Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Amend the Certificate of Incorporation and Bylaws of the Exchange's Ultimate Parent Company, BATS Global Markets, Inc., 8767-8775 [2016-03529]
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Federal Register / Vol. 81, No. 34 / Monday, February 22, 2016 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77147; File No. SR–EDGX–
2016–04]
Self-Regulatory Organizations; EDGX
Exchange, Inc.; Notice of Filing of a
Proposed Rule Change To Amend the
Certificate of Incorporation and Bylaws
of the Exchange’s Ultimate Parent
Company, BATS Global Markets, Inc.
February 16, 2016.
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 February
9, 2016, EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) filed with the
Securities and Exchange Commission
(‘‘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
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange filed a proposal to
amend the certificate of incorporation
and bylaws of the Exchange’s ultimate
parent company, BATS Global Markets,
Inc. (the ‘‘Corporation’’).
The text of the proposed rule change
is available at the Exchange’s Web site
at www.batstrading.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
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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
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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(A) Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
On December 16, 2015, the
Corporation, the ultimate parent
company of the Exchange, filed a
registration statement on Form S–1 with
the Commission seeking to register
shares of common stock and to conduct
an initial public offering of those shares,
which will be listed for trading on
BATS Exchange, Inc. (the ‘‘IPO’’). In
connection with its IPO, the Corporation
intends to (i) amend and restate its
current certificate of incorporation (the
‘‘Current Certificate of Incorporation’’)
and adopt these changes as its Amended
and Restated Certificate of Incorporation
(the ‘‘New Certificate of Incorporation’’),
and (ii) amend and restate its current
bylaws (the ‘‘Current Bylaws’’) and
adopt these changes as its Amended and
Restated Bylaws (the ‘‘New Bylaws’’). It
is anticipated that the New Certificate of
Incorporation and the New Bylaws will
become effective (the ‘‘Effective Date’’)
the moment before the closing of the
IPO.
The amendments to the Current
Certificate of Incorporation include,
among other things, (i) increasing the
total number of authorized shares of
capital stock of the Corporation, (ii)
effecting a conversion and elimination
of one class of non-voting common
stock and reclassifying the remaining
class of non-voting common stock, (iii)
establishing a classified board structure,
(iv) prohibiting cumulative voting in the
election of directors, (v) eliminating the
process for action by written consent of
stockholders, (vi) revising certain
requirements for approval of future
amendments to the New Certificate of
Incorporation, and (vii) and changing
the name of the Corporation from
‘‘BATS Global Markets, Inc.’’ to ‘‘Bats
Global Markets, Inc.’’
The amendments to the Current
Bylaws include, among other things, (i)
revising the procedures for stockholder
proposals and nomination of directors,
(ii) revising the authority to call special
meetings of the stockholders, (iii)
eliminating the process for action by
written consent of stockholders, (iv)
establishing a classified board structure,
(v) revising the requirements for
removal of directors, (vi) removing
duplicative provisions relating to the
indemnification of officers and directors
that are contained in the Current
Certificate of Incorporation (and are
proposed to be maintained in the New
Certificate of Incorporation), (vii)
revising certain requirements for
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approval of future amendments to the
New Bylaws, (viii) eliminating the
authority to make loans to corporate
officers, and (ix) changes to reflect the
change of the Corporation’s name. The
amendments to the Corporation’s
Current Certificate of Incorporation and
Current Bylaws are intended primarily
to reflect (i) the adoption of provisions
more customary for publicly-owned
companies, (ii) changes to the
Corporation’s capital structure,
specifically with respect to non-voting
common stock, and (iii) stylistic and
other non-substantive changes.3
The purpose of this rule filing is to
submit for Commission approval the
New Certificate of Incorporation and the
New Bylaws. The changes described
herein relate to the certificate of
incorporation and bylaws of the
Corporation only, not to the governance
of the Exchange. The Exchange will
continue to be governed by its existing
certificate of incorporation and bylaws.
The stock in, and voting power of, the
Exchange will continue to be directly
and solely held by Direct Edge LLC, an
intermediate holding company whollyowned by the Corporation.
The Corporation was originally
formed as BATS Global Markets
Holdings, Inc. on August 22, 2013 as a
new ultimate holding company for the
Exchange as a result of a business
combination involving the ultimate
holding company of the Exchange at the
time and the ultimate holding company
at the time of BATS Exchange, Inc. and
BATS Y-Exchange, Inc.4
1. The New Certificate of Incorporation
a. Capital Stock; Voting Rights
The current capital structure of the
Corporation is comprised of 75 million
authorized shares of Common Stock,
3 Certain of the amendments proposed to be
adopted in the New Certificate of Incorporation and
New Bylaws were previously approved by the
Commission in 2011 as part of proposed
amendments to the certificate of incorporation and
bylaws of the ultimate parent company of BATS
Exchange, Inc. and BATS Y-Exchange Inc. at the
time. See, e.g., Securities Exchange Act Release No.
65646 (October 27, 2011), 76 FR 67783 (November
2, 2011) (SR–BATS–2011–033); Securities Exchange
Act Release No. 65728 (November 10, 2011), 76 FR
71411 (November 17, 2011) (SR–BATS–2011–035).
Although approved, the Exchange understands that
these amendments were not ultimately
implemented.
4 The ownership structure of the Exchange at the
time of the business combination and the Current
Certificate of Incorporation and Current Bylaws of
the Corporation are further described in the
Commission’s order approving the Exchange’s
proposed rule changes in connection with the
Corporation’s business combination with Direct
Edge Holdings LLC. See Securities Exchange Act
Release No. 71449; (January 30, 2014), 79 FR 6961
(February 5, 2014) (SR–EDGX–2013–43; SR–EDGA–
2013–34).
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consisting of 55 million shares of Voting
Common Stock, 10 million shares of
Class A Non-Voting Common Stock and
10 million shares of Class B Non-Voting
Common Stock. Article Fourth(a)(i) of
the New Certificate of Incorporation
would revise this capital structure such
that there would be 150 million total
authorized shares of capital stock,
consisting of 125 million shares
designated as Voting Common Stock
and a single class of 10 million shares
designated as Non-Voting Common
Stock (together with Voting Common
Stock, ‘‘Common Stock’’), as well as 15
million shares of Preferred Stock.
The Corporation’s existing Class A
Non-Voting Common Stock is currently
held by International Securities
Exchange Holdings, Inc. (‘‘ISE
Holdings’’). Pursuant to the Investor
Rights Agreement dated January 31,
2014, among the Corporation and its
stockholders signatory thereto (the
‘‘Investor Rights Agreement’’), and the
Current Certificate of Incorporation, ISE
Holdings’ shares of Class A Non-Voting
Common Stock may convert into Voting
Common Stock (i) automatically with
respect to any shares transferred to
persons other than related persons of
ISE Holdings; (ii) upon the termination
of the Investor Rights Agreement, with
such agreement (other than with respect
to registration rights) terminating upon
the IPO; or (iii) automatically with
respect to any shares of Class A NonVoting Common Stock sold by ISE
Holdings in any public offering of the
stock of the Corporation. In addition,
ISE Holdings’ shares of Class A NonVoting Common Stock may convert into
Voting Stock at the option of ISE
Holdings, provided that ISE Holdings
furnishes to the Corporation a written
notice stating that ISE Holdings desires
to convert a stated number of shares of
Class A Non-Voting Common Stock and
the certificates representing such
shares.5
As a result of these conversion rights,
the Corporation expects the Class A
Non-Voting Common Stock to convert
into Voting Common Stock at the time
of the IPO. To effect this conversion,
Article Fourth(b)(i) of the New
Certificate of Incorporation states that,
at the time that the New Certificate of
Incorporation becomes effective (the
‘‘Effective Time’’),6 each authorized,
issued and outstanding share of Class A
Non-Voting Common Stock shall be
automatically converted into one share
5 See Current Certificate of Incorporation, Art.
Fourth, para. (c); Investor Rights Agreement,
Section 2.2(j).
6 It is anticipated that the Effective Time will
coincide with the date of the closing of the IPO and
will occur immediately prior thereto.
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of Voting Common Stock. To simplify
the capital structure of the Corporation,
Article Fourth(b)(ii) would reclassify
each authorized, issued and outstanding
share of Class B Non-Voting Common
Stock into one share of Non-Voting
Common Stock.7
Pursuant to Article Fourth(c) of the
New Certificate of Incorporation, as
proposed to be adopted, all voting
power will be vested in Voting Common
Stock (except with regard to certain
matters relating to the rights of holders
of Preferred Stock described below).
Specifically, each holder of Voting
Common Stock will be entitled to one
vote for each share of Voting Common
Stock held of record by such holder on
all matters on which stockholders
generally are entitled to vote. Shares of
Non-Voting Common Stock are nonvoting, except with regard to certain
matters that would adversely affect their
respective rights as described in the
proposed amendments to Article
Fourth(c)(ii) of the New Certificate of
Incorporation.
Pursuant to Article Fourth(d) of the
New Certificate of Incorporation, NonVoting Common Stock will generally
have the conversion features that
previously applied to Class B NonVoting Common Stock under the
Current Certificate of Incorporation.
Non-Voting Common Stock will be
convertible into Voting Common Stock,
on a one-to-one basis, following a
‘‘Qualified Transfer,’’ as defined in
Article Fourth(d)(i).8 Voting Common
7 The Exchange understands that the existing
Class B Non-Voting Common Stock is, and the NonVoting Common Stock upon conversion will be,
held by certain persons subject to restrictions under
the Bank Holding Company Act of 1956 on the
extent to which they are permitted to own voting
stock of the Corporation or certain types of nonvoting stock convertible into voting stock of the
Corporation.
8 A ‘‘Qualified Transfer’’ is defined as a sale or
other transfer of Non-Voting Common Stock by a
holder of such shares: (A) In a widely distributed
public offering registered pursuant to the Securities
Act of 1933 (15 U.S.C. 77a.); (B) in a private sale
or transfer in which the relevant transferee (together
with its Affiliates, as defined below, and other
transferees acting in concert with it) acquires no
more than two percent of any class of voting shares
(as defined in 12 CFR 225.2(q)(3) and determined
by giving effect to any such permitted conversion
of transferred shares of Non-Voting Common Stock
upon such transfer pursuant to Article Fourth of the
New Certificate of Incorporation); (C) to a transferee
that (together with its Affiliates and other
transferees acting in concert with it) owns or
controls more than 50 percent of any class of voting
shares (as defined in 12 CFR 225.2(q)(3)) of the
Corporation without regard to any transfer of shares
from the transferring holder of shares of Non-Voting
Common Stock; or (D) to the Corporation. As used
above, the term ‘‘Affiliate’’ means, with respect to
any person, any other person directly or indirectly
controlling, controlled by or under common control
with such person, and ‘‘control’’ (including, with
correlative meanings, the terms ‘‘controlled by’’ and
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Stock will not be convertible into NonVoting Common Stock.
Except for voting rights and certain
conversion features, as described above,
Non-Voting Common Stock and Voting
Common Stock will generally rank
equally and have identical rights and
privileges. Because the IPO is expected
to be a widely distributed public
offering registered pursuant to the
Securities Act of 1933 (15 U.S.C. 77a.),
the Corporation expects it to be a
‘‘Qualified Transfer,’’ for purposes of
the conversion feature of the NonVoting Common Stock,9 such that any
shares of Non-Voting Common Stock
sold in the IPO would convert to Voting
Common Stock. As a result, purchasers
of the Corporation’s common stock in
the IPO will receive only Voting
Common Stock.
Proposed Article Fourth(a)(i) of the
New Certificate of Incorporation would
increase the Corporation’s authorized
shares in order to accommodate the
reclassification of Class A Non-Voting
Common Stock and Class B Non-Voting
Common Stock discussed above, while
providing sufficient additional
authorized shares for future issuances,
such as, for example, grants of equity to
employees pursuant to a compensation
plan.
b. Board of Directors
Article Sixth of the New Certificate of
Incorporation would amend certain
provisions relating to the Corporation’s
board of directors to add further
specificity and detail, and effect a
number of changes to the board of
directors of the Corporation.
Article Sixth(a) of the New Certificate
of Incorporation would explicitly
specify that the business and affairs of
the Corporation shall be managed by or
under the board of directors and
empower the board of the directors to
do all such acts and things as may be
exercised or done by the Corporation.
This provision is intended to restate the
power of the Corporation’s board in
accordance with the General
Corporation Law of the State of
Delaware, as amended (‘‘Delaware
Law’’).10
Article Sixth(c) of the New Certificate
of Incorporation would establish a
‘‘staggered’’ or classified board structure
in which the directors would be divided
into three classes of equal size, to the
extent possible. Only one class of
directors would be elected each year,
‘‘under common control with’’) has the meaning set
forth in 12 CFR 225.2(e)(1).
