Self-Regulatory Organizations; National Stock Exchange, Inc.; Notice of Filing of Proposed Rule Change in Connection With a Proposed Transaction in Which National Stock Exchange Holdings, Inc. Will Acquire Ownership of the Exchange From the CBOE Stock Exchange, LLC, 85-91 [2014-30703]
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Federal Register / Vol. 80, No. 1 / Friday, January 2, 2015 / Notices
to Rule 19b–4(f)(6)(iii),19 the
Commission may designate a shorter
time if such action is consistent with the
protection of investors and the public
interest. The Exchange has asked the
Commission to waive the 30-day
operative delay so that the proposal may
become operative before the pilot’s
expiration. The Exchange states that an
immediate operative date is necessary in
order to immediately implement the
proposed rule change so that member
organizations could continue to benefit
from the pilot program without
interruption after December 31, 2014.
The Commission believes that
waiving the 30-day operative delay is
consistent with the protection of
investors and the public interest.
Specifically, the Commission believes
that the proposal would allow the pilot
to continue uninterrupted, thereby
avoiding any potential investor
confusion that could result from the
temporary interruption in the pilot
program. For this reason, the
Commission designates the proposed
rule change to be operative on December
31, 2014.20
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
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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–
NYSEMKT–2014–110 on the subject
line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEMKT–2014–110. This
19 17
CFR 240.19b–4(f)(6)(iii).
purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
20 For
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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
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NYSEMKT–2014–110 and should be
submitted on or before January 23, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
Brent J. Fields,
Secretary.
[FR Doc. 2014–30706 Filed 12–31–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–73944; File No. SR–NSX–
2014–017]
Self-Regulatory Organizations;
National Stock Exchange, Inc.; Notice
of Filing of Proposed Rule Change in
Connection With a Proposed
Transaction in Which National Stock
Exchange Holdings, Inc. Will Acquire
Ownership of the Exchange From the
CBOE Stock Exchange, LLC
December 24, 2014.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Exchange Act’’ or the ‘‘Act’’) 1 and Rule
19b–4 thereunder,2 notice is hereby
21 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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given that, on December 16, 2014,
National Stock Exchange, Inc. (‘‘NSX®’’
or the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or 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 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
The Exchange has filed proposed rule
changes in connection with a proposed
transaction (the ‘‘Transaction’’) whereby
National Stock Exchange Holdings, Inc.
(‘‘NSX Holdings’’), a corporation
organized under the laws of the State of
Delaware,3 will purchase all of the
outstanding shares of NSX from the
CBOE Stock Exchange, LLC (‘‘CBSX’’).
Pursuant to the Transaction, the
Exchange will become a wholly-owned
subsidiary of NSX Holdings. In
addition, the Exchange is proposing
that, in connection with the
Transaction, the Commission approve
certain amendments in the
organizational documents of NSX.
To effectuate the transaction, the
Exchange seeks to obtain the
Commission’s approval of: The
proposed Second Amended and
Restated Certificate of Incorporation of
NSX Holdings; 4 the proposed By-laws
of NSX Holdings; proposed
amendments to the Exchange’s current
Amended and Restated Certificate of
Incorporation; 5 and Exchange’s Second
Amended By-laws.
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, 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
3 NSX Holdings was incorporated in the State of
Delaware on August 19, 2014.
4 The original Certificate of Incorporation for NSX
Holdings was amended on October 2, 2014 to
amend the total number of shares of common stock
that NSX Holdings was authorized to issue from
10,000 shares to 100,000 shares with a par value of
$0.01.
5 The original Certificate of Incorporation for NSX
was filed with the Delaware Secretary of State on
December 12, 2005 and was restated on June 29,
2006. It was subsequently restated and amended in
December 2011 in connection with the acquisition
of the Exchange by CBSX.
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Federal Register / Vol. 80, No. 1 / Friday, January 2, 2015 / Notices
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
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1. Purpose
The Proposed Transaction
Since December 2011, NSX has been
wholly owned by CBSX.6 CBSX is the
record and beneficial owner of 100
shares of NSX, par value $.01 per share,
which represents all of the issued and
outstanding shares of capital stock of
NSX. Pursuant to the terms of a Stock
Purchase Agreement dated September 8,
2014 (the ‘‘SPA’’) by and among CBSX,
NSX Holdings and NSX, NSX Holdings
has agreed to acquire all of the
outstanding capital stock of NSX upon
the closing of the Transaction (the
‘‘Closing’’) in return for cash
consideration paid to CBSX.7 The SPA
provides that the Closing will occur
only after all required regulatory
approvals have been obtained and all
other conditions precedent to Closing
have been satisfied or waived.8
Following the completion of the
Transaction, NSX will remain a
Delaware for-profit stock corporation,
with authority to issue 1,000 shares of
common stock. At all times, all of the
outstanding stock of NSX shall be
owned by NSX Holdings.
NSX will remain registered as a
national securities exchange under
6 The acquisition of NSX by CBSX was approved
by the Commission in December 2011. See
Exchange Act Release No. 66071 (December 29,
2011), 77 FR 521 (January 5, 2012) (SR–NSX–2011–
14 and SR–CBOE–2011–107).
7 CBSX is partially owned by the Chicago Board
Options Exchange, Incorporated (‘‘CBOE’’) and
operated as a facility of CBOE. Pursuant to a rule
amendment filed with the Commission, CBSX
ceased trading operations as of the close of business
on April 30, 2014. See Exchange Act Release No.
71880 (April 4, 2014), 79 FR 19950 (April 10, 2014)
(SR–CBOE–2014–036).
8 Conditions precedent to Closing are formal
requirements set forth in the SPA that must be
satisfied or waived on or prior to the Closing date.
These conditions include the completion of all
required filings with or notices to, and all
approvals, authorizations and actions by, the SEC,
the Financial Industry Regulatory Authority, the
Secretary of State of the State of Delaware and other
applicable governmental entities and regulatory
bodies necessary to effect the completion of the
Transaction; compliance by each party with
specified representations, warranties and
covenants, and receipt of necessary approvals by
each party.
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Section 6 of the Act 9 and a selfregulatory organization (‘‘SRO’’) as
defined in Section 3(a)(26) of the Act.10
The Exchange plans to reopen its
marketplace for the trading of equity
securities as soon as practicable after the
Closing and plans to operate the
Exchange pursuant to the rules of the
Exchange currently in effect and using
the Exchange’s existing trading system;
however, the re-opening of the
Exchange marketplace is subject to
additional rule changes filed with the
Commission and such rule changes
being approved or becoming effective.11
NSX’s Rules, all of which remain in full
force and effect as of the date of the
instant rule filing, will continue to
govern the activities of NSX up to and
after the Closing, and NSX will continue
to discharge its SRO responsibilities
pursuant to NSX’s registration under
Section 6 of the Act.12 NSX Holdings
represents that, assuming
consummation of the Transaction, it
will at all times ensure that the
Exchange has access to financial
resources sufficient for it to discharge its
SRO responsibilities after the date of
Closing.
Currently, NSX has one affiliated
entity, NSX Securities LLC (‘‘NSX
Securities’’). Pursuant to Exchange Rule
2.11(a), NSX Securities provides the
outbound routing of orders from the
Exchange to other trading centers. NSX
Securities operates as a facility (as
defined in Section 3(a)(2) of the
Exchange Act) 13 of NSX. An SRO
unaffiliated with the Exchange carries
out oversight and enforcement
responsibilities as the designated
examining authority designated by the
Commission pursuant to Section 17d–1
of the Act 14 with the responsibility for
examining NSX Securities for
9 15
U.S.C. 78f.
U.S.C. 78c(a)(26).
11 Pursuant to a rule filing with the Commission,
the Exchange ceased trading operations as of the
close of business on May 30, 2014. See Exchange
Act Release No. 72107 (May 6, 2014), 79 FR 27017
(May 12, 2014) (SR–NSX–2014–14). NSX Rules
continue to remain in full force and effect through
and after May 30, 2014. The rule filing stated that
the Exchange shall file a proposed rule change
pursuant to Rule 19b-4 of the Exchange Act prior
to any resumption of trading on the Exchange
pursuant to Chapter XI (Trading Rules) of the NSX
Rules.
12 Id. The Exchange will also continue to adhere
to the Undertakings in the Commission’s 2005
Order Instituting Administrative and Cease-andDesist Proceedings Pursuant to Sections 19(h) and
21C of the Securities Exchange Act of 1934, Making
Findings, and Imposing Sanctions, including those
Undertakings related to a Regulatory Oversight
Committee and the separation of the regulatory
functions from the commercial interests of NSX.
See Securities Exchange Act Release No. 51714
(May 19, 2005).
13 15 U.S.C. 78c(a)(2).
14 15 U.S.C. 78q(d)(1).
10 15
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compliance with the applicable
financial responsibility rules. As
provided in Exchange Rule 2.11(a)(3),
an ETP Holder’s use of NSX Securities
to route orders to another trading center
will be optional; any ETP Holder that
does not want to use NSX Securities
may use other routers to route orders to
other trading centers.
Further as provided in Exchange Rule
2.11(b), the books, records, premises,
officers, agents, directors and employees
of NSX Securities as a facility of the
Exchange are deemed to be those of the
Exchange for purposes of, and oversight
pursuant to the Exchange Act, and the
books and records of NSX securities as
a facility of the Exchange are at all times
subject to inspection and copying by the
Exchange and by the Commission.
The Exchange states that, upon the
Closing of the Transaction, all of the
provisions of Rule 2.11 governing the
operation of NSX Securities will remain
in full force and effect, and the sole
change impacting NSX Securities will
be the change of ownership of the
Exchange as the NSX Securities’ sole
affiliate. The Exchange, on behalf of
NSX Securities, will provide notice to,
and obtain any required consents from,
FINRA for the NSX change of
ownership.
