nuance specific to the limited liability company form.
To the extent that a transferee complies with Section 29-4, the
additional language provides that they will automatically be admitted
to the LLC.
IV. Other Provisions of the Certificate of Incorporation
There are two other Articles of the Certificate of Incorporation of
NASDAQ OMX PHLX, Inc. which are reflected in the By-Laws of the
Exchange. Article SEVENTH is set forth in By-Law Article XXVIII,
Section 28-13 and titled Action Without a Meeting. Also, Article EIGHTH
of the Certificate of Incorporation is set forth in By-Law Article
XXVIII, Section 28-1 and titled Place of Stockholder Meetings. The LLC
Agreement and attached By-Laws provide the Board the ability to amend
documents as set forth in By-Law Article XXII, Section 22-1, Amendments
to By-Laws as well as Section 27 of the LLC Agreement.
The Exchange intends for this proposal to be operative upon filing
with the State of Delaware.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \23\ in general, and furthers the objectives of Section
6(b)(5) of the Act \24\ in particular, in that it is designed 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, by streamlining all subsidiary self-regulatory organizations
of NASDAQ OMX Group to conform the corporate documents and provide
clarity to its members. The proposed amendments will not impact the
rights of members or the sole shareholder, both of which will continue
to be entitled to all rights and privileges that exist under the
governing documents of NASDAQ OMX PHLX, Inc.\25\
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\23\ 15 U.S.C. 78f(b).
\24\ 15 U.S.C. 78f(b)(5).
\25\ ``The conversion of any entity into a domestic limited
liability company shall not be deemed to affect any obligations or
liabilities of the other entity prior to its conversion to a
domestic limited liability company * * *'' See 6 Del. C. Sec. 18-
214(e).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition 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 either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate, it has become effective
pursuant to
[[Page 54210]]
19(b)(3)(A)(ii) of the Act \26\ and Rule 19b-4(f)(6) \27\ thereunder.
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\26\ 15 U.S.C. 78s(b)(3)(A)(ii).
\27\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \28\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\29\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposal
may become operative immediately upon filing. The Commission believes
that waiving the 30-day operative delay is consistent with the
protection of investors and the public interest.\30\ The Exchange
represents that the proposal ``does not impact either the members of
NASDAQ OMX PHLX, Inc. or the public'' and only ``impacts the
administrative functions of the Exchange.'' \31\ Additionally, the
Commission notes that the Exchange represents that the proposed
Certificate of Formation, LLC Agreement, and By-Laws reflect all of the
current rights and obligations of the members and owners of the
Exchange, and that the proposed LLC Agreement is consistent in form and
scope with the limited liability company agreement of another self-
regulatory organization previously approved by the Commission.\32\
Accordingly, the Commission waives the 30-day operative delay
requirement and designates the proposed rule change to be operative on
September 1, 2010.
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\28\ 17 CFR 240.19b-4(f)(6).
\29\ 17 CFR 240.19b-4(f)(6)(iii).
\30\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\31\ See SR-PHLX-2010-104 at Item 7.
\32\ See supra note 4 and accompanying text, and discussion in
Section II.A.1.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
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-Phlx-2010-104 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-Phlx-2010-104. 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 Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-Phlx-2010-104 and should be
submitted on or before September 24, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
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\33\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-22023 Filed 9-2-10; 8:45 am]
BILLING CODE 8011-01-P
