In the Matter of the Application of ISE Mercury, LLC for Registration as a National Securities Exchange; Findings, Opinion, and Order of the Commission, 6066-6084 [2016-02061]
Agencies
[Federal Register Volume 81, Number 23 (Thursday, February 4, 2016)] [Notices] [Pages 6066-6084] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 2016-02061] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-76998; File No. 10-221] In the Matter of the Application of ISE Mercury, LLC for Registration as a National Securities Exchange; Findings, Opinion, and Order of the Commission January 29, 2016. I. Introduction On September 29, 2014, ISE Mercury, LLC (``ISE Mercury'' or ``Exchange'') submitted to the Securities and Exchange Commission (``Commission'') an Application for Registration as a National Securities Exchange (``Form 1 Application'') \1\ under Section 6 of the Securities Exchange Act of 1934 (``Act'').\2\ On June 26, 2015, ISE Mercury submitted Amendment No. 1 to its Form 1 Application.\3\ Notice of the Form 1 Application, as modified by Amendment No. 1, was published for comment in the Federal Register on September 16, 2015.\4\ The Commission received one comment letter regarding the Form 1 Application.\5\ ISE Mercury submitted a response to comments on December 7, 2015.\6\ On January 8, 2016, ISE Mercury submitted Amendment No. 2 to the Form 1 Application.\7\ --------------------------------------------------------------------------- \1\ ISE Mercury, in conjunction with its submission of the Form 1 Application, requested an exemption under Section 36(a)(1) of the Act from certain requirements of Rules 6a-1(a) and 6a-2 of the Act. On September 9, 2015, the Commission issued an order granting ISE Mercury exemptive relief, subject to certain conditions, in connection with the filing of its Form 1 Application. See Securities Exchange Act Release No. 75867 (September 9, 2015), 80 FR 55395 (September 15, 2015). Because the Form 1 Application was not considered filed without the exemptive relief, the date of filing of such application is September 9, 2015. Id. \2\ 15 U.S.C. 78f. \3\ Amendment No. 1, among other things, includes changes to the Limited Liability Company Agreement of ISE Mercury (``ISE Mercury LLC Agreement'') and the Constitution of ISE Mercury (``ISE Mercury Constitution'') concerning board composition and fair representation of the Exchange's members, use of confidential information for non- regulatory purposes, and the use of regulatory funds. Amendment No. 1 also includes revisions to the proposed rules of ISE Mercury. Amendment No. 1 further provides additional descriptions in Exhibit E to the Form 1 Application regarding ISE Mercury's compliance with Regulation Systems Compliance and Integrity (``Regulation SCI''). \4\ See Securities Exchange Act Release No. 75884 (September 10, 2015), 80 FR 55691 (``Notice''). \5\ See Letter from Kurt Eckert, Principal, Wolverine Trading, LLC (``Wolverine''), to Elizabeth M. Murphy, Secretary, Commission, dated October 23, 2014 (``Wolverine Letter''). \6\ See Letter from Michael Simon, General Counsel and Secretary, ISE Mercury, to Brent J. Fields, Secretary, Commission, dated December 7, 2015 (``ISE Mercury Response Letter''). \7\ Amendment No. 2, among other things, also includes revisions to the proposed rules of ISE Mercury to reflect changes to comparable ISE rules since the filing of Amendment No. 1. The changes proposed in Amendment No. 2 are not substantive, are consistent with the existing rules of other registered national securities exchanges, and do not raise any new or novel regulatory issues. --------------------------------------------------------------------------- II. Discussion Under Sections 6(b) and 19(a) of the Act,\8\ the Commission shall by order grant an application for registration as a national securities exchange if the Commission finds, among other things, that the proposed exchange is so organized and has the capacity to carry out the purposes of the Act and to comply, and to enforce compliance by its members and persons associated with its members, with the provisions of the Act, the rules and regulations thereunder, and the rules of the exchange. --------------------------------------------------------------------------- \8\ 15 U.S.C. 78f(b) and 15 U.S.C. 78s(a), respectively. --------------------------------------------------------------------------- As discussed in greater detail below, the Commission finds, after consideration of the comment letter and the Exchange's response thereto, that ISE Mercury's application for exchange registration meets the requirements of the Act and the rules and regulations thereunder. Further, the Commission finds that the proposed rules of ISE Mercury are consistent with Section 6 of the Act in that, among other things, they assure a fair representation of the Exchange's members in the selection of its directors and administration of its affairs and provide that one or more directors will be representative of issuers and investors and not be associated with a member of the exchange, or with a broker or dealer; \9\ and that they are designed to prevent fraudulent and manipulative acts and practices, promote just and equitable principles of trade, foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, and remove impediments to and perfect the mechanisms of a free and open market and a national market system and, in general, protect investors and the public interest and are not designed to permit unfair discrimination between customers, issuers, or broker- dealers.\10\ Finally, the [[Page 6067]] Commission finds that ISE Mercury's proposed rules do not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act.\11\ --------------------------------------------------------------------------- \9\ See 15 U.S.C. 78f(b)(3). \10\ See 15 U.S.C. 78f(b)(5). \11\ See 15 U.S.C. 78f(b)(8). --------------------------------------------------------------------------- A. Overview of Ownership of ISE Mercury ISE Mercury is structured as a Delaware limited liability company (``LLC'') and is a wholly-owned subsidiary of International Securities Exchange Holdings, Inc. (``ISE Holdings'').\12\ ISE Holdings, in turn, is a wholly-owned subsidiary of U.S. Exchange Holdings, Inc. (``U.S. Exchange Holdings''), which is wholly-owned by Eurex Frankfurt AG, a German stock corporation (``Eurex Frankfurt''), and Deutsche B[ouml]rse AG (``Deutsche B[ouml]rse,'' and together with U.S. Exchange Holdings and Eurex Frankfurt, the ``Upstream Owners'').\13\ --------------------------------------------------------------------------- \12\ Following any Commission grant of registration to ISE Mercury, ISE Holdings will be the sole holding company of three registered national securities exchanges: International Securities Exchange LLC (``ISE''), ISE Gemini Exchange, LLC (``ISE Gemini''), and ISE Mercury. See Exhibit C to the Form 1 Application, Section M. \13\ Eurex Frankfurt holds an 85% interest in U.S. Exchange Holdings, and Deutsche B[ouml]rse holds the remaining 15%. In turn, Deutsche B[ouml]rse holds a 100% interest in Eurex Frankfurt. The current upstream ownership structure of ISE Mercury is the result of the acquisition of ISE Holdings by Eurex Frankfurt in 2007 (the ``Eurex Acquisition'')1 and a corporate reorganizations in 2014.1 See Securities Exchange Act Release No. 56955 (December 13, 2007), 72 FR 71979 (December 19, 2007) (File No. SR-ISE-2007-101) (order approving a transaction in which ISE Holdings became a wholly-owned indirect subsidiary of Eurex Frankfurt) (``Eurex Acquisition Order''); and Securities Exchange Act Release Nos. 73530 (November 5, 2014), 79 FR 67224 (November 12, 2014) (SR-ISE-2014-44); 73860 (December 17, 2014), 79 FR 77066 (December 23, 2014); 73531 (November 5, 2014), 79 FR 67215 (November 12, 2014) (SR-ISEGemini- 2014-24); and 73861 (December 17, 2014), 79 FR 77064 (December 23, 2014). --------------------------------------------------------------------------- B. Governance of ISE Mercury 1. ISE Mercury Board of Directors The board of directors of ISE Mercury (``ISE Mercury Board'' or ``Board'') will be its governing body and will possess all of the powers necessary for the management of its business and affairs, including governance of ISE Mercury as a self-regulatory organization (``SRO'').