Self-Regulatory Organizations; National Stock Exchange, Inc.; Notice of Filing of Proposed Rule Change Relating to the Proposed Rule Change in Connection With the Proposed Purchase and Sale of the National Stock Exchange, Inc. to CBOE Stock Exchange, Inc., 75586-75593 [2011-30997]
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Federal Register / Vol. 76, No. 232 / Friday, December 2, 2011 / Notices
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–CBOE–2011–109, and
should be submitted on or before
December 23, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.10
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2011–30994 Filed 12–1–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–65844; File No. SR–
NASDAQ–2011–143]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Order
Approving Proposed Rule Change
With Respect to an Amendment to the
By-Laws of The NASDAQ OMX Group,
Inc.
November 28, 2011.
On October 11, 2011, The NASDAQ
Stock Market LLC (‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to amend the by-laws of its
parent corporation, The NASDAQ OMX
Group, Inc. (‘‘NASDAQ OMX’’). The
proposed rule change was published for
comment in the Federal Register on
October 28, 2011.3 The Commission
received no comments on the proposal.
After careful review, the Commission
finds that the proposed rule change is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a national
securities exchange 4 and, in particular,
the requirements of Section 6(b)(5) of
the Act.5 The proposal will allow the
NASDAQ OMX Board of Directors
(‘‘Board’’) to determine the size of its
Audit Committee, so long as the Audit
Committee includes at least three
directors, as well as the size of its
Nominating & Governance Committee,
so long as the Nominating & Governance
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10 17
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 65604
(October 21, 2011), 76 FR 67006.
4 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
5 15 U.S.C. 78f(b)(5).
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Committee includes at least two
directors. The proposal is intended to
provide greater flexibility to the
NASDAQ OMX Board to determine the
appropriate size for these committees.
The Commission notes that the
proposed rule change maintains
compliance with the Exchange’s listing
standards. The proposal does not
change any other compositional
requirements of either the Audit
Committee or the Nominating &
Governance Committee, including
independence requirements. Moreover,
the Commission notes that the proposal
does not alter the application of Section
10A of the Exchange Act 6 and Rule
10A–3 thereunder 7 to the NASDAQ
OMX Audit Committee. The proposal
also deletes an obsolete section from,
and corrects a typographical error in,
the NASDAQ OMX by-laws, which are
clarifying revisions. For the foregoing
reasons, the Commission believes that
the proposed rule change is consistent
with the Act.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,8 that the
proposed rule change (SR–NASDAQ–
2011–143) be, and it hereby is,
approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.9
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2011–31014 Filed 12–1–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–65842; File No. SR–NSX–
2011–14]
Self-Regulatory Organizations;
National Stock Exchange, Inc.; Notice
of Filing of Proposed Rule Change
Relating to the Proposed Rule Change
in Connection With the Proposed
Purchase and Sale of the National
Stock Exchange, Inc. to CBOE Stock
Exchange, Inc.
November 28, 2011.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 15 U.S.C. 78s(b)(1), notice is
hereby given that on November 28,
2011, the National Stock Exchange, Inc.
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change, as described in
Items I and II below, which Items have
6 15
U.S.C. 78j–1.
CFR 240.10A–3.
8 15 U.S.C. 78s(b)(2).
9 17 CFR 200.30–3(a)(12).
7 17
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been prepared by the Exchange. The
Commission is publishing this notice to
solicit comment on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
National Stock Exchange, Inc.
(‘‘NSX®’’ or the ‘‘Exchange’’) is
submitting this rule filing in connection
with the proposed purchase and sale of
the Exchange (the ‘‘Transaction’’) to
CBOE Stock Exchange, LLC (‘‘CBSX’’). If
the Transaction is completed, NSX will
become a wholly owned subsidiary of
CBSX. The proposed rule change, if
approved, will not be operative until
consummation of the Transaction.
The Exchange is proposing that,
pursuant to the Transaction, NSX will
become a wholly owned subsidiary of
CBSX. In addition, the Exchange is
proposing that in connection with the
Transaction, the Securities and
Exchange Commission (the
‘‘Commission’’) approve certain
amendments to the organizational
documents of NSX and CBSX.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://www.nsx.com, at the principal
office of the Exchange, at the
Commission’s Public Reference Room,
and on the Commission’s Web site at
https://www.sec.gov.
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 parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Description of the Transaction
Currently, the Exchange is wholly and
directly owned by NSX Holdings, Inc.,
a Delaware corporation (‘‘Holdings’’).
Under a Purchase Agreement (the
‘‘Purchase Agreement’’) dated
September 28, 2011 by and between the
Exchange, Holdings and CBOE Stock
Exchange, LLC, a Delaware limited
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liability company (‘‘CBSX’’), all of the
outstanding capital stock of NSX is
proposed to be acquired by CBSX on the
date of or after all conditions precedent
to closing 1 have been satisfied or
waived, including approval by the
Commission of the instant rule filing.
The post-closing corporate structure of
NSX and CBSX, respectively, are
described below.
a. NSX
Following the Transaction, NSX
would be a wholly owned subsidiary of
CBSX. NSX would remain a Delaware
for-profit stock corporation, with the
authority to issue 1,000 shares of
common stock, 100 shares of which
would be held by CBSX. At all times, all
of the outstanding stock of NSX would
be owned by CBSX.2 NSX would remain
an entity registered as a national
securities exchange under Section 6 of
the Securities Exchange Act of 1934 (the
‘‘Act’’) 3 and, accordingly, NSX would
remain a self-regulatory organization
(‘‘SRO’’).4
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i. Governing Documents
The proposed Amended and Restated
NSX Certificate of Incorporation (the
‘‘A&R Certificate’’) and Second
Amended and Restated NSX By-Laws
(the ‘‘A&R By-Laws’’), amended as
described below, and NSX Rules (which
are proposed to remain unchanged)
would continue to govern the activities
of NSX. These rules and governance
documents would reflect, among other
things, NSX’s status as a wholly owned
subsidiary of CBSX, continued
management of NSX by the NSX Board
of Directors (‘‘NSX Board’’) and
1 Conditions precedent to closing the Transaction
are formal requirements set forth in the Purchase
Agreement and include, without limitation,
delivery of certain documents (such as officers’
certificates, legal opinions, and agreements),
compliance by each party with specified
representations, warranties and covenants, and
receipt of necessary approvals by each party.
2 See proposed NSX Amended and Restated
Certificate of Incorporation, Article Fourth, which
deletes reference to NSX Holdings, Inc. and
provides ‘‘At all times, all of the outstanding stock
of the Corporation shall be owned by CBOE Stock
Exchange, LLC, a Delaware limited liability
company.’’
3 15 U.S.C. 78f.
4 NSX would continue to adhere to the
undertakings in the Order Instituting
Administrative and Cease-and-Desist Proceedings
Pursuant to Sections 19(b) and 21C of the Securities
Exchange Act of 1934, Making Findings and
Imposing Sanctions, entered by the Commission on
May 19, 2005 (see Securities Exchange Act Release
No. 51714, May 19, 2005) (the ‘‘Order’’). The Order
provides for certain structural protections to ensure
that the regulatory functions are independent from
the commercial interests of the Exchange,
including, among other things, that the Chief
Regulatory Officer reports directly to the NSX Board
and the Regulatory Oversight Committee; see
section IIIF2.a of the Order.
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designated officers, and the Exchange’s
continuing discharge of its selfregulatory responsibilities pursuant to
NSX’s registration under Section 6 of
the Act. NSX’s proposed governance
structure is designed to be consistent
with its current governance structure,
with certain changes as described
below.
ii. Board of Directors
Currently, the NSX Board consists of
13 director positions, of which seven are
Independent, three are ETP Holder, two
are At Large, and one is the Exchange
Chief Executive Officer. The
Transaction contemplates that all
current Exchange directors and
committee members, including the
Chief Executive Officer, will resign from
the Board and committees, as
applicable, effective upon closing. At
such time, the vacancies on the Board
and committees of the Board will be
filled in accordance with applicable
procedures contained in the A&R ByLaws. Candidates with the necessary
qualifications will be appointed in
accordance with Sections 3 or 5, as
applicable, of the A&R By-Laws to fulfill
the expired portion of any vacancies
created by the resignation. Thereafter,
directors and committee members will
be nominated and elected in accordance
with the A&R By-Laws.
b. CBSX
In 2007, the Commission approved
the establishment of the CBOE Stock
Exchange as a facility, as defined in
Section 3(a)(2) of the Act,5 of the
Chicago Board Options Exchange,
Incorporated (‘‘CBOE’’).6 As the SRO for
CBSX, CBOE has regulatory
responsibility for the activities of CBSX.
CBSX administers a fully automated
trading platform for securities other
than options (the ‘‘Facility’’). As a
limited liability company, the
governance structure and operating
authority of CBSX are set forth in the
Second Amended and Restated
Operating Agreement of CBSX
(‘‘Operating Agreement’’) and the CBSX
Certificate of Formation. In connection
with the establishment of the Facility,
5 15
U.S.C. 78c(a)(2).
Securities Exchange Act Release No. 55389
(March 2, 2007), 72 FR 10575 (March 8, 2007) (SR–
CBOE–2006–110) (the ‘‘CBSX Approval Order’’).
See also Securities Exchange Act Release No. 55172
(January 25, 2007), 72 FR 4745 (February 1, 2007)
(SR–CBOE–2006–110) (the ‘‘CBSX Notice of
Filing’’). All information contained herein with
respect to the corporate structure, governance,
ownership and operations of CBSX and CBOE is
based on the Exchange’s information and belief as
disclosed in the CBSX Approval Order and CBSX
Notice of Filing and pursuant to communications
with CBSX personnel prior to the submission of this
filing.
6 See
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75587
CBOE adopted Rule 3.32 pertaining to
ownership concentration and affiliation
limitations.7
As a limited liability company,
ownership of CBSX is represented by
limited liability membership interests.
The holders of such interests are
referred to as ‘‘Owners.’’ CBOE is one of
the Owners of CBSX, and owns all
outstanding ‘‘Series A’’ Voting Shares 8
of CBSX, representing just under 50% of
all outstanding shares of CBSX.9 The
outstanding ‘‘Series B’’ Voting Shares of
CBSX are held by nine broker-dealers.
As provided in Section 8.9 of the
Operating Agreement, the outstanding
Series A Voting Shares, in the aggregate
(and without being deemed to be a
voting trust), are entitled to a number of
votes equal to 50% of the total number
of Voting Shares outstanding, on each
matter submitted to a vote of the
Owners. Each outstanding Series B
Voting Share is entitled to one vote on
each matter submitted to a vote of the
Owners.10
The CBSX Approval Order and the
CBSX Notice of Filing describe various
characteristics of CBSX, including the
relationship between CBSX and CBOE;
changes in control of CBSX; the
regulatory jurisdiction of the
7 See CBSX Approval Order. CBOE Rule 3.32
provides, in part:
‘‘For as long as CBSX LLC operates as a facility
of the Exchange, no Trading Permit Holder, either
alone or together with its Affiliates, at any time,
may own, directly or indirectly, of record or
beneficially, an aggregate amount of Shares that
would result in a greater than twenty percent (20%)
Percentage Interest in CBSX LLC (the
‘‘Concentration Limitation’’).’’
In addition, the Certificate of Incorporation of
CBOE Holdings, Inc., the owner of CBOE, provides
that no person (either alone or together with its
related persons) may beneficially own more than
20% of the total outstanding shares of CBOE
Holdings stock. See Article Sixth (b) of the
Amended and Restated Certificate of Incorporation
of CBOE Holdings, Inc.; see also Securities
Exchange Act Release No. 62158 (May 24, 2010), 75
FR 30082 (May 28, 2010) (SR–CBOE–2008–88).
8 ‘‘Voting Shares’’ means those Shares entitled to
vote on matters submitted to the Owners, which
Voting Shares are held by the Voting Owners. See
Section 2.1(a)(28) of the Operating Agreement.
9 As noted in Section 3.2 of the Operating
Agreement, it is the intention of the Owners that no
other members of CBSX (other than Affiliates of
CBOE) be owners of Series A Voting Shares, and
that no additional Series A Voting Shares be
authorized, created or issued for such purpose;
provided however, that this provision is not
intended to limit or restrict any rights of CBOE to
transfer any of its Series A Voting Shares with the
prior approval of the Commission as provided for
in Article VI, including Section 6.14, of the
Operating Agreement, or any other provision
thereof, or any rights to be acquired by a transferee
of those Shares as provided therein.
