Topaz Exchange, LLC; Order Granting Application for a Conditional Exemption Pursuant to Section 36(a) of the Exchange Act From Certain Requirements of Rules 6a-1 and 6a-2 Under the Exchange Act, 14844-14847 [2013-05241]

Download as PDF emcdonald on DSK67QTVN1PROD with NOTICES 14844 Federal Register / Vol. 78, No. 45 / Thursday, March 7, 2013 / Notices third party, either from within the agency or from outside the agency, and are voluntary processes in terms of the decision to participate, the type of process used, and the content of the final agreement. Federal agency experience with ADR has demonstrated that the use of these techniques can result in more efficient resolution of issues, more effective outcomes, and improved relationships between the agency and the other party. On August 14, 1992 (57 FR 36678), the NRC issued a general policy statement which supports and encourages the use of ADR in NRC activities. On September 8, 2003, the Commission approved an NRC staff proposal to develop and implement a pilot ADR Program to evaluate the use of ADR in handling allegations or findings of discrimination and other wrongdoing. (see the staff requirements memorandum (SRM) for SECY–03– 0115, ‘‘Alternative Dispute Resolution Review Team (ART) Pilot Program Recommendations for Using Alternative Dispute Resolution (ADR) Techniques in the Handling of Discrimination and Other External Wrongdoing Issues’’ (ADAMS Accession No. ML030170277). In response to the SRM, the NRC staff proposed a pilot ADR Program to evaluate the use of ADR in the Enforcement Program in SECY–04– 0044, ‘‘Proposed Pilot Program for the Use of Alternative Dispute Resolution in the Enforcement Program,’’ dated March 12, 2004 (ADAMS Accession No. ML040550473). The Commission approved the pilot ADR Program (August 13, 2004; 69 FR 50219), and the NRC staff began implementing it in September 2004. In SECY–06–0102, ‘‘Evaluation of the Pilot Program on the Use of Alternative Dispute Resolution in the Allegation and Enforcement Programs,’’ dated May 5, 2006 (ADAMS Accession No. ML061110254), the NRC staff provided the Commission with the results of the evaluation of the pilot ADR Program. The NRC staff concluded that implementation of the pilot ADR Program was successful. The Program was effective, timely, and generally viewed positively by both internal and external stakeholders. Accordingly, the staff indicated its intent to continue to use ADR in both the Allegation and Enforcement Programs while obtaining Commission approval for the changes necessary to formalize the use of ADR in the Allegation and Enforcement Policy documents. Since ADR program implementation, the NRC has reached settlement agreements with licensees (or contractors) and individuals, and has issued subsequent ADR confirmatory VerDate Mar<15>2010 14:43 Mar 06, 2013 Jkt 229001 orders in more than 90 enforcement cases. On December 16, 2010, the NRC Chairman issued a memorandum, ‘‘ADR Implementation and Assessment’’ (ADAMS Accession No. ML12030A228) tasking the NRC staff to conduct a comprehensive review of the ADR program, including determining if it should be expanded. On September 6, 2011 (76 FR 55136), the NRC solicited nominations of individuals to participate on a panel to discuss ADR program implementation and whether changes could be made to make it more effective, transparent, and efficient. On October 17, 2011 (76 FR 64124), the NRC announced its intention to hold a public meeting to solicit feedback from its stakeholders on the ADR Program. During the November 8, 2011 public meeting, the NRC external stakeholders expressed support for the expansion of the ADR Program to the extent possible. For purposes of discussing the expansion of the ADR program, it is necessary to distinguish between the two types of programs, early ADR and post-investigation ADR. These programs differ because of the parties involved. In early ADR, a licensee or contractor engages in mediation with its employee; where as in post-investigation ADR, the NRC engages in mediation with the subject of a potential enforcement action. In SECY–12–0161, ‘‘Status Update, Tasks Related to Alternative Dispute Resolution in the Allegation and Enforcement Programs,’’ dated November 28, 2012 (ADAMS Accession No. ML12321A145), the NRC staff notified the Commission of its intent to expand the scope of post-investigation ADR and offer it as an option for escalated non-willful (traditional) enforcement cases with proposed civil penalties for a 1-year pilot period. The expansion of the Program does not include violations associated with findings assessed through the ROP. The current program for post-investigation ADR is limited to discrimination and other wrongdoing cases. At the completion of the 1-year period, the NRC staff will evaluate the results of the pilot ADR Program and seek Commission approval for the permanent inclusion in the Enforcement Policy if the expanded scope is deemed beneficial to the advancement of the agency’s mission. Paperwork Reduction Act Statement This Notification does not contain any information collections and, therefore, is not subject to the requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.). PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 Public Protection Notification The NRC may not conduct or sponsor, and a person is not required to respond to, a request for information or an information collection requirement unless the requesting document displays a currently valid OMB control number. Congressional Review Act In accordance with the Congressional Review Act of 1996, the NRC has determined that this action is not a major rule and has verified this determination with the OMB Office of Information and Regulatory Affairs. Dated at Rockville, Maryland, this 25th day of February 2013. For the Nuclear Regulatory Commission. Roy P. Zimmerman, Director, Office of Enforcement. [FR Doc. 2013–05306 Filed 3–6–13; 8:45 am] BILLING CODE 7590–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–69011] Topaz Exchange, LLC; Order Granting Application for a Conditional Exemption Pursuant to Section 36(a) of the Exchange Act From Certain Requirements of Rules 6a–1 and 6a–2 Under the Exchange Act March 1, 2013. I. Introduction On July 3, 2012, Topaz Exchange, LLC (‘‘Applicant’’) submitted to the Securities and Exchange Commission (‘‘Commission’’) an application on Form 1 under the Securities Exchange Act of 1934 (‘‘Exchange Act’’), to register as a national securities exchange.1 In 1 On December 19, 2012, the Applicant submitted Amendment No. 1 to its Form 1 application. Amendment No. 1, among other things, includes changes to the Limited Liability Company Agreement and the Constitution of Topaz Exchange concerning board composition and size, the initial director election process, and the use of regulatory funds. Amendment No. 1 also includes revisions to proposed rules of Topaz Exchange to remove rules relating to complex orders; to respond to comments on the Form 1 application from Commission staff; and to reflect recent changes to comparable rules of International Securities Exchange, LLC (‘‘ISE’’). Amendment No. 1 further provides additional descriptions in the Form 1 application regarding proposed allocation procedures, auction mechanisms, execution of qualified contingent crosses, and the initial director election process, and removes references to complex orders. On December 31, 2012, the Applicant submitted Amendment No. 2 to its Form 1 application. Amendment No. 2, among other things, provides updated information regarding the board of directors of ISE and the Corporate Governance Committee of ISE and includes information E:\FR\FM\07MRN1.SGM 07MRN1 Federal Register / Vol. 78, No. 45 / Thursday, March 7, 2013 / Notices addition, the Applicant, pursuant to Rule 0–12 2 under the Exchange Act, has requested an exemption under Section 36(a)(1) of the Exchange Act 3 from certain requirements of Rules 6a–1(a) and 6a–2 under the Exchange Act (‘‘Exemption Request’’).4 This order grants the Applicant’s request for exemptive relief, subject to the satisfaction of certain conditions, which are outlined below. II. Application for Conditional Exemption From Certain Requirements of Exchange Act Rules 6a–1 and 6a–2 A. Filing Requirements Under Exchange Act Rule 6a–1(a) emcdonald on DSK67QTVN1PROD with NOTICES Exchange Act Rule 6a–1(a) requires an applicant for registration as a national securities exchange to file an application with the Commission on Form 1. Exhibit C to Form 1 requires the applicant to provide certain information with respect to each of its subsidiaries and affiliates.5 For purposes of Form 1, an ‘‘affiliate’’ is ‘‘[a]ny person that, directly or indirectly, controls, is under common control with, or is controlled by, the national securities exchange * * * including any employees.’’ 