\14\ The ISE Mercury Board will be comprised of no fewer than eight, but no more than 16, directors.\15\ Specifically, at least 50% of the ISE Mercury Board must be comprised of Non-Industry Directors,\16\ of which at least one of the Non-Industry Directors must be a Public Director.\17\ Further, the ISE Mercury Board will include the President/Chief Executive Officer as a director.\18\ Moreover, at least 30% of the ISE Mercury Board must be officers, directors or partners of ISE Mercury members, and must be elected by a plurality of holders of Exchange Rights \19\ (``Industry Directors''), of which at least: (i) one must be elected by a plurality of holders of Primary Market Maker (``PMM'') Exchange Rights, (ii) one must be elected by a plurality of holders of Competitive Market Maker (``CMM'') Exchange Rights, and (iii) one must be elected by a plurality of holders of Electronic Access Member (``EAM'') Exchange Rights, provided that the number of each type of Industry Director shall always be equal.\20\ --------------------------------------------------------------------------- \14\ See ISE Mercury Constitution, Article III, Section 3.1. \15\ See ISE Mercury Constitution, Article III, Section 3.2(a). \16\ See ISE Mercury Constitution, Article III, Section 3.2(b)(ii). Under the ISE Mercury Constitution, ``Non-Industry Director'' means a member of ISE Mercury Board that meets the requirements of a non-industry representative and is elected by ISE Holdings. See id. ``The term `non-industry representative' means any person that is not considered an `industry representative,' as well as (i) a person affiliated with a broker or dealer that operates solely to assist the securities-related activities of the business of non-member affiliates, (ii) an employee of an entity that is affiliated with a broker or dealer that does not account for a material portion of the revenues of the consolidated entity, and who is primarily engaged in the business of the non-member entity.'' ISE Mercury Constitution, Article VIII, Section 13.1(v). The term ``industry representative'' means a person who is an officer, director or employee of a broker or dealer or who has been employed in any such capacity at any time within the prior three (3) years, as well as a person who has a consulting or employment relationship with or has provided professional services to the Exchange and a person who had any such relationship or provided any such services to the Exchange at any time within the prior three (3) years. See ISE Mercury Constitution, Article VIII, Section 13.1(s). \17\ See ISE Mercury Constitution, Article III, Section 3.2(b)(ii). Under the ISE Mercury Constitution, ``Public Director'' means a Non-Industry Director that is a non-industry representative who has no material relationship with a broker or dealer or any affiliate of a broker or dealer or the Exchange or any affiliate of the Exchange. See ISE Mercury Constitution, Article VIII, Sections 13.1(aa) and (bb), and Article III, Section 3.2(b)(ii). \18\ See ISE Mercury Constitution, Article III, Section 3.2(b)(iii). \19\ See ISE Mercury Rule 300 Series. ``Exchange Rights'' means the PMM Rights, CMM Rights and EAM Rights collectively. See ISE Mercury Rule 100(a)(17). PMM Rights, CMM Rights and EAM Rights have the meaning set forth in Article VI of ISE Mercury LLC Agreement. See ISE Mercury Rules 100(a)(12), 100(a)(15) and 100(a)(36). \20\ See ISE Mercury Constitution, Article III, Section 3.2(b)(i). --------------------------------------------------------------------------- As part of the process to elect members of the Board, the Nominating Committee will nominate the proposed Industry Directors and the Corporate Governance Committee \21\ and ISE Holdings will nominate the proposed Non-Industry Directors.\22\ A petition process will allow ISE Mercury members to nominate alternate candidates for consideration as Industry Directors.\23\ At the first annual meeting and at each annual meeting thereafter, ISE Holdings will elect all of the members of the ISE Mercury Board (except the Industry Directors, which are elected by ISE Mercury members \24\) but will be required to do so in compliance with the compositional requirements for the Board outlined in the ISE Mercury Constitution. --------------------------------------------------------------------------- \21\ See infra Section II.B.3. for a description of ISE Mercury's Nominating Committee and Corporate Governance Committee. \22\ See, e.g., ISE Mercury Constitution, Article III, Section 3.10(a)-(b). ISE Holdings, as the Sole LLC Member of ISE Mercury, is permitted to petition the Corporate Governance Committee to propose alternate Non-Industry Directors and Public Directors. See ISE Mercury Constitution, Article III, Section 3.10(b)(ii). See also infra note 63 for a definition of ``Sole LLC Member.'' \23\ See, e.g., ISE Mercury Constitution, Article III, Section 3.10(a)(ii). Specifically, in addition to the Industry Director nominees named by the Nominating Committee, persons eligible to serve as such may be nominated for election to the ISE Mercury Board by a petition, signed by the holders of not less than five percent (5%) of the outstanding Exchange Rights of the series entitled to elect such person if there are more than eighty (80) Exchange Rights in the series entitled to vote, ten percent (10%) of the outstanding rights of such series entitled to elect such person if there are between eighty (80) and forty (40) Exchange Rights in the series entitled to vote, and twenty-five percent (25%) of the outstanding Exchange Rights of such series entitled to elect such person if there are less than forty (40) Exchange Rights in the series entitled to vote. For purposes of determining whether a person has been nominated for election by petition by the requisite percentage, no ISE Mercury member, alone or together with its affiliates, may account for more than 50% of the signatures of the holders of outstanding Exchange Rights of the series entitled to elect such person, and any such signatures by such Exchange Members, alone or together with its affiliates, in excess of such 50% limitation shall be disregarded. Id. This process is identical to the process in place at ISE. See ISE Second and Amended Constitution, Article III, Section 3.10(a)(ii). \24\ See ISE Mercury Constitution, Article III, Sections 3.2(b)(i) and (c). The Commission notes that pursuant to Section 6.3(b) of the ISE Mercury LLC Agreement, a holder of Exchange Rights, together with any affiliate, as such term is defined in the ISE Mercury Constitution, may not exercise the voting rights associated with more than twenty percent (20%) of the outstanding Exchange Rights. Any exercise of voting rights in excess of twenty percent (20%) of the outstanding Exchange Rights by a holder of Exchange Rights, together with any affiliate, shall be deemed null and void. See Exhibit J.2 to the Form 1 Application. --------------------------------------------------------------------------- The Commission believes that the requirements in the ISE Mercury Constitution--that at least 30% of the directors be Industry Directors and the means by which they will be chosen by ISE Mercury members \25\--are consistent with Section 6(b)(3) of the Act because they provide for the fair representation of members in the selection of directors and the administration of ISE [[Page 6068]] Mercury.