9 See New Certificate of Incorporation, Art.
Fourth(d)(i).
10 See Delaware Law Section 141(a).
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and once elected, directors would serve
a three-year term. Directors initially
designated as Class I directors would
serve for a term ending on the date of
the 2017 annual meeting of
stockholders, directors initially
designated as Class II directors would
serve for a term ending on the date of
the 2018 annual meeting of
stockholders, and directors initially
designated as Class III directors would
serve for a term ending on the date of
the 2019 annual meeting of
stockholders. The names and addresses
of each of the directors initially
classified as Class I, Class II and Class
III directors are set forth in Article
Sixth(c)(ii) of the New Certificate of
Incorporation. The Exchange believes
that such a classified board structure is
common for publicly-held companies,
as it has the effect of making hostile
takeover attempts more difficult.
Pursuant to Article Sixth(d) of the
New Certificate of Incorporation,
cumulative voting in the election of
directors will be prohibited. If the
Corporation were to permit cumulative
voting, stockholders would be entitled
to as many votes as are equal to the
number of voting shares it holds,
multiplied by the number of director
seats up for election to the board of
directors, and such stockholder may
allocate all of its votes to one or more
directorial candidates, as the
stockholder desires. In contrast, in
‘‘regular’’ or ‘‘statutory’’ voting (i.e.,
when cumulative voting is prohibited),
stockholders may not vote more than
one vote per share to any single director
nominee. The Exchange believes that
cumulative voting is inappropriate for
the ultimate parent company of a
national securities exchange, as it would
increase the likelihood that a
stockholder or group of stockholders
holding only a minority of voting shares
would be able to exert an outsized
influence in the election of directors of
the Corporation, relative to its
stockholdings in the Corporation. As a
result, cumulative voting could
undermine the limitations on
concentrations of ownership or voting
included in both the Current Certificate
of Incorporation and New Certificate of
Incorporation.11
c. Transfer, Ownership and Voting
Restrictions
The transfer, ownership and voting
restrictions set forth in Article Fifth of
the Corporation’s Current Certificate of
Incorporation would be retained in the
New Certificate of Incorporation. Article
11 See Current Certificate of Incorporation, Art.
Fifth; New Certificate of Incorporation, Art. Fifth.
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Fifth of the Corporation’s Current
Certificate of Incorporation provides
that for so long as the Corporation
controls, directly or indirectly, a
national securities exchange, subject to
certain exceptions, (i) no person, either
alone or together with its ‘‘Related
Persons’’ (as defined therein), may own,
directly or indirectly, of record or
beneficially, shares constituting more
than 40 percent of any class of the
Corporation’s capital stock, (ii) no
member of such a national securities
exchange, either alone or together with
its Related Persons, may own, directly
or indirectly, of record or beneficially,
shares constituting more than 20
percent of any class of the Corporation’s
capital stock, and (iii) no person, either
alone or together with its Related
Persons, at any time, may, directly,
indirectly or pursuant to any of various
arrangements, vote or cause the voting
of shares or give any consent or proxy
with respect to shares representing more
than 20 percent of the voting power of
the Corporation’s then issued and
outstanding capital stock.
In the case of shares of the
Corporation purportedly transferred in
violation of the limitations contained in
Article Fifth, in addition to other
remedies provided under Article
Fifth(d),12 Article Fifth(e) of the Current
Certificate of Incorporation provides
that the Corporation may redeem the
shares sold, transferred, assigned,
pledged, or owned in violation of
Article Fifth for a price equal to the fair
market value of those shares.
These limitations and remedies are
designed to prevent any stockholder
from exercising undue influence over
the Corporation’s national securities
exchange subsidiaries. As a result, these
limitations and remedies would be
retained in the New Certificate of
Incorporation. However, in the case of
the redemption of shares purportedly
transferred in violation of Article Fifth,
the Current Certificate of Incorporation
does not specify the manner of
determining the fair market value. In
order to enhance this remedy and
provide clarity in the event that it is
necessary to enforce it, Article Fifth(e)
of the New Certificate of Incorporation
is proposed to be amended to provide
that the fair market value would be
determined as the volume-weighted
average price per share of the Common
Stock during the five business days
12 Article Fifth(d) of the Current Certificate of
Incorporation provides that purported transfers that
would result in a violation of the ownership
limitations are not recognized by the Corporation to
the extent of any ownership in excess of the
limitation.
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immediately preceding the date of the
redemption.
d. Future Amendments to the Certificate
of Incorporation
Article Twelfth of the Current
Certificate of Incorporation requires that
any proposed amendment to the Current
Certificate of Incorporation be approved
by the board of directors of the
Corporation, submitted to the Board of
Directors of the Exchange and filed
with, or filed with and approved by, the
Commission, if required under Section
19 of the Act. Provided that these
conditions are satisfied, the Current
Certificate of Incorporation can be
amended in any manner permitted by
Delaware Law, which today generally
allows for the amendment of a
certificate of incorporation by the
affirmative vote of the majority of the
outstanding stock entitled to vote
thereon. Pursuant to proposed Article
Fourteenth(a) of the New Certificate of
Incorporation, certain provisions of the
New Certificate of Incorporation would
only be able to be amended upon the
affirmative vote of not less than 662⁄3
percent of the total voting power of the
Corporation’s outstanding securities
entitled to vote generally in the election
of directors, voting together as a single
class. These provisions include Article
Fourth(c) and (d), relating to voting
rights and conversion of Non-Voting
Common Stock, and Articles Fifth
through Thirteenth, relating to
limitations on transfer, ownership and
voting, board of directors, duration of
the Corporation, adopting, amending or
repealing bylaws, indemnification and
limitation of director liability, meetings
of stockholders, forum selection,
compromise or other arrangement,
Section 203 opt-in (discussed below),
and amendments to the certificate of
incorporation, respectively.
The purpose of this supermajority
requirement, which the Exchange
believes is common among public
companies, is to deter actions being
taken that the Corporation believes may
be detrimental to the Corporation,
including any actions that could
detrimentally affect the Corporation’s
ability to comply with its unique
responsibilities under the Act as the
ultimate parent of four registered
national securities exchanges. The
purpose for limiting the application of
the supermajority voting requirement to
certain specified provisions of the
certificate of incorporation is to focus
such requirement on the most critical
provisions of the certificate of
incorporation.
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e. Other Amendments
The New Certificate of Incorporation
will amend and restate various other
provisions of the Current Certificate of
Incorporation in a manner that the
Exchange believes are intended to
reflect provisions that are more
customary for publicly-owned
companies organized under Delaware
Law. In particular:
• Preferred Stock. Pursuant to
proposed Article Fourth(a) of the New
Certificate of Incorporation, the
Corporation will have the authority to
issue 15 million shares of Preferred
Stock, par value $0.01 per share (the
‘‘Preferred Stock’’), which the
Corporation’s board of directors may, by
resolution from time to time, issue in
one or more classes or series by filing
a certificate of designation pursuant to
Delaware Law, fixing the terms and
conditions of such class or series of
Preferred Stock. The Preferred Stock
may be used by the Corporation to raise
capital or to act as a safety mechanism
for unwanted takeovers. Pursuant to
Article Sixth(f) of the New Certificate of
Incorporation, should the Corporation
issue Preferred Stock and the holders of
Preferred Stock have the right to vote
separately or as a class to elect directors,
the features of such directorships shall
be governed by the terms of the
resolution adopted by the board of
directors, rather than the features
otherwise applicable under Article
Sixth.
• Stockholder Meetings. Article Tenth
of the Current Certificate of
Incorporation permits action to be taken
by the stockholders of the Corporation,
without a meeting, by written consent as
permitted by Delaware Law. The New
Certificate of Incorporation would
amend Article Tenth to provide that any
action required or permitted to be taken
at any meeting of the stockholders may
be taken only upon the vote of
stockholders at a meeting of the
stockholders in accordance with
Delaware Law and the New Certificate
of Incorporation, and may not be taken
by written consent without a meeting,
subject to the rights of the holders of
any class or series of Preferred Stock
then outstanding. Proposed Article
Tenth(a) would establish a requirement
for the Corporation to hold annual
meetings of stockholders for director
elections and other business, while
Proposed Article Tenth(b) would permit
special meetings to be called only upon
a resolution of a majority of the board
of directors (except that when holders of
Preferred Stock have the right to elect
directors, such holders may call a
special meeting). Provisions providing
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for annual meetings and special
meetings are currently contained only in
the Current Bylaws.13
• Forum Selection. The New
Certificate of Incorporation would add a
new Article Eleventh, designating the
Court of Chancery of the State of
Delaware as the sole and exclusive
forum for certain actions or proceedings,
such as derivative actions brought on
behalf of the Corporation or actions
asserting a claim of breach of fiduciary
duty owed by any director, officer or
other employee of the Corporation to the
Corporation or to its stockholders.
Among other things, this provision
prevents similar actions from being
brought in multiple jurisdictions and
helps ensure that any litigation will be
handled by the court that is most
experienced in applying Delaware Law.
Article Eleventh also provides that any
person or entity acquiring an interest in
shares of capital stock of the
Corporation shall be deemed to have
notice of and consented to this
exclusive forum provision.
• Section 203. The New Certificate of
Incorporation would add Article
Thirteenth, providing that the
Corporation will be governed by Section
203 of Delaware Law. In general,
Section 203 prohibits a publicly-held
Delaware corporation from engaging in
a business combination with anyone
who owns at least 15 percent of its
common stock. This prohibition lasts for
a period of three years after that person
has acquired the 15 percent ownership.
The corporation may, however, engage
in a business combination if it is
approved by its board of directors before
the person acquires the 15 percent
ownership or later by its board of
directors and two-thirds of the
stockholders of the public corporation.
The restrictions contained in Section
203 do not apply if, among other things,
the corporation’s certificate of
incorporation contains a provision
expressly electing not to be governed by
Section 203. Unless opted-out, Section
203 provides Delaware corporations
with a defense to unwanted corporate
takeovers.
The New Certificate of Incorporation
also removes various references to the
Investor Rights Agreement, as the
provisions of that agreement, other than
certain registration rights, is expected to
terminate upon the occurrence of the
IPO.14 The New Certificate of
13 Current
Bylaws, Sections 2.02 and 2.03.
Investor Rights Agreement, Section 10
(providing that the rights and obligations of each
stockholder party to the agreement shall terminate,
to the extent not previously terminated, upon the
occurrence of ‘‘Qualified Public Offering,’’ as
14 See
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Incorporation additionally makes
various non-substantive, stylistic
changes throughout. For example, the
New Certificate of Incorporation would
amend the name of the Corporation
from ‘‘BATS Global Markets, Inc.’’ to
‘‘Bats Global Markets, Inc.’’
2. The New Bylaws
a. Registered Office
Article I of the Current Bylaws
designates the initial registered office of
the Corporation in the State of Delaware
as 1209 Orange Street in the City of
Wilmington, County of New Castle,
Delaware and the initial registered agent
at that address as The Corporation Trust
Company. Section 1.01 of the New
Bylaws would amend Article I to state
that the registered office will continue
to be located at the same location and
to further provide the board of directors
with the authority to designate another
location from time to time. This will
provide the board of directors with the
flexibility to change the registered office
in the future if it believes that such a
change is necessary. In addition, Section
1.01 of the New Bylaws would provide
that the registered agent will continue to
be The Corporation Trust Company.
b. Annual Meeting of Stockholders
Section 2.02(a) of the Current Bylaws
requires that an annual meeting of
stockholders for the purpose of election
of directors and for such other business
as may lawfully come before the
meeting occur on the third Tuesday of
January, or such other time as the board
of directors may designate. The New
Bylaws remove the reference to the third
Tuesday of January from Section 2.02(a)
and authorize the board of directors to
determine the place, date and time of
the annual meeting.
Section 2.02(b) of the Current Bylaws
specifies the procedures for
stockholders to properly bring matters
before the annual meeting, including
specifying that stockholders provide
timely notice to the Corporation of the
business desired to be brought before
the meeting. To be considered timely,
Section 2.02(b) of the Current Bylaws
states that the stockholder’s notice must
be delivered to the Corporation no
earlier than the ninetieth day or later
than the sixtieth day prior to the first
anniversary of the preceding year’s
annual meeting. The New Bylaws
modify the acceptable time period so
that the stockholder’s notice must be
delivered to the Corporation no earlier
than the one hundred and fiftieth day or
later than the one hundred and
defined therein, except that certain registration
rights shall survive such termination).