6 Form 1 defines ‘‘control’’ as ‘‘[t]he power, directly or indirectly, to direct the management or policies of a company, whether through ownership of securities, by contract, or otherwise regarding Longitude S.A., a newly incorporated affiliate of Topaz Exchange, which information includes the Articles of Incorporation of Longitude S.A. Amendment No. 2 also provides financial information for Longitude S.A. Finally, Amendment No. 2 provides an updated organizational chart that reflects the affiliates of Topaz Exchange. 2 17 CFR 240.0–12. 3 15 U.S.C. 78mm(a)(1). 4 17 CFR 240.6a–1(a) and 6a–2. See letter from Michael Simon, General Counsel, Secretary and Chief Regulatory Officer, Topaz Exchange, LLC, to Elizabeth Murphy, Secretary, Commission, dated December 14, 2012. 5 Specifically, Exhibit C requires the applicant to provide, for each subsidiary or affiliate, and for any entity that operates an electronic trading system used to effect transactions on the exchange: (1) The name and address of the organization; (2) the form of organization; (3) the name of the state and statute citation under which it is organized, and the date of its incorporation in its present form; (4) a brief description of the nature and extent of the affiliation; (5) a brief description of the organization’s business or function; (6) a copy of the organization’s constitution; (7) a copy of the organization’s articles of incorporation or association, including all amendments; (8) a copy of the organization’s by-laws or corresponding rules or instruments; (9) the name and title of the organization’s present officers, governors, members of all standing committees, or persons performing similar functions; and (10) an indication of whether the business or organization ceased to be associated with the applicant during the previous year, and a brief statement of the reasons for termination of the association. 6 Form 1 Instructions, Explanation of Terms, 17 CFR 249.1. VerDate Mar<15>2010 14:43 Mar 06, 2013 Jkt 229001 * * *’’ 7 Form 1 provides, further, that any person that directly or indirectly has the right to vote 25% or more of a class of voting securities, or has the power to sell or direct the sale of 25% or more of a class of voting securities, is presumed to control the entity.8 Exhibit D to Form 1 requires an applicant for exchange registration to provide unconsolidated financial statements for the latest fiscal year for each subsidiary or affiliate. Exhibit D requires the financial statements to include, at a minimum, a balance sheet and an income statement with such footnotes and other disclosures as are necessary to avoid rendering the financial statements misleading. Exhibit D provides, in addition, that if any affiliate or subsidiary of the applicant is required by another Commission rule to submit annual financial statements, a statement to that effect, with a citation to the other Commission rule, may be provided in lieu of the financial statements required in Exhibit D. A Form 1 application is not considered filed until all necessary information, including financial statements and other required documents, have been furnished in the proper form.9 B. Filing Requirements Under Exchange Act Rule 6a–2 Exchange Act Rule 6a–2(a)(2) requires a national securities exchange to update the information provided in Exhibit C within 10 days of any action that causes the information provided in Exhibit C to become inaccurate or incomplete. In addition, Exchange Act Rule 6a–2(b)(1) requires a national securities exchange to file Exhibit D on or before June 30 of each year, and Exchange Act Rule 6a– 2(c) requires a national securities exchange to file Exhibit C every three years. C. Exemption Request On December 14, 2012, the Applicant requested that the Commission grant an exemption under Section 36 of the Exchange Act, subject to the conditions set forth below, from the requirement under Exchange Act Rule 6a–1 to file the information requested in Exhibits C and D to Form 1 for the ‘‘Foreign Indirect Affiliates,’’ as defined below, of 7 Id. 8 Id. 9 17 CFR 202.3(b)(2). See also 17 CFR 240.0–3(a). Defective Form 1 applications ‘‘may be returned with a request for correction or held until corrected before being accepted as a filing.’’ See 17 CFR 202.3(b)(2). See also Securities Exchange Act Release No. 40760 (Dec. 8, 1998), 63 FR 70844, 70881 (Dec. 22, 1998) (‘‘Regulation ATS Adopting Release’’) at note 329 and accompanying text. PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 14845 the Applicant.10 In addition, the Applicant requested an exemption, subject to certain conditions, with respect to the Foreign Indirect Affiliates from the requirements under: (1) Exchange Act Rule 6a–2(a)(2) to amend Exhibit C within 10 days if the information in Exhibit C becomes inaccurate or incomplete; and (2) Exchange Act Rules 6a–2(b)(1) and (c) to file periodic updates to Exhibits C and D. The Applicant is a wholly-owned subsidiary of International Securities Exchange Holdings, Inc. (‘‘ISE Holdings’’).11 ISE Holdings is a whollyowned subsidiary of U.S. Exchange Holdings, Inc., which is wholly-owned by a German stock corporation, Eurex Frankfurt AG (‘‘Eurex Frankfurt’’). Eurex Frankfurt is wholly-owned by a Swiss stock corporation, Eurex Zurich AG (‘‘Eurex Zurich’’), which, in turn, is fifty ¨ percent (50%) owned by Deutsche Borse ¨ AG (‘‘Deutsche Borse’’) and fifty percent (50%) owned by Eurex Global ¨ Derivatives AG (‘‘EGD’’). Deutsche Borse has one hundred percent (100%) direct ownership interest in EGD. According to the Applicant, the parent ownership structure of U.S. Exchange Holdings, Inc. is comprised entirely of foreign entities, Eurex Frankfurt, Eurex Zurich, ¨ Deutsche Borse and EGD (collectively, the ‘‘Foreign Direct Affiliates’’), which in turn hold ownership interests, either directly or indirectly, in excess of 25 percent (25%) in a large number of other foreign entities, some of which also own interests in other entities in excess of 25 percent (25%) as well (such Foreign Direct Affiliate-owned entities are referred to, collectively, as the ‘‘Foreign Indirect Affiliates’’).12 Because of the limited and indirect nature of its connection to the Foreign Indirect Affiliates, the Applicant believes that the corporate and financial information of the Foreign Indirect Affiliates required by Exhibits C and D of Form 1 would have little relevance to the Commission’s review of the Applicant’s Form 1 application or to the Commission’s ongoing oversight of the Applicant as a national securities exchange if the Commission were to approve the Applicant’s Form 1 application, as amended.13 In this regard, the Exemption Request states that the Foreign Indirect Affiliates have no ability to influence the management, policies, or finances of the Applicant and no obligation to provide funding to, or ability to materially affect the funding 10 See Exemption Request, supra note 4. Exemption Request, supra note 4, at 2. 