10 The Operating Agreement also creates a Series
C Non-Voting Restricted Shares; however, these
Shares are not entitled to vote on any matter
submitted to a vote of the Owners, and there are
currently no Series C shares outstanding. See
Section 8.9 of the Operating Agreement.
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Commission and CBOE over the
controlling parties and the Owners; and
the ownership and voting restrictions on
Owners.11 These provisions, as
contained in the Operating Agreement
and applicable CBOE rules, will remain
unchanged after the Transaction except
as otherwise described below.
Summary of Proposed Rule Change
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Except as described below, the
Exchange’s governing documents, rules
and manner of operation, restrictions on
ownership and transfer, registration as a
national securities exchange under
Section 6 of the Act and the
continuance of the Exchange as an
SRO 12 are proposed to remain
unchanged.13 The instant rule change
proposes changes to the Exchange’s
Certificate of Incorporation and By-Laws
as described below to reflect the change
of ownership due to the Transaction. In
addition, several other amendments are
proposed to the Exchange governance
documents in order to enhance
governance mechanisms and generally
make them generally consistent with the
parallel provisions of the current
governance documents of other SROs.
Certain provisions of the current NSX
By-Laws that are historic in nature are
also proposed to be deleted as no longer
applicable. In addition, certain
amendments, as described below and in
conjunction with a contemporaneous
rule filing submitted by CBOE, are
proposed to the CBSX Operating
Agreement in connection with the
Transaction. In the aggregate, the
proposed amendments are intended to
enable NSX to continue to have the
authority and ability to effectively fulfill
its self-regulatory duties pursuant to the
Act and the rules promulgated
thereunder. The proposed amendments
will also enhance the ownership and
voting limitations applicable to SROs in
order to preclude undue influence over
or interference with the SROs’
regulatory functions and fulfillment of
regulatory duties under the Act.
11 Section 6.12(a) of the Operating Agreement
provides that no person (other than CBOE), either
alone or together with its Affiliates, may directly or
indirectly own more than a 20% Percentage Interest
in CBSX (‘‘Concentration Limitation’’). In addition,
Section 8.10 provides that if an Owner of Voting
Shares, alone or together with any Related Persons,
owns more than 20% of the Outstanding Voting
Shares (‘‘Excess Shares’’), such Owner and Related
Persons shall have no voting rights with respect to
the Excess Shares.
12 See 15 U.S.C. 78c(a)(26).
13 As described in the Commission’s order
approving the Exchange’s demutualization; see
Securities Exchange Act Release No. 53963 (June 8,
2006), 71 FR 34660 (June 15, 2006) (SR–NSX–2006–
03).
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a. Amended and Restated Certificate of
Incorporation of NSX
Under the proposed rule change, the
requirement that the Exchange be at all
times wholly owned by Holdings is
proposed to be changed to allow for the
consummation of the Transaction and
acquisition of all of the outstanding
NSX stock by CBSX. To make clear that
NSX will be entirely owned by CBSX
(regardless of whether outstanding NSX
stock is voting or non-voting), the
proposed A&R Certificate would be
modified in Article IV to provide that,
at all times, all of the outstanding stock
of the Exchange shall be owned by
CBSX.
In addition, new language is proposed
to be added to Articles VII and XI of the
NSX Certificate of Incorporation
designed to enable the Exchange Board
and the Commission to continue to
exercise appropriate oversight of the
Exchange. In conformity with similar
language in the recently approved
charter documents of other exchanges,14
a provision is proposed to be added to
each of Articles VII and XI to make clear
that before any amendment to, or repeal
of, any provision of the Exchange ByLaws and/or Certificate of Incorporation
shall be effective, those changes shall be
submitted to the Exchange Board and, if
such amendment or repeal must be filed
with or filed with and approved by the
Commission, then the proposed changes
shall not become effective until filed
with or filed with and approved by the
Commission.15 For purposes of clarity
regarding Commission approval of
Exchange rule filings, specific reference
to Section 19 of the Act and the rules
promulgated thereunder is also
introduced to Articles VII and XI.
Finally, consistent with similar
provisions in the charter documents of
other exchanges,16 the proposed A&R
Certificate in Article V is amended to
allow directors (other than ETP Holder
Directors) to be removed with or
without cause by a majority vote of
stockholders. This amendment is
intended to promote more efficient
Exchange governance while continuing
to preserve the fair representation of
ETP Holders through the ETP Holder
Director election process contained in
the Exchange’s By-Laws.
14 See Article 6 of the Certificate of Incorporation
of EDGA Exchange, Inc.; and Article 9 of Certificate
of Incorporation of C2 Options Exchange, Inc.
15 See A&R Certificate of Incorporation, Articles
Seventh and Eleventh.
16 See A&R Certificate of Incorporation, Article
Fifth, (b); see also Article II, Section 7(a) of the
Amended and Restated By-Laws of BATS Exchange,
Inc.; and Article II, Section 7(a) of the Amended
and Restated Bylaws of EDGA Exchange, Inc.
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b. Second Amended and Restated ByLaws of NSX
Under the proposed rule change, due
to the transfer of ownership of the
Exchange from Holdings to CBSX,
references in the Exchange By-Laws
specific to Holdings are proposed to be
replaced with references to CBSX.
Specifically, Section 3.2(c) is proposed
to be modified to provide that no two
or more directors of NSX may be
partners, officers or directors of the
same person or be affiliated with the
same person, unless such affiliation is
with a national securities exchange or
CBSX. In addition, Section 10.2 is
proposed to be modified to provide that
in no event shall members of the CBSX
Board who are not also members of the
NSX Board, or any officers, staff,
counsel or advisors of CBSX who are
not also officers, staff, counsel or
advisors of NSX (or any committees of
NSX), be allowed to participate in any
meetings of the NSX Board (or any
committee of NSX) pertaining to the
self-regulatory function of NSX
(including disciplinary matters). These
amendments recognize CBSX as direct
owner of the Exchange while preserving
a mechanism to prevent undue
influence over the Exchange’s selfregulatory functions.
In connection with the ownership of
NSX by CBSX, an additional Section
10.1(b) is proposed to be added to
provide that, for so long as CBSX
controls NSX, NSX shall promptly
inform the CBSX board of directors, in
writing, in the event that NSX has, or
experiences, a deficiency related to its
ability to carry out its obligations as a
national securities exchange under the
Act, including if NSX does not have or
is not appropriately allocating such
financial, technological, technical and
personnel resources as may be necessary
or appropriate for NSX to meet its
obligations under the Act.
In addition, in conformity with the
board composition provisions of other
more recent approvals involving other
market centers,17 certain NSX Board
composition changes are proposed in
order to streamline and promote the
efficiency and effectiveness of NSX
Board governance. Specifically, By-Law
provisions regarding the number of
directors on the NSX Board are
proposed to be amended to allow any
number between (and including) seven
(7) and twenty-five (25). In addition, the
requirement that at least 50% of NSX
17 See Third Amended and Restated Bylaws of the
C2 Options Exchange, Inc.; Second Amended and
Restated By-Laws of CBOE; Amended and Restated
By-Laws of BATS Exchange, Inc.; and the Amended
and Restated Bylaws of EDGA Exchange, Inc.
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Board members be ‘‘Independent’’
Directors is proposed to be replaced
with a requirement that at least 50% of
NSX Board members be ‘‘Non-Industry’’
Directors, at least one of whom must
qualify as Independent.18 The category
of ‘‘At Large’’ Directors, which under
current By-Laws means directors who
are not Independent, is eliminated as
unnecessary.19 Finally, the category of
CBOE Director, and corresponding
provisions discussing CBOE ownership
of Class B stock and related Board
representation, are proposed to be
deleted as obsolete.20
As a result, the proposed NSX Board
composition after the closing of the
Transaction will consist of not fewer
than seven (7) and not more than
twenty-five (25) directors 21 and at all
times shall include the Chief Executive
Officer of the Exchange; at least 50%
Non-Industry Directors (at least one of
whom shall be an Independent
Director); and such number of ETP
Holder Directors as is necessary to
comprise at least 20% of the NSX
Board.22 For purposes of calculating the
percentage of Non-Industry Directors,
the Chief Executive Officer of the
Exchange shall be excluded.23
By-Law provisions relating to the
terms of office of each type of director
is also amended from staggered three
year terms to one year terms (other than
the CEO Director, which individual’s
term expires upon ceasing to be
Exchange Chief Executive Officer).24
The Exchange believes that the change
to annual from staggered three year
director terms, which amendment is
consistent with the parallel provisions
of the current governance documents of
other SROs,25 promotes more efficient
18 See A&R By-Laws Section 3.2 (Board
composition requirements) and 1.1 (definitions of
‘‘Industry Director’’ and ‘‘Non-Industry Director’’).
See also Third Amended and Restated Bylaws of
the C2 Options Exchange, Inc., Article III, Section
1; Second Amended and Restated Bylaws of the
CBOE Article III, Section 1; and the Amended and
Restated By-Laws of BATS Exchange, Inc., Article
I.
19 See A&R By-Laws Section 1.5 (definitions) and
deletions to current By-Laws in Sections 3.2(b) and
3.4(e).
20 See deletions to current By-Laws in Sections
1.5, 3.2(b), 3.3, 3.4(d), 3.5(g) and 3.7.
21 See A&R By-Laws Section 3.2(a).
22 See A&R By-Laws Section 3.2(b). See also
Third Amended and Restated Bylaws of the C2
Options Exchange, Inc. Article III, Section 3.1;
Second Amended and Restated Bylaws of CBOE
Section III, Article 3.1; and the Amended and
Restated By-Laws of BATS Exchange, Inc., Article
III, Section 2.
23 See Third Amended and Restated Bylaws of the
C2 Options Exchange, Inc., Article III, Section 3.1;
and Second Amended and Restated Bylaws of the
CBOE. Section III, Article 3.1.
24 See A&R By-Laws Section 3.4(a) through (e).
25 See Third Amended and Restated Bylaws of the
C2 Options Exchange, Inc., Article III, Section 3.1;
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Exchange governance and effective ETP
Holder representation.
With respect to the filling of vacancies
on the NSX Board,26 the A&R By-Laws
are proposed to be amended to
differentiate the procedure depending
on whether the vacancy is of an ETP
Holder Director or another type of
director. Under current Exchange ByLaws, no such distinction is made. The
Exchange believes a distinction is
necessary in order to promote, in the
event of a vacancy of an ETP Holder
Director, the fair representation of ETP
Holders on the NSX Board. For non-ETP
Holder Directors, the A&R By-Laws
provide, consistent with current
Exchange By-Laws, that any vacancy
may be filled by vote of a majority of the
directors then in office, although less
than a quorum, or by a sole remaining
director, provided such new director
qualifies for the category in which the
vacancy exists. A director elected to fill
a vacancy shall hold office until the
next annual meeting of stockholders,
subject to the election and qualification
of his or her successor and to his or her
earlier death, resignation,
disqualification or removal.27 Regarding
the filling of vacancies of ETP Holder
Directors, the ETP Holder Director
Nominating Committee shall either
recommend an individual to the NSX
Board to be elected to fill such vacancy
or provide a list of recommended
individuals to the NSX Board from
which the NSX Board shall elect the
individual to fill such vacancy. The
NSX Board shall elect only individuals
recommended by the ETP Holder
Director Nominating Committee. The
proposed amendments conform to the
more recently approved analogous
provisions of the governance documents
of another exchange.28
Certain other edits are proposed to the
current Exchange By-Laws to promote
clarity and efficient governance
mechanisms. Such edits conform to the
analogous provisions of the charter
documents of other more recently
approved exchanges. Specifically, edits
are proposed with respect to the
procedures for election of ETP Holder
Second Amended and Restated Bylaws of the CBOE
Article III, Section 3.1.
26 See A&R By-Laws Section 3.7. See also Third
Amended and Restated Bylaws of the C2 Options
Exchange, Inc., Article III, Section 3.5; Second
Amended and Restated Bylaws of the CBOE Section
III, Article 3.5; Amended and Restated By-Laws of
BATS Exchange, Inc., Article III, Section 6; and
Amended and Restated Bylaws of EDGA Exchange,
Inc., Article III, Section 6.