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twentieth day prior to the first
anniversary of the preceding year’s
annual meeting. In the event that no
annual meeting was held in the
previous year or the date of the annual
meeting has been changed by more than
thirty days, the New Bylaws generally
require that the stockholder’s notice be
delivered no earlier than the one
hundred and twentieth day or later than
the seventieth day prior to such annual
meeting.
Section 2.02(b) of the Current Bylaws
specifies what must be contained in the
stockholder’s notice. In addition to the
requirements contained in the Current
Bylaws, Section 2.02(b) of the New
Bylaws would require that the
stockholder’s notice (i) disclose the text
of the proposal, (ii) disclose the
beneficial owner on whose behalf the
proposal is being made, (iii) disclose all
arrangements or understandings
between the stockholder and any other
person pursuant to which the proposal
is being made, (iv) disclose all
agreements, arrangements or
understandings (including derivative
positions) to create or mitigate loss or
manage the risk or benefit of share price
changes, or increase or decrease the
voting power of the stockholder or any
beneficial owner with respect to the
securities of the Corporation, (v) provide
a representation as to whether the
stockholder or any beneficial owner
intends, or is part of a group that
intends, to deliver a proxy statement
and/or form of proxy to holders of at
least the percentage of the voting power
of the Corporation needed to approve or
adopt the proposal, or otherwise solicit
proxies from stockholders in support of
the proposal, and (vi) provide such
other information relating to any
proposed item of business as the
Corporation may reasonably require to
determine whether such proposed item
of business is a proper matter for
stockholder action.
Section 2.02(c) of the Current Bylaws
specifies the procedures for
stockholders to properly nominate
persons for the board of directors,
including that the stockholder provide
timely notice to the Corporation. In
addition to the requirements contained
in the Current Bylaws, Section 2.02(c) of
the New Bylaws would require that the
stockholder’s notice (i) disclose all
agreements, arrangements or
understandings (including derivative
positions) to create or mitigate loss or
manage the risk or benefit of share price
changes, or increase or decrease the
voting power of the stockholder,
beneficial owner or any such nominee
with respect to the securities of the
Corporation, (ii) provide a
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representation that such stockholder is
a stockholder entitled to vote at such
meeting and intends to appear in person
or by proxy at the meeting and to bring
such nomination or other business
before the meeting, and (iii) provide a
representation as to whether the
stockholder or any beneficial owner
intends, or is part of a group that
intends, to deliver a proxy statement
and/or form of proxy to holders of at
least the percentage of the voting power
of the Corporation needed to elect each
such nominee, or otherwise solicit
proxies from stockholders in support of
the nomination.
The additional disclosure
requirements being added to Sections
2.02(b) and 2.02(c) are intended to
assure that stockholders asked to vote
on a stockholder proposal or
stockholder nominee are more fully
informed in their voting and are able to
consider any proposals or nominations
along with the interests of those
stockholders or the beneficial owners on
whose behalf such proposal or
nomination is being made.
The New Bylaws would further
include a new Section 2.02(d), which
would require that a stockholder
proposal or a stockholder nomination be
disregarded if the stockholder (or a
qualified representative) does not
appear at the annual or special meeting
to present the proposal or nomination,
notwithstanding that proxies may have
been received and counted for purposes
of determining a quorum. A ‘‘qualified
representative’’ would include a duly
authorized officer, manager or partner of
the stockholder, or such other person
authorized in writing to act as such
stockholder’s proxy. The purpose of this
requirement is to assure that the
stockholders’ time at meetings is used
efficiently and only serious stockholder
proposals and nominations are
considered.
The New Bylaws would also add
Section 2.02(e), which would require
that a stockholder, in addition to (and
in no way limiting) all requirements set
forth in Section 2.02 with respect to
proposals or nominations, must also
comply with all applicable requirements
of the Act and the rules and regulations
promulgated thereunder.
New Section 2.02(f) of the New
Bylaws would note that,
notwithstanding anything to the
contrary in the New Bylaws, the notice
requirements with respect to business
proposals or nominations would be
deemed satisfied if the stockholder
submitted a proposal in compliance
with Rule 14a–8 of the Act 15 and the
15 17
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8771
proposal has been included in a proxy
statement prepared by the Corporation
to solicit proxies of the meeting of
stockholders. This provision would
assure that, in addition to proposals that
meet the requirements of Section 2.02(b)
of the New Bylaws, the Corporation
would comply with the provisions of
the Act and the rules promulgated
thereunder with respect to the inclusion
of stockholder proposals in its proxy
statement.
c. Special Meetings of Stockholders
Section 2.03 of the Current Bylaws
permits a special meeting of the
stockholders to be called by any of (i)
the chairman of the board of directors,
(ii) the chief executive officer, (iii) the
board of directors pursuant to a
resolution passed by a majority of the
board, or (iv) the stockholders entitled
to vote at least 10 percent of the votes
at the meeting. The New Bylaws would
amend Section 2.03, consistent with
Article Tenth(b) of the New Certificate
of Incorporation, to only permit a
special meeting of the stockholders to be
called by the board of directors pursuant
to a resolution adopted by the majority
of the board. Additionally, whenever
any holders of Preferred Stock have the
right to elect directors pursuant to the
New Certificate of Incorporation, such
holders may call, pursuant to the terms
of a resolution adopted by the board, a
special meeting of the holders of such
Preferred Stock. These amendments are
designed to prevent any stockholder
from exercising undue control over the
operation of the Exchange by
circumventing the board of directors of
the Corporation through a special
meeting of the stockholders.
d. Quorum; Vote Requirements
Section 2.05 of the Current Bylaws
describe the quorum and voting
requirements for the transaction of
business at all meetings of stockholders
of the Corporation. As the New Charter
establishes two classes of stock, voting
common stock and non-voting common
stock, the New Bylaws would amend
Section 2.05 to clarify that a majority of
the voting power (the Voting Common
Stock) is generally required for a
quorum for the transaction of business,
rather than a majority of all outstanding
shares. The New Bylaws would also
amend Section 2.05 to conform to
Section 216 of Delaware Law to track
the requirement of a majority of votes
‘‘present in person or represented by
proxy’’ for a quorum where a separate
vote by class or classes or series is
required. In addition, Section 2.05 of the
New Bylaws would also be amended to
clarify that abstentions and broker non-
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votes shall not be counted as votes cast.
Under Delaware Law, abstentions and
broker non-votes are not shares
authorized to vote and are not
considered votes cast on any matter.16
This amendment conforms the
provisions of Section 2.05 to Delaware
Law and is intended to eliminate
ambiguity in the counting of abstentions
and broker non-votes.
e. Adjournment of Meetings
Section 2.06 of the Current Bylaws
outlines certain requirements relating to
the adjournment of stockholder
meetings, including that any meeting of
stockholders, whether annual or special,
may be adjourned from time to time
either by the chairman of the meeting or
by the vote of a majority of the voting
power of the shares casting votes,
excluding abstentions. The New Bylaws
would amend Section 2.06 such that
only the chairman of the meeting or the
board of directors would be permitted to
adjourn a stockholder meeting. The
authority to adjourn a stockholder
meeting resting solely with the board of
directors or the chairman is common
among publicly-held companies.
Furthermore, this amendment would
provide the Corporation with flexibility
to postpone a stockholder vote if it
determines necessary and would
prevent stockholders from adjourning a
meeting if the board of directors and
chairman desire to continue with the
meeting.
mstockstill on DSK4VPTVN1PROD with NOTICES
f. Voting Rights
Section 2.07 of the Current Bylaws
describes the rights of stockholders of
the Corporation to vote their shares at a
meeting of stockholders. The New
Bylaws would amend Section 2.07 to
further clarify that any share of stock of
the Corporation held by the Corporation
shall have no voting rights, except when
such shares are held in a fiduciary
capacity. The Current Bylaws do not
address voting rights with respect to
shares of stock of the Corporation held
by the Corporation. This amendment is
consistent with Delaware Law and
removes ambiguity as to the voting
rights of shares of stock of the
Corporation held by the Corporation.17
g. Action Without a Meeting
Section 2.10(a) of the Current Bylaws
permits certain actions to be taken by
written consent of stockholders if signed
by the holders of outstanding stock
representing not less than the number of
votes necessary to authorize or take
16 See, e.g., Berlin v. Emerald Partners, 552 A.2d
482 (Del. 1988).
17 See Delaware Law Section 160(c).
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such action at a meeting where all
shares entitled to vote were present and
voted. However, Section 2.10(c) of the
Current Bylaws provides that no action
by written consent may be taken
following an initial public offering of
the common stock of the Corporation.
The New Bylaws would amend Section
2.10 to prohibit at all times actions
taken by written consent of stockholders
without a meeting, subject to the rights
of any holders of Preferred Stock. This
change is consistent with proposed
changes contained in Article Tenth(c) of
the New Certificate of Incorporation and
would simplify Section 2.10 of the New
Bylaws, given that the New Bylaws
would become effective the moment
before the closing of the IPO.
h. Number of Directors and Classified
Board Structure
Section 3.01 of the Current Bylaws
stipulates that the board of directors of
the Corporation shall consist of 15
members, or such other number of
members as determined from time to
time by resolution of the board of
directors. Under the New Bylaws,
Section 3.01 would be amended to state
that the board of directors shall consist
of one or more directors, with the exact
number of directors to be determined by
resolution adopted by the majority of
the board of directors. In addition,
Section 3.01 of the New Bylaws would,
consistent with proposed Article
Sixth(c) of the New Certificate of
Incorporation, establish a classified
board structure in which the directors
would be divided into three classes of
equal size, to the extent possible. Only
one class of directors would be elected
each year, and once elected, directors
would serve a three-year term. The
Exchange believes that such a classified
board structure is common for publiclyheld companies, as it has the effect of
making hostile takeover attempts more
difficult.
i. Vacancies and Resignation
Section 3.03 of the Current Bylaws
provides that vacancies on the board of
directors resulting from death,
resignation, removal or other causes,
and any newly created directorships
resulting from any increase in the
number of directors, shall be filled by a
majority vote of the directors then in
office, even if less than a quorum,
unless the board of directors determines
by resolution that any such vacancies or
newly created directorships should be
filled by stockholders. Once elected, the
director would hold office for the
remainder of the full term of the director
for which the vacancy was created or
occurred and until such director’s
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successor shall have been elected and
qualified. Section 3.03 of the New
Bylaws would adopt a substantially
similar approach. Specifically, it would
provide that vacancies or new
directorships shall, except as otherwise
required by law, be filled solely by a
majority of the directors then in office
(although less than a quorum) or by the
sole remaining director, and each
director so elected shall hold office for
a term that shall coincide with the term
of the class to which such director shall
have been elected. The New Bylaws
would also amend Section 3.03 to
provide that if there are no directors in
office, then an election of directors may
be held in accordance with Delaware
Law.
Section 3.04 of the Current Bylaws
addresses the resignation of directors.
For example, Section 3.04 provides that
when one or more directors resign from
the board of directors, effective at a
future date, a majority of the directors
then in office, including those who have
so resigned, shall have the power to fill
such vacancy or vacancies, the vote
thereon to take effect when such
resignation or resignations shall become
effective. This provision would be
retained in the New Bylaws, but it
would be moved to Section 3.03. In
addition, as is effectively the case under
Section 3.04 of the Current Bylaws,
Section 3.03 of the New Bylaws would
provide that any director so chosen
shall hold office as provided in the
filling of other vacancies.
j. Removal of Directors
Section 3.05 of the Current Bylaws
provides that the board of directors or
any director may be removed, with or
without cause, by the affirmative vote of
at least 662⁄3 percent of the voting power
of all then-outstanding shares of voting
stock of the Corporation. The New
Bylaws would amend Section 3.05 to
provide that directors may only be
removed for cause with the affirmative
vote of a simple majority of the holders
of voting power of all then-outstanding
securities of the Corporation generally
entitled to vote in the election of
directors, voting together as a single
class.
The purpose of this amendment is to
align the Corporation’s requirements for
removal of directors with Section
141(k)(1) of Delaware Law, which
generally provides that, in the case of a
corporation with a classified board, a
simple majority of stockholders may
remove any director, but only for cause,
unless the certificate of incorporation
provides otherwise.