NSX has submitted to the
Commission for its approval (i) a
proposed Second Amended and
Restated Certificate of Incorporation for
NSX Holdings (the ‘‘NSX Holdings A&R
Certificate’’); (ii) proposed By-laws of
NSX Holdings (the ‘‘NSX Holdings Bylaws’’); (iii) the proposed Second
Amended and Restated Certificate of
Incorporation of NSX (the ‘‘NSX A&R
Certificate’’); and (iv) the proposed
Third Amended and Restated NSX Bylaws (the ‘‘NSX A&R By-laws’’), which
are proposed to be adopted or amended
as described below.
The NSX Holdings A&R Certificate and
NSX Holdings By-Laws
The instant filing seeks Commission
approval for the NSX Holdings A&R
Certificate and for the NSX Holdings Bylaws. The key provisions of these
organizational documents impacting the
governance of NSX Holdings and its
status as the holding company of NSX
are described below.
First, as proposed, the total number of
shares which the NSX Holdings is
authorized to issue is 100,000 shares of
common stock with a par value of $0.01.
The NSX Holdings A&R Certificate
carries forward the authorized share
amount contained in the October 2,
2014, amendment to the Certificate of
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Incorporation for NSX Holdings.15 At
present, NSX Holdings plans to issue
10,000 shares of common stock.
NSX Holdings Ownership and Voting
Ownership of NSX Holdings as the
new holding company of NSX will be
divided among two categories of
shareholders. The largest category is
comprised of 12 individual investors
who, in the aggregate, own
approximately 64% of the outstanding
shares of NSX Holdings.16 At Closing,
one individual investor may own in the
aggregate more than 40% of the
outstanding shares of NSX Holdings.
Four of these 12 individual investors in
NSX Holdings, owning in the aggregate
approximately 60% of the outstanding
shares, are securities industry and
technology professionals with extensive
experience, including senior executive
managerial experience, in areas
including capital markets and
investment management, exchange
operations, electronic trading, and
systems architecture and
development.17 The Exchange
anticipates that these four individuals
will assume senior executive roles in
the Exchange’s management upon the
completion of the Transaction.
The second category of shareholders
of NSX Holdings consists of two
affiliated entities: Thor Investment
Holdings LLC (‘‘Thor’’) 18 and TIP–1
LLC (‘‘TIP–1’’),19 each a Delaware
limited liability company. Thor will
own approximately 16% of the
outstanding equity of NSX Holdings,
and TIP–1 will own approximately 20%
of the outstanding equity of NSX
Holdings. Thor will also have an
ownership interest in TIP–1 and will act
15 NSX
Holdings A&R Certificate, Article Fourth.
to Rule 6a–2 under the Act, the
Exchange will, within 10 days after the Closing,
amend its Form 1 (APPLICATION FOR, AND
AMENDMENTS TO APPLICATION FOR,
REGISTRATION AS A NATIONAL SECURITIES
EXCHANGE OR EXEMPTION FROM
REGISTRATION PURSUANT TO SECTION 5 OF
THE EXCHANGE ACT) filed with the Commission.
Exhibit K of Form 1, which is applicable only to
‘‘. . . exchanges that have one or more owners,
shareholders, or partners that are not also members
of the exchange. . . .’’, requires the Exchange to
provide a list of each shareholder that directly owns
5% or more of a class of a voting security of the
Exchange. As noted above, the Exchange proposes
that 100% of the issued and outstanding shares of
NSX will be directly owned by NSX Holdings.
17 The remaining eight individual shareholders of
NSX Holdings own shares in amounts ranging from
approximately 0.063% to 1.269%. One or more of
these individuals may become an employee of NSX
upon the completion of the Transaction.
18 The Certificate of Formation for Thor was filed
with the Secretary of State of Delaware on July 23,
2014.
19 The Certificate of Formation for TIP–1 was filed
with the Secretary of State of Delaware on July 23,
2014.
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16 Pursuant
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as its managing member. In turn, Thor’s
management will be vested exclusively
in a managing member, Thor Managing
Member LLC (‘‘Thor MM’’). Thor MM
will have no ownership interest in
either Thor or TIP–1. There are three
individual members of Thor MM, all of
whom are also members of Thor.
Currently, nine individuals are members
of Thor. It is anticipated that there will
be six members of TIP–1, including
Thor. Each such member thereby has an
ownership interest in the respective
entities’ share of the outstanding equity
of NSX Holdings.20
The Exchange notes that there is no
commonality or overlap between the 12
individual investors owning
approximately 64% of the outstanding
shares of NSX Holdings and the
individual members of Thor and TIP–1
which own the remaining
approximately 36% of the outstanding
equity of NSX Holdings. No individual
has an ownership interest in both Thor
and TIP–1. None of the individual
members of Thor or TIP–1 will become
an employee of NSX, and none of these
individuals will have any role in the
day-to-day management or operation of
the Exchange.
With respect to voting rights, Thor
will have the power to exercise TIP–1’s
voting rights in NSX Holdings, such that
Thor will have the ability to exercise an
approximate 36% voting interest of NSX
Holdings. The Exchange notes, however,
that because of the voting limitations in
the NSX Holdings A&R Certificate
described below, Thor will not be able
to exercise its voting interest in excess
of the 20% voting limitation.
The NSX Holdings A&R Certificate
provides for limitations on the
ownership and voting of shares of NSX
Holdings. Subject to certain exceptions,
no Person,21 either alone or with its
Related Persons,22 shall be permitted at
20 Currently, approximately 15% of the
ownership interest in Thor remains unassigned and
may be distributed to other individuals at the
discretion of the Managing Member. This
approximate 15% unassigned interest represents
less than 5% of the total outstanding shares of NSX
Holdings.
21 The term ‘‘Person’’ as used in the NSX
Holdings A&R Certificate means a natural person,
partnership (general or limited), corporation,
limited liability company, trust or unincorporated
organization, or a governmental entity or political
subdivision thereof. See NSX Holdings A&R
Certificate, Article Fourth, Section B.
22 The term ‘‘Related Person’’ means: (1) With
respect to any Person, any executive officer (as such
term is defined in Rule 3b–7 under the Exchange
Act) director, general partner, manager or managing
member, as applicable, and all ‘‘affiliates’’ and
‘‘associates’’ of such Person (as those terms are
defined in Rule 12b–2 under the Exchange Act),
and other Person(s) whose beneficial ownership of
shares of stock of the Corporation with the power
to vote on any matter would be aggregated with
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87
any time to own beneficially shares of
stock of NSX Holdings representing in
the aggregate more than 40% of the then
outstanding votes entitled to be cast on
any matter (the ‘‘Concentration
Limitation’’).23 As proposed, any Person
(either alone or with their Related
Persons) who is in excess of the
Concentration Limitation as of the filing
date of the NSX Holdings A&R
Certificate will have an exemption, not
to extend past May 19, 2015, from the
Concentration Limitation. The Exchange
believes that permitting an exemption
for this period is a reasonable and
measured approach that balances the
capital contributions made by
shareholders at the time of the
acquisition of NSX by NSX Holdings
with the post-acquisition governance
goal of reducing share ownership
concentrations.24
The Concentration Limitation applies
unless and until: (i) A Person (either
alone or with its Related Persons)
intending to acquire such ownership
shall have delivered to the Board of
Directors of NSX Holdings (the
‘‘Holdings Board’’) a notice in writing,
not less than 45 days (or such shorter
period as the Holdings Board shall
expressly consent to) prior to the
acquisition of any shares that would
cause such Person (either alone or with
its Related Persons) to exceed the
Concentration Limitation, of its
intention to acquire such ownership; (ii)
the Holdings Board shall have resolved
to expressly permit such ownership;
and (iii) such resolution shall have been
filed with the Commission under
Section 19(b) of the Exchange Act and
such first Person’s beneficial ownership of such
stock or deemed to be beneficially owned by such
first Person pursuant to Rules 13d–3 and 13d–5
under the Exchange Act; and (2) in the case of any
Person constituting a member (as that term is
defined in Section 3(a)(3)(A) of the Exchange Act)
of NSX (defined in NSX Rule 1.5E(1) as a Holder
of an Equity Trading Permit) for so long as NSX
remains a registered national securities exchange,
such Person and any broker or dealer with which
such Person is associated; and any other Person(s)
with which such Person has 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 the stock
of NSX Holdings; and in the case of a Person that
is a natural person, any relative or spouse of such
Person, or any relative of such spouse, who has the
same home as such Person or who is a director or
officer of NSX Holdings or any of its parents or
subsidiaries. Id.
23 See NSX Holdings A&R Certificate, Article
Fourth, Section C(i).
24 The Exchange notes that, in connection with a
prior restructuring of a national securities exchange,
the Commission approved a period of time for the
reduction of share ownership concentrations by
certain individuals. See Exchange Act Release No.
45803 (April 23, 2002), 67 FR 21306 (April 30,
2002) (SR–ISE–2002–01).