27 See A&R By-Laws Section 3.7(a)(i).
28 See Third Amended and Restated Bylaws of the
C2 Options Exchange, Inc., Article III, Section 3.5.
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Directors.29 In order to promote fair
representation among all ETP Holders,
A&R By-Laws Section 3.5(d) is proposed
to be amended to provide that no ETP
Holder, together with its affiliates, may
account for more than fifty percent
(50%) of the signatures endorsing a
particular candidate, and any signatures
of such ETP Holder, together with its
affiliates, in excess of fifty percent
(50%) limitation shall be disregarded.
Similarly, in order to promote fair
representation among all ETP Holders,
in an election among ETP Holders of
candidates for ETP Holder Director,
A&R By-Laws Section 3.5(e) is proposed
to be amended to provide that any vote
must be cast for a person duly
nominated on the list of candidates and
that no ETP Holder, together with its
affiliates, may account for more than
twenty percent (20%) of the votes cast
for a candidate, and any votes cast by
such ETP Holder, together with its
affiliates, in excess of such twenty
percent (20%) limitation shall be
disregarded.
In addition, the A&R By-Laws are
amended to include a fuller description
of the composition and authority of
Exchange committees.30 These edits are
intended to promote transparency and
efficient governance. The description of
the Executive Committee, which has
authority to act on behalf of the full
NSX Board under certain circumstances,
is amended to clarify that the
composition requirements of such
committee mirror the requirements
applicable to the full Board.31 Regarding
other Exchange committees,
descriptions of the duties and
composition requirements are included
for each of the ETP Holder Director
Nominating Committee, the Executive
Compensation Committee, the Audit
Committee, the Governance and
Nominating Committee, the Appeals
Committee and the Business Conduct
Committee. Reference to a Securities
Committee is deleted as obsolete.
Consistent with analogous provisions
of recently approved governance
documents of other exchanges, the
29 See A&R By-Laws Section 3.5(d) and (e). See
also the Amended and Restated By-Laws of BATS
Exchange, Inc., Article III, Section 4.
30 See A&R By-Laws Sections 5.5 through 5.13.
See also Amended and Restated By-Laws of BATS
Exchange, Inc., Article V, Section 6, and Article VI,
Section 2.
31 See A&R By-Laws Section 5.5(a), which
provides, in part, that the Executive Committee at
all times shall include the Chief Executive Officer
of the Exchange, at least 50% Non-Industry
Directors, at least one Independent Director and
such number of ETP Holder Directors as is
necessary to comprise at least 20% of the Executive
Committee; see also Amended and Restated ByLaws of BATS Exchange, Inc., Article V, Section
6(e).
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procedures for amendments to the
Exchange’s By-Laws are also proposed
to be amended to provide for NSX Board
review and, as necessary, Commission
approval prior to the effectiveness of
any amendments to Exchange ByLaws.32
Consistent with the proposed edits to
the A&R Certificate and similar
provisions in the charter documents of
other exchanges,33 the proposed A&R
By-Laws are further proposed to be
modified to allow directors (other than
ETP Holder Directors) to be removed
with or without cause by a majority vote
of stockholders. This amendment,
consistent with a parallel proposed
amendment to the NSX A&R Certificate,
is intended to promote more efficient
Exchange governance while maintaining
the fair representation of ETP Holders
through the ETP Holder Director
election process as set forth in the A&R
By-Laws.
In addition, to clarify that the
confidentiality provisions of Section
10.3 may not be interpreted to limit
Commission jurisdiction over NSX
books and records, a clarifying
statement is proposed to be added to
A&R By-Laws Section 10.3 to provide
that nothing in Section 10.3 shall be
interpreted as to limit or impede the
rights of the Commission to access and
examine Exchange confidential
information pursuant to the Federal
securities laws and the rules and
regulations thereunder, or to limit or
impede the ability of any officers,
directors, employees or agents of the
Exchange to disclose such confidential
information to the Commission.34
Finally, the proposed A&R By-Laws
contain several other non-substantive,
conforming edits to the A&R By-Laws
that are consistent with the principles
outlined above, the Act and the rules
promulgated thereunder.35
32 See A&R By-Laws Section 8.1. See also
Amended and Restated By-Laws of BATS Exchange,
Inc., Article IX, Section 1.
33 See A&R By-Laws Section 3.8; see also Article
II, Section 7(a) of the Amended and Restated ByLaws of BATS Exchange, Inc.; and Article II,
Section 7(a) of the Amended and Restated Bylaws
of EDGA Exchange, Inc.
34 See A&R By-Laws Section 10.3.
35 Non-substantive, conforming edits to the A&R
By-Laws are reflected in the following Sections of
the A&R By-Laws: 3.2(d) (clarifying that directors
may not serve if subject to statutory disqualification
as such term is defined in the Act); 3.7(c) (providing
that any grace periods for re-qualification of a
director must be for only a reasonable length of
time); 3.17(clarifying that NSX Board authority to
interpret Exchange By-Laws remains subject to the
Act); 5.2(clarifying that the composition
requirements set forth in description of each
committee in Article V control, and that
responsibility for maintenance of committee
composition in connection with new committee
appointments resides with the Chairman); 5.6
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c. CBSX Operating Agreement
i. CBSX’s Ownership of NSX
The proposed rule change (for
purposes of this Section IIC, as
described in conjunction with a parallel
rule filing submitted by CBOE) includes
several amendments related to CBSX’s
ownership of NSX. These amendments
address the fact that CBSX will become
a holding company of NSX after the
Transaction to the extent related to
CBSX’s control of NSX and clarify
CBSX’s rights and responsibilities
related to its role as a holding company
of a registered national securities
exchange (amendments related to such
responsibilities are further discussed
below). For example, the proposed rule
change amends Operating Agreement
Section 1.6 to provide that CBSX’s
purposes (and any other lawful
purposes related to those purposes) will
be (1) to act as a trading market for
securities other than options and (2) to
act as a holding company of NSX. The
proposed rule change also amends
several Operating Agreement provisions
to clarify that certain references to CBSX
include its subsidiaries, including
NSX.36
In addition, the proposal amends
Section 6.12 to provide that the
Concentration Limitation described in
that section does not apply to CBOE or
CBOE Holdings, and to expand
applicability of the Concentration
Limitation to persons and their Related
Persons 37 rather than to persons and
(specifying that the Regulatory Oversight
Committee shall at all times be comprised entirely
of Non-Industry Directors); and 6.3 (clarifying that
officer disqualification will terminate an officer’s
term of office). Relevant definitions are also added
to Section 1.1.
36 See proposed Sections 1.6, 9.15(a)(9) and (1) of
the Operating Agreement.
37 Proposed Rule 2.1(a)(23) of the Operating
Agreement defines ‘‘Related Person’’ as (A) with
respect to any person, all ‘‘affiliates’’ as such term
is defined in Rule 12b–2 of the Exchange Act); (B)
any person associated with a member (as the phrase
‘‘person associated with a member’’ is defined
under Section 3(a)(21) of the Exchange Act); (C) any
two or more persons that have any agreement,
arrangement or understanding (whether or not in
writing) to act together for the purpose of acquiring,
voting, holding or disposing of shares of CBSX; (D)
in the case of a person that is a company,
corporation or similar entity, any executive officer
(as defined under Rule 3b–7 of the Exchange Act)
or director of such person and, in the case of a
person that is a partnership or a limited liability
company, any general partner, managing member of
manager of such person, as applicable; (E) in the
case of a person that is a natural person, any
relative or spouse of such natural person, or any
relative of such spouse who has the same home as
such natural person or who is a director or officer
of CBSX or any of CBSX’s parents or subsidiaries;
(F) in the case of a person that is an executive
officer (as defined under Rule 3b–7 of the Exchange
Act) or a director of a company, corporation or
similar entity, such company, corporation or entity,
as applicable; and (G) in the case of a person that
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their Affiliates.38 The proposal also
amends Operating Agreement Section
6.12(c) and (e) to impose on NSX equity
trading permit holders the
Concentration Limitation prohibitions
described in those paragraphs, which
are currently only imposed on CBOE
Trading Permit Holders. The proposal
makes similar amendments to Operating
Agreement Section 8.10 to expand
applicability of the voting restriction
described in that section to persons and
their Related Persons and to provide
that if any person and its Related
Persons, not just a CBOE Trading Permit
Holder, exceed the Concentration
Limitation set forth in Section 6.12 of
the Agreement, then the Owner and its
Related Persons will have no voting
rights with respect to the shares in
excess of such limitation unless such
Owner satisfies certain requirements set
forth in proposed Section 8.10(b)
through (d), which are similar to the
requirements set forth in Section
6.12(b), (c) and (e). The proposed rule
change also extends the applicability of
the voting restriction in Section 8.10 to
voting agreements, plans and
arrangements.
The proposal also amends Operating
Agreement Section 9.15(a)(9) to clarify
that with respect to a sale of material
assets or ownership interests that
requires approval pursuant to Section
9.15, ‘‘material assets or ownership
interests’’ include subsidiaries of CBSX.
In addition, the proposed rule change
adds Operating Agreement Section
15.19 to the Operating Agreement,
which obligates CBSX, when voting as
NSX’s sole shareholder in an election of
the NSX board of directors, to vote in
favor of ETP Holder Directors (as
defined in the NSX By-Laws) that were
nominated in accordance with the
procedures set forth in NSX’s Certificate
of Incorporation and By-Laws.
ii. Self-Regulatory Function of NSX
The proposed rule change adds
various provisions designed to protect
the independence of the self-regulatory
is a general partner, managing member or manager
of a partnership or limited liability company, such
partnership or limited liability company, as
applicable. Under this definition, Related Persons
include Affiliates and thus extends the
Concentration Limitation imposed by proposed
Rule 6.12 to a broader group of persons.
38 Rule 2.1(a)(1) of the Operating Agreement
defines ‘‘Affiliate’’ as, with respect to any person,
any other person that directly, or indirectly through
one or more intermediaries, controls, is controlled
by, or is under common control with, such person.
As used in this definition, ‘‘control’’ means the
possession, directly or indirectly, of the power to
direct or cause the direction of management and
policies of a person, whether through the
ownership of voting securities, by contract or
otherwise with respect to such person.
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function of NSX and to clarify NSX’s
jurisdiction with respect to CBSX, but
only to the extent related to CBSX’s
control of NSX.39 For example, the
proposed rule change adds Operating
Agreement Section 5.7(b), which, among
other things:
• For so long as CBSX controls NSX,
only to the extent related to the
activities of NSX, requires CBSX
Owners, board of directors, officers and
employees to give due regard to the
preservation of the independence of the
self-regulatory function of NSX and to
its obligations under the Act;
• Prohibits these persons from taking
any actions that would interfere with
the effectuation of any decisions by the
NSX board of directors relating to NSX’s
regulatory functions, including
disciplinary matters, or with NSX’s
ability to carry out its responsibilities
under the Act; and
• Requires CBSX to comply with
Federal securities laws and the rules
and regulations thereunder, and
requires CBSX and its officers, directors,
employees and agents to cooperate with
the Commission and NSX pursuant to
and to the extent of their regulatory
authority.
In addition, the proposed rule change
amends Operating Agreement Section
6.15 to clarify possession of CBSX’s and
its Owners books and records by the
Facility and NSX in connection with
their oversight pursuant to the Act. The
proposed rule change amends Operating
Agreement Section 6.15(a): 40
• To clarify that the Owners
acknowledge that the books, records,
premises, officers, directors, agents, and
employees of the Owners will be
deemed to be the books, records,
premises, officers, directors, agents, and
employees of CBOE for the purpose of
and subject to oversight pursuant to the
Act, but only to the extent they are
related to the Facility; and
• To add the provision that the
Owners acknowledge that the books,
records, premises, officers, directors,
agents, and employees of the Owners
will be deemed to be the books, records,
premises, officers, directors, agents, and
employees of NSX for the purpose of
and subject to oversight pursuant to the
Act, but only to the extent they are
related to the activities of NSX.
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39 See
also, infra, footnote 45.