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k. Committees of Directors
m. Officers
Sections 3.10(a) and (b) of the Current
Bylaws permit the board of directors to
appoint an executive committee with
certain enumerated powers of the board,
as well as other committees permitted
by law. The New Bylaws would amend
Section 3.10(a) to eliminate specific
reference to an executive committee and
authorize the board to designate one or
more committees that may exercise the
power of the board to the extent
permitted in the resolution designating
the committee. This amendment would
enhance the board’s flexibility to create
those committees it deems necessary
and most efficient for the functioning of
the board. Section 3.10(a) would be
further amended to provide that no
committee would have the power to (i)
approve, adopt or recommend to the
stockholders any matter required by
Delaware Law to be submitted for
stockholder approval, or (ii) adopt,
amend or repeal any bylaw. These
amendments are being made to assure
that the full board of directors considers
and passes upon these significant
corporate decisions.
Section 3.10(c) of the Current Bylaws
describes the requirements for
committee meetings. The New Bylaws
would amend Section 3.10(c) to require
that each committee keep regular
minutes of its meetings and report the
same to the board of directors of the
Corporation when required. This
amendment is being made to assure that
matters addressed during committee
meetings are recorded in the corporate
records of the Corporation and are
available to be communicated to the full
board of directors of the Corporation.
Section 4.01 of the Current Bylaws
provides that the officers of the
Corporation shall include, if and when
designated by the board of directors, the
chairman of the board of directors, the
chief executive officer, the president,
one or more vice presidents and certain
other employees. The New Bylaws
would amend Section 4.01 to remove
the chairman of the board of directors
from the list of potential officers of the
Corporation. Similarly, the New Bylaws
would also remove Section 4.02(b) of
the Current Bylaws, which describes the
duties of the chairman of the board of
directors. These changes would be made
to reflect the fact that the chairman of
the board of directors does not serve in
an officer role in the Corporation.
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l. Preferred Stock Directors
The New Bylaws would add new
Section 3.12 to clarify that whenever the
holders of one or more classes or series
of Preferred Stock have the right to elect
one or more directors (a ‘‘Preferred
Stock Director’’), pursuant to the New
Certificate of Incorporation, the
provisions of Article III of the New
Bylaws relating to the election, term of
office, filling of vacancies, removal, and
other features of directorships would
not apply to the Preferred Stock
Directors. Rather, such features would
be governed by the applicable
provisions of the New Certificate of
Incorporation. This amendment is
consistent with proposed Article
Sixth(f) of the New Certificate of
Incorporation with respect to the rights
of holders of Preferred Stock, should
any class or series of Preferred Stock be
issued with director voting rights in the
future.
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n. Form of Stock Certificates
The New Bylaws would amend
Section 6.01 of the Current Bylaws to
state that the shares of the Corporation
shall be represented by certificates,
unless the board of directors provides
by resolution that some or all of any
class or series of stock be uncertificated.
Except as otherwise provided by law,
holders of certificated and
uncertificated shares of the same class
and series would have identical rights
and obligations. Pursuant to Section
6.03(d) of the New Bylaws, the board
will also have the power to make rules
for issuance, transfer and registration of
certificated or uncertificated shares, and
the issuance of new certificates in lieu
of those lost or destroyed. The New
Bylaws further amend Section 6.01 to
provide that the Corporation will not
have the power to issue a certificate in
bearer form. These amendments are
intended to align the bylaws of the
Corporation with standard provisions
for Delaware public companies.
o. Fixing Record Dates
Section 6.04 of the Current Bylaws
provides the procedures for fixing a
record date for determining the
stockholders entitled to notice of or to
vote at any meeting of stockholders or
any adjournment thereof. In general, a
determination of stockholders of record
entitled to notice of or to vote at a
meeting of stockholders shall apply to
any adjournment of the meeting.
However, Section 6.04(a) of the Current
Bylaws also permits the board of
directors to fix a new record date for the
adjourned meeting. The New Bylaws
would amend Section 6.04(a) to clarify
that the board of directors may fix a new
record date for determination of
stockholders entitled to vote at the
adjourned meeting in its discretion or as
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required by Delaware Law. In such case,
the board of directors would be
permitted to fix the same date or an
earlier date as the record date for
stockholders entitled to notice of such
adjourned meeting. The New Bylaws
would also remove Section 6.04(b) of
the Current Bylaws, which relates to the
fixing of a record date for determining
the stockholders entitled to consent to
corporate action in writing without a
meeting. This provision would be
removed because the New Bylaws
would remove the ability of
stockholders to authorize or take
corporate action by written consent.
p. Indemnification
Article X of the Current Bylaws
contains certain provisions for the
indemnification of directors, officers,
employees and certain other agents of
the Corporation. The New Bylaws will
eliminate such provisions in their
entirety. These provisions are being
eliminated because provisions regarding
indemnification are already contained
in Article Ninth of the Current
Certificate of Incorporation and will
remain in Article Ninth of the New
Certificate of Incorporation.
q. Notices
Article XI of the Current Bylaws
contains provisions governing the
delivery of notices to stockholders and
directors. Section 11.01(b) of the
Current Bylaws, for example, states that
notices to directors may be given
through U.S. mail, facsimile, telex or
telegram, except that such notice, other
than one which is delivered personally,
must be sent to such address as such
director shall have filed in writing with
the secretary of the Corporation, or, in
the absence of such filing, to the last
known post office address of such
director. The corresponding section of
the New Bylaws, Section 10.01(b),
would be revised to additionally permit
notice to directors to be given through
electronic mail, in addition to the other
forms of delivery currently permitted.
The Exchange believes that it has
become customary to deliver business
communications through electronic
mail. The remainder of the notice
provisions would not be substantively
amended in the New Bylaws.
r. Future Bylaws Amendments
Article Eighth of the Current
Certificate of Incorporation (as proposed
to be maintained in the New Certificate
of Incorporation) provides that the
bylaws may be adopted, amended or
repealed by the board of directors or by
action of the stockholders, in
accordance with the procedures set out
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in the bylaws. Article XII of the Current
Bylaws permits the bylaws to be
amended or repealed only by action of
the stockholders holding 70 percent of
the shares entitled to vote. Article XI of
the New Bylaws would amend Article
XII to provide that the bylaws may be
altered, adopted, amended or repealed
either by a majority of the board of
directors, or by the stockholders with
the affirmative vote of not less than 662⁄3
of the total voting power then entitled
to vote at a meeting of stockholders,
unless a higher percentage is required
under the New Certificate of
Incorporation. The New Certificate of
Incorporation does not include a higher
percentage, so the threshold set forth in
the New Bylaws would govern. The
Current Bylaws require a vote of at least
70 percent of the total stockholder
voting power in order to maintain
consistency with the threshold that was
separately agreed to in the Investor
Rights Agreement.18 As noted above, the
Investor Rights Agreement is expected
to terminate upon the IPO, except with
respect to certain registration rights
provisions, so the 70 percent threshold
is no longer contractually necessary to
maintain.19 The requirement to obtain
70 percent stockholder approval for any
amendments to the Corporation’s
bylaws was practical while the
Corporation was closely-held. However,
the Exchange believes that it is
customary for amendments to a
publicly-held corporation’s bylaws to be
predominantly a matter for the
corporation’s board of directors, both as
a matter of convenience, and to make
unwanted corporate takeovers more
difficult. As a result, the New Bylaws
require that, should the stockholders
wish to amend the Corporation’s
bylaws, a supermajority of 662⁄3 percent
would be required. The threshold
reduction from 70 percent to 662⁄3 is
intended to be consistent with other
publicly-held companies.
In addition to the board of directors
and stockholder approval requirements,
Article XI of the New Bylaws would
maintain the provisions contained in
Article XII of the Current Bylaws
requiring that, for so long as the
Corporation will control a national
securities exchange registered with the
Commission under Section 6 of the Act,
before any amendment to the New
Bylaws may become effective, the
amendment must be submitted to the
board of directors of such exchange, and
if required by Section 19 of the Act,20
Investor Rights Agreement, Section 4.3(d).
supra note 14 and accompanying text.
20 15 U.S.C. 78s.
filed with or filed with and approved by
the Commission.
s. Loans to Officers
Article XIII of the Current Bylaws
authorizes the Corporation to lend
money to or guarantee obligations of any
officer of the company under certain
circumstances. In order to comply with
Section 13(k)(1) of the Act,21 which will
apply to the Corporation after the IPO,
the New Bylaws eliminate this
authority.
t. Other Amendments
The New Bylaws also remove
references to the Investor Rights
Agreement, as the provisions of that
agreement, other than certain
registration rights, is expected to
terminate upon the occurrence of the
IPO.22 In addition, the New Bylaws
make various non-substantive, stylistic
changes throughout. For example, as
with the New Certificate of
Incorporation, the New Bylaws would
reflect a change in the name of the
Corporation from ‘‘BATS Global
Markets, Inc.’’ to ‘‘Bats Global Markets,
Inc.’’
2. Statutory Basis
The Exchange believes that its
proposal is consistent with the
requirements of the Act and rules and
regulations thereunder that are
applicable to a national securities
exchange and, in particular, with the
requirements of Section 6(b)(1) of the
Act, in that it enables the Exchange to
be so organized as to have the capacity
to be able 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.23 In particular, the New
Certificate of Incorporation is consistent
with Section 6(b)(1) of the Act because
it would retain the limitations on
ownership and total voting power that
currently exist and would adopt supermajority requirements for certain
amendments to the New Certificate of
Incorporation. These provisions would
help prevent any stockholder, including
any member of the Exchange along with
its Related Persons, from exercising
undue control over the operation of the
Exchange. In addition, Sections 2.03
and 2.10(c) of the New Bylaws would
prohibit the ability of the stockholders
to call a special meeting of the
stockholders and to act by written
18 See
21 15
19 See
22 See
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U.S.C. 78m(k)(1).
supra note 14 and accompanying text.
23 15 U.S.C. 78f(b).
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consent. Therefore, as with the New
Certificate of Incorporation, the New
Bylaws would help prevent any
stockholder from exercising undue
control over the operation of the
Exchange and assure that the Exchange
is able to carry out its regulatory
obligations under the Act.
(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. Indeed, the
Exchange believes that the proposed
rule change would enhance
competition. The other major operators
of registered national securities
exchanges are currently public
companies, with the access to the public
markets that this facilitates. The
amendments to the Corporation’s
certificate of incorporation and bylaws
will facilitate the Corporation’s IPO,
facilitating capital formation and
allowing the Corporation to better
compete with other public companies
operating national securities exchanges
and other markets.
(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.
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 (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the Exchange consents,
the Commission will: (a) By order
approve or disapprove such 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:
E:\FR\FM\22FEN1.SGM
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Federal Register / Vol. 81, No. 34 / Monday, February 22, 2016 / Notices
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
EDGX–2016–04 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.
mstockstill on DSK4VPTVN1PROD with NOTICES
All submissions should refer to File
Number SR–EDGX–2016–04. 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 will also 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–EDGX–
2016–04 and should be submitted on or
before March 14, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.24
Brent J. Fields,
Secretary.
[FR Doc. 2016–03529 Filed 2–19–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77148; File No. S7–966]
Program for Allocation of Regulatory
Responsibilities Pursuant to Rule 17d–
2; Notice of Filing and Order
Approving and Declaring Effective an
Amendment to the Plan for the
Allocation of Regulatory
Responsibilities Among NYSE MKT
LLC, BATS Exchange, Inc., BOX
Options Exchange LLC, C2 Options
Exchange, Incorporated, the Chicago
Board Options Exchange,
Incorporated, the EDGX Exchange,
Inc., the International Securities
Exchange LLC, ISE Gemini, LLC, ISE
Mercury, LLC Financial Industry
Regulatory Authority, Inc., the New
York Stock Exchange LLC, NYSE Arca,
Inc., The NASDAQ Stock Market LLC,
NASDAQ OMX BX, Inc., the NASDAQ
OMX PHLX, Inc., and Miami
International Securities Exchange, LLC
Concerning Options-Related Sales
Practice Matters
February 16, 2016.
Notice is hereby given that the
Securities and Exchange Commission
(‘‘Commission’’) has issued an Order,
pursuant to Section 17(d) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 approving and declaring
effective an amendment to the plan for
allocating regulatory responsibility
(‘‘Plan’’) filed on February 3, 2016,
pursuant to Rule 17d–2 of the Act,2 by
NYSE MKT LLC (‘‘MKT’’), BATS
Exchange, Inc., (‘‘BATS’’), the BOX
Options Exchange LLC (‘‘BOX’’), C2
Options Exchange, Incorporated (‘‘C2’’),
the Chicago Board Options Exchange,
Incorporated (‘‘CBOE’’), the EDGX
Exchange, Inc. (‘‘EDGX’’) the
International Securities Exchange LLC
(‘‘ISE’’), ISE Gemini, LLC (‘‘Gemini’’),
ISE Mercury, LLC (‘‘ISE Mercury’’)
Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’), the New
York Stock Exchange LLC (‘‘NYSE’’),
NYSE Arca, Inc. (‘‘Arca’’), The
NASDAQ Stock Market LLC (‘‘Nasdaq’’),
NASDAQ OMX BX, Inc. (‘‘BX’’),
NASDAQ OMX PHLX, Inc. (‘‘PHLX’’),
and Miami International Securities
Exchange (‘‘MIAX’’) (collectively,
‘‘Participating Organizations’’ or
‘‘parties’’).
