Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Bats BYX Exchange, Inc.; Bats EDGA Exchange, Inc.; Bats EDGX Exchange, Inc.; Order Granting Approval of Proposed Rule Change in Connection With the Proposed Corporate Transaction Involving Bats Global Markets, Inc. and CBOE Holdings, Inc., 93988-93994 [2016-30796]

Download as PDF 93988 Federal Register / Vol. 81, No. 246 / Thursday, December 22, 2016 / Notices (SR–Phlx–2016–104) be, and hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.17 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2016–30794 Filed 12–21–16; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–79585; File Nos. SR– BatsBZX–2016–68; SR–BatsBYX–2016–29; SR–BatsEDGA–2016–24; SR–BatsEDGX– 2016–60] Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Bats BYX Exchange, Inc.; Bats EDGA Exchange, Inc.; Bats EDGX Exchange, Inc.; Order Granting Approval of Proposed Rule Change in Connection With the Proposed Corporate Transaction Involving Bats Global Markets, Inc. and CBOE Holdings, Inc. sradovich on DSK3GMQ082PROD with NOTICES December 16, 2016. I. Introduction On November 2, 2016, Bats BZX Exchange, Inc. (‘‘BZX’’), Bats BYX Exchange, Inc. (‘‘BYX’’ and, together with BZX, the ‘‘Bats Exchanges’’), Bats EDGA Exchange, Inc. (‘‘EDGA’’) and Bats EDGX Exchange, Inc. (‘‘EDGX’’ and, together with EDGA, the ‘‘Edge Exchanges’’) (the Bats Exchanges and the Edge Exchanges are the ‘‘Exchanges’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (‘‘Act’’),2 and Rule 19b–4 thereunder,3 proposed rule changes in connection with the proposed corporate transaction (the ‘‘Transaction’’), as described in more detail below, involving their ultimate parent company, Bats Global Markets, Inc. (‘‘BGM’’), CBOE Holdings, Inc. (‘‘CBOE Holdings’’), and two wholly owned subsidiaries of CBOE Holdings, CBOE Corporation and CBOE V, LLC (‘‘CBOE V’’). CBOE Holdings is the parent company of Chicago Board Options Exchange, Incorporated (‘‘CBOE’’) and C2 Options Exchange, Incorporated (‘‘C2’’), each a national securities exchange registered with the Commission pursuant to Section 6(a) of the Act,4 and CBOE Futures Exchange, 17 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 4 15 U.S.C. 78f(a). 1 15 VerDate Sep<11>2014 17:40 Dec 21, 2016 Jkt 241001 LLC (‘‘CBOE Futures,’’ and together with CBOE and C2, the ‘‘CBOE Exchanges’’), a national securities exchange that lists or trades securityfutures products notice-registered with the Commission pursuant to Section 6(g) of the Act.5 The proposed rule changes were published for comment in the Federal Register on November 15, 2016.6 The Commission received no comments on the proposal. After careful review, the Commission finds that the proposed rule changes are consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.7 In particular, the Commission finds that the proposed rule changes are consistent with Sections 6(b)(1) and (3) of the Act,8 which, among other things, require a national securities exchange to be so organized and have the capacity to be able to carry out the purposes of the Act, 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, and assure the fair representation of its members in the selection of its directors and administration of its affairs, and provide that one or more directors shall be representative of issuers and investors and not be associated with a member of the exchange, broker, or dealer. The Commission also finds that the proposal is consistent with Section 6(b)(5) of the Act,9 which requires that the rules of the exchange be designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. II. Discussion A. Corporate Structure 1. Current Structure The Exchanges are each Delaware corporations that are national securities 5 15 U.S.C. 78f(g). Securities Exchange Act Release Nos. 79266 (November 8, 2016), 81 FR 80101 (November 15, 2016) (SR–BatsBZX–2016–68); 79269 (November 8, 2016), 81 FR 80093 (November 15, 2016) (SR– BatsBYX–2016–29); 79265 (November 8, 2016), 81 FR 80146 (November 15, 2016) (SR–BatsEDGA– 2016–24) and 79264 (November 8, 2016), 81 FR 80114 (November 15, 2016) (SR–BatsEDGX–2016– 60) (‘‘Notices’’). 7 In approving the proposed rule changes, the Commission has considered their impact on efficiency, competition and capital formation. See 15 U.S.C. 78c(f). 