6.15(a) of the Operating Agreement
currently provides: ‘‘The Owners acknowledge that
to the extent they are related to [CBSX’s] activities,
the books, records, premises, officers, directors,
agents, and employees of the Owners shall be
deemed to be the books, records, premises, officers,
directors, agents, and employees of CBOE for the
purpose of and subject to oversight pursuant to the
Exchange Act.’’
40 Section
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Similarly, the proposed rule change
amends Operating Agreement Section
6.15(b): 41
• To clarify that the books, records,
premises, officers, directors, agents, and
employees of CBSX will be deemed to
be the books, records, premises, officers,
directors, agents, and employees of
CBSX for the purpose of and subject to
oversight pursuant to the Act, but only
to the extent related to the Facility; and
• To add the provision that the books,
records, premises, officers, directors,
agents, and employees of CBSX will be
deemed to be the books, records,
premises, officers, directors, agents, and
employees of NSX for the purpose of
and subject to oversight pursuant to the
Act, but only to the extent related to the
activities of NSX.42
The proposal also amends Operating
Agreement Section 6.15(c) to provide
that CBSX and the Owners and their
respective officers, directors, agents, and
employees,43 irrevocably submit to the
jurisdiction of the U.S. Federal courts,
the Commission, CBOE and NSX for the
purposes of any suit, action, or
proceeding pursuant to U.S. Federal
securities laws or the rules or
regulations thereunder, commenced or
initiated by the Commission arising out
of, or relating to, the Facility or the
Company’s control of NSX, as
applicable.
In addition, the proposed rule change
amends Operating Agreement Sections
9.15(c) and 9.16 to provide that CBSX
directors agree to comply with the
Federal securities laws and the rules
and regulations thereunder, and to
cooperate with the Commission, CBOE,
and NSX pursuant to their regulatory
authority, as applicable, and the
provisions of the Operating Agreement.
The proposal also amends Operating
Agreement Section 9.15(c) to provide
that CBSX directors will take into
consideration whether any actions taken
or proposed to be taken as a director for
41 Section 6.15(b) of the Operating Agreement
currently provides: ‘‘The books, records, premises,
officers, directors, agents, and employees of [CBSX]
shall be deemed to be the books, records, premises,
officers, directors, agents, and employees of CBOE
for the purpose of and subject to oversight pursuant
to the Exchange Act.’’
42 CBSX’s complete records and books of account
must be subject at all times to inspection and
examination by CBOE (to the extent related to the
Facility), NSX (to the extent related to CBSX’s
control of NSX), and the Commission at no
additional charge to CBOE, NSX and the
Commission, as applicable. See proposed Section
13.2 of the Operating Agreement.
43 Proposed Operating Agreement Section 6.15(c)
(consent to jurisdiction) and (d) (consent in writing
to applicability) also extend the requirements of
these provisions to all agents and employees of the
Company and its Owners, rather than only agents
and employees whose principal place of business
and residence is outside of the United States.
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75591
or on behalf of CBSX, or any failure or
refusal to act, would constitute
interference with CBOE’s or NSX’s
regulatory functions and
responsibilities, as applicable, in
violation of the Operating Agreement or
the Act.44
Additionally, the proposal amends
Operating Agreement Section 14.1(a) to
provide that, for so long as CBSX
controls NSX, before any amendment,
alteration or repeal of any provision of
the Operating Agreement, to the extent
related to CBSX’s control of NSX, will
be effective, such amendment, alteration
or repeal must be submitted to the NSX
board of directors, and if CBOE and the
NSX board of directors determine that
such amendment, alteration or repeal
must be filed with or filed with and
approved by the Commission, then such
amendment, alteration or repeal will not
become effective until filed with or filed
with and approved by the Commission,
as the case may be. The proposal also
adds a 10-day notice provision for any
amendment, alteration, or repeal of the
Operating Agreement made pursuant to
Operating Agreement Section 14.1(a) to
provide CBOE and NSX with sufficient
opportunity to review any potential
regulatory impacts of such amendment,
alteration, or repeal before it becomes
effective.
The proposal also amends Operating
Agreement Section 15.2 to provide that
nothing in the Operating Agreement
will be interpreted to limit or impede
the rights of the Commission, CBOE, or
NSX to access and examine any
Confidential Information (as defined in
the Operating Agreement) pursuant to
the U.S. Federal securities laws and the
rules thereunder, or to limit or impede
the ability of an Owner or an officer,
director, agent or employee of an Owner
to disclose any Confidential Information
to the Commission, CBOE, or NSX.
Proposed Operating Agreement Section
15.2 also provides that the obligation of
Owners not to disclose Confidential
Information described in that section
does not apply to CBOE’s or NSX’s
communications with the Commission
with respect to the conduct of the
Facility’s business or NSX’s business,
respectively. In addition, the proposal
amends the representation being made
by Owners in Operating Agreement
Section 15.17(a) with respect to the
validity and enforceability of the
Operating Agreement by excepting the
requirement, as applicable to the
Facility or NSX (with respect to CBSX’s
44 Interference with respect to the Facility will be
determined by the CBSX board designees of CBOE.
See proposed Section 9.15(c) of the Operating
Agreement.
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regulations thereunder and, in
particular, the requirements of Section
6(b) of the Act.51 Specifically, the
Exchange believes the amendments to
the CBSX Operating Agreement further
the objective of Section 6(b)(1) of the
Act because they preserve the
independence of each of CBOE’s and
iii. Facility of CBOE
NSX’s self-regulatory functions and
The proposed rule change amends
allow each SRO to fulfill its selfvarious provisions to clarify that the
regulatory duties. In particular, the
part of CBSX that constitutes the
addition of Operating Agreement
Facility is a facility of CBOE under the
Section 5.7(b) described above is
Act, while the part of CBSX that relates
intended to preserve the independence
to its control of NSX will not be a
of NSX’s self-regulatory function and
facility of CBOE. For example, the
ensure that NSX is able to obtain any
proposal amends Operating Agreement
information it needs from the specified
Section 1.7 to clarify that the Facility
parties to detect and deter any
(and not CBSX to the extent it will act
fraudulent and manipulative acts in its
as a holding company for NSX) is a
marketplace and carry out its regulatory
facility of CBOE under the Act, and
responsibilities under the Act.52
therefore the Facility will be subject to
Similarly, the amendments to Operating
self-regulation by CBOE and oversight
Agreement Section 6.15(a) and (b) as
by the Commission. The proposal also
described above (that clarify that
amends Operating Agreement Section
CBSX’s books and records with respect
1.8 to clarify that only the Facility is a
to the Facility and NSX’s activities will
be subject to the necessary oversight of
facility of CBOE.46
the Act) are consistent with Section
iv. Additional Changes
6(b)(5) of the Act in that they provide
Finally, the proposed rule change
the Commission, CBOE and NSX with
makes several non-substantive technical access to necessary information that will
and conforming changes throughout the allow CBOE and NSX to efficiently and
Operating Agreement, including:
effectively enforce compliance with the
Updating the name and date of the
Act and their respective rules, as well as
Operating Agreement; updating the
allow the Commission to provide proper
current Owners and their current
oversight, which will ultimately
percentage interests and CBSX shares
promote just and equitable principles of
owned; 47 replacing references to CBOE
trade and protect investors. The
members with CBOE trading permit
amendment to Operating Agreement
holders; 48 updating the table of contents Section 14.1(a) as described above is
and section references; and adding new
intended to make sure that NSX receives
defined terms and renumbering the
notice of any amendment to the
defined terms as necessary.49
Operating Agreement so that NSX can
make any filings with the Commission
2. Statutory Basis
necessary for NSX to fulfill its
The Exchange believes the proposed
regulatory duties under the Act.
rule change is consistent with Section 6
The Exchange also believes that this
of the Act,50 and the rules and
proposed rule change furthers the
objectives of Section 6(b)(5) 53 of the Act
45 The rule change submitted by CBOE in
because the amendments summarized in
connection with its partial ownership interest in
this filing will enable that CBSX and
CBSX adds a new rule, CBOE Rule 2.50, to further
NSX continue to have governance and
preserve the self-regulatory function of NSX. For
regulatory structures designed to
example, among other things, CBOE Rule 2.50
proposes a policy that CBOE, as a partial owner of
promote just and equitable principles of
CBSX, will not take any action related to NSX’s
trade, to remove impediments, and
activities that would interfere with NSX’s efforts to
perfect the mechanism of a free and
carry out its self-regulatory obligations under the
open market and a national market
Act and the rules and regulations thereunder.
46 See also proposed Sections 6.2(e), 6.15(c) and
system and, in general, to protect
(d), 9.2(d), 9.15(a)(14) and 14.1(a) for additional
investors and the public interest. The
such clarifications.
instant rule filing enables NSX to
47 See proposed Section 3.2(d) of and signature
continue to have the authority and
page and Exhibit A to the Operating Agreement.
48 See proposed Sections 6.12(c) and (e) and 8.10
ability to effectively fulfill its selfof the Operating Agreement.
regulatory duties pursuant to the Act
49 See proposed Section 2.1 of the Operating
and the rules promulgated thereunder.
Agreement. Certain other governance amendments
The proposed amendments to the
not directly related to the Transaction are also
jlentini on DSK4TPTVN1PROD with NOTICES
control of NSX), that the portions of the
Operating Agreement that constitute
rules of a facility of an exchange or rules
of a self-regulatory organization, as
applicable, be filed for public comment
and approval by the Commission from
that representation.45
proposed to the Operating Agreement, as further
described in the CBOE rule filing filed in
connection herewith.
50 15 U.S.C. 78f.
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51 15
U.S.C. 78f(b).
also, supra, footnote 45.
53 15 U.S.C. 78f(b)(5).
52 See
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Exchange’s charter documents and the
CBSX Operating Agreement are further
intended to enhance the ownership and
voting limitations applicable to SROs in
order to preclude undue influence over
or interference with SRO regulatory
functions and fulfillment of regulatory
duties under the Act. The proposed rule
changes are intended to protect and
maintain the integrity of the selfregulatory functions of NSX, and to
allow it to carry out its regulatory
responsibilities under the Act while
allowing CBOE to maintain its
regulatory jurisdiction and authority
over the Facility.
The Exchange represents that it
remains committed to its role as a
national securities exchange and does
not believe that the proposed change of
ownership will undermine its
responsibilities for regulating its
marketplace. The proposed rule change
provides transparency and certainty,
and promotes efficiency, with respect to
the governance and corporate structure
of the Exchange and the status of CBSX
as both a facility of CBOE and the
holding company of NSX. In so doing,
the proposed rule change promotes the
maintenance of a fair and orderly
market, the protection of investors and
the protection of the public interest.
Moreover, the Exchange is not
proposing any significant changes to its
existing operational and trading
structure in connection with the change
in ownership. Instead, NSX represents
that the proposed rule change consists
of changes to the NSX Certificate of
Incorporation and By-Laws, and to the
CBSX Operating Agreement, to allow for
ownership of NSX by CBSX, to enhance
the governance structure of NSX, and to
enhance the ability of NSX and CBOE to
fulfill their regulatory functions under
the Act. With respect to the proposed
amendments to the NSX charter
documents, the proposed edits are
generally consistent with parallel
provisions of other more recently
approved SRO governance documents.
The Exchange believes that the
proposed rule change allows CBOE to
maintain its regulatory jurisdiction and
authority over the Facility and NSX to
remain an independent self-regulatory
organization and is consistent with the
Act, the rules promulgated thereunder
and the principles articulated by the
Commission.54
54 See Securities Exchange Act Release No. 50699
(November 18, 2004), 69 FR 71126 (December 8,
2004) (File No. S7–39–04).
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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 that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
The Exchange has neither solicited
nor received written comments on the
proposed rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) As the Commission
may designate if it finds such longer
period to be appropriate and publishes
its reasons for so finding or (ii) as to
which the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
the proposed rule change, or
(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:
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 the filing will
also be available for inspection and
copying at the Exchange’s principal
office. 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 publicly available. All
submissions should refer to File
Number SR–NSX–2011–14 and should
be submitted on or before December 23,
2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.55
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2011–30997 Filed 12–1–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–65836; File No. SR–
NASDAQ–2011–153]
jlentini on DSK4TPTVN1PROD with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NSX–2011–14 on the subject line.