I. Introduction
Section 19(g)(1) of the Act,3 among
other things, requires every selfregulatory organization (‘‘SRO’’)
1 15
U.S.C. 78q(d).
CFR 240.17d–2.
3 15 U.S.C. 78s(g)(1).
2 17
24 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
19:03 Feb 19, 2016
Jkt 238001
PO 00000
Frm 00095
Fmt 4703
Sfmt 4703
8775
registered as either a national securities
exchange or national securities
association to examine for, and enforce
compliance by, its members and persons
associated with its members with the
Act, the rules and regulations
thereunder, and the SRO’s own rules,
unless the SRO is relieved of this
responsibility pursuant to Section
17(d) 4 or Section 19(g)(2) 5 of the Act.
Without this relief, the statutory
obligation of each individual SRO could
result in a pattern of multiple
examinations of broker-dealers that
maintain memberships in more than one
SRO (‘‘common members’’). Such
regulatory duplication would add
unnecessary expenses for common
members and their SROs.
Section 17(d)(1) of the Act 6 was
intended, in part, to eliminate
unnecessary multiple examinations and
regulatory duplication.7 With respect to
a common member, Section 17(d)(1)
authorizes the Commission, by rule or
order, to relieve an SRO of the
responsibility to receive regulatory
reports, to examine for and enforce
compliance with applicable statutes,
rules, and regulations, or to perform
other specified regulatory functions.
To implement Section 17(d)(1), the
Commission adopted two rules: Rule
17d–1 and Rule 17d–2 under the Act.8
Rule 17d–1 authorizes the Commission
to name a single SRO as the designated
examining authority (‘‘DEA’’) to
examine common members for
compliance with the financial
responsibility requirements imposed by
the Act, or by Commission or SRO
rules.9 When an SRO has been named as
a common member’s DEA, all other
SROs to which the common member
belongs are relieved of the responsibility
to examine the firm for compliance with
the applicable financial responsibility
rules. On its face, Rule 17d–1 deals only
with an SRO’s obligations to enforce
member compliance with financial
responsibility requirements. Rule 17d–1
does not relieve an SRO from its
obligation to examine a common
member for compliance with its own
rules and provisions of the federal
securities laws governing matters other
than financial responsibility, including
4 15
U.S.C. 78q(d).
U.S.C. 78s(g)(2).
6 15 U.S.C. 78q(d)(1).
7 See Securities Act Amendments of 1975, Report
of the Senate Committee on Banking, Housing, and
Urban Affairs to Accompany S. 249, S. Rep. No. 94–
75, 94th Cong., 1st Session 32 (1975).
8 17 CFR 240.17d–1 and 17 CFR 240.17d–2,
respectively.
9 See Securities Exchange Act Release No. 12352
(April 20, 1976), 41 FR 18808 (May 7, 1976).
5 15
E:\FR\FM\22FEN1.SGM
22FEN1
]]>Agencies
[Federal Register Volume 81, Number 34 (Monday, February 22, 2016)]
[Notices]
[Pages 8767-8775]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-03529]
[[Page 8767]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77147; File No. SR-EDGX-2016-04]
Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To Amend the Certificate of
Incorporation and Bylaws of the Exchange's Ultimate Parent Company,
BATS Global Markets, Inc.
February 16, 2016.
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 February 9, 2016, EDGX Exchange, Inc. (the ``Exchange'' or
``EDGX'') filed with the Securities and Exchange Commission
(``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 comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange filed a proposal to amend the certificate of
incorporation and bylaws of the Exchange's ultimate parent company,
BATS Global Markets, Inc. (the ``Corporation'').
The text of the proposed rule change is available at the Exchange's
Web site at www.batstrading.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.
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
On December 16, 2015, the Corporation, the ultimate parent company
of the Exchange, filed a registration statement on Form S-1 with the
Commission seeking to register shares of common stock and to conduct an
initial public offering of those shares, which will be listed for
trading on BATS Exchange, Inc. (the ``IPO''). In connection with its
IPO, the Corporation intends to (i) amend and restate its current
certificate of incorporation (the ``Current Certificate of
Incorporation'') and adopt these changes as its Amended and Restated
Certificate of Incorporation (the ``New Certificate of
Incorporation''), and (ii) amend and restate its current bylaws (the
``Current Bylaws'') and adopt these changes as its Amended and Restated
Bylaws (the ``New Bylaws''). It is anticipated that the New Certificate
of Incorporation and the New Bylaws will become effective (the
``Effective Date'') the moment before the closing of the IPO.
The amendments to the Current Certificate of Incorporation include,
among other things, (i) increasing the total number of authorized
shares of capital stock of the Corporation, (ii) effecting a conversion
and elimination of one class of non-voting common stock and
reclassifying the remaining class of non-voting common stock, (iii)
establishing a classified board structure, (iv) prohibiting cumulative
voting in the election of directors, (v) eliminating the process for
action by written consent of stockholders, (vi) revising certain
requirements for approval of future amendments to the New Certificate
of Incorporation, and (vii) and changing the name of the Corporation
from ``BATS Global Markets, Inc.'' to ``Bats Global Markets, Inc.''
The amendments to the Current Bylaws include, among other things,
(i) revising the procedures for stockholder proposals and nomination of
directors, (ii) revising the authority to call special meetings of the
stockholders, (iii) eliminating the process for action by written
consent of stockholders, (iv) establishing a classified board
structure, (v) revising the requirements for removal of directors, (vi)
removing duplicative provisions relating to the indemnification of
officers and directors that are contained in the Current Certificate of
Incorporation (and are proposed to be maintained in the New Certificate
of Incorporation), (vii) revising certain requirements for approval of
future amendments to the New Bylaws, (viii) eliminating the authority
to make loans to corporate officers, and (ix) changes to reflect the
change of the Corporation's name. The amendments to the Corporation's
Current Certificate of Incorporation and Current Bylaws are intended
primarily to reflect (i) the adoption of provisions more customary for
publicly-owned companies, (ii) changes to the Corporation's capital
structure, specifically with respect to non-voting common stock, and
(iii) stylistic and other non-substantive changes.\3\
---------------------------------------------------------------------------
\3\ Certain of the amendments proposed to be adopted in the New
Certificate of Incorporation and New Bylaws were previously approved
by the Commission in 2011 as part of proposed amendments to the
certificate of incorporation and bylaws of the ultimate parent
company of BATS Exchange, Inc. and BATS Y-Exchange Inc. at the time.
See, e.g., Securities Exchange Act Release No. 65646 (October 27,
2011), 76 FR 67783 (November 2, 2011) (SR-BATS-2011-033); Securities
Exchange Act Release No. 65728 (November 10, 2011), 76 FR 71411
(November 17, 2011) (SR-BATS-2011-035). Although approved, the
Exchange understands that these amendments were not ultimately
implemented.
---------------------------------------------------------------------------
The purpose of this rule filing is to submit for Commission
approval the New Certificate of Incorporation and the New Bylaws. The
changes described herein relate to the certificate of incorporation and
bylaws of the Corporation only, not to the governance of the Exchange.
The Exchange will continue to be governed by its existing certificate
of incorporation and bylaws. The stock in, and voting power of, the
Exchange will continue to be directly and solely held by Direct Edge
LLC, an intermediate holding company wholly-owned by the Corporation.
The Corporation was originally formed as BATS Global Markets
Holdings, Inc. on August 22, 2013 as a new ultimate holding company for
the Exchange as a result of a business combination involving the
ultimate holding company of the Exchange at the time and the ultimate
holding company at the time of BATS Exchange, Inc. and BATS Y-Exchange,
Inc.\4\
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\4\ The ownership structure of the Exchange at the time of the
business combination and the Current Certificate of Incorporation
and Current Bylaws of the Corporation are further described in the
Commission's order approving the Exchange's proposed rule changes in
connection with the Corporation's business combination with Direct
Edge Holdings LLC. See Securities Exchange Act Release No. 71449;
(January 30, 2014), 79 FR 6961 (February 5, 2014) (SR-EDGX-2013-43;
SR-EDGA-2013-34).
---------------------------------------------------------------------------
1. The New Certificate of Incorporation
a. Capital Stock; Voting Rights
The current capital structure of the Corporation is comprised of 75
million authorized shares of Common Stock,
[[Page 8768]]
consisting of 55 million shares of Voting Common Stock, 10 million
shares of Class A Non-Voting Common Stock and 10 million shares of
Class B Non-Voting Common Stock. Article Fourth(a)(i) of the New
Certificate of Incorporation would revise this capital structure such
that there would be 150 million total authorized shares of capital
stock, consisting of 125 million shares designated as Voting Common
Stock and a single class of 10 million shares designated as Non-Voting
Common Stock (together with Voting Common Stock, ``Common Stock''), as
well as 15 million shares of Preferred Stock.
The Corporation's existing Class A Non-Voting Common Stock is
currently held by International Securities Exchange Holdings, Inc.
(``ISE Holdings''). Pursuant to the Investor Rights Agreement dated
January 31, 2014, among the Corporation and its stockholders signatory
thereto (the ``Investor Rights Agreement''), and the Current
Certificate of Incorporation, ISE Holdings' shares of Class A Non-
Voting Common Stock may convert into Voting Common Stock (i)
automatically with respect to any shares transferred to persons other
than related persons of ISE Holdings; (ii) upon the termination of the
Investor Rights Agreement, with such agreement (other than with respect
to registration rights) terminating upon the IPO; or (iii)
automatically with respect to any shares of Class A Non-Voting Common
Stock sold by ISE Holdings in any public offering of the stock of the
Corporation. In addition, ISE Holdings' shares of Class A Non-Voting
Common Stock may convert into Voting Stock at the option of ISE
Holdings, provided that ISE Holdings furnishes to the Corporation a
written notice stating that ISE Holdings desires to convert a stated
number of shares of Class A Non-Voting Common Stock and the
certificates representing such shares.\5\
---------------------------------------------------------------------------
\5\ See Current Certificate of Incorporation, Art. Fourth, para.
(c); Investor Rights Agreement, Section 2.2(j).
---------------------------------------------------------------------------
As a result of these conversion rights, the Corporation expects the
Class A Non-Voting Common Stock to convert into Voting Common Stock at
the time of the IPO. To effect this conversion, Article Fourth(b)(i) of
the New Certificate of Incorporation states that, at the time that the
New Certificate of Incorporation becomes effective (the ``Effective
Time''),\6\ each authorized, issued and outstanding share of Class A
Non-Voting Common Stock shall be automatically converted into one share
of Voting Common Stock. To simplify the capital structure of the
Corporation, Article Fourth(b)(ii) would reclassify each authorized,
issued and outstanding share of Class B Non-Voting Common Stock into
one share of Non-Voting Common Stock.\7\
---------------------------------------------------------------------------
\6\ It is anticipated that the Effective Time will coincide with
the date of the closing of the IPO and will occur immediately prior
thereto.
\7\ The Exchange understands that the existing Class B Non-
Voting Common Stock is, and the Non-Voting Common Stock upon
conversion will be, held by certain persons subject to restrictions
under the Bank Holding Company Act of 1956 on the extent to which
they are permitted to own voting stock of the Corporation or certain
types of non-voting stock convertible into voting stock of the
Corporation.
---------------------------------------------------------------------------
Pursuant to Article Fourth(c) of the New Certificate of
Incorporation, as proposed to be adopted, all voting power will be
vested in Voting Common Stock (except with regard to certain matters
relating to the rights of holders of Preferred Stock described below).
Specifically, each holder of Voting Common Stock will be entitled to
one vote for each share of Voting Common Stock held of record by such
holder on all matters on which stockholders generally are entitled to
vote. Shares of Non-Voting Common Stock are non-voting, except with
regard to certain matters that would adversely affect their respective
rights as described in the proposed amendments to Article Fourth(c)(ii)
of the New Certificate of Incorporation.