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Federal Register / Vol. 80, No. 1 / Friday, January 2, 2015 / Notices
shall have become effective
thereunder.25
Article Fourth, Section C(i)(b) of the
NSX Holdings A&R Certificate provides
for additional safeguards that must be
satisfied before the Holdings Board may
adopt a resolution permitting share
ownership in excess of the
Concentration Limitation. Specifically,
the provision states that, subject to its
fiduciary obligations pursuant to the
Delaware General Corporation Law, the
Holdings Board shall not adopt any
resolution permitting a Person to exceed
the Concentration Limitation unless the
Holdings Board first determines that
such acquisition of beneficial ownership
by such Person, either alone or with its
Related Persons (i) will not impair any
of NSX Holdings’ or NSX’s ability to
discharge its responsibilities under the
Exchange Act and the rules and
regulations thereunder and is otherwise
in the best interests of NSX Holdings
and its stockholders; (ii) such
acquisition of beneficial ownership by
such Person, either alone or with its
Related Persons, will not impair the
Commission’s ability to enforce the
Exchange Act; and (iii) neither such
Person nor any of its Related Persons is
subject to any statutory disqualification
as defined in Section 3(a)(39) of the
Exchange Act.26
The NSX Holdings A&R Certificate
further provides that, in making such
determinations, the Holdings Board may
impose such conditions and restrictions
on a Person and its Related Persons
owning any shares of stock of NSX
Holdings entitled to vote on any matter
as it may in its sole discretion deem
necessary, appropriate or desirable in
furtherance of the objectives of the
Exchange Act and the governance of
NSX Holdings.27 Moreover, in the event
that a Person, either alone or with its
Related Persons, at any time owns
beneficially shares of stock of NSX
Holdings in excess of the Concentration
Limitation without having first satisfied
the requirement of providing timely
written notice to the Holdings Board,
and the Holdings Board expressly
resolving to permit such ownership and
filing the resolution with the
Commission pursuant to Section 19(b)
of the Exchange Act, NSX Holdings
shall call from such Person and its
Related Persons that number of shares of
stock of NSX Holdings entitled to vote
on any matter that exceeds the
Concentration Limitation at a price
25 See NSX Holdings A&R Certificate, Article
Fourth, Section C(i)(a).
26 15 U.S.C. 78c(a)(39).
27 See NSX Holdings A&R Certificate, Article
Fourth, Section C(i)(b).
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equal to the par value of such shares of
stock.28
The NSX Holdings A&R Certificate
further provides for limitations on
ownership of shares by ETP Holders of
NSX.29 For so long as NSX remains a
registered national securities exchange
under Section 6 of the Exchange Act, no
ETP Holder, either alone or with its
Related Persons, shall be permitted at
any time to own beneficially shares of
stock of NSX Holdings representing in
the aggregate more than 20% of the then
outstanding votes of NSX Holdings
stock entitled to be cast on any matter.30
If any ETP Holder, either alone or with
its Related Persons, at any time owns
beneficially shares of stock in excess of
such 20% limitation, NSX Holdings
shall call from such ETP Holder and its
Related Persons that number of shares of
stock of NSX Holdings entitled to vote
on any matter that exceeds such 20%
limitation a price equal to the par value
of such shares of stock.31
With respect to voting limitations,
Article Fourth, Section B(i) of the NSX
Holdings A&R Certificate provides that,
notwithstanding any other provisions of
that document, no Person, either alone
or with its Related Persons, as of any
record date for the determination of
stockholders entitled to vote on any
matter, shall be entitled to vote or cause
the voting of shares of stock of NSX
Holdings, in person or by proxy or
through any voting agreement or other
arrangement, to the extent such shares
represent in the aggregate more than
20% of the then outstanding votes
entitled to be cast on such matter (the
‘‘Voting Limitation’’). If votes have been
cast, in person or by proxy or through
any voting agreement or other
arrangement, by any Person, either
alone or with its Related Persons, in
excess of the Voting Limitation, NSX
Holdings shall disregard such votes cast
in excess of the Voting Limitation.32 The
28 See NSX Holdings A&R Certificate, Article
Fourth, Section C(i)(c).
29 NSX Rule 1.5E.(1) defines the term ‘‘ETP’’ as
an Equity Trading Permit issued by the Exchange
for effecting approved securities transactions on the
Exchange’s trading facilities. An ETP may be issued
to a sole proprietor, partnership, corporation,
limited liability company or other organization
which is a registered broker dealer pursuant to
Section 15 of the Exchange Act and which has been
approved by the Exchange.
30 See NSX Holdings A&R Certificate, Article
Fourth, Section C(ii).
31 Id.
32 The NSX Holdings A&R Certificate, Article
Fourth, Section B(i) prohibits ‘‘Nonvoting
Agreements’’ by or among Persons and their Related
Persons that would result in shares of stock that
would be subject to such agreement not being voted
on any matter, or the withholding of any proxy
relating those shares, where the effect of such an
agreement would be to enable any Person, either
alone or with its Related Persons, to vote or cause
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Voting Limitation shall apply unless
and until a Person (and its related
persons) owning any shares of stock of
NSX Holdings entitled to vote on such
matter shall have delivered to the
Holdings Board a notice in writing, not
less than 45 days (or such shorter period
as the Holdings Board shall expressly
consent to) prior to any vote, of its
intention to cast more than 20% of the
votes entitled to be cast on such matter
or to enter into an agreement, plan or
other arrangement that would violate
the Nonvoting Agreement Prohibition,
as applicable; the Holdings Board shall
have resolved to expressly permit such
exercise or the entering into of such
agreement, plan or other arrangement,
as applicable, and such resolution shall
have been filed with the Commission
under Section 19(b) Exchange Act and
shall have become effective
thereunder.33
Regulatory Jurisdiction; Regulatory
Obligations of NSX Holdings, Its
Officers and Directors
The NSX Holdings A&R Certificate
and the NSX Holdings By-laws contain
explicit provisions governing the
operation of NSX Holdings with respect
to regulatory jurisdiction and the
regulatory obligations of the company
and its directors, officers and
employees.
Article VI of the NSX Holdings Bylaws, entitled ‘‘SRO Functions of NSX,’’
governs the conduct of NSX Holdings as
the holding company for NSX with
respect to NSX’s status and obligations
as a registered national securities
exchange and an SRO.34 Among the key
provisions are requirements that, for so
long as NSX Holdings shall, directly or
indirectly, control NSX, the directors,
officers, employees and agents of NSX
Holdings shall:
• Give due regard to the preservation
of the independence of NSX’s SRO
function and its obligations to investors
and the general public and shall not
take actions which would interfere with
the effectuation of decisions by the NSX
the voting of shares of representing in the aggregate
more than 20% of the then outstanding votes
entitled to be cast (the ‘‘Nonvoting Agreement
Prohibition’’). Any share owner seeking a waiver of
the Nonvoting Agreement Prohibition so as to be
able to enter into such an agreement would also be
required to obtain express permission of the
Holdings Board through a duly authorized written
resolution that is filed with and approved by the
Commission under Section 19(b) of the Exchange
Act.
33 See NSX Holdings A&R Certificate, Article
Fourth, Section B(ii).
34 The NSX Holdings A&R Certificate, Articles
Twelfth through Sixteenth contains substantially
the same provisions with respect to NSX Holdings’
obligations as the controlling entity for the
Exchange as an SRO.
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Board relating to NSX’s regulatory
function (including disciplinary
matters) or which would interfere with
the Exchange’s ability to carry out its
responsibilities under the Exchange
Act; 35
• to the fullest extent permitted by
applicable law, maintain the
confidentiality of all information that
comes into their possession pertaining
to the SRO function of the Exchange
(including but not limited to
disciplinary matters, trading data,
trading practices and audit information)
contained in the books and records of
NSX; 36 and
• maintain its books and records
within the United States and subject at
all times to inspection and copying by
the SEC and by NSX to the extent
related to the administration and
operation of NSX.37
For so long as NSX remains a
registered national securities exchange,
the books, records, premises, officers,
directors, employees and agents of NSX
Holdings shall be deemed to be the
books, records, premises, officers,
directors, employees and agents of NSX
for purposes of and subject to oversight
pursuant to the Exchange Act.38 NSX
Holdings and its officers, directors,
employees and agents by virtue of their
acceptance of such positions, shall be
deemed to irrevocably submit to the
jurisdiction of the United States federal
courts, the Commission and NSX for the
purposes of any suit, action or
proceeding pursuant to the United
States federal securities laws, and the
rules or regulations thereunder, arising
out of, or relating to, the activities of
NSX, and by virtue of their acceptance
of any such position, shall be deemed to
waive, and agree not to assert by way of
motion, as a defense or otherwise in any
such suit, action or proceeding, any
claims that it or they are not personally
subject to the jurisdiction of the United
States federal courts, the Commission or
the Exchange, that the suit, action or
proceeding is an inconvenient forum or
that the venue of the suit, action or
proceeding is improper, or that the
subject matter of that suit, action or
proceeding may not be enforced in or by
such courts or agency. NSX Holdings
and its officers, directors, employees
and agents also agree that they will
maintain an agent in the United States
for the service of process of a claim
35 See NSX Holdings By-laws, Article VI, Section
6.1, ‘‘Non-Interference.’’
36 See NSX Holdings By-laws, Article VI, Section
6.2, ‘‘Confidentiality of Information.’’
37 See NSX Holdings By-laws, Article VI, Sections
6.4 and 6.5, ‘‘Books and Records.’’
38 See NSX Holdings A&R Certificate, Article
Fourteenth.
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89
Exchange’s own rules, in the same
manner as prior to the Transaction. The
Commission will continue to have
plenary regulatory authority over NSX,
as is currently the case.
arising out of, or relating to, the
activities of the Exchange.39 NSX
Holdings is required to comply with the
federal securities laws, rules and
regulations and to cooperate with the
SEC and with NSX pursuant to and to
the extent of their respective regulatory
authority.40 The officers, directors,
employees and agents of NSX Holdings,
by virtue of their acceptance of such
position, shall be deemed to agree to
comply with the federal securities laws
and the rules and regulations
thereunder and to cooperate with the
SEC and the Exchange in respect of the
SEC’s oversight responsibilities
regarding NSX and the self-regulatory
functions and responsibilities of NSX.