Self-Regulatory Organizations; The
NASDAQ Stock Market, LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Establish
Fees for a Direct Market Data Product,
NASDAQ Options Trade Outline
(‘‘NOTO’’)
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–NSX–2011–14. This file
number should be included on the
subject line if email 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
November 28, 2011.
VerDate Mar<15>2010
17:03 Dec 01, 2011
Jkt 226001
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Exchange Act’’) 1 and Rule 19b–4
thereunder,2 notice is hereby given that,
on November 16, 2011, The NASDAQ
Stock Market LLC (‘‘NASDAQ’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
55 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00076
Fmt 4703
Sfmt 4703
75593
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
NASDAQ Rule 7054, Charges for
Membership, Services, and Equipment,
by establishing fees for a direct data
product known as the NASDAQ Options
Trade Outline (‘‘NOTO’’) market data
product. The proposed fees will become
effective on December 1, 2011.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://
www.nasdaq.cchwallstreet.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
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 establish fees for the NOTO
market data product.3 NOTO is a market
data product offered by the Exchange
that is designed to provide proprietary
electronic trade data to subscribers.
NOTO is available as either an ‘‘End-ofDay’’ data product or an ‘‘Intra-Day’’
data product, as described more fully
below. NOTO is available to any person
who wishes to subscribe to it, regardless
of whether or not they are a member of
the Exchange. The fees for both the End
of Day product and the Intra-Day
product are uniform for all subscribers.
NOTO is available only for internal use
and distribution by subscribers.
Data Included in NOTO
NOTO provides information about the
activity of a particular option series
3 See Securities Exchange Act Release No. 65587
(October 18, 2011), 76 FR 65765 (October 24, 2011)
(SR–Nasdaq–2011–144).
E:\FR\FM\02DEN1.SGM
02DEN1
]]>Agencies
[Federal Register Volume 76, Number 232 (Friday, December 2, 2011)]
[Notices]
[Pages 75586-75593]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-30997]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65842; File No. SR-NSX-2011-14]
Self-Regulatory Organizations; National Stock Exchange, Inc.;
Notice of Filing of Proposed Rule Change Relating to the Proposed Rule
Change in Connection With the Proposed Purchase and Sale of the
National Stock Exchange, Inc. to CBOE Stock Exchange, Inc.
November 28, 2011.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act'') 15 U.S.C. 78s(b)(1), notice is hereby given that on
November 28, 2011, the National Stock Exchange, Inc. filed with the
Securities and Exchange Commission (``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 comment on the proposed rule change from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
National Stock Exchange, Inc. (``NSX[supreg]'' or the ``Exchange'')
is submitting this rule filing in connection with the proposed purchase
and sale of the Exchange (the ``Transaction'') to CBOE Stock Exchange,
LLC (``CBSX''). If the Transaction is completed, NSX will become a
wholly owned subsidiary of CBSX. The proposed rule change, if approved,
will not be operative until consummation of the Transaction.
The Exchange is proposing that, pursuant to the Transaction, NSX
will become a wholly owned subsidiary of CBSX. In addition, the
Exchange is proposing that in connection with the Transaction, the
Securities and Exchange Commission (the ``Commission'') approve certain
amendments to the organizational documents of NSX and CBSX.
The text of the proposed rule change is available on the Exchange's
Web site at https://www.nsx.com, at the principal office of the
Exchange, at the Commission's Public Reference Room, and on the
Commission's Web site at https://www.sec.gov.
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 parts of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Description of the Transaction
Currently, the Exchange is wholly and directly owned by NSX
Holdings, Inc., a Delaware corporation (``Holdings''). Under a Purchase
Agreement (the ``Purchase Agreement'') dated September 28, 2011 by and
between the Exchange, Holdings and CBOE Stock Exchange, LLC, a Delaware
limited
[[Page 75587]]
liability company (``CBSX''), all of the outstanding capital stock of
NSX is proposed to be acquired by CBSX on the date of or after all
conditions precedent to closing \1\ have been satisfied or waived,
including approval by the Commission of the instant rule filing. The
post-closing corporate structure of NSX and CBSX, respectively, are
described below.
---------------------------------------------------------------------------
\1\ Conditions precedent to closing the Transaction are formal
requirements set forth in the Purchase Agreement and include,
without limitation, delivery of certain documents (such as officers'
certificates, legal opinions, and agreements), compliance by each
party with specified representations, warranties and covenants, and
receipt of necessary approvals by each party.
---------------------------------------------------------------------------
a. NSX
Following the Transaction, NSX would be a wholly owned subsidiary
of CBSX. NSX would remain a Delaware for-profit stock corporation, with
the authority to issue 1,000 shares of common stock, 100 shares of
which would be held by CBSX. At all times, all of the outstanding stock
of NSX would be owned by CBSX.\2\ NSX would remain an entity registered
as a national securities exchange under Section 6 of the Securities
Exchange Act of 1934 (the ``Act'') \3\ and, accordingly, NSX would
remain a self-regulatory organization (``SRO'').\4\
---------------------------------------------------------------------------
\2\ See proposed NSX Amended and Restated Certificate of
Incorporation, Article Fourth, which deletes reference to NSX
Holdings, Inc. and provides ``At all times, all of the outstanding
stock of the Corporation shall be owned by CBOE Stock Exchange, LLC,
a Delaware limited liability company.''
\3\ 15 U.S.C. 78f.
\4\ NSX would continue to adhere to the undertakings in the
Order Instituting Administrative and Cease-and-Desist Proceedings
Pursuant to Sections 19(b) and 21C of the Securities Exchange Act of
1934, Making Findings and Imposing Sanctions, entered by the
Commission on May 19, 2005 (see Securities Exchange Act Release No.
51714, May 19, 2005) (the ``Order''). The Order provides for certain
structural protections to ensure that the regulatory functions are
independent from the commercial interests of the Exchange,
including, among other things, that the Chief Regulatory Officer
reports directly to the NSX Board and the Regulatory Oversight
Committee; see section IIIF2.a of the Order.
---------------------------------------------------------------------------
i. Governing Documents
The proposed Amended and Restated NSX Certificate of Incorporation
(the ``A&R Certificate'') and Second Amended and Restated NSX By-Laws
(the ``A&R By-Laws''), amended as described below, and NSX Rules (which
are proposed to remain unchanged) would continue to govern the
activities of NSX. These rules and governance documents would reflect,
among other things, NSX's status as a wholly owned subsidiary of CBSX,
continued management of NSX by the NSX Board of Directors (``NSX
Board'') and designated officers, and the Exchange's continuing
discharge of its self-regulatory responsibilities pursuant to NSX's
registration under Section 6 of the Act. NSX's proposed governance
structure is designed to be consistent with its current governance
structure, with certain changes as described below.
ii. Board of Directors
Currently, the NSX Board consists of 13 director positions, of
which seven are Independent, three are ETP Holder, two are At Large,
and one is the Exchange Chief Executive Officer. The Transaction
contemplates that all current Exchange directors and committee members,
including the Chief Executive Officer, will resign from the Board and
committees, as applicable, effective upon closing. At such time, the
vacancies on the Board and committees of the Board will be filled in
accordance with applicable procedures contained in the A&R By-Laws.
Candidates with the necessary qualifications will be appointed in
accordance with Sections 3 or 5, as applicable, of the A&R By-Laws to
fulfill the expired portion of any vacancies created by the
resignation. Thereafter, directors and committee members will be
nominated and elected in accordance with the A&R By-Laws.
b. CBSX
In 2007, the Commission approved the establishment of the CBOE
Stock Exchange as a facility, as defined in Section 3(a)(2) of the
Act,\5\ of the Chicago Board Options Exchange, Incorporated
(``CBOE'').\6\ As the SRO for CBSX, CBOE has regulatory responsibility
for the activities of CBSX. CBSX administers a fully automated trading
platform for securities other than options (the ``Facility''). As a
limited liability company, the governance structure and operating
authority of CBSX are set forth in the Second Amended and Restated
Operating Agreement of CBSX (``Operating Agreement'') and the CBSX
Certificate of Formation. In connection with the establishment of the
Facility, CBOE adopted Rule 3.32 pertaining to ownership concentration
and affiliation limitations.\7\
---------------------------------------------------------------------------
\5\ 15 U.S.C. 78c(a)(2).
\6\ See Securities Exchange Act Release No. 55389 (March 2,
2007), 72 FR 10575 (March 8, 2007) (SR-CBOE-2006-110) (the ``CBSX
Approval Order''). See also Securities Exchange Act Release No.
55172 (January 25, 2007), 72 FR 4745 (February 1, 2007) (SR-CBOE-
2006-110) (the ``CBSX Notice of Filing''). All information contained
herein with respect to the corporate structure, governance,
ownership and operations of CBSX and CBOE is based on the Exchange's
information and belief as disclosed in the CBSX Approval Order and
CBSX Notice of Filing and pursuant to communications with CBSX
personnel prior to the submission of this filing.
\7\ See CBSX Approval Order. CBOE Rule 3.32 provides, in part:
``For as long as CBSX LLC operates as a facility of the
Exchange, no Trading Permit Holder, either alone or together with
its Affiliates, at any time, may own, directly or indirectly, of
record or beneficially, an aggregate amount of Shares that would
result in a greater than twenty percent (20%) Percentage Interest in
CBSX LLC (the ``Concentration Limitation'').''
In addition, the Certificate of Incorporation of CBOE Holdings,
Inc., the owner of CBOE, provides that no person (either alone or
together with its related persons) may beneficially own more than
20% of the total outstanding shares of CBOE Holdings stock. See
Article Sixth (b) of the Amended and Restated Certificate of
Incorporation of CBOE Holdings, Inc.; see also Securities Exchange
Act Release No. 62158 (May 24, 2010), 75 FR 30082 (May 28, 2010)
(SR-CBOE-2008-88).
---------------------------------------------------------------------------
As a limited liability company, ownership of CBSX is represented by
limited liability membership interests. The holders of such interests
are referred to as ``Owners.'' CBOE is one of the Owners of CBSX, and
owns all outstanding ``Series A'' Voting Shares \8\ of CBSX,
representing just under 50% of all outstanding shares of CBSX.\9\ The
outstanding ``Series B'' Voting Shares of CBSX are held by nine broker-
dealers.
---------------------------------------------------------------------------
\8\ ``Voting Shares'' means those Shares entitled to vote on
matters submitted to the Owners, which Voting Shares are held by the
Voting Owners. See Section 2.1(a)(28) of the Operating Agreement.
\9\ As noted in Section 3.2 of the Operating Agreement, it is
the intention of the Owners that no other members of CBSX (other
than Affiliates of CBOE) be owners of Series A Voting Shares, and
that no additional Series A Voting Shares be authorized, created or
issued for such purpose; provided however, that this provision is
not intended to limit or restrict any rights of CBOE to transfer any
of its Series A Voting Shares with the prior approval of the
Commission as provided for in Article VI, including Section 6.14, of
the Operating Agreement, or any other provision thereof, or any
rights to be acquired by a transferee of those Shares as provided
therein.
---------------------------------------------------------------------------
As provided in Section 8.9 of the Operating Agreement, the
outstanding Series A Voting Shares, in the aggregate (and without being
deemed to be a voting trust), are entitled to a number of votes equal
to 50% of the total number of Voting Shares outstanding, on each matter
submitted to a vote of the Owners. Each outstanding Series B Voting
Share is entitled to one vote on each matter submitted to a vote of the
Owners.\10\
---------------------------------------------------------------------------
\10\ The Operating Agreement also creates a Series C Non-Voting
Restricted Shares; however, these Shares are not entitled to vote on
any matter submitted to a vote of the Owners, and there are
currently no Series C shares outstanding. See Section 8.9 of the
Operating Agreement.
---------------------------------------------------------------------------
The CBSX Approval Order and the CBSX Notice of Filing describe
various characteristics of CBSX, including the relationship between
CBSX and CBOE; changes in control of CBSX; the regulatory jurisdiction
of the
[[Page 75588]]
Commission and CBOE over the controlling parties and the Owners; and
the ownership and voting restrictions on Owners.\11\ These provisions,
as contained in the Operating Agreement and applicable CBOE rules, will
remain unchanged after the Transaction except as otherwise described
below.