8 15 U.S.C. 78f(b)(1) and (b)(3). 9 15 U.S.C. 78f(b)(5). 6 See PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 exchanges registered with the Commission pursuant to Section 6(a) of the Act.10 BZX and BYX are each direct, wholly owned subsidiaries of Bats Global Market Holdings, Inc. (‘‘BGM Holdings’’), a Delaware corporation that is a direct, wholly owned subsidiary of BGM. BGM Holdings also owns 100 percent of the equity interest in Bats Trading, Inc. (‘‘Bats Trading’’), a Delaware corporation that is a brokerdealer registered with the Commission that provides routing services outbound from, and in certain instances inbound to, each Exchange. EDGX and EDGA are direct, wholly owned subsidiaries of Direct Edge LLC (‘‘Direct Edge’’), a Delaware limited liability company that is a direct, wholly owned subsidiary of BGM. BGM, a Delaware corporation, is a publicly traded company listed on BZX. CBOE Holdings, a Delaware corporation, is a publicly traded company listed on The NASDAQ Stock Market. CBOE Holdings owns 100 percent of the equity interest in the CBOE Exchanges. 2. The Transaction In contemplation of the Transaction, CBOE Holdings formed two additional entities, CBOE Corporation, a Delaware corporation, and CBOE V, a Delaware limited liability company, each of which are direct, wholly owned subsidiaries of CBOE Holdings. Neither CBOE Corporation nor CBOE V currently have material assets or conduct any operations. On September 25, 2016, BGM, CBOE Holdings, CBOE Corporation and CBOE V entered into an Agreement and Plan of Merger (the ‘‘Merger Agreement’’). Pursuant to and subject to the terms of the Merger Agreement, upon completion of the mergers described below that effectuate the Transaction (the ‘‘Closing’’), among other things: (i) CBOE Corporation will be merged with and into BGM, whereupon the separate existence of CBOE Corporation will cease and BGM will be the surviving company (the ‘‘Merger’’); (ii) by virtue of the Merger and without any action required on the part of BGM, CBOE Corporation or any holder of BGM or CBOE Corporation stock, each share of BGM common stock (whether voting or non-voting) issued and outstanding (with the exception of shares owned by CBOE Holdings, BGM or any of their respective subsidiaries and certain shares held by persons that are entitled to and properly demand appraisal rights) will be converted into 10 15 E:\FR\FM\22DEN1.SGM U.S.C. 78f(a). 22DEN1 Federal Register / Vol. 81, No. 246 / Thursday, December 22, 2016 / Notices the right to receive a particular number of shares of CBOE Holdings and/or cash, at the election of the holder of such share of BGM common stock (the ‘‘Merger Consideration’’), and each share of CBOE Corporation issued and outstanding will be converted into one share of BGM, such that BGM will become a wholly owned subsidiary of CBOE Holdings; and (iii) immediately following the Merger, BGM will be merged with and into CBOE V, whereupon the separate existence of BGM will cease and CBOE V will be the surviving company (the ‘‘Subsequent Merger’’). As a result of the Transaction, BGM will cease to exist and the business of BGM will be carried on by CBOE V, which is a wholly owned subsidiary of CBOE Holdings.11 CBOE V will own 100 percent of the equity interest in BGM Holdings and Direct Edge. BGM Holdings will continue to own 100 percent of the equity interest in the Bats Exchanges and Bats Trading. Direct Edge will continue to own 100 percent of the equity interest in the Edge Exchanges. sradovich on DSK3GMQ082PROD with NOTICES B. Proposed Rule Changes Section 19(b) of the Act and Rule 19b–4 thereunder require a selfregulatory organization (‘‘SRO’’) to file proposed rule changes with the Commission. Although BGM, BGM Holdings, Direct Edge, CBOE Holdings, and CBOE V are not SROs, certain provisions of their proposed certificates of incorporation and bylaws, along with other corporate documents, are rules of the exchange, if they are stated policies, practices, or interpretations, as defined in Rule 19b–4 under the Act, and must be filed with the Commission pursuant 11 The Commission notes that the Exchanges represented that, in connection with the Transaction, CBOE Holdings agreed in the Merger Agreement to take all requisite actions so, as of the Closing, the CBOE