\26\ Section 6(b)(3) of the Act requires that ``the rules of the exchange assure a fair representation of its members in the selection of its directors and administration of its affairs and provide that one or more directors shall be representative of issuers and investors and not be associated with a member of the exchange, broker, or dealer.'' As the Commission previously has noted, this statutory requirement helps to ensure that members have a voice in the Exchange's use of self-regulatory authority and that the Exchange is administered in a way that is equitable to all those persons who trade on its market or through its facilities.\27\ In addition, the Commission believes that the requirements that at least 50% of the Board be composed of Non-Industry Directors and that at least one director be a Public Director satisfy the requirements of Section 6(b)(3) of the Act.\28\ --------------------------------------------------------------------------- \25\ Id. See also ISE Mercury Constitution, Article III, Section 3.10(a)(ii). \26\ 15 U.S.C. 78f(b)(3). \27\ See, e.g., Securities Exchange Act Release Nos. 70050 (July 26, 2013), 78 FR 46622 (August 1, 2013) (File No. 10-209) (order granting the exchange registration of ISE Gemini) (``ISE Gemini Order''); 53128 (January 13, 2006), 71 FR 3550 (January 23, 2006) (File No. 10-131) (order granting the exchange registration of Nasdaq Stock Market, Inc.) (``Nasdaq Order''); and 58375 (August 18, 2008), 73 FR 49498 (August 21, 2008) (File No. 10-182) (order granting the exchange registration of BATS Exchange, Inc.) (``BATS Order''). \28\ 15 U.S.C. 78f(b)(3). See also ISE Gemini Order, supra note 27; Securities Exchange Act Release No. 68341, p.8, (December 3, 2012), 77 FR 73065, 73067 (December 7, 2012) (File No. 10-207) (order granting the registration of Miami International Securities Exchange, LLC) (``MIAX Order''); and Regulation of Exchanges and Alternative Trading Systems, Securities Exchange Act Release No. 40760 (December 8, 1998), 63 FR 70844 (December 22, 1998) (``Regulation ATS Release''). --------------------------------------------------------------------------- 2. Interim Board After ISE Mercury is granted registration by the Commission, but prior to commencing operations, ISE Holdings, as the sole shareholder of ISE Mercury,\29\ will appoint an interim board of directors for ISE Mercury that will serve only until the first annual meeting (``Interim ISE Mercury Board''). The Interim ISE Mercury Board will be comprised of the same individuals as those then-serving ISE board and ISE Gemini board and will consist of 15 directors: the President/Chief Executive Officer Director; \30\ six Industry Directors; and eight Non-Industry Directors.\31\ ISE Mercury anticipates that there will be a significant overlap between its membership and the membership of ISE and ISE Gemini.\32\ ISE Mercury also ``does not expect to receive a meaningful number of applications for membership from non-ISE and ISE Gemini members during the tenure of the Interim ISE Mercury Board.'' \33\ Thus, the six interim Industry Directors to be appointed to the ISE Mercury Board likely will have been elected by ISE Mercury members in their capacity as ISE and ISE Gemini members.\34\ --------------------------------------------------------------------------- \29\ See infra Section II.C.1. for a discussion of the ownership of ISE Mercury. \30\ See Exhibit J to the Form 1 Application. \31\ See Exhibit J to the Form 1 Application. \32\ See Exhibit L to the Form 1 Application. Based on discussions with ISE members, ISE Mercury represented that it currently expects that ISE Mercury's membership will consist substantially of current ISE and ISE Gemini members, including, but not limited to, those ISE and ISE Gemini members that have representatives serving as industry directors on the ISE Board. See Exhibit J to ISE Mercury Form 1 Application. \33\ Exhibit J to the Form 1 Application. \34\ See id. --------------------------------------------------------------------------- These interim Industry Directors will serve until the first initial ISE Mercury Board is elected pursuant to the full nomination, petition, and voting process set forth in the ISE Mercury Constitution as described above.\35\ ISE Mercury will complete such process as promptly as possible and within 90 days after its application for registration as a national securities exchange is granted by the Commission.\36\ --------------------------------------------------------------------------- \35\ See ISE Mercury Constitution, Article III, Sections 3.2(c) and 3.10; see also Exhibit J to the Form 1 Application. \36\ See Exhibit J to the Form 1 Application. --------------------------------------------------------------------------- The Commission believes that the process for electing the Interim ISE Mercury Board, as proposed, is consistent with the requirements of the Act, including that the rules of the exchange assure fair representation of the exchange's members in the selection of its directors and administration of its affairs.\37\ The Commission believes that the Interim ISE Mercury Board process is designed to provide member representation sufficient to allow ISE Mercury to commence operations for an interim period prior to going through the process to elect a new Board pursuant to the full nomination, petition, and voting process set forth in the ISE Mercury Constitution. --------------------------------------------------------------------------- \37\ See 15 U.S.C. 78f(b)(3). ISE Mercury's proposed timeline for the Interim ISE Mercury Board process comports with the interim board process approved by the Commission for ISE Gemini, the Boston Options Exchange (``BOX'') and Miami International Securities Exchange, LLC (``MIAX''). See ISE Gemini Order, supra note at 27; Securities Exchange Act Release No. 66871 (April 27, 2012), 77 FR 26323 (May 3, 2012) (File No. 10-206) (``BOX Order''); and the MIAX Order, supra note 28. --------------------------------------------------------------------------- The Interim ISE Mercury Board will be filled by current ISE and ISE Gemini Board members (which currently include Industry Directors who were elected by current ISE and ISE Gemini members) until the first annual meeting of ISE Mercury.\38\ As noted above, ISE Mercury anticipates that there will be significant overlap between the initial members of ISE Mercury and the current members of ISE and ISE Gemini.\39\ Moreover, ISE Mercury will complete the full nomination, petition, and voting process, as set forth in the ISE Mercury Constitution,\40\ as promptly as possible and within 90 days of when ISE Mercury's application for registration as a national securities exchange is granted.\41\ As a part of the full nomination, petition, and voting process, members of ISE Mercury will be able to petition for alternate candidates to be considered for Industry Director positions.\42\ This process will provide persons who are approved as members of ISE Mercury after the effective date of this order with the opportunity to participate in the selection of the Industry Directors. --------------------------------------------------------------------------- \38\ See Exhibit J to the Form 1 Application. \39\ ISE Mercury will have a streamlined waive-in process for existing ISE and ISE Gemini members to apply for membership on ISE Mercury. See ISE Mercury Rule 302(a). \40\ See, e.g., ISE Mercury Constitution, Article III, Section 3.10(a)-(b). \41\ See ISE Mercury Constitution, Article III, Sections 3.2(c) and 3.10. \42\ See ISE Mercury Constitution, Article III, Section 3.10(a)(ii). --------------------------------------------------------------------------- 3. Exchange Committees ISE Mercury will have a number of Board committees,\43\ including an Executive Committee (consisting of six directors, and with the number of Non-Industry Directors equaling or exceeding the number of Industry Directors),\44\ a Finance and Audit Committee (consisting of between three and five directors, all of whom must be Non-Industry Directors),\45\ a Compensation Committee (consisting of between three and five directors, all of whom must be Non-Industry Directors),\46\ a Corporate Governance Committee (consisting of at least three directors, all of whom must be Non-Industry Directors),\47\ and such other additional committees as may be approved by the ISE Mercury Board.