12 See id. 13 See id. 11 See E:\FR\FM\07MRN1.SGM 07MRN1 14846 Federal Register / Vol. 78, No. 45 / Thursday, March 7, 2013 / Notices of, the Applicant.14 The Exemption Request also states that: (1) The Foreign Indirect Affiliates have no ownership interest in the Applicant or in any of the controlling shareholders of the Applicant; and (2) there are no commercial dealings between the Applicant and the Foreign Indirect Affiliates.15 Further, the Exemption Request states that obtaining detailed corporate and financial information with respect to the Foreign Indirect Affiliates (1) is unnecessary for the protection of investors and the public interest and (2) would be unduly burdensome and inefficient because these affiliates are located in foreign jurisdictions and the disclosure of such information could implicate foreign information sharing restrictions in such jurisdictions.16 As a condition to the granting of exemptive relief, the Applicant has agreed to provide: (i) A listing of the names of the Foreign Indirect Affiliates; (ii) an organizational chart setting forth the affiliation of the Foreign Indirect Affiliates and the Foreign Direct Affiliates and the Applicant; and (iii) in Exhibit C of the Applicant’s Form 1 application, a description of the nature of the Foreign Indirect Affiliates’ affiliation with the Foreign Direct Affiliates and the Applicant. In addition, as a condition to the granting of exemptive relief from the requirements of Exchange Act Rule 6a– 2(a)(2), 6a–2(b)(1), and 6a–2(c), as described above, the Applicant has agreed to provide amendments to the information required under conditions (i) through (iii) above on or before June 30th of each year. Further, the Applicant notes that it will provide the information required by Exhibits C and D for all of its affiliates other than the Foreign Indirect Affiliates, including the Foreign Direct Affiliates.17 III. Order Granting Conditional Section 36 Exemption Section 6 of the Exchange Act 18 sets forth a procedure for an exchange to register as a national securities exchange.19 Exchange Act Rule 6a– 14 See Exemption Request, supra note 4, at 2–3. Exemption Request, supra note 4, at 3. 16 See id. The Applicant also believes that providing the information required by Exhibits C and D with respect to the Foreign Indirect Affiliates could raise confidentiality concerns because many of the Foreign Indirect Affiliates are not public companies. Id. 17 See Exemption Request, supra note 4, at 3. 18 15 U.S.C. 78f. 19 Specifically, Section 6(a) of the Exchange Act states that ‘‘[a]n exchange may be registered as a national securities exchange * * * by filing with the Commission an application for registration in such form as the Commission, by rule, may emcdonald on DSK67QTVN1PROD with NOTICES 15 See VerDate Mar<15>2010 14:43 Mar 06, 2013 Jkt 229001 1(a) 20 requires an application for registration as a national securities exchange to be filed on Form 1 in accordance with the instructions in Form 1. A Form 1 application is not considered filed until all necessary information, including financial statements and other required documents, has been furnished in the proper form.21 Exchange Act Rule 6a–2 establishes ongoing requirements to file certain amendments to Form 1. Section 36(a)(1) of the Exchange Act provides that ‘‘the Commission, by rule, regulation, or order, may conditionally or unconditionally exempt any person, security, or transaction, or any class or classes of persons, securities, or transactions, from any provision or provisions of [the Exchange Act] or of any rule or regulation thereunder, to the extent that such exemption is necessary or appropriate in the public interest, and is consistent with the protection of investors.’’ 22 For the reasons discussed below, the Commission believes that it is appropriate in the public interest and consistent with the protection of investors to exempt the Applicant from the requirement under Exchange Act Rule 6a–1 to provide the information required in Exhibits C and D to Form 1 with respect to the Foreign Indirect Affiliates, subject to the following conditions: (1) The Applicant must provide a list of the names of the Foreign Indirect Affiliates; (2) the Applicant must provide an organizational chart setting forth the affiliation of the Foreign Indirect Affiliates and the Foreign Direct Affiliates and the Applicant; and (3) as part of Exhibit C to the Applicant’s Form 1 Application, the Applicant must provide a description of the nature of the affiliation between the Foreign Indirect Affiliates and the Foreign Direct Affiliates and the Applicant. The Commission believes, further, that it is appropriate in the public interest and consistent with the protection of investors to exempt the Applicant, with respect to the Foreign Indirect Affiliates, from the requirements under: (a) Exchange Act Rule 6a–2(a)(2) to amend Exhibit C prescribe containing the rules of the exchange and such other information and documents as the Commission, by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors.’’ Section 6 of the Exchange Act also sets forth various requirements to which a national securities exchange is subject. 20 17 CFR 240.6a–1(a). 21 17 CFR 202.3(b)(2). See also supra note 9. 22 15 U.S.C. 78mm(a)(1). PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 within 10 days of any action that renders the information in Exhibit C inaccurate or incomplete; (b) Exchange Act Rules 6a–2(c) to provide periodic updates of Exhibit C; and (c) Exchange Act Rules 6a–2(b)(1) to provide periodic updates of Exhibit D, subject to the condition that the Applicant provide amendments to the information required under conditions (1) through (3) above on or before June 30th of each year. As part of an application for exchange registration, the information included in Exhibits C and D is designed to help the Commission make the determinations required under Sections 6(b) and 19(a) of the Exchange Act 23 with respect to the application. The updated Exhibit C and D information required under Exchange Act Rule 6a–2 is designed to help the Commission exercise its oversight responsibilities with respect to national securities exchanges. Specifically, Exhibit D is designed to provide the Commission with information concerning the financial status of an exchange and its affiliates and subsidiaries,24 and Exhibit C provides the Commission with the names and organizational documents of these affiliates and subsidiaries.25 Such information is designed to help the Commission determine whether an applicant for exchange registration would have the ability to carry out its obligations under the Exchange Act, and whether a national securities exchange continues to have the ability to carry out its obligations under the Exchange Act. Since the most recent amendments to Form 1 in 1998,26 many national securities exchanges that previously were member-owned organizations with few affiliated entities have demutualized. Some of these demutualized exchanges have been consolidated under holding companies with numerous affiliates that, in some cases, have only a limited and indirect connection to the national securities exchange, with no ability to influence the management or policies of the registered exchange and no obligation to fund, or to materially affect the funding of, the registered exchange. The Commission believes that, for these affiliated entities, the information required under Exhibits C and D would have limited relevance to the Commission’s review of an application 23 15 U.S.C. 78f(b) and 78s(a). Securities Exchange Act Release No. 18843 (June 25, 1982), 47 FR 29259 (July 6, 1982) (proposing amendments to Form 1); see also Form 1, 17 CFR 249.1, and supra Section II.A. 25 Form 1, 17 CFR 249.1. See also supra note 5. 26 See Regulation ATS Adopting Release, supra note 9. 