Holdings Board will include three individuals designated by BGM who (1) are serving as BGM directors immediately prior to the Closing and (2) comply with the policies (including clarifications of the policies provided to BGM) of the Nominating and Governance Committee of the CBOE Holdings Board as in effect on the date of the Merger Agreement and previously provided to BGM (each of whom will be appointed to the CBOE Holdings Board as of the Closing). The CBOE Holdings Board currently consists of 14 directors. The Exchanges expect three current CBOE Holdings directors to resign effective prior to the Closing and the remaining CBOE Holdings directors to fill those vacancies with the three BGM directors designated by BGM. See Notices, supra note 6, at 80102 n. 6, 80094 n. 6, 80147 n. 6, and 80116 n. 6. See also Securities Exchange Act Release Nos. 79267 (November 8, 2016), 81 FR 80132 (November 15, 2016) (SR–C2–2016–022) and 79268 (November 8, 2016), 81 FR 80157 (November 15, 2016) (SR– CBOE–2016–076) (notice of filing of proposed rule changes related to the composition of the CBOE Holdings Board). VerDate Sep<11>2014 17:40 Dec 21, 2016 Jkt 241001 to Section 19(b)(4) of the Act and Rule 19b–4 thereunder. Accordingly, each of the Exchanges filed with the Commission the following documents, along with other corporate documents, in connection with the Transaction: (1) The resolutions of BGM’s board of directors (the ‘‘BGM Board’’) waiving certain provisions of the Amended and Restated Certificate of Incorporation of BGM (the ‘‘BGM Charter’’) and making certain related determinations regarding CBOE Holdings and the impact of the Transaction on the Exchanges (the ‘‘Resolutions’’); (2) the CBOE Holdings Second Amended and Restated Certificate of Incorporation (the ‘‘CBOE Holdings Charter’’) and the CBOE Holdings Third Amended and Restated Bylaws (the ‘‘CBOE Holdings Bylaws’’); (3) the Certificate of Formation of CBOE V (the ‘‘CBOE V Certificate’’) and the Limited Liability Company Operating Agreement of CBOE V (the ‘‘CBOE V Operating Agreement’’); (4) the proposed amendments to the Amended and Restated Certificate of Incorporation of BGM Holdings (the ‘‘BGM Holdings Charter’’), in the case of the Bats Exchanges; (5) the proposed amendments to the Amended and Restated Limited Liability Company Operating Agreement of Direct Edge (the ‘‘Direct Edge Operating Agreement’’), in the case of the Edge exchanges; (6) the proposed amendments to the Fourth Amended and Restated Bylaws of the Bats Exchanges (each, and collectively, the ‘‘Bats Exchange Bylaws’’), in the case of the Bats Exchanges; (7) the proposed amendments to the Fifth Amended and Restated Bylaws of the Edge Exchanges (each, and collectively, the ‘‘Edge Exchange Bylaws’’), in the case of the Edge Exchanges; and (8) the proposed amendments to various of its rules.12 1. Voting and Ownership Limitations In connection with the Transaction, upon the Closing, CBOE Holdings will become the indirect owner (through CBOE V and Direct Edge) of EDGA and EDGX and the indirect owner (through CBOE V and BGM Holdings) of BZX, BYX and Bats Trading. The CBOE Holdings Charter includes restrictions on the ability to own and vote shares of capital stock of CBOE Holdings.13 These 12 The Bats Exchanges each proposed to amend Rules 2.3 and 2.10 in their respective rulebooks. See Notices, supra note 6, at 80107 and 80099. The Edge Exchanges each proposed to amend Rules 2.3, 2.10, and 2.12 in their respective rulebooks. See Notices, supra note 6, at 80152 and 80120–21. 13 These provisions are generally consistent with ownership and voting limits approved by the Commission for other SROs. See e.g., Securities Exchange Act Release Nos. 78119 (June 21, 2016), 81 FR 41611 (June 27, 2016) (SR–ISE–2016–11, SR– PO 00000 Frm 00109 Fmt 4703 Sfmt 4703 93989 limitations are designed to prevent any stockholder from exercising undue control over the operation of any of the Exchanges and to assure that the Exchanges and the Commission are able to carry out their regulatory obligations under the Act. Specifically, the CBOE Holdings Charter includes restrictions on the ability to vote and own shares of stock of CBOE Holdings. Under the CBOE Holdings Charter: (1) No Person,14 either alone or together with its Related Persons,15 as