\48\ --------------------------------------------------------------------------- \43\ See ISE Mercury Constitution, Article V, Section 5.1(a). \44\ See ISE Mercury Constitution, Article V, Section 5.2. The Executive Committee will have and may exercise all the powers and authority of the Board, except that the Executive Committee will not have the powers of the Board with respect to approving: (i) Any merger, consolidation, sale of substantially all of the assets or dissolution of the Exchange; or (ii) any matters pertaining to the self-regulatory function of the Exchange or relating to the structure of the market which the Exchange regulates. See id. \45\ See ISE Mercury Constitution, Article V, Section 5.5. \46\ See ISE Mercury Constitution, Article V, Section 5.6. \47\ See ISE Mercury Constitution, Article V, Section 5.4. \48\ See ISE Mercury Constitution, Article V, Section 5.1(a). --------------------------------------------------------------------------- [[Page 6069]] ISE Mercury also will have a Nominating Committee, which will be a committee of ISE Mercury and not a committee of the Board.\49\ The Nominating Committee will be composed of three Exchange Member Representatives \50\ and will be responsible for nominating candidates for Industry Director positions.\51\ As noted above, there will be a petition process by which members of ISE Mercury can nominate their own nominees for the Industry Director positions.\52\ These nomination processes are consistent with processes that the Commission has approved for other national securities exchanges.\53\ --------------------------------------------------------------------------- \49\ See ISE Mercury Constitution, Article V, Section 5.3. \50\ See id. Article XIII, Section 13.1(n) of the ISE Mercury Constitution defines ``Exchange Member Representative'' as an associated person of an Exchange Member, and Section 13.1(m) defines ``Exchange Member'' as an organization that has been approved to exercise trading rights associated with Exchange Rights. \51\ See ISE Mercury Constitution, Article V, Section 5.3. The Interim ISE Mercury Board shall appoint the initial members of the Nominating Committee in accordance with the qualifications prescribed in Section 5.3 of the ISE Mercury Constitution. \52\ See ISE Mercury Constitution, Article III, Section 3.10(a)(ii). See also supra note 23 and accompanying text. \53\ See, e.g., ISE Second Amended and Restated Constitution, Articles III and V, Sections 3.10 and 5.3; ISE Gemini Constitution, Articles III and V, Sections 3.10 and 5.3; and MIAX Amended and Restated By-laws, Articles II and V, Sections 2.4 and 5.3. --------------------------------------------------------------------------- The Commission believes that ISE Mercury's proposed committees, which are similar to committees maintained by other national securities exchanges,\54\ are designed to help enable ISE Mercury to carry out its responsibilities under the Act and are consistent with the Act, including Section 6(b)(1), which requires, in part, an exchange to be so organized and have the capacity to carry out the purposes of the Act.\55\ --------------------------------------------------------------------------- \54\ See, e.g., ISE Gemini Order, supra note 27, MIAX Order, supra note 28, and BOX Order, supra note 37. \55\ 15 U.S.C. 78f(b)(1). --------------------------------------------------------------------------- C. Regulation of ISE Mercury When ISE Mercury commences operations as a national securities exchange, it will have all the attendant regulatory obligations under the Act. In particular, ISE Mercury will be responsible for the operation and regulation of its trading system and the regulation of its members. Certain provisions in the ISE Mercury's and ISE Holdings' governance documents are designed to facilitate the ability of ISE Mercury and the Commission to fulfill their regulatory and oversight obligations under the Act. The discussion below summarizes some of these key provisions. 1. Ownership Structure: Ownership and Voting Limitations As noted above in Section II.A, ISE Mercury is a Delaware LLC and a wholly-owned subsidiary of ISE Holdings.\56\ ISE Holdings is owned by Eurex Frankfurt and Deutsche B[ouml]rse through an intermediary holding company, U.S. Exchange Holdings. ISE Holdings' governing documents impose limits on any direct or indirect change in control of ISE Holdings, which are to be enforced through the creation of a statutory trust.\57\ --------------------------------------------------------------------------- \56\ The ISE Mercury LLC Agreement provides that ISE Holdings may not assign its interest in ISE Mercury unless such assignment is subject to prior approval by the Commission pursuant to the rule filing procedure under Section 19 of the Act. See ISE Mercury LLC Agreement, Section 7.1 (Assignments; Additional LLC Members). \57\ See Article FOURTH, Section III.(c) of the Second Amended and Restated Certificate of Incorporation of International Securities Exchange Holdings, Inc. (``ISE Holdings Certificate''). See infra notes 67-69 and 101-105 and accompanying text for a discussion of the statutory trust. --------------------------------------------------------------------------- Specifically, ISE Holdings' governing documents prohibit any ISE Mercury member (alone or together with its Related Persons \58\) from owning more than 20% of any class of Voting Shares of ISE Holdings.\59\ Moreover, pursuant to ISE Holdings' governing documents, no person (alone or together with its Related Persons) may own more than 40% of any class of Voting Shares of ISE Holdings.\60\ Finally, no person (alone or together with its Related Persons) may vote or cause the voting of shares representing more than 20% of the voting power of the then outstanding Voting Shares of ISE Holdings.\61\ As described more fully below, if a person exceeds an ISE Holdings' ownership or voting limit, a majority of the capital stock of ISE Holdings that has the right by its terms to vote in the election of the ISE Holdings Board or on other matters (other than matters affecting the rights, preferences or privileges of the capital stock) automatically will be transferred to a Delaware statutory trust (``ISE Trust'').\62\ --------------------------------------------------------------------------- \58\ See ISE Holdings Certificate, Article FOURTH, Section III for the definition of ``Related Persons.'' \59\ See ISE Holdings Certificate, Article FOURTH, Section III.(a)(i) for the definition of ``Voting Shares.'' The ISE Holdings Certificate defines ``Voting Shares'' as shares of the capital stock (whether Common Stock or Preferred Stock) of the ISE Holdings that have the right by their terms to vote in the election of members of the ISE Holdings board of directors (``ISE Holdings Board'') or on other matters which may require the approval of the holders of voting shares of the ISE Holdings (other than matters affecting the rights, preferences or privileges of a particular class of capital stock). \60\ See ISE Holdings Certificate, Article FOURTH, Section III.(a)(i). \61\ See ISE Holdings Certificate, Article FOURTH, Section III.(b). See also Second Amended and Restated Bylaws of ISE Holdings (``ISE Holdings Bylaws''), Article XI, Section 11.1(b). \62\ See ISE Holdings Certificate, Article FOURTH, Section III.