Pursuant to Article Fourth(d) of the New Certificate of
Incorporation, Non-Voting Common Stock will generally have the
conversion features that previously applied to Class B Non-Voting
Common Stock under the Current Certificate of Incorporation. Non-Voting
Common Stock will be convertible into Voting Common Stock, on a one-to-
one basis, following a ``Qualified Transfer,'' as defined in Article
Fourth(d)(i).\8\ Voting Common Stock will not be convertible into Non-
Voting Common Stock.
---------------------------------------------------------------------------
\8\ A ``Qualified Transfer'' is defined as a sale or other
transfer of Non-Voting Common Stock by a holder of such shares: (A)
In a widely distributed public offering registered pursuant to the
Securities Act of 1933 (15 U.S.C. 77a.); (B) in a private sale or
transfer in which the relevant transferee (together with its
Affiliates, as defined below, and other transferees acting in
concert with it) acquires no more than two percent of any class of
voting shares (as defined in 12 CFR 225.2(q)(3) and determined by
giving effect to any such permitted conversion of transferred shares
of Non-Voting Common Stock upon such transfer pursuant to Article
Fourth of the New Certificate of Incorporation); (C) to a transferee
that (together with its Affiliates and other transferees acting in
concert with it) owns or controls more than 50 percent of any class
of voting shares (as defined in 12 CFR 225.2(q)(3)) of the
Corporation without regard to any transfer of shares from the
transferring holder of shares of Non-Voting Common Stock; or (D) to
the Corporation. As used above, the term ``Affiliate'' means, with
respect to any person, any other person directly or indirectly
controlling, controlled by or under common control with such person,
and ``control'' (including, with correlative meanings, the terms
``controlled by'' and ``under common control with'') has the meaning
set forth in 12 CFR 225.2(e)(1).
---------------------------------------------------------------------------
Except for voting rights and certain conversion features, as
described above, Non-Voting Common Stock and Voting Common Stock will
generally rank equally and have identical rights and privileges.
Because the IPO is expected to be a widely distributed public offering
registered pursuant to the Securities Act of 1933 (15 U.S.C. 77a.), the
Corporation expects it to be a ``Qualified Transfer,'' for purposes of
the conversion feature of the Non-Voting Common Stock,\9\ such that any
shares of Non-Voting Common Stock sold in the IPO would convert to
Voting Common Stock. As a result, purchasers of the Corporation's
common stock in the IPO will receive only Voting Common Stock.
---------------------------------------------------------------------------
\9\ See New Certificate of Incorporation, Art. Fourth(d)(i).
---------------------------------------------------------------------------
Proposed Article Fourth(a)(i) of the New Certificate of
Incorporation would increase the Corporation's authorized shares in
order to accommodate the reclassification of Class A Non-Voting Common
Stock and Class B Non-Voting Common Stock discussed above, while
providing sufficient additional authorized shares for future issuances,
such as, for example, grants of equity to employees pursuant to a
compensation plan.
b. Board of Directors
Article Sixth of the New Certificate of Incorporation would amend
certain provisions relating to the Corporation's board of directors to
add further specificity and detail, and effect a number of changes to
the board of directors of the Corporation.
Article Sixth(a) of the New Certificate of Incorporation would
explicitly specify that the business and affairs of the Corporation
shall be managed by or under the board of directors and empower the
board of the directors to do all such acts and things as may be
exercised or done by the Corporation. This provision is intended to
restate the power of the Corporation's board in accordance with the
General Corporation Law of the State of Delaware, as amended
(``Delaware Law'').\10\
---------------------------------------------------------------------------
\10\ See Delaware Law Section 141(a).
---------------------------------------------------------------------------
Article Sixth(c) of the New Certificate of Incorporation would
establish a ``staggered'' or classified board structure in which the
directors would be divided into three classes of equal size, to the
extent possible. Only one class of directors would be elected each
year,
[[Page 8769]]
and once elected, directors would serve a three-year term. Directors
initially designated as Class I directors would serve for a term ending
on the date of the 2017 annual meeting of stockholders, directors
initially designated as Class II directors would serve for a term
ending on the date of the 2018 annual meeting of stockholders, and
directors initially designated as Class III directors would serve for a
term ending on the date of the 2019 annual meeting of stockholders. The
names and addresses of each of the directors initially classified as
Class I, Class II and Class III directors are set forth in Article
Sixth(c)(ii) of the New Certificate of Incorporation. The Exchange
believes that such a classified board structure is common for publicly-
held companies, as it has the effect of making hostile takeover
attempts more difficult.
Pursuant to Article Sixth(d) of the New Certificate of
Incorporation, cumulative voting in the election of directors will be
prohibited. If the Corporation were to permit cumulative voting,
stockholders would be entitled to as many votes as are equal to the
number of voting shares it holds, multiplied by the number of director
seats up for election to the board of directors, and such stockholder
may allocate all of its votes to one or more directorial candidates, as
the stockholder desires. In contrast, in ``regular'' or ``statutory''
voting (i.e., when cumulative voting is prohibited), stockholders may
not vote more than one vote per share to any single director nominee.
The Exchange believes that cumulative voting is inappropriate for the
ultimate parent company of a national securities exchange, as it would
increase the likelihood that a stockholder or group of stockholders
holding only a minority of voting shares would be able to exert an
outsized influence in the election of directors of the Corporation,
relative to its stockholdings in the Corporation. As a result,
cumulative voting could undermine the limitations on concentrations of
ownership or voting included in both the Current Certificate of
Incorporation and New Certificate of Incorporation.\11\
---------------------------------------------------------------------------
\11\ See Current Certificate of Incorporation, Art. Fifth; New
Certificate of Incorporation, Art. Fifth.
---------------------------------------------------------------------------
c. Transfer, Ownership and Voting Restrictions
The transfer, ownership and voting restrictions set forth in
Article Fifth of the Corporation's Current Certificate of Incorporation
would be retained in the New Certificate of Incorporation. Article
Fifth of the Corporation's Current Certificate of Incorporation
provides that for so long as the Corporation controls, directly or
indirectly, a national securities exchange, subject to certain
exceptions, (i) no person, either alone or together with its ``Related
Persons'' (as defined therein), may own, directly or indirectly, of
record or beneficially, shares constituting more than 40 percent of any
class of the Corporation's capital stock, (ii) no member of such a
national securities exchange, either alone or together with its Related
Persons, may own, directly or indirectly, of record or beneficially,
shares constituting more than 20 percent of any class of the
Corporation's capital stock, and (iii) no person, either alone or
together with its Related Persons, at any time, may, directly,
indirectly or pursuant to any of various arrangements, vote or cause
the voting of shares or give any consent or proxy with respect to
shares representing more than 20 percent of the voting power of the
Corporation's then issued and outstanding capital stock.
In the case of shares of the Corporation purportedly transferred in
violation of the limitations contained in Article Fifth, in addition to
other remedies provided under Article Fifth(d),\12\ Article Fifth(e) of
the Current Certificate of Incorporation provides that the Corporation
may redeem the shares sold, transferred, assigned, pledged, or owned in
violation of Article Fifth for a price equal to the fair market value
of those shares.
---------------------------------------------------------------------------
\12\ Article Fifth(d) of the Current Certificate of
Incorporation provides that purported transfers that would result in
a violation of the ownership limitations are not recognized by the
Corporation to the extent of any ownership in excess of the
limitation.
---------------------------------------------------------------------------
These limitations and remedies are designed to prevent any
stockholder from exercising undue influence over the Corporation's
national securities exchange subsidiaries. As a result, these
limitations and remedies would be retained in the New Certificate of
Incorporation. However, in the case of the redemption of shares
purportedly transferred in violation of Article Fifth, the Current
Certificate of Incorporation does not specify the manner of determining
the fair market value. In order to enhance this remedy and provide
clarity in the event that it is necessary to enforce it, Article
Fifth(e) of the New Certificate of Incorporation is proposed to be
amended to provide that the fair market value would be determined as
the volume-weighted average price per share of the Common Stock during
the five business days immediately preceding the date of the
redemption.
d. Future Amendments to the Certificate of Incorporation
Article Twelfth of the Current Certificate of Incorporation
requires that any proposed amendment to the Current Certificate of
Incorporation be approved by the board of directors of the Corporation,
submitted to the Board of Directors of the Exchange and filed with, or
filed with and approved by, the Commission, if required under Section
19 of the Act. Provided that these conditions are satisfied, the
Current Certificate of Incorporation can be amended in any manner
permitted by Delaware Law, which today generally allows for the
amendment of a certificate of incorporation by the affirmative vote of
the majority of the outstanding stock entitled to vote thereon.
Pursuant to proposed Article Fourteenth(a) of the New Certificate of
Incorporation, certain provisions of the New Certificate of
Incorporation would only be able to be amended upon the affirmative
vote of not less than 66\2/3\ percent of the total voting power of the
Corporation's outstanding securities entitled to vote generally in the
election of directors, voting together as a single class. These
provisions include Article Fourth(c) and (d), relating to voting rights
and conversion of Non-Voting Common Stock, and Articles Fifth through
Thirteenth, relating to limitations on transfer, ownership and voting,
board of directors, duration of the Corporation, adopting, amending or
repealing bylaws, indemnification and limitation of director liability,
meetings of stockholders, forum selection, compromise or other
arrangement, Section 203 opt-in (discussed below), and amendments to
the certificate of incorporation, respectively.
The purpose of this supermajority requirement, which the Exchange
believes is common among public companies, is to deter actions being
taken that the Corporation believes may be detrimental to the
Corporation, including any actions that could detrimentally affect the
Corporation's ability to comply with its unique responsibilities under
the Act as the ultimate parent of four registered national securities
exchanges. The purpose for limiting the application of the
supermajority voting requirement to certain specified provisions of the
certificate of incorporation is to focus such requirement on the most
critical provisions of the certificate of incorporation.
[[Page 8770]]
e. Other Amendments
The New Certificate of Incorporation will amend and restate various
other provisions of the Current Certificate of Incorporation in a
manner that the Exchange believes are intended to reflect provisions
that are more customary for publicly-owned companies organized under
Delaware Law. In particular:
Preferred Stock. Pursuant to proposed Article Fourth(a) of
the New Certificate of Incorporation, the Corporation will have the
authority to issue 15 million shares of Preferred Stock, par value
$0.01 per share (the ``Preferred Stock''), which the Corporation's
board of directors may, by resolution from time to time, issue in one
or more classes or series by filing a certificate of designation
pursuant to Delaware Law, fixing the terms and conditions of such class
or series of Preferred Stock. The Preferred Stock may be used by the
Corporation to raise capital or to act as a safety mechanism for
unwanted takeovers. Pursuant to Article Sixth(f) of the New Certificate
of Incorporation, should the Corporation issue Preferred Stock and the
holders of Preferred Stock have the right to vote separately or as a
class to elect directors, the features of such directorships shall be
governed by the terms of the resolution adopted by the board of
directors, rather than the features otherwise applicable under Article
Sixth.
Stockholder Meetings. Article Tenth of the Current
Certificate of Incorporation permits action to be taken by the
stockholders of the Corporation, without a meeting, by written consent
as permitted by Delaware Law. The New Certificate of Incorporation
would amend Article Tenth to provide that any action required or
permitted to be taken at any meeting of the stockholders may be taken
only upon the vote of stockholders at a meeting of the stockholders in
accordance with Delaware Law and the New Certificate of Incorporation,
and may not be taken by written consent without a meeting, subject to
the rights of the holders of any class or series of Preferred Stock
then outstanding. Proposed Article Tenth(a) would establish a
requirement for the Corporation to hold annual meetings of stockholders
for director elections and other business, while Proposed Article
Tenth(b) would permit special meetings to be called only upon a
resolution of a majority of the board of directors (except that when
holders of Preferred Stock have the right to elect directors, such
holders may call a special meeting). Provisions providing for annual
meetings and special meetings are currently contained only in the
Current Bylaws.\13\
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\13\ Current Bylaws, Sections 2.02 and 2.03.
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Forum Selection. The New Certificate of Incorporation
would add a new Article Eleventh, designating the Court of Chancery of
the State of Delaware as the sole and exclusive forum for certain
actions or proceedings, such as derivative actions brought on behalf of
the Corporation or actions asserting a claim of breach of fiduciary
duty owed by any director, officer or other employee of the Corporation
to the Corporation or to its stockholders. Among other things, this
provision prevents similar actions from being brought in multiple
jurisdictions and helps ensure that any litigation will be handled by
the court that is most experienced in applying Delaware Law. Article
Eleventh also provides that any person or entity acquiring an interest
in shares of capital stock of the Corporation shall be deemed to have
notice of and consented to this exclusive forum provision.