24 See E:\FR\FM\07MRN1.SGM 07MRN1 Federal Register / Vol. 78, No. 45 / Thursday, March 7, 2013 / Notices for exchange registration or to its oversight of a registered exchange. Based on the Applicant’s representations, the indirect nature of the relationship between the Applicant and the Foreign Indirect Affiliates, and the information that the Applicant will provide with respect to the Foreign Direct Affiliates and the Foreign Indirect Affiliates, the Commission believes that it will have sufficient information to review the Applicant’s Form 1 application and to make the determinations required under Sections 6(b) and 19(a) of the Exchange Act with respect to its application for registration as a national securities exchange.27 The Commission believes, further, that it will have the information necessary to oversee the Applicant’s activities as a national securities exchange if the Commission were to approve the Applicant’s Form 1 application. In particular, the Commission notes that the Applicant has represented that it would have no direct connection to the Foreign Indirect Affiliates, that the Foreign Indirect Affiliates would have no ability to influence the management or policies of the Applicant, and that the Foreign Indirect Affiliates would have no obligation to fund, or ability to materially affect the funding of, the Applicant. In addition, the Commission notes that the Applicant represented that: (1) The Foreign Indirect Affiliates have no ownership interest in the Applicant or in any of the controlling equity holders of the Applicant; and (2) there are no commercial dealings between the Applicant and the Foreign Indirect Affiliates.28 Given the limited and indirect relationship between the Applicant and the Foreign Indirect Affiliates, as described above, the Commission believes that the detailed corporate and financial information required in Exhibits C and D with respect to the Foreign Indirect Affiliates is unnecessary for the Commission’s review of the Applicant’s Form 1 application and would be unnecessary for the Commission’s oversight of the Applicant as a registered national securities exchange following any Commission approval of its Form 1 application. emcdonald on DSK67QTVN1PROD with NOTICES 27 15 U.S.C. 78f(b) and 78s(a). Section 6(b) of the Exchange Act enumerates certain determinations that the Commission must make with respect to an exchange before granting the registration of the exchange as a national securities exchange. The Commission will not grant an exchange registration as a national securities exchange unless the Commission determines that the exchange meets these requirements. See Regulation ATS Adopting Release, supra note 9, at IV.B. 28 See Exemption Request, supra note 4, at 3. VerDate Mar<15>2010 14:43 Mar 06, 2013 Jkt 229001 For the reasons discussed above, the Commission finds that the conditional exemptive relief requested by the Applicant is appropriate in the public interest and is consistent with the protection of investors. It is ordered, pursuant to Section 36 of the Exchange Act,29 that the Applicant is exempt from the requirements to: (1) Include in its Form 1 application the information required in Exhibits C and D to Form 1 with respect to the Foreign Indirect Affiliates; and (2) with respect to the Foreign Indirect Affiliates, update the information in Exhibits C and D to Form 1 as required by Exchange Act Rules 6a– 2(a)(2), 6a–2(b)(1), and 6a–2(c) subject to the following conditions: (i) The Applicant must provide a list of the names of the Foreign Indirect Affiliates; (ii) the Applicant must provide an organizational chart setting forth the affiliation of the Foreign Indirect Affiliates and the Foreign Direct Affiliates and the Applicant; and (iii) as part of Exhibit C to the Applicant’s Form 1 Application, the Applicant must provide a description of the nature of the affiliation between the Foreign Indirect Affiliates and the Foreign Direct Affiliates and the Applicant. In addition, the Applicant must provide amendments to the information required under conditions (i) through (iii) above on or before June 30th of each year. By the Commission. Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–05241 Filed 3–6–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–69012; File No. 10–209] Topaz Exchange, LLC; Notice of Filing of Application for Registration as a National Securities Exchange Under Section 6 of the Securities Exchange Act of 1934 March 1, 2013. On July 3, 2012, Topaz Exchange, LLC (‘‘Topaz Exchange’’ or ‘‘Applicant’’) submitted to the Securities and Exchange Commission (‘‘Commission’’) a Form 1 application under the Securities Exchange Act of 1934 (‘‘Exchange Act’’), seeking registration as a national securities exchange under 29 15 PO 00000 U.S.C. 78mm. Frm 00085 Fmt 4703 Sfmt 4703 14847 Section 6 of the Exchange Act.1 On December 19, 2012, Topaz Exchange submitted Amendment No. 1 to its Form 1 application.2 On December 31, 2012, Topaz Exchange submitted Amendment No. 2 to its Form 1 application.3 The Commission is publishing this notice to solicit comments on Topaz Exchange’s Form 1 application, as amended. The Commission will take any comments it receives into consideration in making its determination about whether to grant Topaz Exchange’s request to be registered as a national securities exchange. The Commission will grant the registration if it finds that the requirements of the Exchange Act and the rules and regulations thereunder with respect to Topaz Exchange are satisfied.4 The Applicant’s Form 1 application, as amended, provides detailed information on how Topaz Exchange proposes to satisfy the requirements of the Exchange Act. Topaz Exchange would be wholly-owned by its parent company, International Securities Exchange Holdings, Inc. (‘‘ISE Holdings’’), which also is the parent company of an existing national securities exchange, ISE. Topaz Exchange would operate a fully automated electronic trading platform for the trading of listed options and would not maintain a physical trading floor. Liquidity would be derived from orders to buy and orders to sell 1 On March 1, 2013, the Commission issued an order granting Topaz Exchange exemptive relief, subject to certain conditions, in connection with the filing of its Form 1 application. See Securities Exchange Act Release No. 69011. Because the Applicant’s Form 1 application was incomplete without the exemptive relief, the date of filing of such application is March 1, 2013. 2 Amendment No. 1, among other things, includes changes to the Limited Liability Company Agreement and the Constitution of Topaz Exchange concerning board composition and size, the initial director election process, and the use of regulatory funds. Amendment No. 1 also includes revisions to proposed rules of Topaz Exchange to remove rules relating to complex orders; to respond to comments on the Form 1 application from Commission staff; and to reflect recent changes to comparable rules of International Securities Exchange, LLC (‘‘ISE’’). Amendment No. 1 further provides additional descriptions in the Form 1 application regarding proposed allocation procedures, auction mechanisms, execution of qualified contingent crosses, and the initial director election process, and removes references to complex orders. 3 Amendment No. 2, among other things, provides updated information regarding the board of directors of ISE and the Corporate Governance Committee of ISE and includes information regarding Longitude S.A., a newly incorporated affiliate of Topaz Exchange, which information includes the Articles of Incorporation of Longitude S.A. Amendment No. 2 also provides financial information for Longitude S.A. Finally, Amendment No. 2 provides an updated organizational chart that reflects the affiliates of Topaz Exchange. 4 15 U.S.C. 78s(a). E:\FR\FM\07MRN1.SGM 07MRN1