(c). See also infra notes 67-70 and accompanying text for a discussion of the ISE Trust. Consistent with the governance structure of other exchanges, however, ISE Holdings Board may waive the 40% ownership limitation and the 20% voting restriction for persons other than ISE Mercury members, subject to certain specified conditions, but such waiver will not be effective unless approved by the Commission. Specifically, The ISE Holdings Certificate allows the ISE Holdings Board to waive the ISE Holdings ownership and voting limits pursuant to an amendment to the ISE Holdings Bylaws, provided that the ISE Holdings Board makes certain determinations. See ISE Holdings Certificate, Article FOURTH, Sections III.(a)(i)(A), III.(a)(i)(B) and III.(b)(i). Article XI of the ISE Holdings Bylaws waives the ISE Holdings ownership and voting limits to allow the Upstream Owners to own and vote all of the common stock of ISE Holdings. Article XI, Section 11.1(b) states that, in waiving the ISE Holdings ownership and voting limits to permit the Upstream Owners to own and vote the capital stock of ISE Holdings, the ISE Holdings Board has determined, with respect to each Upstream Owner, that: (i) Such waiver will not impair the ability of ISE Holdings and each ``Controlled National Securities Exchange'' (i.e., any national securities exchange or facility thereof controlled, directly or indirectly, by ISE Holdings, including ISE, ISE Gemini, and as a result of this order, ISE Mercury) to carry out their respective functions and responsibilities under the Act; (ii) such waiver is in the best interests of ISE Holdings, its stockholders, and each Controlled National Securities Exchange; (iii) such waiver will not impair the ability of the Commission to enforce the Act; (iv) neither the Upstream Owner nor any of its related persons is subject to a statutory disqualification (within the meaning of Section 3(a)(39) of the Act, 15 U.S.C. 78c(a)(39)); and (v) neither the Upstream Owner nor any of its related persons is a member of such Controlled National Securities Exchange. Article XI of the ISE Holdings Bylaws was adopted in connection with the Eurex Acquisition, when ISE was the sole national securities exchange controlled by ISE Holdings. See Eurex Acquisition Order, supra note 13. Article XI, Section 11.1(b) was subsequently amended to apply to any Controlled National Securities Exchange, which by its terms will include ISE Mercury. See Securities Exchange Act Release No. 59135 (December 22, 2008), 73 FR 79954 (December 30, 2008) (order approving proposed rule change relating to the purchase by ISE Holdings of an ownership interest in Direct Edge Holdings, Inc.) and 61498 (February 4, 2010), 75 FR 7299 (February 18, 2010) (order approving proposed rule change relating to changes to the U.S. Exchange Holdings corporate documents and ISE Trust). --------------------------------------------------------------------------- The ISE Mercury LLC Agreement and ISE Mercury Constitution do not include change of control provisions that are similar to those in the ISE Holdings Certificate and ISE Holdings Bylaws. However, the ISE Mercury LLC Agreement and the ISE Mercury Constitution explicitly provide that ISE Holdings is the Sole LLC Member of ISE Mercury.\63\ Under the ISE Mercury LLC Agreement, ISE Holdings is permitted to ``assign all (but not less than all)'' of its [[Page 6070]] interest in ISE Mercury, but the assignment of all of ISE Holdings' interest in ISE Mercury will be subject to prior approval by the Commission pursuant to the rule filing procedures under Section 19 of the Act.\64\ --------------------------------------------------------------------------- \63\ See ISE Mercury LLC Agreement, Article II, Section 2.1 and ISE Mercury Constitution Article I, Section 1.1 (both of which define ``Sole LLC Member'' to mean ISE Holdings, as the sole member of ISE Mercury). \64\ See 15 U.S.C. 78s; see also ISE Mercury LLC Agreement, Article VII, Section 7.1 and ISE Mercury Constitution, Article I, Section 1.1. --------------------------------------------------------------------------- To facilitate compliance with the ISE Holdings ownership and voting limits, the Upstream Owners have committed to take reasonable steps necessary to cause ISE Holdings to be in compliance with the ISE Holdings ownership and voting limits. These commitments are contained in the governing documents for U.S. Exchange Holdings \65\ and in corporate resolutions for Eurex Frankfurt and Deutsche B[ouml]rse.\66\ --------------------------------------------------------------------------- \65\ The Third Amended and Restated Certificate of Incorporation of U.S. Exchange Holdings (``U.S. Exchange Holdings Certificate'') provides that, for so long as U.S. Exchange Holdings directly or indirectly controls a Controlled National Securities Exchange, U.S. Exchange Holdings will take reasonable steps necessary to cause ISE Holdings to be in compliance with the ISE Holdings' ownership and voting limits. See U.S. Exchange Holdings Certificate, Article THIRTEENTH. \66\ See, e.g., Form of German Parent Corporate Resolutions (2007 Resolution Section (4)), Exhibit B to the Form 1 Application. In the Form 1 Application, ISE Mercury included these supplemental resolutions that Eurex Frankfurt and Deutsche B[ouml]rse have each adopted that, in part, incorporate provisions regarding the ownership and voting limits (``ISE Mercury Resolutions'') in the same manner and to the same extent as prior corporate resolutions signed by Eurex Frankfurt and Deutsche B[ouml]rse apply to ISE and ISE Gemini (``2007 Resolutions''). The ISE Mercury Resolutions were signed by Eurex Frankfurt and Deutsche B[ouml]rse, and extend to ISE Mercury the commitments made in the 2007 Resolutions with respect to ISE and ISE Gemini. For example, ISE Mercury represented in Exhibit B of Amendment No. 2 to the Form 1 Application that the Deutsche B[ouml]rse AG Executive Board adopted its corporate resolution on February 17, 2015 and the Eurex Frankfurt Executive Board adopted its corporate resolutions on February 13, 2015. --------------------------------------------------------------------------- In connection with the Eurex Acquisition, ISE implemented the ISE Trust pursuant to a Trust Agreement (``2007 Trust Agreement'') among ISE Holdings, U.S. Exchange Holdings, trustees (``Trustees''), and a Delaware trustee, which agreement has been subsequently amended to take into account subsequent acquisitions, including the current transaction.\67\ The ISE Trust Agreement serves, in part, to effectuate the ownership and voting limits for ISE Holdings in the event that a person obtains an ownership or voting interest in excess of the limits established in the ISE Holdings Certificate without prior Commission approval. To accomplish that purpose, for as long as ISE Holdings controls, directly or indirectly, a national securities exchange, including ISE Mercury, the ISE Trust would accept, hold and dispose of Trust Shares \68\ on the terms and subject to the conditions set forth therein.\69\ Specifically, if any person's ownership percentage exceeds the ownership limits or any person's voting control percentage exceeds the voting limits without Commission approval, the Excess Shares will be transferred automatically to the ISE Trust pursuant to the terms prescribed in the ISE Holdings Certificate.\70\ The ISE Trust then would accept the Excess Shares and hold them for the benefit of the trust beneficiary, U.S. Exchange Holdings, who has the right to reacquire the Excess Shares either when a person no longer exceeds the ownership or voting limits or when such excess ownership percentage or voting control percentage is approved by the Commission in accordance with ISE Holdings Certificate.