---------------------------------------------------------------------------
\11\ Section 6.12(a) of the Operating Agreement provides that no
person (other than CBOE), either alone or together with its
Affiliates, may directly or indirectly own more than a 20%
Percentage Interest in CBSX (``Concentration Limitation''). In
addition, Section 8.10 provides that if an Owner of Voting Shares,
alone or together with any Related Persons, owns more than 20% of
the Outstanding Voting Shares (``Excess Shares''), such Owner and
Related Persons shall have no voting rights with respect to the
Excess Shares.
---------------------------------------------------------------------------
Summary of Proposed Rule Change
Except as described below, the Exchange's governing documents,
rules and manner of operation, restrictions on ownership and transfer,
registration as a national securities exchange under Section 6 of the
Act and the continuance of the Exchange as an SRO \12\ are proposed to
remain unchanged.\13\ The instant rule change proposes changes to the
Exchange's Certificate of Incorporation and By-Laws as described below
to reflect the change of ownership due to the Transaction. In addition,
several other amendments are proposed to the Exchange governance
documents in order to enhance governance mechanisms and generally make
them generally consistent with the parallel provisions of the current
governance documents of other SROs. Certain provisions of the current
NSX By-Laws that are historic in nature are also proposed to be deleted
as no longer applicable. In addition, certain amendments, as described
below and in conjunction with a contemporaneous rule filing submitted
by CBOE, are proposed to the CBSX Operating Agreement in connection
with the Transaction. In the aggregate, the proposed amendments are
intended to enable NSX to continue to have the authority and ability to
effectively fulfill its self-regulatory duties pursuant to the Act and
the rules promulgated thereunder. The proposed amendments will also
enhance the ownership and voting limitations applicable to SROs in
order to preclude undue influence over or interference with the SROs'
regulatory functions and fulfillment of regulatory duties under the
Act.
---------------------------------------------------------------------------
\12\ See 15 U.S.C. 78c(a)(26).
\13\ As described in the Commission's order approving the
Exchange's demutualization; see Securities Exchange Act Release No.
53963 (June 8, 2006), 71 FR 34660 (June 15, 2006) (SR-NSX-2006-03).
---------------------------------------------------------------------------
a. Amended and Restated Certificate of Incorporation of NSX
Under the proposed rule change, the requirement that the Exchange
be at all times wholly owned by Holdings is proposed to be changed to
allow for the consummation of the Transaction and acquisition of all of
the outstanding NSX stock by CBSX. To make clear that NSX will be
entirely owned by CBSX (regardless of whether outstanding NSX stock is
voting or non-voting), the proposed A&R Certificate would be modified
in Article IV to provide that, at all times, all of the outstanding
stock of the Exchange shall be owned by CBSX.
In addition, new language is proposed to be added to Articles VII
and XI of the NSX Certificate of Incorporation designed to enable the
Exchange Board and the Commission to continue to exercise appropriate
oversight of the Exchange. In conformity with similar language in the
recently approved charter documents of other exchanges,\14\ a provision
is proposed to be added to each of Articles VII and XI to make clear
that before any amendment to, or repeal of, any provision of the
Exchange By-Laws and/or Certificate of Incorporation shall be
effective, those changes shall be submitted to the Exchange Board and,
if such amendment or repeal must be filed with or filed with and
approved by the Commission, then the proposed changes shall not become
effective until filed with or filed with and approved by the
Commission.\15\ For purposes of clarity regarding Commission approval
of Exchange rule filings, specific reference to Section 19 of the Act
and the rules promulgated thereunder is also introduced to Articles VII
and XI.
---------------------------------------------------------------------------
\14\ See Article 6 of the Certificate of Incorporation of EDGA
Exchange, Inc.; and Article 9 of Certificate of Incorporation of C2
Options Exchange, Inc.
\15\ See A&R Certificate of Incorporation, Articles Seventh and
Eleventh.
---------------------------------------------------------------------------
Finally, consistent with similar provisions in the charter
documents of other exchanges,\16\ the proposed A&R Certificate in
Article V is amended to allow directors (other than ETP Holder
Directors) to be removed with or without cause by a majority vote of
stockholders. This amendment is intended to promote more efficient
Exchange governance while continuing to preserve the fair
representation of ETP Holders through the ETP Holder Director election
process contained in the Exchange's By-Laws.
---------------------------------------------------------------------------
\16\ See A&R Certificate of Incorporation, Article Fifth, (b);
see also Article II, Section 7(a) of the Amended and Restated By-
Laws of BATS Exchange, Inc.; and Article II, Section 7(a) of the
Amended and Restated Bylaws of EDGA Exchange, Inc.
---------------------------------------------------------------------------
b. Second Amended and Restated By-Laws of NSX
Under the proposed rule change, due to the transfer of ownership of
the Exchange from Holdings to CBSX, references in the Exchange By-Laws
specific to Holdings are proposed to be replaced with references to
CBSX. Specifically, Section 3.2(c) is proposed to be modified to
provide that no two or more directors of NSX may be partners, officers
or directors of the same person or be affiliated with the same person,
unless such affiliation is with a national securities exchange or CBSX.
In addition, Section 10.2 is proposed to be modified to provide that in
no event shall members of the CBSX Board who are not also members of
the NSX Board, or any officers, staff, counsel or advisors of CBSX who
are not also officers, staff, counsel or advisors of NSX (or any
committees of NSX), be allowed to participate in any meetings of the
NSX Board (or any committee of NSX) pertaining to the self-regulatory
function of NSX (including disciplinary matters). These amendments
recognize CBSX as direct owner of the Exchange while preserving a
mechanism to prevent undue influence over the Exchange's self-
regulatory functions.
In connection with the ownership of NSX by CBSX, an additional
Section 10.1(b) is proposed to be added to provide that, for so long as
CBSX controls NSX, NSX shall promptly inform the CBSX board of
directors, in writing, in the event that NSX has, or experiences, a
deficiency related to its ability to carry out its obligations as a
national securities exchange under the Act, including if NSX does not
have or is not appropriately allocating such financial, technological,
technical and personnel resources as may be necessary or appropriate
for NSX to meet its obligations under the Act.
In addition, in conformity with the board composition provisions of
other more recent approvals involving other market centers,\17\ certain
NSX Board composition changes are proposed in order to streamline and
promote the efficiency and effectiveness of NSX Board governance.
Specifically, By-Law provisions regarding the number of directors on
the NSX Board are proposed to be amended to allow any number between
(and including) seven (7) and twenty-five (25). In addition, the
requirement that at least 50% of NSX
[[Page 75589]]
Board members be ``Independent'' Directors is proposed to be replaced
with a requirement that at least 50% of NSX Board members be ``Non-
Industry'' Directors, at least one of whom must qualify as
Independent.\18\ The category of ``At Large'' Directors, which under
current By-Laws means directors who are not Independent, is eliminated
as unnecessary.\19\ Finally, the category of CBOE Director, and
corresponding provisions discussing CBOE ownership of Class B stock and
related Board representation, are proposed to be deleted as
obsolete.\20\
---------------------------------------------------------------------------
\17\ See Third Amended and Restated Bylaws of the C2 Options
Exchange, Inc.; Second Amended and Restated By-Laws of CBOE; Amended
and Restated By-Laws of BATS Exchange, Inc.; and the Amended and
Restated Bylaws of EDGA Exchange, Inc.
\18\ See A&R By-Laws Section 3.2 (Board composition
requirements) and 1.1 (definitions of ``Industry Director'' and
``Non-Industry Director''). See also Third Amended and Restated
Bylaws of the C2 Options Exchange, Inc., Article III, Section 1;
Second Amended and Restated Bylaws of the CBOE Article III, Section
1; and the Amended and Restated By-Laws of BATS Exchange, Inc.,
Article I.
\19\ See A&R By-Laws Section 1.5 (definitions) and deletions to
current By-Laws in Sections 3.2(b) and 3.4(e).
\20\ See deletions to current By-Laws in Sections 1.5, 3.2(b),
3.3, 3.4(d), 3.5(g) and 3.7.
---------------------------------------------------------------------------
As a result, the proposed NSX Board composition after the closing
of the Transaction will consist of not fewer than seven (7) and not
more than twenty-five (25) directors \21\ and at all times shall
include the Chief Executive Officer of the Exchange; at least 50% Non-
Industry Directors (at least one of whom shall be an Independent
Director); and such number of ETP Holder Directors as is necessary to
comprise at least 20% of the NSX Board.\22\ For purposes of calculating
the percentage of Non-Industry Directors, the Chief Executive Officer
of the Exchange shall be excluded.\23\
---------------------------------------------------------------------------
\21\ See A&R By-Laws Section 3.2(a).
\22\ See A&R By-Laws Section 3.2(b). See also Third Amended and
Restated Bylaws of the C2 Options Exchange, Inc. Article III,
Section 3.1; Second Amended and Restated Bylaws of CBOE Section III,
Article 3.1; and the Amended and Restated By-Laws of BATS Exchange,
Inc., Article III, Section 2.
\23\ See Third Amended and Restated Bylaws of the C2 Options
Exchange, Inc., Article III, Section 3.1; and Second Amended and
Restated Bylaws of the CBOE. Section III, Article 3.1.
---------------------------------------------------------------------------
By-Law provisions relating to the terms of office of each type of
director is also amended from staggered three year terms to one year
terms (other than the CEO Director, which individual's term expires
upon ceasing to be Exchange Chief Executive Officer).\24\ The Exchange
believes that the change to annual from staggered three year director
terms, which amendment is consistent with the parallel provisions of
the current governance documents of other SROs,\25\ promotes more
efficient Exchange governance and effective ETP Holder representation.
---------------------------------------------------------------------------
\24\ See A&R By-Laws Section 3.4(a) through (e).
\25\ See Third Amended and Restated Bylaws of the C2 Options
Exchange, Inc., Article III, Section 3.1; Second Amended and
Restated Bylaws of the CBOE Article III, Section 3.1.
---------------------------------------------------------------------------
With respect to the filling of vacancies on the NSX Board,\26\ the
A&R By-Laws are proposed to be amended to differentiate the procedure
depending on whether the vacancy is of an ETP Holder Director or
another type of director. Under current Exchange By-Laws, no such
distinction is made. The Exchange believes a distinction is necessary
in order to promote, in the event of a vacancy of an ETP Holder
Director, the fair representation of ETP Holders on the NSX Board. For
non-ETP Holder Directors, the A&R By-Laws provide, consistent with
current Exchange By-Laws, that any vacancy may be filled by vote of a
majority of the directors then in office, although less than a quorum,
or by a sole remaining director, provided such new director qualifies
for the category in which the vacancy exists. A director elected to
fill a vacancy shall hold office until the next annual meeting of
stockholders, subject to the election and qualification of his or her
successor and to his or her earlier death, resignation,
disqualification or removal.\27\ Regarding the filling of vacancies of
ETP Holder Directors, the ETP Holder Director Nominating Committee
shall either recommend an individual to the NSX Board to be elected to
fill such vacancy or provide a list of recommended individuals to the
NSX Board from which the NSX Board shall elect the individual to fill
such vacancy. The NSX Board shall elect only individuals recommended by
the ETP Holder Director Nominating Committee. The proposed amendments
conform to the more recently approved analogous provisions of the
governance documents of another exchange.\28\
---------------------------------------------------------------------------
\26\ See A&R By-Laws Section 3.7. See also Third Amended and
Restated Bylaws of the C2 Options Exchange, Inc., Article III,
Section 3.5; Second Amended and Restated Bylaws of the CBOE Section
III, Article 3.5; Amended and Restated By-Laws of BATS Exchange,
Inc., Article III, Section 6; and Amended and Restated Bylaws of
EDGA Exchange, Inc., Article III, Section 6.
\27\ See A&R By-Laws Section 3.7(a)(i).
\28\ See Third Amended and Restated Bylaws of the C2 Options
Exchange, Inc., Article III, Section 3.5.