Agencies

[Federal Register Volume 78, Number 45 (Thursday, March 7, 2013)]
[Notices]
[Pages 14844-14847]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-05241]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69011]


Topaz Exchange, LLC; Order Granting Application for a Conditional 
Exemption Pursuant to Section 36(a) of the Exchange Act From Certain 
Requirements of Rules 6a-1 and 6a-2 Under the Exchange Act

March 1, 2013.

I. Introduction

    On July 3, 2012, Topaz Exchange, LLC (``Applicant'') submitted to 
the Securities and Exchange Commission (``Commission'') an application 
on Form 1 under the Securities Exchange Act of 1934 (``Exchange Act''), 
to register as a national securities exchange.\1\ In

[[Page 14845]]

addition, the Applicant, pursuant to Rule 0-12 \2\ under the Exchange 
Act, has requested an exemption under Section 36(a)(1) of the Exchange 
Act \3\ from certain requirements of Rules 6a-1(a) and 6a-2 under the 
Exchange Act (``Exemption Request'').\4\ This order grants the 
Applicant's request for exemptive relief, subject to the satisfaction 
of certain conditions, which are outlined below.
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    \1\ On December 19, 2012, the Applicant submitted Amendment No. 
1 to its Form 1 application. Amendment No. 1, among other things, 
includes changes to the Limited Liability Company Agreement and the 
Constitution of Topaz Exchange concerning board composition and 
size, the initial director election process, and the use of 
regulatory funds. Amendment No. 1 also includes revisions to 
proposed rules of Topaz Exchange to remove rules relating to complex 
orders; to respond to comments on the Form 1 application from 
Commission staff; and to reflect recent changes to comparable rules 
of International Securities Exchange, LLC (``ISE''). Amendment No. 1 
further provides additional descriptions in the Form 1 application 
regarding proposed allocation procedures, auction mechanisms, 
execution of qualified contingent crosses, and the initial director 
election process, and removes references to complex orders. On 
December 31, 2012, the Applicant submitted Amendment No. 2 to its 
Form 1 application. Amendment No. 2, among other things, provides 
updated information regarding the board of directors of ISE and the 
Corporate Governance Committee of ISE and includes information 
regarding Longitude S.A., a newly incorporated affiliate of Topaz 
Exchange, which information includes the Articles of Incorporation 
of Longitude S.A. Amendment No. 2 also provides financial 
information for Longitude S.A. Finally, Amendment No. 2 provides an 
updated organizational chart that reflects the affiliates of Topaz 
Exchange.
    \2\ 17 CFR 240.0-12.
    \3\ 15 U.S.C. 78mm(a)(1).
    \4\ 17 CFR 240.6a-1(a) and 6a-2. See letter from Michael Simon, 
General Counsel, Secretary and Chief Regulatory Officer, Topaz 
Exchange, LLC, to Elizabeth Murphy, Secretary, Commission, dated 
December 14, 2012.
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II. Application for Conditional Exemption From Certain Requirements of 
Exchange Act Rules 6a-1 and 6a-2