\71\ --------------------------------------------------------------------------- \67\ See Third Amended and Restated Trust Agreement, dated as of December 22, 2014, by and among ISE Holdings, U.S. Exchange Holdings, and the Trustees (``ISE Trust Agreement''). The term of the ISE Trust is perpetual, provided that ISE Holdings directly or indirectly controls a national securities exchange or a facility thereof, which would include ISE Mercury. See ISE Trust Agreement, Article III, Section 2.6(a). See also Eurex Acquisition Order, supra note 13, at Section II.C., for a more detailed description of the ISE Trust. By its terms, the 2007 Trust Agreement related solely to ISE Holdings' ownership of ISE, and not to any other national securities exchange that ISE Holdings might control, directly or indirectly. In 2010, the Commission approved proposed rule changes that revised the 2007 Trust Agreement to replace references to ISE with references to any Controlled National Securities Exchange. See Securities Exchange Act Release Nos. 59135 (December 22, 2008), 73 FR 79954 (December 30, 2008) (``ISE Holdings Order'') and 61498 (February 4, 2010), 75 FR 7299 (February 18, 2010) (``U.S. Exchange Holdings Order''); see also ISE Trust Agreement, Articles I and II, Sections 1.1 and 2.6. Thus, the ISE Trust Agreement also applies to ISE Gemini and will apply to ISE Mercury, upon the Commission granting ISE Mercury registration as a national securities exchange. \68\ Under the ISE Trust Agreement, the term ``Trust Shares'' means either Excess Shares or Deposited Shares, or both, as the case may be. The term ``Excess Shares'' means that a person obtained an ownership or voting interest in ISE Holdings in excess of the ownership and voting limits pursuant to Article FOURTH of the ISE Holdings Certificate, for example, through ownership of one of the Upstream Owners, without obtaining the approval of the Commission. The term ``Deposited Shares'' means shares that are transferred to the ISE Trust pursuant to the ISE Trust's exercise of the Call Option. Under the ISE Trust Agreement, the term ``Call Option'' means the option granted by the ISE Trust beneficiary to the ISE Trust to call the Voting Shares as set forth in Section 4.2 therein. See infra Section II.C.2.b for further discussion of the Call Option. \69\ See ISE Trust Agreement, Article IV, Section 4.1; see also ISE Holdings Certificate, Article FOURTH, Section III.(c); Eurex Acquisition Order, supra note 13, at 72 FR 71982 n.37 and accompanying text. \70\ See id. \71\ See ISE Trust Agreement, Article IV, Section 4.1(f). In addition, as discussed in Section II.C.2.b below, the Trust also may accept, hold and dispose of Trust Shares in connection with the Call Option. Section 4.2(h) of the ISE Trust Agreement governs when the Trustees can transfer Deposited Shares in connection with the Call Option. Section 4.3(a) of the ISE Trust Agreement further permits the Trustees, upon receipt of written instructions from the Trust Beneficiary, to sell Trust Shares to a person or persons whose ownership percentage or voting control percentage will not violate the ownership or voting limits. --------------------------------------------------------------------------- Although ISE Holdings is not independently responsible for regulation of ISE Mercury, its activities with respect to the operation of ISE Mercury must be consistent with, and must not interfere with, the self-regulatory obligations of ISE Mercury.\72\ As described above, the provisions applicable to direct and indirect changes in control of ISE Holdings and ISE Mercury, as well as the voting limitation, are designed to help prevent any owner of ISE Holdings from exercising undue influence or control over the operation of ISE Mercury and to help ensure that ISE Mercury is able to effectively carry out its regulatory obligations under the Act. In addition, these limitations are designed to address the conflicts of interests that might result from a member of a national securities exchange owning interests in the Exchange. As the Commission has noted in the past, however, a member's interest in an exchange, including an entity that controls an exchange, could become so large as to cast doubts on whether the exchange may fairly and objectively exercise its self-regulatory responsibilities with respect to such member.\73\ A member that is a controlling shareholder of an exchange could seek to exercise that controlling influence by directing the exchange to refrain from, or the exchange may hesitate to, diligently monitor and conduct surveillance of the member's conduct or diligently enforce the exchange's rules and the federal securities laws with respect to conduct by the member that violates such provisions. As such, these requirements are designed to minimize the potential that a person or entity can improperly interfere with or restrict the ability of ISE Mercury to effectively carry out its regulatory oversight responsibilities under the Act. --------------------------------------------------------------------------- \72\ See also infra Section II.C.2. (Regulatory Independence and Oversight). \73\ See, e.g., ISE Gemini Order, supra note 27; and BATS Order, supra note 27; see also MIAX Order, supra note 28. --------------------------------------------------------------------------- The Commission believes that ISE Mercury's and ISE Holdings' proposed ownership and voting limitation provisions, together with the provisions in U.S. Exchange Holdings' governing documents, the ISE Mercury Resolutions, and the ISE Trust [[Page 6071]] Agreement described above,\74\ are consistent with the Act, including Section 6(b)(1), which requires, in part, an exchange to be so organized and have the capacity to carry out the purposes of the Act.\75\ In particular, these requirements are designed to minimize the potential that a person could improperly interfere with or restrict the ability of the Commission or ISE Mercury to effectively carry out their regulatory oversight responsibilities under the Act.\76\ --------------------------------------------------------------------------- \74\ See supra notes 65-66, and accompanying text. \75\ 15 U.S.C. 78f(b)(1). \76\ In addition, the ISE Trust Agreement is consistent with the provisions that other entities that directly or indirectly own or control an SRO have instituted and that have been approved by the Commission. See, e.g., Securities Exchange Act Release No. 55293 (February 14, 2007), 72 FR 8033 (February 22, 2007) (File No. SR- NYSE-2006-120) (order relating to the combination between NYSE Group, Inc. and Euronext N.V.). See also Eurex Acquisition Order, supra note 13, at 72 FR 71986 n.111. --------------------------------------------------------------------------- 2. Regulatory Independence and Oversight a. ISE Holdings Although ISE Holdings itself will not itself carry out regulatory functions, its activities with respect to the operation of ISE Mercury must be consistent with, and not interfere with, the self-regulatory obligations of ISE Mercury.\77\ In this regard, ISE Mercury and ISE Holdings' respective corporate documents include certain provisions that are designed to maintain the independence of ISE Mercury's self- regulatory function. These provisions are substantially similar to those included in the governing documents of the exchanges that have most recently been granted registration.\78\ Specifically: --------------------------------------------------------------------------- \77\ See, e.g., ISE Gemini Order, supra note 27; and BOX Order, supra note 37. \78\ See, e.g., ISE Gemini Order, supra note 27; BOX Order, supra note 37; MIAX Order, supra note 28. ---------------------------------------------------------------------------The directors, officers, and employees of ISE Holdings must give due regard to the preservation of the independence of the self-regulatory function of ISE Mercury and must not take actions that would interfere with the effectuation of decisions by the ISE Mercury Board relating to ISE Mercury's regulatory functions (including disciplinary matters) or that would adversely affect the ability of ISE Mercury to carry out its responsibilities under the Act.