---------------------------------------------------------------------------
Certain other edits are proposed to the current Exchange By-Laws to
promote clarity and efficient governance mechanisms. Such edits conform
to the analogous provisions of the charter documents of other more
recently approved exchanges. Specifically, edits are proposed with
respect to the procedures for election of ETP Holder Directors.\29\ In
order to promote fair representation among all ETP Holders, A&R By-Laws
Section 3.5(d) is proposed to be amended to provide that no ETP Holder,
together with its affiliates, may account for more than fifty percent
(50%) of the signatures endorsing a particular candidate, and any
signatures of such ETP Holder, together with its affiliates, in excess
of fifty percent (50%) limitation shall be disregarded. Similarly, in
order to promote fair representation among all ETP Holders, in an
election among ETP Holders of candidates for ETP Holder Director, A&R
By-Laws Section 3.5(e) is proposed to be amended to provide that any
vote must be cast for a person duly nominated on the list of candidates
and that no ETP Holder, together with its affiliates, may account for
more than twenty percent (20%) of the votes cast for a candidate, and
any votes cast by such ETP Holder, together with its affiliates, in
excess of such twenty percent (20%) limitation shall be disregarded.
---------------------------------------------------------------------------
\29\ See A&R By-Laws Section 3.5(d) and (e). See also the
Amended and Restated By-Laws of BATS Exchange, Inc., Article III,
Section 4.
---------------------------------------------------------------------------
In addition, the A&R By-Laws are amended to include a fuller
description of the composition and authority of Exchange
committees.\30\ These edits are intended to promote transparency and
efficient governance. The description of the Executive Committee, which
has authority to act on behalf of the full NSX Board under certain
circumstances, is amended to clarify that the composition requirements
of such committee mirror the requirements applicable to the full
Board.\31\ Regarding other Exchange committees, descriptions of the
duties and composition requirements are included for each of the ETP
Holder Director Nominating Committee, the Executive Compensation
Committee, the Audit Committee, the Governance and Nominating
Committee, the Appeals Committee and the Business Conduct Committee.
Reference to a Securities Committee is deleted as obsolete.
---------------------------------------------------------------------------
\30\ See A&R By-Laws Sections 5.5 through 5.13. See also Amended
and Restated By-Laws of BATS Exchange, Inc., Article V, Section 6,
and Article VI, Section 2.
\31\ See A&R By-Laws Section 5.5(a), which provides, in part,
that the Executive Committee at all times shall include the Chief
Executive Officer of the Exchange, at least 50% Non-Industry
Directors, at least one Independent Director and such number of ETP
Holder Directors as is necessary to comprise at least 20% of the
Executive Committee; see also Amended and Restated By-Laws of BATS
Exchange, Inc., Article V, Section 6(e).
---------------------------------------------------------------------------
Consistent with analogous provisions of recently approved
governance documents of other exchanges, the
[[Page 75590]]
procedures for amendments to the Exchange's By-Laws are also proposed
to be amended to provide for NSX Board review and, as necessary,
Commission approval prior to the effectiveness of any amendments to
Exchange By-Laws.\32\
---------------------------------------------------------------------------
\32\ See A&R By-Laws Section 8.1. See also Amended and Restated
By-Laws of BATS Exchange, Inc., Article IX, Section 1.
---------------------------------------------------------------------------
Consistent with the proposed edits to the A&R Certificate and
similar provisions in the charter documents of other exchanges,\33\ the
proposed A&R By-Laws are further proposed to be modified to allow
directors (other than ETP Holder Directors) to be removed with or
without cause by a majority vote of stockholders. This amendment,
consistent with a parallel proposed amendment to the NSX A&R
Certificate, is intended to promote more efficient Exchange governance
while maintaining the fair representation of ETP Holders through the
ETP Holder Director election process as set forth in the A&R By-Laws.
---------------------------------------------------------------------------
\33\ See A&R By-Laws Section 3.8; see also Article II, Section
7(a) of the Amended and Restated By-Laws of BATS Exchange, Inc.; and
Article II, Section 7(a) of the Amended and Restated Bylaws of EDGA
Exchange, Inc.
---------------------------------------------------------------------------
In addition, to clarify that the confidentiality provisions of
Section 10.3 may not be interpreted to limit Commission jurisdiction
over NSX books and records, a clarifying statement is proposed to be
added to A&R By-Laws Section 10.3 to provide that nothing in Section
10.3 shall be interpreted as to limit or impede the rights of the
Commission to access and examine Exchange confidential information
pursuant to the Federal securities laws and the rules and regulations
thereunder, or to limit or impede the ability of any officers,
directors, employees or agents of the Exchange to disclose such
confidential information to the Commission.\34\
---------------------------------------------------------------------------
\34\ See A&R By-Laws Section 10.3.
---------------------------------------------------------------------------
Finally, the proposed A&R By-Laws contain several other non-
substantive, conforming edits to the A&R By-Laws that are consistent
with the principles outlined above, the Act and the rules promulgated
thereunder.\35\
---------------------------------------------------------------------------
\35\ Non-substantive, conforming edits to the A&R By-Laws are
reflected in the following Sections of the A&R By-Laws: 3.2(d)
(clarifying that directors may not serve if subject to statutory
disqualification as such term is defined in the Act); 3.7(c)
(providing that any grace periods for re-qualification of a director
must be for only a reasonable length of time); 3.17(clarifying that
NSX Board authority to interpret Exchange By-Laws remains subject to
the Act); 5.2(clarifying that the composition requirements set forth
in description of each committee in Article V control, and that
responsibility for maintenance of committee composition in
connection with new committee appointments resides with the
Chairman); 5.6 (specifying that the Regulatory Oversight Committee
shall at all times be comprised entirely of Non-Industry Directors);
and 6.3 (clarifying that officer disqualification will terminate an
officer's term of office). Relevant definitions are also added to
Section 1.1.
---------------------------------------------------------------------------
c. CBSX Operating Agreement
i. CBSX's Ownership of NSX
The proposed rule change (for purposes of this Section IIC, as
described in conjunction with a parallel rule filing submitted by CBOE)
includes several amendments related to CBSX's ownership of NSX. These
amendments address the fact that CBSX will become a holding company of
NSX after the Transaction to the extent related to CBSX's control of
NSX and clarify CBSX's rights and responsibilities related to its role
as a holding company of a registered national securities exchange
(amendments related to such responsibilities are further discussed
below). For example, the proposed rule change amends Operating
Agreement Section 1.6 to provide that CBSX's purposes (and any other
lawful purposes related to those purposes) will be (1) to act as a
trading market for securities other than options and (2) to act as a
holding company of NSX. The proposed rule change also amends several
Operating Agreement provisions to clarify that certain references to
CBSX include its subsidiaries, including NSX.\36\
---------------------------------------------------------------------------
\36\ See proposed Sections 1.6, 9.15(a)(9) and (1) of the
Operating Agreement.
---------------------------------------------------------------------------
In addition, the proposal amends Section 6.12 to provide that the
Concentration Limitation described in that section does not apply to
CBOE or CBOE Holdings, and to expand applicability of the Concentration
Limitation to persons and their Related Persons \37\ rather than to
persons and their Affiliates.\38\ The proposal also amends Operating
Agreement Section 6.12(c) and (e) to impose on NSX equity trading
permit holders the Concentration Limitation prohibitions described in
those paragraphs, which are currently only imposed on CBOE Trading
Permit Holders. The proposal makes similar amendments to Operating
Agreement Section 8.10 to expand applicability of the voting
restriction described in that section to persons and their Related
Persons and to provide that if any person and its Related Persons, not
just a CBOE Trading Permit Holder, exceed the Concentration Limitation
set forth in Section 6.12 of the Agreement, then the Owner and its
Related Persons will have no voting rights with respect to the shares
in excess of such limitation unless such Owner satisfies certain
requirements set forth in proposed Section 8.10(b) through (d), which
are similar to the requirements set forth in Section 6.12(b), (c) and
(e). The proposed rule change also extends the applicability of the
voting restriction in Section 8.10 to voting agreements, plans and
arrangements.
---------------------------------------------------------------------------
\37\ Proposed Rule 2.1(a)(23) of the Operating Agreement defines
``Related Person'' as (A) with respect to any person, all
``affiliates'' as such term is defined in Rule 12b-2 of the Exchange
Act); (B) any person associated with a member (as the phrase
``person associated with a member'' is defined under Section
3(a)(21) of the Exchange Act); (C) any two or more persons that have
any agreement, arrangement or understanding (whether or not in
writing) to act together for the purpose of acquiring, voting,
holding or disposing of shares of CBSX; (D) in the case of a person
that is a company, corporation or similar entity, any executive
officer (as defined under Rule 3b-7 of the Exchange Act) or director
of such person and, in the case of a person that is a partnership or
a limited liability company, any general partner, managing member of
manager of such person, as applicable; (E) in the case of a person
that is a natural person, any relative or spouse of such natural
person, or any relative of such spouse who has the same home as such
natural person or who is a director or officer of CBSX or any of
CBSX's parents or subsidiaries; (F) in the case of a person that is
an executive officer (as defined under Rule 3b-7 of the Exchange
Act) or a director of a company, corporation or similar entity, such
company, corporation or entity, as applicable; and (G) in the case
of a person that is a general partner, managing member or manager of
a partnership or limited liability company, such partnership or
limited liability company, as applicable. Under this definition,
Related Persons include Affiliates and thus extends the
Concentration Limitation imposed by proposed Rule 6.12 to a broader
group of persons.
\38\ Rule 2.1(a)(1) of the Operating Agreement defines
``Affiliate'' as, with respect to any person, any other person that
directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such
person. As used in this definition, ``control'' means the
possession, directly or indirectly, of the power to direct or cause
the direction of management and policies of a person, whether
through the ownership of voting securities, by contract or otherwise
with respect to such person.
---------------------------------------------------------------------------
The proposal also amends Operating Agreement Section 9.15(a)(9) to
clarify that with respect to a sale of material assets or ownership
interests that requires approval pursuant to Section 9.15, ``material
assets or ownership interests'' include subsidiaries of CBSX. In
addition, the proposed rule change adds Operating Agreement Section
15.19 to the Operating Agreement, which obligates CBSX, when voting as
NSX's sole shareholder in an election of the NSX board of directors, to
vote in favor of ETP Holder Directors (as defined in the NSX By-Laws)
that were nominated in accordance with the procedures set forth in
NSX's Certificate of Incorporation and By-Laws.
ii. Self-Regulatory Function of NSX
The proposed rule change adds various provisions designed to
protect the independence of the self-regulatory
[[Page 75591]]
function of NSX and to clarify NSX's jurisdiction with respect to CBSX,
but only to the extent related to CBSX's control of NSX.\39\ For
example, the proposed rule change adds Operating Agreement Section
5.7(b), which, among other things:
---------------------------------------------------------------------------
\39\ See also, infra, footnote 45.
---------------------------------------------------------------------------
For so long as CBSX controls NSX, only to the extent
related to the activities of NSX, requires CBSX Owners, board of
directors, officers and employees to give due regard to the
preservation of the independence of the self-regulatory function of NSX
and to its obligations under the Act;
Prohibits these persons from taking any actions that would
interfere with the effectuation of any decisions by the NSX board of
directors relating to NSX's regulatory functions, including
disciplinary matters, or with NSX's ability to carry out its
responsibilities under the Act; and
Requires CBSX to comply with Federal securities laws and
the rules and regulations thereunder, and requires CBSX and its
officers, directors, employees and agents to cooperate with the
Commission and NSX pursuant to and to the extent of their regulatory
authority.
In addition, the proposed rule change amends Operating Agreement
Section 6.15 to clarify possession of CBSX's and its Owners books and
records by the Facility and NSX in connection with their oversight
pursuant to the Act. The proposed rule change amends Operating
Agreement Section 6.15(a): \40\
---------------------------------------------------------------------------
\40\ Section 6.15(a) of the Operating Agreement currently
provides: ``The Owners acknowledge that to the extent they are
related to [CBSX's] activities, the books, records, premises,
officers, directors, agents, and employees of the Owners shall be
deemed to be the books, records, premises, officers, directors,
agents, and employees of CBOE for the purpose of and subject to
oversight pursuant to the Exchange Act.''