Section 203. The New Certificate of Incorporation would
add Article Thirteenth, providing that the Corporation will be governed
by Section 203 of Delaware Law. In general, Section 203 prohibits a
publicly-held Delaware corporation from engaging in a business
combination with anyone who owns at least 15 percent of its common
stock. This prohibition lasts for a period of three years after that
person has acquired the 15 percent ownership. The corporation may,
however, engage in a business combination if it is approved by its
board of directors before the person acquires the 15 percent ownership
or later by its board of directors and two-thirds of the stockholders
of the public corporation. The restrictions contained in Section 203 do
not apply if, among other things, the corporation's certificate of
incorporation contains a provision expressly electing not to be
governed by Section 203. Unless opted-out, Section 203 provides
Delaware corporations with a defense to unwanted corporate takeovers.
The New Certificate of Incorporation also removes various
references to the Investor Rights Agreement, as the provisions of that
agreement, other than certain registration rights, is expected to
terminate upon the occurrence of the IPO.\14\ The New Certificate of
Incorporation additionally makes various non-substantive, stylistic
changes throughout. For example, the New Certificate of Incorporation
would amend the name of the Corporation from ``BATS Global Markets,
Inc.'' to ``Bats Global Markets, Inc.''
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\14\ See Investor Rights Agreement, Section 10 (providing that
the rights and obligations of each stockholder party to the
agreement shall terminate, to the extent not previously terminated,
upon the occurrence of ``Qualified Public Offering,'' as defined
therein, except that certain registration rights shall survive such
termination).
---------------------------------------------------------------------------
2. The New Bylaws
a. Registered Office
Article I of the Current Bylaws designates the initial registered
office of the Corporation in the State of Delaware as 1209 Orange
Street in the City of Wilmington, County of New Castle, Delaware and
the initial registered agent at that address as The Corporation Trust
Company. Section 1.01 of the New Bylaws would amend Article I to state
that the registered office will continue to be located at the same
location and to further provide the board of directors with the
authority to designate another location from time to time. This will
provide the board of directors with the flexibility to change the
registered office in the future if it believes that such a change is
necessary. In addition, Section 1.01 of the New Bylaws would provide
that the registered agent will continue to be The Corporation Trust
Company.
b. Annual Meeting of Stockholders
Section 2.02(a) of the Current Bylaws requires that an annual
meeting of stockholders for the purpose of election of directors and
for such other business as may lawfully come before the meeting occur
on the third Tuesday of January, or such other time as the board of
directors may designate. The New Bylaws remove the reference to the
third Tuesday of January from Section 2.02(a) and authorize the board
of directors to determine the place, date and time of the annual
meeting.
Section 2.02(b) of the Current Bylaws specifies the procedures for
stockholders to properly bring matters before the annual meeting,
including specifying that stockholders provide timely notice to the
Corporation of the business desired to be brought before the meeting.
To be considered timely, Section 2.02(b) of the Current Bylaws states
that the stockholder's notice must be delivered to the Corporation no
earlier than the ninetieth day or later than the sixtieth day prior to
the first anniversary of the preceding year's annual meeting. The New
Bylaws modify the acceptable time period so that the stockholder's
notice must be delivered to the Corporation no earlier than the one
hundred and fiftieth day or later than the one hundred and
[[Page 8771]]
twentieth day prior to the first anniversary of the preceding year's
annual meeting. In the event that no annual meeting was held in the
previous year or the date of the annual meeting has been changed by
more than thirty days, the New Bylaws generally require that the
stockholder's notice be delivered no earlier than the one hundred and
twentieth day or later than the seventieth day prior to such annual
meeting.
Section 2.02(b) of the Current Bylaws specifies what must be
contained in the stockholder's notice. In addition to the requirements
contained in the Current Bylaws, Section 2.02(b) of the New Bylaws
would require that the stockholder's notice (i) disclose the text of
the proposal, (ii) disclose the beneficial owner on whose behalf the
proposal is being made, (iii) disclose all arrangements or
understandings between the stockholder and any other person pursuant to
which the proposal is being made, (iv) disclose all agreements,
arrangements or understandings (including derivative positions) to
create or mitigate loss or manage the risk or benefit of share price
changes, or increase or decrease the voting power of the stockholder or
any beneficial owner with respect to the securities of the Corporation,
(v) provide a representation as to whether the stockholder or any
beneficial owner intends, or is part of a group that intends, to
deliver a proxy statement and/or form of proxy to holders of at least
the percentage of the voting power of the Corporation needed to approve
or adopt the proposal, or otherwise solicit proxies from stockholders
in support of the proposal, and (vi) provide such other information
relating to any proposed item of business as the Corporation may
reasonably require to determine whether such proposed item of business
is a proper matter for stockholder action.
Section 2.02(c) of the Current Bylaws specifies the procedures for
stockholders to properly nominate persons for the board of directors,
including that the stockholder provide timely notice to the
Corporation. In addition to the requirements contained in the Current
Bylaws, Section 2.02(c) of the New Bylaws would require that the
stockholder's notice (i) disclose all agreements, arrangements or
understandings (including derivative positions) to create or mitigate
loss or manage the risk or benefit of share price changes, or increase
or decrease the voting power of the stockholder, beneficial owner or
any such nominee with respect to the securities of the Corporation,
(ii) provide a representation that such stockholder is a stockholder
entitled to vote at such meeting and intends to appear in person or by
proxy at the meeting and to bring such nomination or other business
before the meeting, and (iii) provide a representation as to whether
the stockholder or any beneficial owner intends, or is part of a group
that intends, to deliver a proxy statement and/or form of proxy to
holders of at least the percentage of the voting power of the
Corporation needed to elect each such nominee, or otherwise solicit
proxies from stockholders in support of the nomination.
The additional disclosure requirements being added to Sections
2.02(b) and 2.02(c) are intended to assure that stockholders asked to
vote on a stockholder proposal or stockholder nominee are more fully
informed in their voting and are able to consider any proposals or
nominations along with the interests of those stockholders or the
beneficial owners on whose behalf such proposal or nomination is being
made.
The New Bylaws would further include a new Section 2.02(d), which
would require that a stockholder proposal or a stockholder nomination
be disregarded if the stockholder (or a qualified representative) does
not appear at the annual or special meeting to present the proposal or
nomination, notwithstanding that proxies may have been received and
counted for purposes of determining a quorum. A ``qualified
representative'' would include a duly authorized officer, manager or
partner of the stockholder, or such other person authorized in writing
to act as such stockholder's proxy. The purpose of this requirement is
to assure that the stockholders' time at meetings is used efficiently
and only serious stockholder proposals and nominations are considered.
The New Bylaws would also add Section 2.02(e), which would require
that a stockholder, in addition to (and in no way limiting) all
requirements set forth in Section 2.02 with respect to proposals or
nominations, must also comply with all applicable requirements of the
Act and the rules and regulations promulgated thereunder.
New Section 2.02(f) of the New Bylaws would note that,
notwithstanding anything to the contrary in the New Bylaws, the notice
requirements with respect to business proposals or nominations would be
deemed satisfied if the stockholder submitted a proposal in compliance
with Rule 14a-8 of the Act \15\ and the proposal has been included in a
proxy statement prepared by the Corporation to solicit proxies of the
meeting of stockholders. This provision would assure that, in addition
to proposals that meet the requirements of Section 2.02(b) of the New
Bylaws, the Corporation would comply with the provisions of the Act and
the rules promulgated thereunder with respect to the inclusion of
stockholder proposals in its proxy statement.
---------------------------------------------------------------------------
\15\ 17 CFR 240.14a-8.
---------------------------------------------------------------------------
c. Special Meetings of Stockholders
Section 2.03 of the Current Bylaws permits a special meeting of the
stockholders to be called by any of (i) the chairman of the board of
directors, (ii) the chief executive officer, (iii) the board of
directors pursuant to a resolution passed by a majority of the board,
or (iv) the stockholders entitled to vote at least 10 percent of the
votes at the meeting. The New Bylaws would amend Section 2.03,
consistent with Article Tenth(b) of the New Certificate of
Incorporation, to only permit a special meeting of the stockholders to
be called by the board of directors pursuant to a resolution adopted by
the majority of the board. Additionally, whenever any holders of
Preferred Stock have the right to elect directors pursuant to the New
Certificate of Incorporation, such holders may call, pursuant to the
terms of a resolution adopted by the board, a special meeting of the
holders of such Preferred Stock. These amendments are designed to
prevent any stockholder from exercising undue control over the
operation of the Exchange by circumventing the board of directors of
the Corporation through a special meeting of the stockholders.
d. Quorum; Vote Requirements
Section 2.05 of the Current Bylaws describe the quorum and voting
requirements for the transaction of business at all meetings of
stockholders of the Corporation. As the New Charter establishes two
classes of stock, voting common stock and non-voting common stock, the
New Bylaws would amend Section 2.05 to clarify that a majority of the
voting power (the Voting Common Stock) is generally required for a
quorum for the transaction of business, rather than a majority of all
outstanding shares. The New Bylaws would also amend Section 2.05 to
conform to Section 216 of Delaware Law to track the requirement of a
majority of votes ``present in person or represented by proxy'' for a
quorum where a separate vote by class or classes or series is required.
In addition, Section 2.05 of the New Bylaws would also be amended to
clarify that abstentions and broker non-
[[Page 8772]]
votes shall not be counted as votes cast. Under Delaware Law,
abstentions and broker non-votes are not shares authorized to vote and
are not considered votes cast on any matter.\16\ This amendment
conforms the provisions of Section 2.05 to Delaware Law and is intended
to eliminate ambiguity in the counting of abstentions and broker non-
votes.
---------------------------------------------------------------------------
\16\ See, e.g., Berlin v. Emerald Partners, 552 A.2d 482 (Del.
1988).
---------------------------------------------------------------------------
e. Adjournment of Meetings
Section 2.06 of the Current Bylaws outlines certain requirements
relating to the adjournment of stockholder meetings, including that any
meeting of stockholders, whether annual or special, may be adjourned
from time to time either by the chairman of the meeting or by the vote
of a majority of the voting power of the shares casting votes,
excluding abstentions. The New Bylaws would amend Section 2.06 such
that only the chairman of the meeting or the board of directors would
be permitted to adjourn a stockholder meeting. The authority to adjourn
a stockholder meeting resting solely with the board of directors or the
chairman is common among publicly-held companies. Furthermore, this
amendment would provide the Corporation with flexibility to postpone a
stockholder vote if it determines necessary and would prevent
stockholders from adjourning a meeting if the board of directors and
chairman desire to continue with the meeting.
f. Voting Rights
Section 2.07 of the Current Bylaws describes the rights of
stockholders of the Corporation to vote their shares at a meeting of
stockholders. The New Bylaws would amend Section 2.07 to further
clarify that any share of stock of the Corporation held by the
Corporation shall have no voting rights, except when such shares are
held in a fiduciary capacity. The Current Bylaws do not address voting
rights with respect to shares of stock of the Corporation held by the
Corporation. This amendment is consistent with Delaware Law and removes
ambiguity as to the voting rights of shares of stock of the Corporation
held by the Corporation.\17\
---------------------------------------------------------------------------
\17\ See Delaware Law Section 160(c).
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g. Action Without a Meeting
Section 2.10(a) of the Current Bylaws permits certain actions to be
taken by written consent of stockholders if signed by the holders of
outstanding stock representing not less than the number of votes
necessary to authorize or take such action at a meeting where all
shares entitled to vote were present and voted. However, Section
2.10(c) of the Current Bylaws provides that no action by written
consent may be taken following an initial public offering of the common
stock of the Corporation. The New Bylaws would amend Section 2.10 to
prohibit at all times actions taken by written consent of stockholders
without a meeting, subject to the rights of any holders of Preferred
Stock. This change is consistent with proposed changes contained in
Article Tenth(c) of the New Certificate of Incorporation and would
simplify Section 2.10 of the New Bylaws, given that the New Bylaws
would become effective the moment before the closing of the IPO.
h. Number of Directors and Classified Board Structure
Section 3.01 of the Current Bylaws stipulates that the board of
directors of the Corporation shall consist of 15 members, or such other
number of members as determined from time to time by resolution of the
board of directors. Under the New Bylaws, Section 3.01 would be amended
to state that the board of directors shall consist of one or more
directors, with the exact number of directors to be determined by
resolution adopted by the majority of the board of directors. In
addition, Section 3.01 of the New Bylaws would, consistent with
proposed Article Sixth(c) of the New Certificate of Incorporation,
establish a classified board structure in which the directors would be
divided into three classes of equal size, to the extent possible. Only
one class of directors would be elected each year, and once elected,
directors would serve a three-year term. The Exchange believes that
such a classified board structure is common for publicly-held
companies, as it has the effect of making hostile takeover attempts
more difficult.
i. Vacancies and Resignation
Section 3.03 of the Current Bylaws provides that vacancies on the
board of directors resulting from death, resignation, removal or other
causes, and any newly created directorships resulting from any increase
in the number of directors, shall be filled by a majority vote of the
directors then in office, even if less than a quorum, unless the board
of directors determines by resolution that any such vacancies or newly
created directorships should be filled by stockholders. Once elected,
the director would hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until
such director's successor shall have been elected and qualified.