NSX Holdings will take reasonable steps
necessary to cause its officers, directors,
employees and agents to so cooperate.41
Further, NSX Holdings shall take
reasonable steps necessary to cause its
officers, directors, employees and
agents, prior to accepting a position as
an officer, director, employee or agent,
as applicable, of NSX Holdings, to
consent in writing to the applicability to
them of the provisions of Article VI of
the NSX Holdings By-laws, as
applicable, with respect to their
activities related to the Exchange.42
The Exchange submits that the NSX
Holdings A&R Certificate and NSX
Holdings By-laws establish an
organizational framework that assures
that the Commission and NSX will have
regulatory jurisdiction and authority
over NSX Holdings and its directors,
officers, employees and agents, and will
preserve the independence and
effectiveness of the Exchange in
discharging its self-regulatory
responsibilities pursuant to the
Exchange Act. The provisions of those
documents do not impair the ability of
NSX to carry out its functions and
responsibilities as a national securities
exchange under the Act and the rules
and regulations promulgated
thereunder, or the ability of the
Commission to enforce the Act and the
rules and regulations promulgated
thereunder. NSX will continue to
enforce the Exchange Act, the
Commission’s rules thereunder, and the
Proposed Changes to NSX
Organizational Documents in
Connection With the Transaction
The completion of the Transaction
and the resulting change in ownership
from CBSX to NSX Holdings will
require certain amendments in the NSX
A&R Certificate and the NSX A&R Bylaws. Under the Exchange’s proposed
amendments in the NSX A&R
Certificate, the provision that the
Exchange shall at all times be wholly
owned by CBSX will be removed and
replaced by a provision requiring that
the Exchange at all times be wholly
owned by NSX Holdings.43
Under the proposed changes in the
NSX A&R By-laws, because of the
transfer of ownership of the Exchange
from CBSX to NSX Holdings, references
in the NSX A&R By-laws specific to
CBSX are to be replaced, where
applicable, with references to NSX
Holdings. Specifically, Article III,
Section 3.2(c) of the By-laws will be
amended to eliminate any requirements
relating to CBSX and will provide that
no two or more directors of NSX may be
partners, officers or directors of the
same person 44 or be affiliated with the
same person, unless such affiliation is
with a national securities exchange or
NSX Holdings. In addition, the
Exchange proposes to amend Section
10.1 in the NSX A&R By-laws
(Management of the Exchange) to delete
Paragraph (b), which requires 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. Upon the
39 See NSX Holdings A&R Certificate, Article
Twelfth; NSX Holdings By-laws, Article VI, Section
6. Additionally, as noted, no individual who is
subject to any statutory disqualification as defined
in Section 3(a)(39) of the Exchange Act may serve
as a director or officer of NSX Holdings.
40 See NSX Holdings A&R Certificate, Article
Fifteenth; NSX Holdings By-laws, Article VI,
Section 6.6.
41 See NSX Holdings A&R Certificate, Articles
Twelfth and Fifteenth; NSX Holdings By-laws,
Article VI, Section 6.6.
42 See NSX Holdings By-laws, Article VI, Section
6.8, ‘‘Consent To Application.’’
43 See Paragraph Fourth of the NSX A&R
Certificate, which states that: ‘‘[t]he total number of
shares of stock which the [Exchange] shall have
authority to issue is one thousand (1,000) shares of
common stock having a par value of $.01 per share.
At all times, all of the outstanding stock . . . shall
be owned by National Stock Exchange Holdings,
Inc. . . .’’
44 Article I, Section 1.1 of the NSX A&R By-laws
provides that ‘‘[t]he term ‘person’ shall mean a
natural person, partnership, corporation, limited
liability company, entity, government, or political
subdivision, agency or instrumentality of a
government.’’
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Federal Register / Vol. 80, No. 1 / Friday, January 2, 2015 / Notices
completion of the Transaction, such
requirements will no longer apply
because CBSX will no longer ‘‘control’’
NSX and will, in fact, have no
ownership interest in NSX.
Section 10.2 of the NSX A&R By-laws
replaces references to CBSX with
references to NSX Holdings. The
provision would provide that no
members of the Holdings Board who are
not also members of the NSX Board, or
any officers, staff, counsel or advisors of
NSX Holdings who are not also officers,
staff, counsel or advisors of NSX (or any
committees of NSX), shall be allowed to
participate in any meetings of the NSX
Board or any NSX committee pertaining
to the self-regulatory function of NSX,
including disciplinary matters. These
amendments are intended to prevent
any undue influence or any perception
of undue influence over the Exchange’s
self-regulatory functions by NSX
Holdings.
Finally, the Exchange is proposing in
the NSX A&R By-laws certain clarifying
amendments, and other non-substantive
conforming amendments, that are
consistent with the changes described
above. Specifically, in Article I, the
Exchange proposes to add a definition
of ‘‘ETP Holder Representative’’ to mean
a representative of any Exchange or NSX
Board committee who is an officer,
director, employee or agent of an ETP
Holder. The term ‘‘ETP Holder
representative’’ was used in Section 5.7
but was not previously defined. The
introduction of this defined term will
add additional clarity and transparency
to the NSX A&R By-laws. The
formatting of the defined terms in
Article I have been made uniform
throughout.
asabaliauskas on DSK5VPTVN1PROD with NOTICES
NSX Board of Directors
The NSX A&R By-laws provide that
the NSX Board shall consist of no fewer
than seven or more than 25 directors.45
The NSX Board’s composition 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.46 The steps
undertaken to transition membership in
the NSX Board from the current
directors to the post-Closing directors
will conform to the requirements set
forth in the NSX A&R By-laws.
Vacancies in NSX Board Committees
will be filled in accordance with Article
V, Section 5.2, of the NSX A&R By-laws.
2. Statutory Basis
Section 6(b)(5) of the Act requires that
the rules of a national securities
exchange be designed to, among other
things, promote just and equitable
principles of trade, remove
impediments to and perfect the
mechanism of a free and open market
and a national market system and, in
general, protect investors and the public
interest.
The Exchange submits that the
proposed Transaction, and the
organizational documents of NSX
Holdings and of NSX, as proposed to be
adopted or amended as the case may be
to effectuate the Transaction, are
consistent with Section 6(b) of the
Act,47 in general and Section 6(b)(5) in
particular.48 The NSX Holdings A&R
Certificate and the NSX Holdings Bylaws establish an organizational
structure for NSX Holdings, as the
holding company for NSX, that will
assure that the Commission and NSX
are able to fully discharge their
respective obligations to effectively
regulate the equity securities markets
and NSX marketplace. Specifically,
among other key provisions, NSX
Holdings and its directors, officers,
employees and agents, are subject to the
exclusive jurisdiction of the U.S. federal
courts, the SEC, and NSX. NSX
Holdings is obligated to comply with
the federal securities laws and the rules
and regulations thereunder, as are its
directors, officers and employees. The
books, records, premises, directors,
employees and agents of NSX Holdings
are deemed to be those of NSX for
purposes of and subject to oversight
pursuant to the Exchange Act.49 These
provisions operate to assure that the
Exchange’s rules meet the statutory
requirements of Section 6(b)(5) of the
Act to promote just and equitable
principles of trade and to protect
investors and the public interest.
Further, the Exchange submits that
the instant rule proposal is designed to
effectuate changes to the NSX’s
ownership necessary to consummate the
Transaction and provide for an efficient
transition into a new organizational
structure and a resumption of trading on
the Exchange’s marketplace as soon as
practicable after approval by the
Commission of the Transaction and
subject to additional rule changes filed
47 15
45 See
NSX A&R By-laws, Article III, Section
3.2(a). This provision will remain unchanged.
46 See NSX A&R By-laws, Article III, Section
3.2(b).
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U.S.C. 78f.
U.S.C. 78f(b).
49 See NSX Holdings A&R Certificate, Articles
Twelfth through Sixteenth; NSX Holdings A&R Bylaws, Article VI.
48 15
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with, or filed with and approved by, the
Commission. To this extent, the
Exchange submits that the rule changes
are consistent with Section 6(b)(5) in
that they are designed to remove
impediments to and perfect the
mechanism of a free and open market
and national market system.
The proposed amendments to NSX’s
organizational documents are intended
to align the Exchange’s governance and
organizational structure with the
proposed ownership by NSX Holdings.
As a result of the discontinuation of
CBSX’s ownership of the Exchange, the
provisions relating to CBSX will be
removed and replaced, where
applicable, with references to NSX
Holdings. The Exchange believes that
the proposed ownership and corporate
structure will allow for greater
efficiencies that will operate to enhance
the national market system and the
governance and operation of the
Exchange as an SRO.
The Exchange submits that the
Transaction and the accompanying rule
changes proposed in this rule filing are
consistent with Section 6(b)(5) in that
they promote the protection of investors
and the public interest. The Exchange
submits that its proposal and the new
ownership structure are consistent with
the public interest in promoting
efficient markets, reducing
administrative burdens on exchanges,
and providing flexibility where
appropriate to the effective discharge of
SRO responsibilities. The amendments
are intended to provide market
participants, investors and the public
with a clear and transparent description
of the proposed changes to the
Exchange’s ownership and governance
structure as reflected in governing
corporate documents.
The Exchange believes that the
consummation of the Transaction and
the subsequent re-opening of the
Exchange’s marketplace for trading
equity securities after all necessary rule
changes have been filed with, or filed
with and approved by, the Commission,
will operate to enhance competition
among the equity securities markets and
provide new trading opportunities for
market participants and the investing
public.
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. The rule
change is being proposed in connection
with the Transaction that will, upon
completion, change the ownership
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structure of the Exchange with the result
that the ownership interest of CBSX will
terminate and the Exchange will be a
wholly-owned subsidiary of NSX
Holdings. Upon completion of the
Transaction, NSX will move
expeditiously to obtain all necessary
regulatory approvals and reopen trading
on NSX. This will operate to enhance
rather than burden competition by
restoring the NSX as an operating
national securities exchange to which
investors may direct their order flow,
thus providing a further competitive
venue for the trading of equity securities
and affording market participants and
the investing public additional
opportunities to execute orders. As
such, the Exchange believes that there is
no 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 not solicited or
received written comments on the
proposed rule change from market
participants or others.