of any record date for the determination of stockholders entitled to vote on any matter, shall be entitled to vote or cause the voting of shares of stock of CBOE Holdings, beneficially owned directly or indirectly by such Person or its Related Persons, in person or by proxy or through any voting agreement or other arrangement, to the ISE Gemini–2016–05, SR–ISE Mercury–2016–10) (order approving proposed transaction in which Nasdaq, Inc. will become the indirect parent of ISE, ISE Gemini and ISE Mercury) (‘‘Nasdaq–ISE Order’’); 71449 (January 30, 2014), 79 FR 6961 (February 5, 2014) (SR–EDGA–2013–34; SR–EDGX– 2013–43) (order approving proposed business combination involving BATS Global Markets, Inc. and Direct Edge Holdings LLC); 71375 (January 23, 2014), 79 FR 4771 (January 29, 2014) (SR–BATS– 2013–059, SR–BYX–2013–039) (order approving proposed business combination involving BATS Global Markets, Inc. and Direct Edge Holdings LLC); 70210 (August 15, 2013), 78 FR 51758 (August 21, 2013) (SR–NYSE–2013–42, SR–NYSEMKT–2013– 50 and SR–NYSEArca–2013–62) (order approving proposed transaction in which NYSE Euronext will become a wholly owned subsidiary of IntercontinentalExchange Group, Inc.) (‘‘IntercontinentalExchange Group, Inc. Combination Order’’); 62716 (August 13, 2010), 75 FR 51295 (August 19, 2010) (File No. 10–198) (order approving registration application of BYX as a national securities exchange) (‘‘BYX Approval Order’’); 61698 (March 12, 2010), 75 FR 13151 (March 18, 2010) (File Nos. 10–194 and 10–196) (order approving registration application of EDGX Exchange, Inc. and EDGA Exchange, Inc.) (‘‘EDGX and EDGA Approval Order’’); 58375 (August 18, 2008), 73 FR 49498 (August 21, 2008) (File No. 10– 182) (order approving registration of BATS as a national securities exchange) (‘‘BATS Approval Order’’); 55293 (February 14, 2007), 72 FR 8033 (February 22, 2007) (SR–NYSE–2006–120) (order approving proposed combination between NYSE Group, Inc. and Euronext N.V.) (‘‘NYSE-Euronext Merger Order’’); 53382 (February 27, 2006), 71 FR 11251 (March 6, 2006) (SR–NYSE–2005–77) (order approving merger of New York Stock Exchange, Inc. and Archipelago, and demutualization of New York Stock Exchange, Inc.) (‘‘NYSE Inc.-Archipelago Merger Order’’); 53963 (June 8, 2006), 71 FR 34660 (June 15, 2006) (File No. SR–NSX–2006–03) (‘‘NSX Demutualization Order’’); 53128 (January 13, 2006), 71 FR 3550 (January 23, 2006) (File No. 10–131) (order approving registration application of NASDAQ as a national securities exchange) (‘‘NASDAQ Approval Order’’); 51149 (February 8, 2005), 70 FR 7531 (February 14, 2005) (SR–CHX– 2004–26) (‘‘CHX Demutualization Order’’); and 49098 (January 16, 2004), 69 FR 3974 (January 27, 2004) (SR–Phlx–2003–73) (‘‘Phlx Demutualization Order’’). 14 See CBOE Holdings Charter, Article FIFTH, para. (a)(iv) (defining ‘‘Person’’). 15 See id. at Article FIFTH, para. (a)(vi) (defining ‘‘Related Person’’). E:\FR\FM\22DEN1.SGM 22DEN1 sradovich on DSK3GMQ082PROD with NOTICES 93990 Federal Register / Vol. 81, No. 246 / Thursday, December 22, 2016 / Notices extent that such shares represent in the aggregate more than 20 percent of the then outstanding votes entitled to be cast on such matter,16 and (2) no Person, either alone or together with its Related Persons, shall be party to any agreement, plan or other arrangement relating to shares of stock of CBOE Holdings entitled to vote on any matter with any other Person, either alone or together with its Related Persons, under circumstances that would result in shares of stock of CBOE Holdings that would be subject to such agreement, plan or other arrangement not being voted on any matter, or the withholding of any proxy relating thereto, where the effect of such agreement, plan or other arrangement would be to enable any Person with the right to vote any shares of stock of CBOE Holdings, either alone or together with its Related Persons, to vote, possess the right to vote or cause the voting of shares of stock of CBOE Holdings that would exceed 20% of the then outstanding votes entitled to be cast on such matter (‘‘CBOE Holdings Voting Restrictions’’).17 In addition, the CBOE Holdings Charter includes ownership restrictions that provide that no Person, either alone or together with its Related Persons, shall