Section 3.03 of the New Bylaws would adopt a substantially similar
approach. Specifically, it would provide that vacancies or new
directorships shall, except as otherwise required by law, be filled
solely by a majority of the directors then in office (although less
than a quorum) or by the sole remaining director, and each director so
elected shall hold office for a term that shall coincide with the term
of the class to which such director shall have been elected. The New
Bylaws would also amend Section 3.03 to provide that if there are no
directors in office, then an election of directors may be held in
accordance with Delaware Law.
Section 3.04 of the Current Bylaws addresses the resignation of
directors. For example, Section 3.04 provides that when one or more
directors resign from the board of directors, effective at a future
date, a majority of the directors then in office, including those who
have so resigned, shall have the power to fill such vacancy or
vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective. This provision would be retained
in the New Bylaws, but it would be moved to Section 3.03. In addition,
as is effectively the case under Section 3.04 of the Current Bylaws,
Section 3.03 of the New Bylaws would provide that any director so
chosen shall hold office as provided in the filling of other vacancies.
j. Removal of Directors
Section 3.05 of the Current Bylaws provides that the board of
directors or any director may be removed, with or without cause, by the
affirmative vote of at least 66\2/3\ percent of the voting power of all
then-outstanding shares of voting stock of the Corporation. The New
Bylaws would amend Section 3.05 to provide that directors may only be
removed for cause with the affirmative vote of a simple majority of the
holders of voting power of all then-outstanding securities of the
Corporation generally entitled to vote in the election of directors,
voting together as a single class.
The purpose of this amendment is to align the Corporation's
requirements for removal of directors with Section 141(k)(1) of
Delaware Law, which generally provides that, in the case of a
corporation with a classified board, a simple majority of stockholders
may remove any director, but only for cause, unless the certificate of
incorporation provides otherwise.
[[Page 8773]]
k. Committees of Directors
Sections 3.10(a) and (b) of the Current Bylaws permit the board of
directors to appoint an executive committee with certain enumerated
powers of the board, as well as other committees permitted by law. The
New Bylaws would amend Section 3.10(a) to eliminate specific reference
to an executive committee and authorize the board to designate one or
more committees that may exercise the power of the board to the extent
permitted in the resolution designating the committee. This amendment
would enhance the board's flexibility to create those committees it
deems necessary and most efficient for the functioning of the board.
Section 3.10(a) would be further amended to provide that no committee
would have the power to (i) approve, adopt or recommend to the
stockholders any matter required by Delaware Law to be submitted for
stockholder approval, or (ii) adopt, amend or repeal any bylaw. These
amendments are being made to assure that the full board of directors
considers and passes upon these significant corporate decisions.
Section 3.10(c) of the Current Bylaws describes the requirements
for committee meetings. The New Bylaws would amend Section 3.10(c) to
require that each committee keep regular minutes of its meetings and
report the same to the board of directors of the Corporation when
required. This amendment is being made to assure that matters addressed
during committee meetings are recorded in the corporate records of the
Corporation and are available to be communicated to the full board of
directors of the Corporation.
l. Preferred Stock Directors
The New Bylaws would add new Section 3.12 to clarify that whenever
the holders of one or more classes or series of Preferred Stock have
the right to elect one or more directors (a ``Preferred Stock
Director''), pursuant to the New Certificate of Incorporation, the
provisions of Article III of the New Bylaws relating to the election,
term of office, filling of vacancies, removal, and other features of
directorships would not apply to the Preferred Stock Directors. Rather,
such features would be governed by the applicable provisions of the New
Certificate of Incorporation. This amendment is consistent with
proposed Article Sixth(f) of the New Certificate of Incorporation with
respect to the rights of holders of Preferred Stock, should any class
or series of Preferred Stock be issued with director voting rights in
the future.
m. Officers
Section 4.01 of the Current Bylaws provides that the officers of
the Corporation shall include, if and when designated by the board of
directors, the chairman of the board of directors, the chief executive
officer, the president, one or more vice presidents and certain other
employees. The New Bylaws would amend Section 4.01 to remove the
chairman of the board of directors from the list of potential officers
of the Corporation. Similarly, the New Bylaws would also remove Section
4.02(b) of the Current Bylaws, which describes the duties of the
chairman of the board of directors. These changes would be made to
reflect the fact that the chairman of the board of directors does not
serve in an officer role in the Corporation.
n. Form of Stock Certificates
The New Bylaws would amend Section 6.01 of the Current Bylaws to
state that the shares of the Corporation shall be represented by
certificates, unless the board of directors provides by resolution that
some or all of any class or series of stock be uncertificated. Except
as otherwise provided by law, holders of certificated and
uncertificated shares of the same class and series would have identical
rights and obligations. Pursuant to Section 6.03(d) of the New Bylaws,
the board will also have the power to make rules for issuance, transfer
and registration of certificated or uncertificated shares, and the
issuance of new certificates in lieu of those lost or destroyed. The
New Bylaws further amend Section 6.01 to provide that the Corporation
will not have the power to issue a certificate in bearer form. These
amendments are intended to align the bylaws of the Corporation with
standard provisions for Delaware public companies.
o. Fixing Record Dates
Section 6.04 of the Current Bylaws provides the procedures for
fixing a record date for determining the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment
thereof. In general, a determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting. However, Section 6.04(a) of the Current
Bylaws also permits the board of directors to fix a new record date for
the adjourned meeting. The New Bylaws would amend Section 6.04(a) to
clarify that the board of directors may fix a new record date for
determination of stockholders entitled to vote at the adjourned meeting
in its discretion or as required by Delaware Law. In such case, the
board of directors would be permitted to fix the same date or an
earlier date as the record date for stockholders entitled to notice of
such adjourned meeting. The New Bylaws would also remove Section
6.04(b) of the Current Bylaws, which relates to the fixing of a record
date for determining the stockholders entitled to consent to corporate
action in writing without a meeting. This provision would be removed
because the New Bylaws would remove the ability of stockholders to
authorize or take corporate action by written consent.
p. Indemnification
Article X of the Current Bylaws contains certain provisions for the
indemnification of directors, officers, employees and certain other
agents of the Corporation. The New Bylaws will eliminate such
provisions in their entirety. These provisions are being eliminated
because provisions regarding indemnification are already contained in
Article Ninth of the Current Certificate of Incorporation and will
remain in Article Ninth of the New Certificate of Incorporation.
q. Notices
Article XI of the Current Bylaws contains provisions governing the
delivery of notices to stockholders and directors. Section 11.01(b) of
the Current Bylaws, for example, states that notices to directors may
be given through U.S. mail, facsimile, telex or telegram, except that
such notice, other than one which is delivered personally, must be sent
to such address as such director shall have filed in writing with the
secretary of the Corporation, or, in the absence of such filing, to the
last known post office address of such director. The corresponding
section of the New Bylaws, Section 10.01(b), would be revised to
additionally permit notice to directors to be given through electronic
mail, in addition to the other forms of delivery currently permitted.
The Exchange believes that it has become customary to deliver business
communications through electronic mail. The remainder of the notice
provisions would not be substantively amended in the New Bylaws.
r. Future Bylaws Amendments
Article Eighth of the Current Certificate of Incorporation (as
proposed to be maintained in the New Certificate of Incorporation)
provides that the bylaws may be adopted, amended or repealed by the
board of directors or by action of the stockholders, in accordance with
the procedures set out
[[Page 8774]]
in the bylaws. Article XII of the Current Bylaws permits the bylaws to
be amended or repealed only by action of the stockholders holding 70
percent of the shares entitled to vote. Article XI of the New Bylaws
would amend Article XII to provide that the bylaws may be altered,
adopted, amended or repealed either by a majority of the board of
directors, or by the stockholders with the affirmative vote of not less
than 66\2/3\ of the total voting power then entitled to vote at a
meeting of stockholders, unless a higher percentage is required under
the New Certificate of Incorporation. The New Certificate of
Incorporation does not include a higher percentage, so the threshold
set forth in the New Bylaws would govern. The Current Bylaws require a
vote of at least 70 percent of the total stockholder voting power in
order to maintain consistency with the threshold that was separately
agreed to in the Investor Rights Agreement.\18\ As noted above, the
Investor Rights Agreement is expected to terminate upon the IPO, except
with respect to certain registration rights provisions, so the 70
percent threshold is no longer contractually necessary to maintain.\19\
The requirement to obtain 70 percent stockholder approval for any
amendments to the Corporation's bylaws was practical while the
Corporation was closely-held. However, the Exchange believes that it is
customary for amendments to a publicly-held corporation's bylaws to be
predominantly a matter for the corporation's board of directors, both
as a matter of convenience, and to make unwanted corporate takeovers
more difficult. As a result, the New Bylaws require that, should the
stockholders wish to amend the Corporation's bylaws, a supermajority of
66\2/3\ percent would be required. The threshold reduction from 70
percent to 66\2/3\ is intended to be consistent with other publicly-
held companies.
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\18\ See Investor Rights Agreement, Section 4.3(d).
\19\ See supra note 14 and accompanying text.
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In addition to the board of directors and stockholder approval
requirements, Article XI of the New Bylaws would maintain the
provisions contained in Article XII of the Current Bylaws requiring
that, for so long as the Corporation will control a national securities
exchange registered with the Commission under Section 6 of the Act,
before any amendment to the New Bylaws may become effective, the
amendment must be submitted to the board of directors of such exchange,
and if required by Section 19 of the Act,\20\ filed with or filed with
and approved by the Commission.
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\20\ 15 U.S.C. 78s.
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s. Loans to Officers
Article XIII of the Current Bylaws authorizes the Corporation to
lend money to or guarantee obligations of any officer of the company
under certain circumstances. In order to comply with Section 13(k)(1)
of the Act,\21\ which will apply to the Corporation after the IPO, the
New Bylaws eliminate this authority.
---------------------------------------------------------------------------
\21\ 15 U.S.C. 78m(k)(1).
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t. Other Amendments
The New Bylaws also remove references to the Investor Rights
Agreement, as the provisions of that agreement, other than certain
registration rights, is expected to terminate upon the occurrence of
the IPO.\22\ In addition, the New Bylaws make various non-substantive,
stylistic changes throughout. For example, as with the New Certificate
of Incorporation, the New Bylaws would reflect a change in the name of
the Corporation from ``BATS Global Markets, Inc.'' to ``Bats Global
Markets, Inc.''
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\22\ See supra note 14 and accompanying text.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with the
requirements of the Act and rules and regulations thereunder that are
applicable to a national securities exchange and, in particular, with
the requirements of Section 6(b)(1) of the Act, in that it enables the
Exchange to be so organized as to have the capacity to be able 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.\23\ In particular, the New Certificate of
Incorporation is consistent with Section 6(b)(1) of the Act because it
would retain the limitations on ownership and total voting power that
currently exist and would adopt super-majority requirements for certain
amendments to the New Certificate of Incorporation. These provisions
would help prevent any stockholder, including any member of the
Exchange along with its Related Persons, from exercising undue control
over the operation of the Exchange. In addition, Sections 2.03 and
2.10(c) of the New Bylaws would prohibit the ability of the
stockholders to call a special meeting of the stockholders and to act
by written consent. Therefore, as with the New Certificate of
Incorporation, the New Bylaws would help prevent any stockholder from
exercising undue control over the operation of the Exchange and assure
that the Exchange is able to carry out its regulatory obligations under
the Act.
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\23\ 15 U.S.C. 78f(b).
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(B) Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. Indeed, the Exchange
believes that the proposed rule change would enhance competition. The
other major operators of registered national securities exchanges are
currently public companies, with the access to the public markets that
this facilitates. The amendments to the Corporation's certificate of
incorporation and bylaws will facilitate the Corporation's IPO,
facilitating capital formation and allowing the Corporation to better
compete with other public companies operating national securities
exchanges and other markets.
(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.
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 (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will: (a) By order approve
or disapprove such 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:
[[Page 8775]]
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-EDGX-2016-04 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-EDGX-2016-04. 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 will also 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 informati