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.
asabaliauskas on DSK5VPTVN1PROD with NOTICES
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:
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NSX–2014–017. 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
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–NSX–
2014–017 and should be submitted on
or before January 23, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.50
Brent J. Fields,
Secretary.
[FR Doc. 2014–30703 Filed 12–31–14; 8:45 am]
BILLING CODE 8011–01–P
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–2014–017 on the subject line.
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–73939; File No. SR–EDGA–
2014–34]
Self-Regulatory Organizations; EDGA
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Rules 2.11,
2.12, 11.11 and 11.14 To Replace
References to ‘‘Direct Edge ECN LLC
d/b/a DE Route’’ and ‘‘DE Route’’ With
‘‘BATS Trading, Inc.’’
December 24, 2014.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on December
22, 2014, EDGA Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGA’’) 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
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange filed a proposed rule
change to amend Rules 2.11, 2.12, 11.11
and 11.14 to replace references to
‘‘Direct Edge ECN LLC d/b/a DE Route’’
and ‘‘DE Route’’ with ‘‘BATS Trading,
Inc.’’ (‘‘BATS Trading’’). The Exchange
does not propose to amend the
requirements of any of these rules.
The text of the proposed rule change
is available at the Exchange’s Web site
at https://www.directedge.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 parts of such
statements.
1 15
50 17
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U.S.C. 78s(b)(1).
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]]>Agencies
[Federal Register Volume 80, Number 1 (Friday, January 2, 2015)]
[Notices]
[Pages 85-91]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-30703]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73944; File No. SR-NSX-2014-017]
Self-Regulatory Organizations; National Stock Exchange, Inc.;
Notice of Filing of Proposed Rule Change in Connection With a Proposed
Transaction in Which National Stock Exchange Holdings, Inc. Will
Acquire Ownership of the Exchange From the CBOE Stock Exchange, LLC
December 24, 2014.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Exchange Act'' or the ``Act'') \1\ and Rule 19b-4 thereunder,\2\
notice is hereby given that, on December 16, 2014, National Stock
Exchange, Inc. (``NSX[supreg]'' or the ``Exchange'') filed with the
Securities and Exchange Commission (``SEC'' or 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 solicit comment on the proposed rule change from
interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange has filed proposed rule changes in connection with a
proposed transaction (the ``Transaction'') whereby National Stock
Exchange Holdings, Inc. (``NSX Holdings''), a corporation organized
under the laws of the State of Delaware,\3\ will purchase all of the
outstanding shares of NSX from the CBOE Stock Exchange, LLC (``CBSX'').
Pursuant to the Transaction, the Exchange will become a wholly-owned
subsidiary of NSX Holdings. In addition, the Exchange is proposing
that, in connection with the Transaction, the Commission approve
certain amendments in the organizational documents of NSX.
---------------------------------------------------------------------------
\3\ NSX Holdings was incorporated in the State of Delaware on
August 19, 2014.
---------------------------------------------------------------------------
To effectuate the transaction, the Exchange seeks to obtain the
Commission's approval of: The proposed Second Amended and Restated
Certificate of Incorporation of NSX Holdings; \4\ the proposed By-laws
of NSX Holdings; proposed amendments to the Exchange's current Amended
and Restated Certificate of Incorporation; \5\ and Exchange's Second
Amended By-laws.
---------------------------------------------------------------------------
\4\ The original Certificate of Incorporation for NSX Holdings
was amended on October 2, 2014 to amend the total number of shares
of common stock that NSX Holdings was authorized to issue from
10,000 shares to 100,000 shares with a par value of $0.01.
\5\ The original Certificate of Incorporation for NSX was filed
with the Delaware Secretary of State on December 12, 2005 and was
restated on June 29, 2006. It was subsequently restated and amended
in December 2011 in connection with the acquisition of the Exchange
by 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, 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
[[Page 86]]
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
The Proposed Transaction
Since December 2011, NSX has been wholly owned by CBSX.\6\ CBSX is
the record and beneficial owner of 100 shares of NSX, par value $.01
per share, which represents all of the issued and outstanding shares of
capital stock of NSX. Pursuant to the terms of a Stock Purchase
Agreement dated September 8, 2014 (the ``SPA'') by and among CBSX, NSX
Holdings and NSX, NSX Holdings has agreed to acquire all of the
outstanding capital stock of NSX upon the closing of the Transaction
(the ``Closing'') in return for cash consideration paid to CBSX.\7\ The
SPA provides that the Closing will occur only after all required
regulatory approvals have been obtained and all other conditions
precedent to Closing have been satisfied or waived.\8\ Following the
completion of the Transaction, NSX will remain a Delaware for-profit
stock corporation, with authority to issue 1,000 shares of common
stock. At all times, all of the outstanding stock of NSX shall be owned
by NSX Holdings.
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\6\ The acquisition of NSX by CBSX was approved by the
Commission in December 2011. See Exchange Act Release No. 66071
(December 29, 2011), 77 FR 521 (January 5, 2012) (SR-NSX-2011-14 and
SR-CBOE-2011-107).
\7\ CBSX is partially owned by the Chicago Board Options
Exchange, Incorporated (``CBOE'') and operated as a facility of
CBOE. Pursuant to a rule amendment filed with the Commission, CBSX
ceased trading operations as of the close of business on April 30,
2014. See Exchange Act Release No. 71880 (April 4, 2014), 79 FR
19950 (April 10, 2014) (SR-CBOE-2014-036).
\8\ Conditions precedent to Closing are formal requirements set
forth in the SPA that must be satisfied or waived on or prior to the
Closing date. These conditions include the completion of all
required filings with or notices to, and all approvals,
authorizations and actions by, the SEC, the Financial Industry
Regulatory Authority, the Secretary of State of the State of
Delaware and other applicable governmental entities and regulatory
bodies necessary to effect the completion of the Transaction;
compliance by each party with specified representations, warranties
and covenants, and receipt of necessary approvals by each party.
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NSX will remain registered as a national securities exchange under
Section 6 of the Act \9\ and a self-regulatory organization (``SRO'')
as defined in Section 3(a)(26) of the Act.\10\ The Exchange plans to
reopen its marketplace for the trading of equity securities as soon as
practicable after the Closing and plans to operate the Exchange
pursuant to the rules of the Exchange currently in effect and using the
Exchange's existing trading system; however, the re-opening of the
Exchange marketplace is subject to additional rule changes filed with
the Commission and such rule changes being approved or becoming
effective.\11\ NSX's Rules, all of which remain in full force and
effect as of the date of the instant rule filing, will continue to
govern the activities of NSX up to and after the Closing, and NSX will
continue to discharge its SRO responsibilities pursuant to NSX's
registration under Section 6 of the Act.\12\ NSX Holdings represents
that, assuming consummation of the Transaction, it will at all times
ensure that the Exchange has access to financial resources sufficient
for it to discharge its SRO responsibilities after the date of Closing.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78f.
\10\ 15 U.S.C. 78c(a)(26).
\11\ Pursuant to a rule filing with the Commission, the Exchange
ceased trading operations as of the close of business on May 30,
2014. See Exchange Act Release No. 72107 (May 6, 2014), 79 FR 27017
(May 12, 2014) (SR-NSX-2014-14). NSX Rules continue to remain in
full force and effect through and after May 30, 2014. The rule
filing stated that the Exchange shall file a proposed rule change
pursuant to Rule 19b-4 of the Exchange Act prior to any resumption
of trading on the Exchange pursuant to Chapter XI (Trading Rules) of
the NSX Rules.
\12\ Id. The Exchange will also continue to adhere to the
Undertakings in the Commission's 2005 Order Instituting
Administrative and Cease-and-Desist Proceedings Pursuant to Sections
19(h) and 21C of the Securities Exchange Act of 1934, Making
Findings, and Imposing Sanctions, including those Undertakings
related to a Regulatory Oversight Committee and the separation of
the regulatory functions from the commercial interests of NSX. See
Securities Exchange Act Release No. 51714 (May 19, 2005).
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Currently, NSX has one affiliated entity, NSX Securities LLC (``NSX
Securities''). Pursuant to Exchange Rule 2.11(a), NSX Securities
provides the outbound routing of orders from the Exchange to other
trading centers. NSX Securities operates as a facility (as defined in
Section 3(a)(2) of the Exchange Act) \13\ of NSX. An SRO unaffiliated
with the Exchange carries out oversight and enforcement
responsibilities as the designated examining authority designated by
the Commission pursuant to Section 17d-1 of the Act \14\ with the
responsibility for examining NSX Securities for compliance with the
applicable financial responsibility rules. As provided in Exchange Rule
2.11(a)(3), an ETP Holder's use of NSX Securities to route orders to
another trading center will be optional; any ETP Holder that does not
want to use NSX Securities may use other routers to route orders to
other trading centers.
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\13\ 15 U.S.C. 78c(a)(2).
\14\ 15 U.S.C. 78q(d)(1).
---------------------------------------------------------------------------
Further as provided in Exchange Rule 2.11(b), the books, records,
premises, officers, agents, directors and employees of NSX Securities
as a facility of the Exchange are deemed to be those of the Exchange
for purposes of, and oversight pursuant to the Exchange Act, and the
books and records of NSX securities as a facility of the Exchange are
at all times subject to inspection and copying by the Exchange and by
the Commission.