A. Filing Requirements Under Exchange Act Rule 6a-1(a)

    Exchange Act Rule 6a-1(a) requires an applicant for registration as 
a national securities exchange to file an application with the 
Commission on Form 1. Exhibit C to Form 1 requires the applicant to 
provide certain information with respect to each of its subsidiaries 
and affiliates.\5\ For purposes of Form 1, an ``affiliate'' is ``[a]ny 
person that, directly or indirectly, controls, is under common control 
with, or is controlled by, the national securities exchange * * * 
including any employees.'' \6\ Form 1 defines ``control'' as ``[t]he 
power, directly or indirectly, to direct the management or policies of 
a company, whether through ownership of securities, by contract, or 
otherwise * * *'' \7\ Form 1 provides, further, that any person that 
directly or indirectly has the right to vote 25% or more of a class of 
voting securities, or has the power to sell or direct the sale of 25% 
or more of a class of voting securities, is presumed to control the 
entity.\8\
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    \5\ Specifically, Exhibit C requires the applicant to provide, 
for each subsidiary or affiliate, and for any entity that operates 
an electronic trading system used to effect transactions on the 
exchange: (1) The name and address of the organization; (2) the form 
of organization; (3) the name of the state and statute citation 
under which it is organized, and the date of its incorporation in 
its present form; (4) a brief description of the nature and extent 
of the affiliation; (5) a brief description of the organization's 
business or function; (6) a copy of the organization's constitution; 
(7) a copy of the organization's articles of incorporation or 
association, including all amendments; (8) a copy of the 
organization's by-laws or corresponding rules or instruments; (9) 
the name and title of the organization's present officers, 
governors, members of all standing committees, or persons performing 
similar functions; and (10) an indication of whether the business or 
organization ceased to be associated with the applicant during the 
previous year, and a brief statement of the reasons for termination 
of the association.
    \6\ Form 1 Instructions, Explanation of Terms, 17 CFR 249.1.
    \7\ Id.
    \8\ Id.
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    Exhibit D to Form 1 requires an applicant for exchange registration 
to provide unconsolidated financial statements for the latest fiscal 
year for each subsidiary or affiliate. Exhibit D requires the financial 
statements to include, at a minimum, a balance sheet and an income 
statement with such footnotes and other disclosures as are necessary to 
avoid rendering the financial statements misleading. Exhibit D 
provides, in addition, that if any affiliate or subsidiary of the 
applicant is required by another Commission rule to submit annual 
financial statements, a statement to that effect, with a citation to 
the other Commission rule, may be provided in lieu of the financial 
statements required in Exhibit D.
    A Form 1 application is not considered filed until all necessary 
information, including financial statements and other required 
documents, have been furnished in the proper form.\9\
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    \9\ 17 CFR 202.3(b)(2). See also 17 CFR 240.0-3(a). Defective 
Form 1 applications ``may be returned with a request for correction 
or held until corrected before being accepted as a filing.'' See 17 
CFR 202.3(b)(2). See also Securities Exchange Act Release No. 40760 
(Dec. 8, 1998), 63 FR 70844, 70881 (Dec. 22, 1998) (``Regulation ATS 
Adopting Release'') at note 329 and accompanying text.
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B. Filing Requirements Under Exchange Act Rule 6a-2

    Exchange Act Rule 6a-2(a)(2) requires a national securities 
exchange to update the information provided in Exhibit C within 10 days 
of any action that causes the information provided in Exhibit C to 
become inaccurate or incomplete. In addition, Exchange Act Rule 6a-
2(b)(1) requires a national securities exchange to file Exhibit D on or 
before June 30 of each year, and Exchange Act Rule 6a-2(c) requires a 
national securities exchange to file Exhibit C every three years.

C. Exemption Request

    On December 14, 2012, the Applicant requested that the Commission 
grant an exemption under Section 36 of the Exchange Act, subject to the 
conditions set forth below, from the requirement under Exchange Act 
Rule 6a-1 to file the information requested in Exhibits C and D to Form 
1 for the ``Foreign Indirect Affiliates,'' as defined below, of the 
Applicant.\10\ In addition, the Applicant requested an exemption, 
subject to certain conditions, with respect to the Foreign Indirect 
Affiliates from the requirements under: (1) Exchange Act Rule 6a-
2(a)(2) to amend Exhibit C within 10 days if the information in Exhibit 
C becomes inaccurate or incomplete; and (2) Exchange Act Rules 6a-
2(b)(1) and (c) to file periodic updates to Exhibits C and D.
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    \10\ See Exemption Request, supra note 4.
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    The Applicant is a wholly-owned subsidiary of International 
Securities Exchange Holdings, Inc. (``ISE Holdings'').\11\ ISE Holdings 
is a wholly-owned subsidiary of U.S. Exchange Holdings, Inc., which is 
wholly-owned by a German stock corporation, Eurex Frankfurt AG (``Eurex 
Frankfurt''). Eurex Frankfurt is wholly-owned by a Swiss stock 
corporation, Eurex Zurich AG (``Eurex Zurich''), which, in turn, is 
fifty percent (50%) owned by Deutsche B[ouml]rse AG (``Deutsche 
B[ouml]rse'') and fifty percent (50%) owned by Eurex Global Derivatives 
AG (``EGD''). Deutsche B[ouml]rse has one hundred percent (100%) direct 
ownership interest in EGD. According to the Applicant, the parent 
ownership structure of U.S. Exchange Holdings, Inc. is comprised 
entirely of foreign entities, Eurex Frankfurt, Eurex Zurich, Deutsche 
B[ouml]rse and EGD (collectively, the ``Foreign Direct Affiliates''), 
which in turn hold ownership interests, either directly or indirectly, 
in excess of 25 percent (25%) in a large number of other foreign 
entities, some of which also own interests in other entities in excess 
of 25 percent (25%) as well (such Foreign Direct Affiliate-owned 
entities are referred to, collectively, as the ``Foreign Indirect 
Affiliates'').\12\
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    \11\ See Exemption Request, supra note 4, at 2.
    \12\ See id.
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    Because of the limited and indirect nature of its connection to the 
Foreign Indirect Affiliates, the Applicant believes that the corporate 
and financial information of the Foreign Indirect Affiliates required 
by Exhibits C and D of Form 1 would have little relevance to the 
Commission's review of the Applicant's Form 1 application or to the 
Commission's ongoing oversight of the Applicant as a national 
securities exchange if the Commission were to approve the Applicant's 
Form 1 application, as amended.\13\ In this regard, the Exemption 
Request states that the Foreign Indirect Affiliates have no ability to 
influence the management, policies, or finances of the Applicant and no 
obligation to provide funding to, or ability to materially affect the 
funding