\79\ --------------------------------------------------------------------------- \79\ See ISE Holdings Bylaws, Article I, Section 1.5. Similarly, Article V, Section 5.1(b) of the ISE Mercury LLC Agreement requires each ISE Mercury Board director to take into consideration the effect that his or her actions would have on the ability of ISE Mercury to carry out its responsibilities under the Act and on the ability of ISE Mercury to engage in conduct that fosters and does not interfere with ISE Mercury's ability to prevent fraudulent and manipulative acts and practices; to promote just and equitable principles of trade; to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to and facilitating transactions in securities or assist in the removal of impediments to or perfection of the mechanisms for a free and open market and a national market system; and in general to protect investors and the public interest. --------------------------------------------------------------------------- ISE Holdings must comply with federal securities laws and the rules and regulations promulgated thereunder, and must cooperate with ISE Mercury and the Commission pursuant to, and to the extent of, their respective regulatory authority. In addition, ISE Holdings' officers, directors, and employees must comply with federal securities laws and the rules and regulations thereunder and agree to cooperate with ISE Mercury and the Commission pursuant to their respective regulatory authority.\80\ --------------------------------------------------------------------------- \80\ See ISE Holdings Certificate, Article TENTH. ISE Holdings also shall take reasonable steps necessary to cause its agents to cooperate with ISE Mercury and the Commission pursuant to their respective regulatory authority. ISE Holdings Certificate, Article THIRTEENTH. --------------------------------------------------------------------------- ISE Holdings, and its officers, directors, employees, and agents are deemed to irrevocably submit to the jurisdiction of the U.S. federal courts, the Commission, and ISE Mercury, for purposes of any suit, action, or proceeding pursuant to U.S. federal securities laws, and the rules and regulations thereunder, arising out of, or relating to, ISE Mercury's activities.\81\ --------------------------------------------------------------------------- \81\ See ISE Holdings Bylaws, Article I, Section 1.4. --------------------------------------------------------------------------- All books and records of ISE Mercury containing confidential information pertaining to the self-regulatory function of ISE Mercury (including but not limited to confidential information regarding disciplinary matters, trading data, trading practices and audit information) will be subject to confidentiality restrictions.\82\ --------------------------------------------------------------------------- \82\ See ISE Holdings Certificate, Article ELEVENTH. Additionally, pursuant to the ISE Mercury LLC Agreement, books and records of ISE Mercury containing confidential information pertaining to the self-regulatory function of ISE Mercury (including but not limited to confidential information regarding disciplinary matters, trading data, trading practices and audit information) shall be retained in confidence by ISE Mercury and its officers, directors, employees and agents and will not be used by ISE Mercury for any non-regulatory purpose and shall not be made available to persons other than those officers, directors, employees and agents that have a reasonable need to know the contents thereof. See ISE Mercury LLC Agreement, Article VI, Section 4.1(b). The requirement to keep such information confidential shall not limit or impede the Commission's ability to access and examine such information or limit or impede the ability of officers, directors, employees, or agents of ISE Holdings to disclose such information to the Commission. See ISE Holdings Certificate, Article ELEVENTH and ISE Mercury LLC Agreement, Article VI, Section 4.1(b). --------------------------------------------------------------------------- The books and records of ISE Mercury and ISE Holdings must be maintained in the United States \83\ and, to the extent they are related to the operation or administration of ISE Mercury, ISE Holdings books and records will be subject at all times to inspection and copying by the Commission.\84\ --------------------------------------------------------------------------- \83\ See ISE Mercury LLC Agreement, Article IV, Section 4.1 and ISE Holdings Bylaws, Article I, Section 1.3. \84\ See ISE Holdings Certificate, Article TWELFTH. --------------------------------------------------------------------------- Furthermore, to the extent that they are related to the activities of ISE Mercury, the books, records, premises, officers, directors, and employees of ISE Holdings will be deemed to be the books, records, premises, officers, directors, and employees of ISE Mercury, for purposes of, and subject to oversight pursuant to, the Act.\85\ --------------------------------------------------------------------------- \85\ See id. --------------------------------------------------------------------------- ISE Holdings will take necessary steps to cause its officers, directors, and employees, prior to accepting a position as an officer, director, or employee (as applicable) to consent in writing to the applicability of provisions regarding books and records, confidentiality, jurisdiction, and regulatory obligations, with respect to their activities related to ISE Mercury.\86\ --------------------------------------------------------------------------- \86\ See ISE Holdings Bylaws, Article I, Section 1.6. --------------------------------------------------------------------------- ISE Holdings Certificate and ISE Holdings Bylaws require that, so long as ISE Holdings controls ISE Mercury, any changes to those documents be submitted to the ISE Mercury Board, and, if required, to be filed with, and as applicable approved by, the Commission pursuant to Section 19 of the Act and the rules thereunder before they may be effective.\87\ --------------------------------------------------------------------------- \87\ See ISE Holdings Certificate, Article FOURTEENTH; and ISE Holdings Bylaws, Article X; see also supra notes 63-64 and accompanying text discussing a similar provision for ISE Mercury. --------------------------------------------------------------------------- b. Upstream Owners Although the Upstream Owners will not carry out any regulatory functions, the activities of each of the Upstream Owners with respect to the operation of ISE Mercury must be consistent with, and not interfere with, the self-regulatory obligations of ISE Mercury. The 2007 Resolutions, as supplemented by the supplemental Resolutions for ISE Mercury, the U.S. Exchange Holdings Certificate, and the U.S. Exchange Holdings Bylaws include certain provisions that are designed to maintain the independence of the self-regulatory function of ISE Mercury, enable ISE Mercury to operate in a manner that complies with the U.S. federal securities laws, including the objectives and requirements of Sections 6(b) and 19(g) [[Page 6072]] of the Act,\88\ and facilitate the ability of ISE Mercury and the Commission to fulfill their regulatory and oversight obligations under the Act. Specifically: --------------------------------------------------------------------------- \88\ 15 U.S.C. 78f(b) and 15 U.S.C. 78s(g). --------------------------------------------------------------------------- Each Upstream Owner and each board member, officer, and employee of the Upstream Owners will comply with the U.S. federal securities laws and the rules and regulations thereunder and cooperate with the Commission and ISE Mercury.