The Exchange states that, upon the Closing of the Transaction, all
of the provisions of Rule 2.11 governing the operation of NSX
Securities will remain in full force and effect, and the sole change
impacting NSX Securities will be the change of ownership of the
Exchange as the NSX Securities' sole affiliate. The Exchange, on behalf
of NSX Securities, will provide notice to, and obtain any required
consents from, FINRA for the NSX change of ownership.
NSX has submitted to the Commission for its approval (i) a proposed
Second Amended and Restated Certificate of Incorporation for NSX
Holdings (the ``NSX Holdings A&R Certificate''); (ii) proposed By-laws
of NSX Holdings (the ``NSX Holdings By-laws''); (iii) the proposed
Second Amended and Restated Certificate of Incorporation of NSX (the
``NSX A&R Certificate''); and (iv) the proposed Third Amended and
Restated NSX By-laws (the ``NSX A&R By-laws''), which are proposed to
be adopted or amended as described below.
The NSX Holdings A&R Certificate and NSX Holdings By-Laws
The instant filing seeks Commission approval for the NSX Holdings
A&R Certificate and for the NSX Holdings By-laws. The key provisions of
these organizational documents impacting the governance of NSX Holdings
and its status as the holding company of NSX are described below.
First, as proposed, the total number of shares which the NSX
Holdings is authorized to issue is 100,000 shares of common stock with
a par value of $0.01. The NSX Holdings A&R Certificate carries forward
the authorized share amount contained in the October 2, 2014, amendment
to the Certificate of
[[Page 87]]
Incorporation for NSX Holdings.\15\ At present, NSX Holdings plans to
issue 10,000 shares of common stock.
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\15\ NSX Holdings A&R Certificate, Article Fourth.
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NSX Holdings Ownership and Voting
Ownership of NSX Holdings as the new holding company of NSX will be
divided among two categories of shareholders. The largest category is
comprised of 12 individual investors who, in the aggregate, own
approximately 64% of the outstanding shares of NSX Holdings.\16\ At
Closing, one individual investor may own in the aggregate more than 40%
of the outstanding shares of NSX Holdings. Four of these 12 individual
investors in NSX Holdings, owning in the aggregate approximately 60% of
the outstanding shares, are securities industry and technology
professionals with extensive experience, including senior executive
managerial experience, in areas including capital markets and
investment management, exchange operations, electronic trading, and
systems architecture and development.\17\ The Exchange anticipates that
these four individuals will assume senior executive roles in the
Exchange's management upon the completion of the Transaction.
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\16\ Pursuant to Rule 6a-2 under the Act, the Exchange will,
within 10 days after the Closing, amend its Form 1 (APPLICATION FOR,
AND AMENDMENTS TO APPLICATION FOR, REGISTRATION AS A NATIONAL
SECURITIES EXCHANGE OR EXEMPTION FROM REGISTRATION PURSUANT TO
SECTION 5 OF THE EXCHANGE ACT) filed with the Commission. Exhibit K
of Form 1, which is applicable only to ``. . . exchanges that have
one or more owners, shareholders, or partners that are not also
members of the exchange. . . .'', requires the Exchange to provide a
list of each shareholder that directly owns 5% or more of a class of
a voting security of the Exchange. As noted above, the Exchange
proposes that 100% of the issued and outstanding shares of NSX will
be directly owned by NSX Holdings.
\17\ The remaining eight individual shareholders of NSX Holdings
own shares in amounts ranging from approximately 0.063% to 1.269%.
One or more of these individuals may become an employee of NSX upon
the completion of the Transaction.
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The second category of shareholders of NSX Holdings consists of two
affiliated entities: Thor Investment Holdings LLC (``Thor'') \18\ and
TIP-1 LLC (``TIP-1''),\19\ each a Delaware limited liability company.
Thor will own approximately 16% of the outstanding equity of NSX
Holdings, and TIP-1 will own approximately 20% of the outstanding
equity of NSX Holdings. Thor will also have an ownership interest in
TIP-1 and will act as its managing member. In turn, Thor's management
will be vested exclusively in a managing member, Thor Managing Member
LLC (``Thor MM''). Thor MM will have no ownership interest in either
Thor or TIP-1. There are three individual members of Thor MM, all of
whom are also members of Thor. Currently, nine individuals are members
of Thor. It is anticipated that there will be six members of TIP-1,
including Thor. Each such member thereby has an ownership interest in
the respective entities' share of the outstanding equity of NSX
Holdings.\20\
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\18\ The Certificate of Formation for Thor was filed with the
Secretary of State of Delaware on July 23, 2014.
\19\ The Certificate of Formation for TIP-1 was filed with the
Secretary of State of Delaware on July 23, 2014.
\20\ Currently, approximately 15% of the ownership interest in
Thor remains unassigned and may be distributed to other individuals
at the discretion of the Managing Member. This approximate 15%
unassigned interest represents less than 5% of the total outstanding
shares of NSX Holdings.
---------------------------------------------------------------------------
The Exchange notes that there is no commonality or overlap between
the 12 individual investors owning approximately 64% of the outstanding
shares of NSX Holdings and the individual members of Thor and TIP-1
which own the remaining approximately 36% of the outstanding equity of
NSX Holdings. No individual has an ownership interest in both Thor and
TIP-1. None of the individual members of Thor or TIP-1 will become an
employee of NSX, and none of these individuals will have any role in
the day-to-day management or operation of the Exchange.
With respect to voting rights, Thor will have the power to exercise
TIP-1's voting rights in NSX Holdings, such that Thor will have the
ability to exercise an approximate 36% voting interest of NSX Holdings.
The Exchange notes, however, that because of the voting limitations in
the NSX Holdings A&R Certificate described below, Thor will not be able
to exercise its voting interest in excess of the 20% voting limitation.
The NSX Holdings A&R Certificate provides for limitations on the
ownership and voting of shares of NSX Holdings. Subject to certain
exceptions, no Person,\21\ either alone or with its Related
Persons,\22\ shall be permitted at any time to own beneficially shares
of stock of NSX Holdings representing in the aggregate more than 40% of
the then outstanding votes entitled to be cast on any matter (the
``Concentration Limitation'').\23\ As proposed, any Person (either
alone or with their Related Persons) who is in excess of the
Concentration Limitation as of the filing date of the NSX Holdings A&R
Certificate will have an exemption, not to extend past May 19, 2015,
from the Concentration Limitation. The Exchange believes that
permitting an exemption for this period is a reasonable and measured
approach that balances the capital contributions made by shareholders
at the time of the acquisition of NSX by NSX Holdings with the post-
acquisition governance goal of reducing share ownership
concentrations.\24\
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\21\ The term ``Person'' as used in the NSX Holdings A&R
Certificate means a natural person, partnership (general or
limited), corporation, limited liability company, trust or
unincorporated organization, or a governmental entity or political
subdivision thereof. See NSX Holdings A&R Certificate, Article
Fourth, Section B.
\22\ The term ``Related Person'' means: (1) With respect to any
Person, any executive officer (as such term is defined in Rule 3b-7
under the Exchange Act) director, general partner, manager or
managing member, as applicable, and all ``affiliates'' and
``associates'' of such Person (as those terms are defined in Rule
12b-2 under the Exchange Act), and other Person(s) whose beneficial
ownership of shares of stock of the Corporation with the power to
vote on any matter would be aggregated with such first Person's
beneficial ownership of such stock or deemed to be beneficially
owned by such first Person pursuant to Rules 13d-3 and 13d-5 under
the Exchange Act; and (2) in the case of any Person constituting a
member (as that term is defined in Section 3(a)(3)(A) of the
Exchange Act) of NSX (defined in NSX Rule 1.5E(1) as a Holder of an
Equity Trading Permit) for so long as NSX remains a registered
national securities exchange, such Person and any broker or dealer
with which such Person is associated; and any other Person(s) with
which such Person has 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 the stock of
NSX Holdings; and in the case of a Person that is a natural person,
any relative or spouse of such Person, or any relative of such
spouse, who has the same home as such Person or who is a director or
officer of NSX Holdings or any of its parents or subsidiaries. Id.
\23\ See NSX Holdings A&R Certificate, Article Fourth, Section
C(i).
\24\ The Exchange notes that, in connection with a prior
restructuring of a national securities exchange, the Commission
approved a period of time for the reduction of share ownership
concentrations by certain individuals. See Exchange Act Release No.
45803 (April 23, 2002), 67 FR 21306 (April 30, 2002) (SR-ISE-2002-
01).
---------------------------------------------------------------------------
The Concentration Limitation applies unless and until: (i) A Person
(either alone or with its Related Persons) intending to acquire such
ownership shall have delivered to the Board of Directors of NSX
Holdings (the ``Holdings Board'') a notice in writing, not less than 45
days (or such shorter period as the Holdings Board shall expressly
consent to) prior to the acquisition of any shares that would cause
such Person (either alone or with its Related Persons) to exceed the
Concentration Limitation, of its intention to acquire such ownership;
(ii) the Holdings Board shall have resolved to expressly permit such
ownership; and (iii) such resolution shall have been filed with the
Commission under Section 19(b) of the Exchange Act and
[[Page 88]]
shall have become effective thereunder.\25\
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\25\ See NSX Holdings A&R Certificate, Article Fourth, Section
C(i)(a).
---------------------------------------------------------------------------
Article Fourth, Section C(i)(b) of the NSX Holdings A&R Certificate
provides for additional safeguards that must be satisfied before the
Holdings Board may adopt a resolution permitting share ownership in
excess of the Concentration Limitation. Specifically, the provision
states that, subject to its fiduciary obligations pursuant to the
Delaware General Corporation Law, the Holdings Board shall not adopt
any resolution permitting a Person to exceed the Concentration
Limitation unless the Holdings Board first determines that such
acquisition of beneficial ownership by such Person, either alone or
with its Related Persons (i) will not impair any of NSX Holdings' or
NSX's ability to discharge its responsibilities under the Exchange Act
and the rules and regulations thereunder and is otherwise in the best
interests of NSX Holdings and its stockholders; (ii) such acquisition
of beneficial ownership by such Person, either alone or with its
Related Persons, will not impair the Commission's ability to enforce
the Exchange Act; and (iii) neither such Person nor any of its Related
Persons is subject to any statutory disqualification as defined in
Section 3(a)(39) of the Exchange Act.\26\
---------------------------------------------------------------------------
\26\ 15 U.S.C. 78c(a)(39).