[[Page 14846]]

of, the Applicant.\14\ The Exemption Request also states that: (1) The 
Foreign Indirect Affiliates have no ownership interest in the Applicant 
or in any of the controlling shareholders of the Applicant; and (2) 
there are no commercial dealings between the Applicant and the Foreign 
Indirect Affiliates.\15\ Further, the Exemption Request states that 
obtaining detailed corporate and financial information with respect to 
the Foreign Indirect Affiliates (1) is unnecessary for the protection 
of investors and the public interest and (2) would be unduly burdensome 
and inefficient because these affiliates are located in foreign 
jurisdictions and the disclosure of such information could implicate 
foreign information sharing restrictions in such jurisdictions.\16\
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    \13\ See id.
    \14\ See Exemption Request, supra note 4, at 2-3.
    \15\ See Exemption Request, supra note 4, at 3.
    \16\ See id. The Applicant also believes that providing the 
information required by Exhibits C and D with respect to the Foreign 
Indirect Affiliates could raise confidentiality concerns because 
many of the Foreign Indirect Affiliates are not public companies. 
Id.
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    As a condition to the granting of exemptive relief, the Applicant 
has agreed to provide: (i) A listing of the names of the Foreign 
Indirect Affiliates; (ii) an organizational chart setting forth the 
affiliation of the Foreign Indirect Affiliates and the Foreign Direct 
Affiliates and the Applicant; and (iii) in Exhibit C of the Applicant's 
Form 1 application, a description of the nature of the Foreign Indirect 
Affiliates' affiliation with the Foreign Direct Affiliates and the 
Applicant. In addition, as a condition to the granting of exemptive 
relief from the requirements of Exchange Act Rule 6a-2(a)(2), 6a-
2(b)(1), and 6a-2(c), as described above, the Applicant has agreed to 
provide amendments to the information required under conditions (i) 
through (iii) above on or before June 30th of each year. Further, the 
Applicant notes that it will provide the information required by 
Exhibits C and D for all of its affiliates other than the Foreign 
Indirect Affiliates, including the Foreign Direct Affiliates.\17\
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    \17\ See Exemption Request, supra note 4, at 3.
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III. Order Granting Conditional Section 36 Exemption

    Section 6 of the Exchange Act \18\ sets forth a procedure for an 
exchange to register as a national securities exchange.\19\ Exchange 
Act Rule 6a-1(a) \20\ requires an application for registration as a 
national securities exchange to be filed on Form 1 in accordance with 
the instructions in Form 1. A Form 1 application is not considered 
filed until all necessary information, including financial statements 
and other required documents, has been furnished in the proper 
form.\21\ Exchange Act Rule 6a-2 establishes ongoing requirements to 
file certain amendments to Form 1.
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    \18\ 15 U.S.C. 78f.
    \19\ Specifically, Section 6(a) of the Exchange Act states that 
``[a]n exchange may be registered as a national securities exchange 
* * * by filing with the Commission an application for registration 
in such form as the Commission, by rule, may prescribe containing 
the rules of the exchange and such other information and documents 
as the Commission, by rule, may prescribe as necessary or 
appropriate in the public interest or for the protection of 
investors.'' Section 6 of the Exchange Act also sets forth various 
requirements to which a national securities exchange is subject.
    \20\ 17 CFR 240.6a-1(a).
    \21\ 17 CFR 202.3(b)(2). See also supra note 9.
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    Section 36(a)(1) of the Exchange Act provides that ``the 
Commission, by rule, regulation, or order, may conditionally or 
unconditionally exempt any person, security, or transaction, or any 
class or classes of persons, securities, or transactions, from any 
provision or provisions of [the Exchange Act] or of any rule or 
regulation thereunder, to the extent that such exemption is necessary 
or appropriate in the public interest, and is consistent with the 
protection of investors.'' \22\
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    \22\ 15 U.S.C. 78mm(a)(1).
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    For the reasons discussed below, the Commission believes that it is 
appropriate in the public interest and consistent with the protection 
of investors to exempt the Applicant from the requirement under 
Exchange Act Rule 6a-1 to provide the information required in Exhibits 
C and D to Form 1 with respect to the Foreign Indirect Affiliates, 
subject to the following conditions:
    (1) The Applicant must provide a list of the names of the Foreign 
Indirect Affiliates;
    (2) the Applicant must provide an organizational chart setting 
forth the affiliation of the Foreign Indirect Affiliates and the 
Foreign Direct Affiliates and the Applicant; and
    (3) as part of Exhibit C to the Applicant's Form 1 Application, the 
Applicant must provide a description of the nature of the affiliation 
between the Foreign Indirect Affiliates and the Foreign Direct 
Affiliates and the Applicant.
    The Commission believes, further, that it is appropriate in the 
public interest and consistent with the protection of investors to 
exempt the Applicant, with respect to the Foreign Indirect Affiliates, 
from the requirements under: (a) Exchange Act Rule 6a-2(a)(2) to amend 
Exhibit C within 10 days of any action that renders the information in 
Exhibit C inaccurate or incomplete; (b) Exchange Act Rules 6a-2(c) to 
provide periodic updates of Exhibit C; and (c) Exchange Act Rules 6a-
2(b)(1) to provide periodic updates of Exhibit D, subject to the 
condition that the Applicant provide amendments to the information 
required under conditions (1) through (3) above on or before June 30th 
of each year.
    As part of an application for exchange registration, the 
information included in Exhibits C and D is designed to help the 
Commission make the determinations required under Sections 6(b) and 
19(a) of the Exchange Act \23\ with respect to the application. The 
updated Exhibit C and D information required under Exchange Act Rule 
6a-2 is designed to help the Commission exercise its oversight 
responsibilities with respect to national securities exchanges.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78f(b) and 78s(a).
---------------------------------------------------------------------------