---------------------------------------------------------------------------
To clarify that the Owners acknowledge that the books,
records, premises, officers, directors, agents, and employees of the
Owners will be deemed to be the books, records, premises, officers,
directors, agents, and employees of CBOE for the purpose of and subject
to oversight pursuant to the Act, but only to the extent they are
related to the Facility; and
To add the provision that the Owners acknowledge that the
books, records, premises, officers, directors, agents, and employees of
the Owners will be deemed to be the books, records, premises, officers,
directors, agents, and employees of NSX for the purpose of and subject
to oversight pursuant to the Act, but only to the extent they are
related to the activities of NSX.
Similarly, the proposed rule change amends Operating Agreement
Section 6.15(b): \41\
---------------------------------------------------------------------------
\41\ Section 6.15(b) of the Operating Agreement currently
provides: ``The books, records, premises, officers, directors,
agents, and employees of [CBSX] shall be deemed to be the books,
records, premises, officers, directors, agents, and employees of
CBOE for the purpose of and subject to oversight pursuant to the
Exchange Act.''
---------------------------------------------------------------------------
To clarify that the books, records, premises, officers,
directors, agents, and employees of CBSX will be deemed to be the
books, records, premises, officers, directors, agents, and employees of
CBSX for the purpose of and subject to oversight pursuant to the Act,
but only to the extent related to the Facility; and
To add the provision that the books, records, premises,
officers, directors, agents, and employees of CBSX will be deemed to be
the books, records, premises, officers, directors, agents, and
employees of NSX for the purpose of and subject to oversight pursuant
to the Act, but only to the extent related to the activities of
NSX.\42\
---------------------------------------------------------------------------
\42\ CBSX's complete records and books of account must be
subject at all times to inspection and examination by CBOE (to the
extent related to the Facility), NSX (to the extent related to
CBSX's control of NSX), and the Commission at no additional charge
to CBOE, NSX and the Commission, as applicable. See proposed Section
13.2 of the Operating Agreement.
---------------------------------------------------------------------------
The proposal also amends Operating Agreement Section 6.15(c) to
provide that CBSX and the Owners and their respective officers,
directors, agents, and employees,\43\ irrevocably submit to the
jurisdiction of the U.S. Federal courts, the Commission, CBOE and NSX
for the purposes of any suit, action, or proceeding pursuant to U.S.
Federal securities laws or the rules or regulations thereunder,
commenced or initiated by the Commission arising out of, or relating
to, the Facility or the Company's control of NSX, as applicable.
---------------------------------------------------------------------------
\43\ Proposed Operating Agreement Section 6.15(c) (consent to
jurisdiction) and (d) (consent in writing to applicability) also
extend the requirements of these provisions to all agents and
employees of the Company and its Owners, rather than only agents and
employees whose principal place of business and residence is outside
of the United States.
---------------------------------------------------------------------------
In addition, the proposed rule change amends Operating Agreement
Sections 9.15(c) and 9.16 to provide that CBSX directors agree to
comply with the Federal securities laws and the rules and regulations
thereunder, and to cooperate with the Commission, CBOE, and NSX
pursuant to their regulatory authority, as applicable, and the
provisions of the Operating Agreement. The proposal also amends
Operating Agreement Section 9.15(c) to provide that CBSX directors will
take into consideration whether any actions taken or proposed to be
taken as a director for or on behalf of CBSX, or any failure or refusal
to act, would constitute interference with CBOE's or NSX's regulatory
functions and responsibilities, as applicable, in violation of the
Operating Agreement or the Act.\44\
---------------------------------------------------------------------------
\44\ Interference with respect to the Facility will be
determined by the CBSX board designees of CBOE. See proposed Section
9.15(c) of the Operating Agreement.
---------------------------------------------------------------------------
Additionally, the proposal amends Operating Agreement Section
14.1(a) to provide that, for so long as CBSX controls NSX, before any
amendment, alteration or repeal of any provision of the Operating
Agreement, to the extent related to CBSX's control of NSX, will be
effective, such amendment, alteration or repeal must be submitted to
the NSX board of directors, and if CBOE and the NSX board of directors
determine that such amendment, alteration or repeal must be filed with
or filed with and approved by the Commission, then such amendment,
alteration or repeal will not become effective until filed with or
filed with and approved by the Commission, as the case may be. The
proposal also adds a 10-day notice provision for any amendment,
alteration, or repeal of the Operating Agreement made pursuant to
Operating Agreement Section 14.1(a) to provide CBOE and NSX with
sufficient opportunity to review any potential regulatory impacts of
such amendment, alteration, or repeal before it becomes effective.
The proposal also amends Operating Agreement Section 15.2 to
provide that nothing in the Operating Agreement will be interpreted to
limit or impede the rights of the Commission, CBOE, or NSX to access
and examine any Confidential Information (as defined in the Operating
Agreement) pursuant to the U.S. Federal securities laws and the rules
thereunder, or to limit or impede the ability of an Owner or an
officer, director, agent or employee of an Owner to disclose any
Confidential Information to the Commission, CBOE, or NSX. Proposed
Operating Agreement Section 15.2 also provides that the obligation of
Owners not to disclose Confidential Information described in that
section does not apply to CBOE's or NSX's communications with the
Commission with respect to the conduct of the Facility's business or
NSX's business, respectively. In addition, the proposal amends the
representation being made by Owners in Operating Agreement Section
15.17(a) with respect to the validity and enforceability of the
Operating Agreement by excepting the requirement, as applicable to the
Facility or NSX (with respect to CBSX's
[[Page 75592]]
control of NSX), that the portions of the Operating Agreement that
constitute rules of a facility of an exchange or rules of a self-
regulatory organization, as applicable, be filed for public comment and
approval by the Commission from that representation.\45\
---------------------------------------------------------------------------
\45\ The rule change submitted by CBOE in connection with its
partial ownership interest in CBSX adds a new rule, CBOE Rule 2.50,
to further preserve the self-regulatory function of NSX. For
example, among other things, CBOE Rule 2.50 proposes a policy that
CBOE, as a partial owner of CBSX, will not take any action related
to NSX's activities that would interfere with NSX's efforts to carry
out its self-regulatory obligations under the Act and the rules and
regulations thereunder.
---------------------------------------------------------------------------
iii. Facility of CBOE
The proposed rule change amends various provisions to clarify that
the part of CBSX that constitutes the Facility is a facility of CBOE
under the Act, while the part of CBSX that relates to its control of
NSX will not be a facility of CBOE. For example, the proposal amends
Operating Agreement Section 1.7 to clarify that the Facility (and not
CBSX to the extent it will act as a holding company for NSX) is a
facility of CBOE under the Act, and therefore the Facility will be
subject to self-regulation by CBOE and oversight by the Commission. The
proposal also amends Operating Agreement Section 1.8 to clarify that
only the Facility is a facility of CBOE.\46\
---------------------------------------------------------------------------
\46\ See also proposed Sections 6.2(e), 6.15(c) and (d), 9.2(d),
9.15(a)(14) and 14.1(a) for additional such clarifications.
---------------------------------------------------------------------------
iv. Additional Changes
Finally, the proposed rule change makes several non-substantive
technical and conforming changes throughout the Operating Agreement,
including: Updating the name and date of the Operating Agreement;
updating the current Owners and their current percentage interests and
CBSX shares owned; \47\ replacing references to CBOE members with CBOE
trading permit holders; \48\ updating the table of contents and section
references; and adding new defined terms and renumbering the defined
terms as necessary.\49\
---------------------------------------------------------------------------
\47\ See proposed Section 3.2(d) of and signature page and
Exhibit A to the Operating Agreement.
\48\ See proposed Sections 6.12(c) and (e) and 8.10 of the
Operating Agreement.
\49\ See proposed Section 2.1 of the Operating Agreement.
Certain other governance amendments not directly related to the
Transaction are also proposed to the Operating Agreement, as further
described in the CBOE rule filing filed in connection herewith.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6 of the Act,\50\ and the rules and regulations thereunder and,
in particular, the requirements of Section 6(b) of the Act.\51\
Specifically, the Exchange believes the amendments to the CBSX
Operating Agreement further the objective of Section 6(b)(1) of the Act
because they preserve the independence of each of CBOE's and NSX's
self-regulatory functions and allow each SRO to fulfill its self-
regulatory duties. In particular, the addition of Operating Agreement
Section 5.7(b) described above is intended to preserve the independence
of NSX's self-regulatory function and ensure that NSX is able to obtain
any information it needs from the specified parties to detect and deter
any fraudulent and manipulative acts in its marketplace and carry out
its regulatory responsibilities under the Act.\52\ Similarly, the
amendments to Operating Agreement Section 6.15(a) and (b) as described
above (that clarify that CBSX's books and records with respect to the
Facility and NSX's activities will be subject to the necessary
oversight of the Act) are consistent with Section 6(b)(5) of the Act in
that they provide the Commission, CBOE and NSX with access to necessary
information that will allow CBOE and NSX to efficiently and effectively
enforce compliance with the Act and their respective rules, as well as
allow the Commission to provide proper oversight, which will ultimately
promote just and equitable principles of trade and protect investors.
The amendment to Operating Agreement Section 14.1(a) as described above
is intended to make sure that NSX receives notice of any amendment to
the Operating Agreement so that NSX can make any filings with the
Commission necessary for NSX to fulfill its regulatory duties under the
Act.
---------------------------------------------------------------------------
\50\ 15 U.S.C. 78f.
\51\ 15 U.S.C. 78f(b).
\52\ See also, supra, footnote 45.
---------------------------------------------------------------------------
The Exchange also believes that this proposed rule change furthers
the objectives of Section 6(b)(5) \53\ of the Act because the
amendments summarized in this filing will enable that CBSX and NSX
continue to have governance and regulatory structures designed to
promote just and equitable principles of trade, to remove impediments,
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. The instant rule filing enables NSX to continue to have the
authority and ability to effectively fulfill its self-regulatory duties
pursuant to the Act and the rules promulgated thereunder. The proposed
amendments to the Exchange's charter documents and the CBSX Operating
Agreement are further intended to enhance the ownership and voting
limitations applicable to SROs in order to preclude undue influence
over or interference with SRO regulatory functions and fulfillment of
regulatory duties under the Act. The proposed rule changes are intended
to protect and maintain the integrity of the self-regulatory functions
of NSX, and to allow it to carry out its regulatory responsibilities
under the Act while allowing CBOE to maintain its regulatory
jurisdiction and authority over the Facility.
---------------------------------------------------------------------------
\53\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange represents that it remains committed to its role as a
national securities exchange and does not believe that the proposed
change of ownership will undermine its responsibilities for regulating
its marketplace. The proposed rule change provides transparency and
certainty, and promotes efficiency, with respect to the governance and
corporate structure of the Exchange and the status of CBSX as both a
facility of CBOE and the holding company of NSX. In so doing, the
proposed rule change promotes the maintenance of a fair and orderly
market, the protection of investors and the protection of the public
interest.
Moreover, the Exchange is not proposing any significant changes to
its existing operational and trading structure in connection with the
change in ownership. Instead, NSX represents that the proposed rule
change consists of changes to the NSX Certificate of Incorporation and
By-Laws, and to the CBSX Operating Agreement, to allow for ownership of
NSX by CBSX, to enhance the governance structure of NSX, and to enhance
the ability of NSX and CBOE to fulfill their regulatory functions under
the Act. With respect to the proposed amendments to the NSX charter
documents, the proposed edits are generally consistent with parallel
provisions of other more recently approved SRO governance documents.
The Exchange believes that the proposed rule change allows CBOE to
maintain its regulatory jurisdiction and authority over the Facility
and NSX to remain an independent self-regulatory organization and is
consistent with the Act, the rules promulgated thereunder and the
principles articulated by the Commission.\54\
---------------------------------------------------------------------------
\54\ See Securities Exchange Act Release No. 50699 (November 18,
2004), 69 FR 71126 (December 8, 2004) (File No. S7-39-04).
---------------------------------------------------------------------------
[[Page 75593]]
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 that is not necessary or appropriate
in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) As the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(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 email to rule-comments@sec.gov. Please include
File Number SR-NSX-2011-14 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-NSX-2011-14. This file
number should be included on the subject line if email 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 the filing will also be available for
inspection and copying at the Exchange's principal office. 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 publicly available. All
submissions should refer to File Number SR-NSX-2011-14 and should be
submitted on or before December 23, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\55\
---------------------------------------------------------------------------
\55\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-30997 Filed 12-1-11; 8:45 am]
BILLING CODE 8011-01-P