---------------------------------------------------------------------------
The NSX Holdings A&R Certificate further provides that, in making
such determinations, the Holdings Board may impose such conditions and
restrictions on a Person and its Related Persons owning any shares of
stock of NSX Holdings entitled to vote on any matter as it may in its
sole discretion deem necessary, appropriate or desirable in furtherance
of the objectives of the Exchange Act and the governance of NSX
Holdings.\27\ Moreover, in the event that a Person, either alone or
with its Related Persons, at any time owns beneficially shares of stock
of NSX Holdings in excess of the Concentration Limitation without
having first satisfied the requirement of providing timely written
notice to the Holdings Board, and the Holdings Board expressly
resolving to permit such ownership and filing the resolution with the
Commission pursuant to Section 19(b) of the Exchange Act, NSX Holdings
shall call from such Person and its Related Persons that number of
shares of stock of NSX Holdings entitled to vote on any matter that
exceeds the Concentration Limitation at a price equal to the par value
of such shares of stock.\28\
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\27\ See NSX Holdings A&R Certificate, Article Fourth, Section
C(i)(b).
\28\ See NSX Holdings A&R Certificate, Article Fourth, Section
C(i)(c).
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The NSX Holdings A&R Certificate further provides for limitations
on ownership of shares by ETP Holders of NSX.\29\ For so long as NSX
remains a registered national securities exchange under Section 6 of
the Exchange Act, no ETP Holder, either alone or with its Related
Persons, shall be permitted at any time to own beneficially shares of
stock of NSX Holdings representing in the aggregate more than 20% of
the then outstanding votes of NSX Holdings stock entitled to be cast on
any matter.\30\ If any ETP Holder, either alone or with its Related
Persons, at any time owns beneficially shares of stock in excess of
such 20% limitation, NSX Holdings shall call from such ETP Holder and
its Related Persons that number of shares of stock of NSX Holdings
entitled to vote on any matter that exceeds such 20% limitation a price
equal to the par value of such shares of stock.\31\
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\29\ NSX Rule 1.5E.(1) defines the term ``ETP'' as an Equity
Trading Permit issued by the Exchange for effecting approved
securities transactions on the Exchange's trading facilities. An ETP
may be issued to a sole proprietor, partnership, corporation,
limited liability company or other organization which is a
registered broker dealer pursuant to Section 15 of the Exchange Act
and which has been approved by the Exchange.
\30\ See NSX Holdings A&R Certificate, Article Fourth, Section
C(ii).
\31\ Id.
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With respect to voting limitations, Article Fourth, Section B(i) of
the NSX Holdings A&R Certificate provides that, notwithstanding any
other provisions of that document, no Person, either alone or with its
Related Persons, as of any record date for the determination of
stockholders entitled to vote on any matter, shall be entitled to vote
or cause the voting of shares of stock of NSX Holdings, in person or by
proxy or through any voting agreement or other arrangement, to the
extent such shares represent in the aggregate more than 20% of the then
outstanding votes entitled to be cast on such matter (the ``Voting
Limitation''). If votes have been cast, in person or by proxy or
through any voting agreement or other arrangement, by any Person,
either alone or with its Related Persons, in excess of the Voting
Limitation, NSX Holdings shall disregard such votes cast in excess of
the Voting Limitation.\32\ The Voting Limitation shall apply unless and
until a Person (and its related persons) owning any shares of stock of
NSX Holdings entitled to vote on such matter shall have delivered to
the Holdings Board a notice in writing, not less than 45 days (or such
shorter period as the Holdings Board shall expressly consent to) prior
to any vote, of its intention to cast more than 20% of the votes
entitled to be cast on such matter or to enter into an agreement, plan
or other arrangement that would violate the Nonvoting Agreement
Prohibition, as applicable; the Holdings Board shall have resolved to
expressly permit such exercise or the entering into of such agreement,
plan or other arrangement, as applicable, and such resolution shall
have been filed with the Commission under Section 19(b) Exchange Act
and shall have become effective thereunder.\33\
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\32\ The NSX Holdings A&R Certificate, Article Fourth, Section
B(i) prohibits ``Nonvoting Agreements'' by or among Persons and
their Related Persons that would result in shares of stock that
would be subject to such agreement not being voted on any matter, or
the withholding of any proxy relating those shares, where the effect
of such an agreement would be to enable any Person, either alone or
with its Related Persons, to vote or cause the voting of shares of
representing in the aggregate more than 20% of the then outstanding
votes entitled to be cast (the ``Nonvoting Agreement Prohibition'').
Any share owner seeking a waiver of the Nonvoting Agreement
Prohibition so as to be able to enter into such an agreement would
also be required to obtain express permission of the Holdings Board
through a duly authorized written resolution that is filed with and
approved by the Commission under Section 19(b) of the Exchange Act.
\33\ See NSX Holdings A&R Certificate, Article Fourth, Section
B(ii).
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Regulatory Jurisdiction; Regulatory Obligations of NSX Holdings, Its
Officers and Directors
The NSX Holdings A&R Certificate and the NSX Holdings By-laws
contain explicit provisions governing the operation of NSX Holdings
with respect to regulatory jurisdiction and the regulatory obligations
of the company and its directors, officers and employees.
Article VI of the NSX Holdings By-laws, entitled ``SRO Functions of
NSX,'' governs the conduct of NSX Holdings as the holding company for
NSX with respect to NSX's status and obligations as a registered
national securities exchange and an SRO.\34\ Among the key provisions
are requirements that, for so long as NSX Holdings shall, directly or
indirectly, control NSX, the directors, officers, employees and agents
of NSX Holdings shall:
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\34\ The NSX Holdings A&R Certificate, Articles Twelfth through
Sixteenth contains substantially the same provisions with respect to
NSX Holdings' obligations as the controlling entity for the Exchange
as an SRO.
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Give due regard to the preservation of the independence of
NSX's SRO function and its obligations to investors and the general
public and shall not take actions which would interfere with the
effectuation of decisions by the NSX
[[Page 89]]
Board relating to NSX's regulatory function (including disciplinary
matters) or which would interfere with the Exchange's ability to carry
out its responsibilities under the Exchange Act; \35\
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\35\ See NSX Holdings By-laws, Article VI, Section 6.1, ``Non-
Interference.''
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to the fullest extent permitted by applicable law,
maintain the confidentiality of all information that comes into their
possession pertaining to the SRO function of the Exchange (including
but not limited to disciplinary matters, trading data, trading
practices and audit information) contained in the books and records of
NSX; \36\ and
---------------------------------------------------------------------------
\36\ See NSX Holdings By-laws, Article VI, Section 6.2,
``Confidentiality of Information.''
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maintain its books and records within the United States
and subject at all times to inspection and copying by the SEC and by
NSX to the extent related to the administration and operation of
NSX.\37\
---------------------------------------------------------------------------
\37\ See NSX Holdings By-laws, Article VI, Sections 6.4 and 6.5,
``Books and Records.''
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For so long as NSX remains a registered national securities
exchange, the books, records, premises, officers, directors, employees
and agents of NSX Holdings shall be deemed to be the books, records,
premises, officers, directors, employees and agents of NSX for purposes
of and subject to oversight pursuant to the Exchange Act.\38\ NSX
Holdings and its officers, directors, employees and agents by virtue of
their acceptance of such positions, shall be deemed to irrevocably
submit to the jurisdiction of the United States federal courts, the
Commission and NSX for the purposes of any suit, action or proceeding
pursuant to the United States federal securities laws, and the rules or
regulations thereunder, arising out of, or relating to, the activities
of NSX, and by virtue of their acceptance of any such position, shall
be deemed to waive, and agree not to assert by way of motion, as a
defense or otherwise in any such suit, action or proceeding, any claims
that it or they are not personally subject to the jurisdiction of the
United States federal courts, the Commission or the Exchange, that the
suit, action or proceeding is an inconvenient forum or that the venue
of the suit, action or proceeding is improper, or that the subject
matter of that suit, action or proceeding may not be enforced in or by
such courts or agency. NSX Holdings and its officers, directors,
employees and agents also agree that they will maintain an agent in the
United States for the service of process of a claim arising out of, or
relating to, the activities of the Exchange.\39\ NSX Holdings is
required to comply with the federal securities laws, rules and
regulations and to cooperate with the SEC and with NSX pursuant to and
to the extent of their respective regulatory authority.\40\ The
officers, directors, employees and agents of NSX Holdings, by virtue of
their acceptance of such position, shall be deemed to agree to comply
with the federal securities laws and the rules and regulations
thereunder and to cooperate with the SEC and the Exchange in respect of
the SEC's oversight responsibilities regarding NSX and the self-
regulatory functions and responsibilities of NSX. NSX Holdings will
take reasonable steps necessary to cause its officers, directors,
employees and agents to so cooperate.\41\
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\38\ See NSX Holdings A&R Certificate, Article Fourteenth.
\39\ See NSX Holdings A&R Certificate, Article Twelfth; NSX
Holdings By-laws, Article VI, Section 6. Additionally, as noted, no
individual who is subject to any statutory disqualification as
defined in Section 3(a)(39) of the Exchange Act may serve as a
director or officer of NSX Holdings.