    Specifically, Exhibit D is designed to provide the Commission with 
information concerning the financial status of an exchange and its 
affiliates and subsidiaries,\24\ and Exhibit C provides the Commission 
with the names and organizational documents of these affiliates and 
subsidiaries.\25\ Such information is designed to help the Commission 
determine whether an applicant for exchange registration would have the 
ability to carry out its obligations under the Exchange Act, and 
whether a national securities exchange continues to have the ability to 
carry out its obligations under the Exchange Act.
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    \24\ See Securities Exchange Act Release No. 18843 (June 25, 
1982), 47 FR 29259 (July 6, 1982) (proposing amendments to Form 1); 
see also Form 1, 17 CFR 249.1, and supra Section II.A.
    \25\ Form 1, 17 CFR 249.1. See also supra note 5.
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    Since the most recent amendments to Form 1 in 1998,\26\ many 
national securities exchanges that previously were member-owned 
organizations with few affiliated entities have demutualized. Some of 
these demutualized exchanges have been consolidated under holding 
companies with numerous affiliates that, in some cases, have only a 
limited and indirect connection to the national securities exchange, 
with no ability to influence the management or policies of the 
registered exchange and no obligation to fund, or to materially affect 
the funding of, the registered exchange. The Commission believes that, 
for these affiliated entities, the information required under Exhibits 
C and D would have limited relevance to the Commission's review of an 
application

[[Page 14847]]

for exchange registration or to its oversight of a registered exchange.
---------------------------------------------------------------------------

    \26\ See Regulation ATS Adopting Release, supra note 9.
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    Based on the Applicant's representations, the indirect nature of 
the relationship between the Applicant and the Foreign Indirect 
Affiliates, and the information that the Applicant will provide with 
respect to the Foreign Direct Affiliates and the Foreign Indirect 
Affiliates, the Commission believes that it will have sufficient 
information to review the Applicant's Form 1 application and to make 
the determinations required under Sections 6(b) and 19(a) of the 
Exchange Act with respect to its application for registration as a 
national securities exchange.\27\ The Commission believes, further, 
that it will have the information necessary to oversee the Applicant's 
activities as a national securities exchange if the Commission were to 
approve the Applicant's Form 1 application. In particular, the 
Commission notes that the Applicant has represented that it would have 
no direct connection to the Foreign Indirect Affiliates, that the 
Foreign Indirect Affiliates would have no ability to influence the 
management or policies of the Applicant, and that the Foreign Indirect 
Affiliates would have no obligation to fund, or ability to materially 
affect the funding of, the Applicant. In addition, the Commission notes 
that the Applicant represented that: (1) The Foreign Indirect 
Affiliates have no ownership interest in the Applicant or in any of the 
controlling equity holders of the Applicant; and (2) there are no 
commercial dealings between the Applicant and the Foreign Indirect 
Affiliates.\28\
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    \27\ 15 U.S.C. 78f(b) and 78s(a). Section 6(b) of the Exchange 
Act enumerates certain determinations that the Commission must make 
with respect to an exchange before granting the registration of the 
exchange as a national securities exchange. The Commission will not 
grant an exchange registration as a national securities exchange 
unless the Commission determines that the exchange meets these 
requirements. See Regulation ATS Adopting Release, supra note 9, at 
IV.B.
    \28\ See Exemption Request, supra note 4, at 3.
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    Given the limited and indirect relationship between the Applicant 
and the Foreign Indirect Affiliates, as described above, the Commission 
believes that the detailed corporate and financial information required 
in Exhibits C and D with respect to the Foreign Indirect Affiliates is 
unnecessary for the Commission's review of the Applicant's Form 1 
application and would be unnecessary for the Commission's oversight of 
the Applicant as a registered national securities exchange following 
any Commission approval of its Form 1 application.
    For the reasons discussed above, the Commission finds that the 
conditional exemptive relief requested by the Applicant is appropriate 
in the public interest and is consistent with the protection of 
investors.
    It is ordered, pursuant to Section 36 of the Exchange Act,\29\ that 
the Applicant is exempt from the requirements to: (1) Include in its 
Form 1 application the information required in Exhibits C and D to Form 
1 with respect to the Foreign Indirect Affiliates; and (2) with respect 
to the Foreign Indirect Affiliates, update the information in Exhibits 
C and D to Form 1 as required by Exchange Act Rules 6a-2(a)(2), 6a-
2(b)(1), and 6a-2(c) subject to the following conditions:
---------------------------------------------------------------------------

    \29\ 15 U.S.C. 78mm.
---------------------------------------------------------------------------

    (i) The Applicant must provide a list of the names of the Foreign 
Indirect Affiliates;
    (ii) the Applicant must provide an organizational chart setting 
forth the affiliation of the Foreign Indirect Affiliates and the 
Foreign Direct Affiliates and the Applicant; and
    (iii) as part of Exhibit C to the Applicant's Form 1 Application, 
the Applicant must provide a description of the nature of the 
affiliation between the Foreign Indirect Affiliates and the Foreign 
Direct Affiliates and the Applicant.
    In addition, the Applicant must provide amendments to the 
information required under conditions (i) through (iii) above on or 
before June 30th of each year.

    By the Commission.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-05241 Filed 3-6-13; 8:45 am]
BILLING CODE 8011-01-P