\89\ --------------------------------------------------------------------------- \89\ See, e.g., Form of German Parent Corporate Resolutions (2007 Resolution Sections (1), (7)(a) and (8)(a) and ISE Mercury Resolution Sections (2)(a), (2)(b) and (2)(c)); and U.S. Exchange Holdings Certificate, Articles TENTH and ELEVENTH. The Resolutions also provide that Eurex Frankfurt and Deutsche B[ouml]rse will each take reasonable steps necessary to cause each person who subsequently becomes a board member of Eurex Frankfurt or Deutsche B[ouml]rse to agree in writing to certain matters included in the Resolutions. See, e.g., Form of German Parent Corporate Resolutions (2007 Resolution Section (7) and ISE Mercury Resolution Section (2)(b)). --------------------------------------------------------------------------- In discharging his or her responsibilities as a board member of an Upstream Owner, each such member must take into consideration the effect that the actions of the Upstream Owner will have on the ability of ISE Mercury to carry out its responsibilities under the Act.\90\ --------------------------------------------------------------------------- \90\ See, e.g., Form of German Parent Corporate Resolutions (2007 Resolution Section (7)(f) and ISE Mercury Resolution Section (2)(b)); and U.S. Exchange Holdings Certificate, Article TENTH. --------------------------------------------------------------------------- The Upstream Owners, and their board members, officers, and employees, must give due regard to the preservation of the independence of the self-regulatory function of ISE Mercury.\91\ --------------------------------------------------------------------------- \91\ See, e.g., Form of German Parent Corporate Resolutions (2007 Resolution Sections (5), (7)(d), and (8)(d) and ISE Mercury Resolution Section (2)); and U.S. Exchange Holdings Certificate, Article TWELFTH. --------------------------------------------------------------------------- The Upstream Owners, and their respective board members, officers, and employees agree to keep confidential information pertaining to the self-regulatory function of ISE Mercury, including, but not limited to, confidential information regarding disciplinary matters, trading data, trading practices, and audit information, contained in the books and records of ISE Mercury and not use such information for any non-regulatory purposes.\92\ --------------------------------------------------------------------------- \92\ See, e.g., Form of German Parent Corporate Resolutions (2007 Resolution Sections (6), (7)(e) and (8)(e) and ISE Mercury Resolution Sections (1) and (2)); and U.S. Exchange Holdings Certificate, Article FOURTEENTH. --------------------------------------------------------------------------- The books and records of the Upstream Owners related to the activities of ISE Mercury must at all times be made available for, and the books and records of U.S. Exchange Holdings must be subject at all times to, inspection and copying by the Commission and ISE Mercury.\93\ --------------------------------------------------------------------------- \93\ See, e.g., Form of German Parent Corporate Resolutions (2007 Resolution Section (3) and ISE Mercury Resolution Section (2)(a)); and U.S. Exchange Holdings Certificate, Article FIFTEENTH. Additionally, the books and records of U.S. Exchange Holdings related to the activities of ISE Mercury will be maintained within the United States. See U.S. Exchange Holdings Certificate, Article FIFTEENTH. --------------------------------------------------------------------------- The books, records, officers, directors, and employees of each of the Upstream Owners will be deemed to be the books, records, officers, directors, and employees of ISE Mercury, to the extent that such books and records are related to, or such officers, directors (or equivalent in the case of Eurex Frankfurt and Deutsche B[ouml]rse) and employees are involved in, the activities of ISE Mercury,\94\ and the premises of U.S. Exchange Holdings will be deemed to be the premises of ISE Mercury.\95\ --------------------------------------------------------------------------- \94\ See, e.g., Form of German Parent Corporate Resolutions (2007 Resolution Sections (3) and (8)(c) and ISE Mercury Resolution Sections (2)(a) and (2)(c)); and U.S. Exchange Holdings Certificate, Article FIFTEENTH. \95\ See U.S. Exchange Holdings Certificate, Article FIFTEENTH. --------------------------------------------------------------------------- To the extent involved in the activities of ISE Mercury, the Upstream Owners, and their board members, officers, and employees, irrevocably submit to the jurisdiction of the U.S. federal courts and the Commission.\96\ --------------------------------------------------------------------------- \96\ See, e.g., Form of German Parent Corporate Resolutions (2007 Resolution Sections (2), (7)(b), and (8)(b) and ISE Mercury Resolution Section (2)). See also U.S. Exchange Holdings Bylaws, Article VI, Section 16. --------------------------------------------------------------------------- Any change to the governing documents that would have the effect of amending or repealing the ISE Mercury Resolutions or the 2007 Resolutions must be submitted to the ISE Mercury Board,\97\ and, if required, filed with the Commission pursuant to Section 19 of the Act \98\ and the rules thereunder before it may be effective.\99\ --------------------------------------------------------------------------- \97\ See, e.g., Form of German Parent Corporate Resolutions (ISE Mercury Resolution Section (3)); U.S. Exchange Holdings Certificate, Article SIXTEENTH; and U.S. Exchange Holdings Bylaws, Article VI, Section 9. \98\ 15 U.S.C. 78s. \99\ See, e.g., Form of German Parent Corporate Resolutions (ISE Mercury Resolution Section (3)); U.S. Exchange Holdings Certificate, Article SIXTEENTH; and U.S. Exchange Holdings Bylaws, Article VI, Section 9. The requirement to submit changes to the ISE Mercury Board endures for as long as U.S. Exchange Holdings directly or indirectly controls ISE Mercury. See U.S. Exchange Holdings Bylaws, Article VI, Section 9. --------------------------------------------------------------------------- The ISE Trust Agreement, in addition to enforcing the ownership and voting limits,\100\ also serves to effectuate compliance with the other commitments made under the ISE Mercury Resolutions, which incorporate the 2007 Resolutions. To accomplish that purpose, the ISE Trust would determine whether a Material Compliance Event \101\ has occurred or is continuing. The ISE Trust would determine whether the occurrence and continuation of a Material Compliance Event requires the exercise of the Call Option.\102\ The ISE Trust holds a Call Option over the capital stock of ISE Holdings that may be exercised if a Material Compliance Event has occurred and continues to be in effect. Upon exercise of the Call Option, the Trust Beneficiary \103\ and ISE Holdings, as applicable, will take such actions as are necessary to transfer, or cause the transfer to the ISE Trust of a majority of the Voting Shares then outstanding.\104\ The ISE Trust will transfer Deposited Shares from the ISE Trust back to the Trust Beneficiary, as provided in Section 4.2(h) of the ISE Trust Agreement, only if no Material Compliance Event is continuing or, notwithstanding its continuation, the Trustees determine that the retention of the Deposited Shares could not reasonably be expected to address the continuing Material Compliance Event, provided that the determination is filed with, or filed with and approved by, the Commission.\105\ --------------------------------------------------------------------------- \100\ See supra notes 59-61 and 68-71 and accompanying text for a discussion of the ownership and voting limits. \101\ Under the ISE Trust Agreement, a ``Material Compliance Event'' is any state of facts, development, event, circumstance, condition, occurrence, or effect that results in the failure of any of t
This site is protected by reCAPTCHA and the Google
Privacy Policy and
Terms of Service apply.