\40\ See NSX Holdings A&R Certificate, Article Fifteenth; NSX
Holdings By-laws, Article VI, Section 6.6.
\41\ See NSX Holdings A&R Certificate, Articles Twelfth and
Fifteenth; NSX Holdings By-laws, Article VI, Section 6.6.
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Further, NSX Holdings shall take reasonable steps necessary to
cause its officers, directors, employees and agents, prior to accepting
a position as an officer, director, employee or agent, as applicable,
of NSX Holdings, to consent in writing to the applicability to them of
the provisions of Article VI of the NSX Holdings By-laws, as
applicable, with respect to their activities related to the
Exchange.\42\
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\42\ See NSX Holdings By-laws, Article VI, Section 6.8,
``Consent To Application.''
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The Exchange submits that the NSX Holdings A&R Certificate and NSX
Holdings By-laws establish an organizational framework that assures
that the Commission and NSX will have regulatory jurisdiction and
authority over NSX Holdings and its directors, officers, employees and
agents, and will preserve the independence and effectiveness of the
Exchange in discharging its self-regulatory responsibilities pursuant
to the Exchange Act. The provisions of those documents do not impair
the ability of NSX to carry out its functions and responsibilities as a
national securities exchange under the Act and the rules and
regulations promulgated thereunder, or the ability of the Commission to
enforce the Act and the rules and regulations promulgated thereunder.
NSX will continue to enforce the Exchange Act, the Commission's rules
thereunder, and the Exchange's own rules, in the same manner as prior
to the Transaction. The Commission will continue to have plenary
regulatory authority over NSX, as is currently the case.
Proposed Changes to NSX Organizational Documents in Connection With the
Transaction
The completion of the Transaction and the resulting change in
ownership from CBSX to NSX Holdings will require certain amendments in
the NSX A&R Certificate and the NSX A&R By-laws. Under the Exchange's
proposed amendments in the NSX A&R Certificate, the provision that the
Exchange shall at all times be wholly owned by CBSX will be removed and
replaced by a provision requiring that the Exchange at all times be
wholly owned by NSX Holdings.\43\
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\43\ See Paragraph Fourth of the NSX A&R Certificate, which
states that: ``[t]he total number of shares of stock which the
[Exchange] shall have authority to issue is one thousand (1,000)
shares of common stock having a par value of $.01 per share. At all
times, all of the outstanding stock . . . shall be owned by National
Stock Exchange Holdings, Inc. . . .''
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Under the proposed changes in the NSX A&R By-laws, because of the
transfer of ownership of the Exchange from CBSX to NSX Holdings,
references in the NSX A&R By-laws specific to CBSX are to be replaced,
where applicable, with references to NSX Holdings. Specifically,
Article III, Section 3.2(c) of the By-laws will be amended to eliminate
any requirements relating to CBSX and will provide that no two or more
directors of NSX may be partners, officers or directors of the same
person \44\ or be affiliated with the same person, unless such
affiliation is with a national securities exchange or NSX Holdings. In
addition, the Exchange proposes to amend Section 10.1 in the NSX A&R
By-laws (Management of the Exchange) to delete Paragraph (b), which
requires 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.
Upon the
[[Page 90]]
completion of the Transaction, such requirements will no longer apply
because CBSX will no longer ``control'' NSX and will, in fact, have no
ownership interest in NSX.
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\44\ Article I, Section 1.1 of the NSX A&R By-laws provides that
``[t]he term `person' shall mean a natural person, partnership,
corporation, limited liability company, entity, government, or
political subdivision, agency or instrumentality of a government.''
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Section 10.2 of the NSX A&R By-laws replaces references to CBSX
with references to NSX Holdings. The provision would provide that no
members of the Holdings Board who are not also members of the NSX
Board, or any officers, staff, counsel or advisors of NSX Holdings who
are not also officers, staff, counsel or advisors of NSX (or any
committees of NSX), shall be allowed to participate in any meetings of
the NSX Board or any NSX committee pertaining to the self-regulatory
function of NSX, including disciplinary matters. These amendments are
intended to prevent any undue influence or any perception of undue
influence over the Exchange's self-regulatory functions by NSX
Holdings.
Finally, the Exchange is proposing in the NSX A&R By-laws certain
clarifying amendments, and other non-substantive conforming amendments,
that are consistent with the changes described above. Specifically, in
Article I, the Exchange proposes to add a definition of ``ETP Holder
Representative'' to mean a representative of any Exchange or NSX Board
committee who is an officer, director, employee or agent of an ETP
Holder. The term ``ETP Holder representative'' was used in Section 5.7
but was not previously defined. The introduction of this defined term
will add additional clarity and transparency to the NSX A&R By-laws.
The formatting of the defined terms in Article I have been made uniform
throughout.
NSX Board of Directors
The NSX A&R By-laws provide that the NSX Board shall consist of no
fewer than seven or more than 25 directors.\45\ The NSX Board's
composition 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.\46\ The steps undertaken to transition membership in the NSX
Board from the current directors to the post-Closing directors will
conform to the requirements set forth in the NSX A&R By-laws. Vacancies
in NSX Board Committees will be filled in accordance with Article V,
Section 5.2, of the NSX A&R By-laws.
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\45\ See NSX A&R By-laws, Article III, Section 3.2(a). This
provision will remain unchanged.
\46\ See NSX A&R By-laws, Article III, Section 3.2(b).
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2. Statutory Basis
Section 6(b)(5) of the Act requires that the rules of a national
securities exchange be designed to, among other things, promote just
and equitable principles of trade, remove impediments to and perfect
the mechanism of a free and open market and a national market system
and, in general, protect investors and the public interest.
The Exchange submits that the proposed Transaction, and the
organizational documents of NSX Holdings and of NSX, as proposed to be
adopted or amended as the case may be to effectuate the Transaction,
are consistent with Section 6(b) of the Act,\47\ in general and Section
6(b)(5) in particular.\48\ The NSX Holdings A&R Certificate and the NSX
Holdings By-laws establish an organizational structure for NSX
Holdings, as the holding company for NSX, that will assure that the
Commission and NSX are able to fully discharge their respective
obligations to effectively regulate the equity securities markets and
NSX marketplace. Specifically, among other key provisions, NSX Holdings
and its directors, officers, employees and agents, are subject to the
exclusive jurisdiction of the U.S. federal courts, the SEC, and NSX.
NSX Holdings is obligated to comply with the federal securities laws
and the rules and regulations thereunder, as are its directors,
officers and employees. The books, records, premises, directors,
employees and agents of NSX Holdings are deemed to be those of NSX for
purposes of and subject to oversight pursuant to the Exchange Act.\49\
These provisions operate to assure that the Exchange's rules meet the
statutory requirements of Section 6(b)(5) of the Act to promote just
and equitable principles of trade and to protect investors and the
public interest.
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\47\ 15 U.S.C. 78f.
\48\ 15 U.S.C. 78f(b).
\49\ See NSX Holdings A&R Certificate, Articles Twelfth through
Sixteenth; NSX Holdings A&R By-laws, Article VI.
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Further, the Exchange submits that the instant rule proposal is
designed to effectuate changes to the NSX's ownership necessary to
consummate the Transaction and provide for an efficient transition into
a new organizational structure and a resumption of trading on the
Exchange's marketplace as soon as practicable after approval by the
Commission of the Transaction and subject to additional rule changes
filed with, or filed with and approved by, the Commission. To this
extent, the Exchange submits that the rule changes are consistent with
Section 6(b)(5) in that they are designed to remove impediments to and
perfect the mechanism of a free and open market and national market
system.
The proposed amendments to NSX's organizational documents are
intended to align the Exchange's governance and organizational
structure with the proposed ownership by NSX Holdings. As a result of
the discontinuation of CBSX's ownership of the Exchange, the provisions
relating to CBSX will be removed and replaced, where applicable, with
references to NSX Holdings. The Exchange believes that the proposed
ownership and corporate structure will allow for greater efficiencies
that will operate to enhance the national market system and the
governance and operation of the Exchange as an SRO.
The Exchange submits that the Transaction and the accompanying rule
changes proposed in this rule filing are consistent with Section
6(b)(5) in that they promote the protection of investors and the public
interest. The Exchange submits that its proposal and the new ownership
structure are consistent with the public interest in promoting
efficient markets, reducing administrative burdens on exchanges, and
providing flexibility where appropriate to the effective discharge of
SRO responsibilities. The amendments are intended to provide market
participants, investors and the public with a clear and transparent
description of the proposed changes to the Exchange's ownership and
governance structure as reflected in governing corporate documents.
The Exchange believes that the consummation of the Transaction and
the subsequent re-opening of the Exchange's marketplace for trading
equity securities after all necessary rule changes have been filed
with, or filed with and approved by, the Commission, will operate to
enhance competition among the equity securities markets and provide new
trading opportunities for market participants and the investing public.
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. The rule change is being
proposed in connection with the Transaction that will, upon completion,
change the ownership
[[Page 91]]
structure of the Exchange with the result that the ownership interest
of CBSX will terminate and the Exchange will be a wholly-owned
subsidiary of NSX Holdings. Upon completion of the Transaction, NSX
will move expeditiously to obtain all necessary regulatory approvals
and reopen trading on NSX. This will operate to enhance rather than
burden competition by restoring the NSX as an operating national
securities exchange to which investors may direct their order flow,
thus providing a further competitive venue for the trading of equity
securities and affording market participants and the investing public
additional opportunities to execute orders. As such, the Exchange
believes that there is no 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 not solicited or received written comments on the
proposed rule change from market participants or others.
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-2014-017 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NSX-2014-017. 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
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NSX-2014-017 and should be
submitted on or before January 23, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\50\
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\50\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2014-30703 Filed 12-31-14; 8:45 am]
BILLING CODE 8011-01-P