be permitted at any time to beneficially own directly or indirectly shares of stock of CBOE Holdings representing in the aggregate more than 20 percent of the then outstanding shares of stock of CBOE Holdings (‘‘CBOE Holdings Ownership Restrictions’’).18 If any Person, either alone or together with its Related Persons, at any time beneficially owns shares of stock of CBOE Holdings in excess of the CBOE Holdings Ownership Restrictions, CBOE Holdings shall be obligated to redeem promptly, at a price equal to the par value of such shares of stock and to the extent funds are legally available therefor, that number of shares of stock of CBOE Holdings necessary so that such Person, together with its Related Persons, shall beneficially own directly or indirectly shares of stock of CBOE Holdings representing in the aggregate no more than 20 percent of the then outstanding shares of CBOE Holdings, after taking into account that such redeemed shares shall become treasury shares and shall no longer be deemed to be outstanding.19 The CBOE Holdings board of directors may waive the CBOE Holdings Ownership Restrictions and the CBOE 16 See id. at Article SIXTH, para. (a). id. 18 See id. at Article SIXTH, para. (b). 19 See id. at Article SIXTH para (b)(iii). 17 See VerDate Sep<11>2014 17:40 Dec 21, 2016 Jkt 241001 Holdings Voting Restrictions, if, in connection with taking such action, the board of directors adopts a resolution stating that the waiver: • Will not impair the ability of any Regulated Securities Exchange Subsidiary to discharge its responsibilities under the Act and the rules and regulations thereunder and is otherwise in the best interests of the Corporation, its stockholders and the Regulated Securities Exchange Subsidiaries; • neither such Person nor any of its Related Persons is subject to any statutory disqualification (as defined in Section 3(a)(39) of the Act); • will not impair the Commission’s ability to enforce the Act or the rules and regulations promulgated thereunder; and • for so long as the Corporation directly or indirectly controls any Regulated Securities Exchange Subsidiary, neither such Person nor any of its Related Persons is a Trading Permit Holder.20 Any such waiver would not be effective until approved by the Commission pursuant to Section 19 of the Act.21 Furthermore, such Person seeking the waiver must deliver to CBOE Holdings not less than 45 days prior to any vote or acquisition, as appropriate, a notice of the intent to exceed the CBOE Holdings Ownership Restrictions or the CBOE Holdings Voting Restrictions, as appropriate.22 Members that trade on an exchange traditionally have had ownership interests in such exchange. As the Commission has noted in the past, however, a member’s interest in an exchange could become so large as to cast doubt on whether the exchange can fairly and objectively exercise its selfregulatory responsibilities with respect to that member.23 A member that is a 20 See id. at Article SIXTH para. (a)(ii) and (b)(ii)(B). In making this determination, the CBOE Holdings board of directors may impose on the Person and its Related Persons such conditions and restrictions that it may in its sole discretion deem necessary, appropriate or desirable in furtherance of the objectives of the Act and the governance of CBOE Holdings. Id. Because the Exchanges admit members rather than issue ‘‘trading permits,’’ each Exchange proposed to amend the Exchange’s Bylaws to add clause (ff) to Article I to provide that ‘‘Trading Permit Holder’’ shall have the same meaning as member. As such, the board of directors of CBOE Holdings would now be prohibited from waiving the CBOE Holdings Ownership or Voting Restrictions for a Person if it or any of its Related Persons is a member of one of the Exchanges. See Notices, supra note 6, at 80106–07, 80098, 80151– 52, and 80120. 21 See CBOE Holdings Charter, Article SIXTH, para. (a)(i)(C) and (b)(i). 22 See id. at Article SIXTH para. (a)(i)(A) and (b)(i). 23 See, e.g., Nasdaq-ISE Order; IntercontinentalExchange Group, Inc. Combination PO 00000 Frm 00110 Fmt 4703 Sfmt 4703 controlling shareholder of an exchange might be tempted to exercise that controlling influence by directing the exchange to refrain from, or the exchange may hesitate to, diligently monitor and surveil the member’s conduct or diligently enforce its rules and the federal securities laws with respect to conduct by the member that violates such provisions.24 In addition, as proposed, CBOE V will be a wholly-owned subsidiary of CBOE Holdings and the CBOE V Operating Agreement identifies this ownership structure.25 Any changes to the CBOE V Operating Agreement, including any change in the provision that identifies CBOE Holdings as the sole member of CBOE V, must be filed with and approved by the Commission pursuant to Section 19 of the Act.26 Similarly, as proposed, BGM Holdings and Direct Edge will each be wholly-owned subsidiaries of CBOE V. The proposed amendments to the BGM Holdings Charter and the Direct Edge Operating Agreement identify this ownership structure.27 Any changes to the BGM Holdings Charter and the Direct Edge Operating Agreement, including any change in the provision that identifies CBOE V as the sole stockholder of BGM Holdings and the sole member of Direct Edge, must be filed with and approved by the Commission pursuant to Section 19 of the Act.28 Furthermore, each of the Bats Exchanges will continue to be a whollyowned subsidiary of BGM Holdings and the Bats Exchange Bylaws identify this ownership structure.29 Any changes to the Bats Exchange Bylaws, including any change in the provision that identifies BGM Holdings as the sole stockholder of each Bats Exchange, must be filed with and approved by the Commission pursuant to Section 19 of the Act.30 Further, pursuant to the Bats Exchanges’ Bylaws, BGM Holdings may not transfer or assign, in whole or in part, its ownership interest in each Bats Order; BYX Approval Order; EDGX and EDGA Approval Order; BATS Approval Order; NYSEEuronext Merger Order; NYSE Inc.-Archipelago Merger Order; NSX Demutualization Order; NASDAQ Approval Order; CHX Demutualization Order; Phlx Demutualization Order, supra note 12. 24 See, e.g., id. 25 See proposed CBOE V Operating Agreement, Article I, para. 1.1. 26 See id. at Article V, para. 5.2; 15 U.S.C. 78s(b). 27 See proposed BGM Holdings Charter, Article SEVENTH, para. 4; proposed Direct Edge Operating Agreement, Article II, Section 2.01. 28 See BGM Holdings Charter, Article SEVENTH, para. 3., Direct Edge Operating Agreement, Article II, Section 2.05, and 15 U.S.C. 78s(b). 29 See Bats Exchange Bylaws, Article I(cc). 30 See 15 U.S.C. 78s(b). E:\FR\FM\22DEN1.SGM 22DEN1 Federal Register / Vol. 81, No. 246 / Thursday, December 22, 2016 / Notices Exchange.31 Similarly, each of the Edge Exchanges will continue to be a whollyowned subsidiary of Direct Edge and the Edge Exchange Bylaws identify this ownership structure.32 Any changes to the Edge Exchange Bylaws, including any change in the provision that identifies Direct Edge as the sole stockholder of each Edge Exchange, must be filed with and approved by the Commission pursuant to Section 19 of the Act.33 Further, pursuant to the Edge Exchange Bylaws, Direct Edge may not transfer or assign, in whole or in part, its ownership interest in each Edge Exchange.34 The Commission believes that these provisions are consistent with the Act. These requirements should minimize the potential that a person could improperly interfere with or restrict the ability of the Commission or the Exchanges to effectively carry out their regulatory oversight responsibilities under the Act. 2. Jurisdiction; Books and Records; Due Regard As described above, following the Closing, CBOE Holdings will be the sole member of CBOE V, CBOE V will be the sole stockholder of BGM Holdings and the sole member of Direct Edge, and BGM Holdings and Direct Edge will be the sole stockholders of the Bats Exchanges and the Edge Exchanges respectively. Although CBOE Holdings, CBOE V, BGM Holdings, and Direct Edge will not carry out any regulatory functions, their activities with respect to the operation of the Exchanges must be consistent with, and must not interfere with, the self-regulatory obligations of each Exchange. The CBOE Holdings Charter, CBOE Holdings Bylaws, CBOE V Operating Agreement, BGM Holdings Charter, BGM Holdings Bylaws, and Direct Edge Operating Agreement therefore include certain provisions that are designed to maintain the independence of the Exchanges’ 35 selfregulatory functions, enable the 31 See Bats Exchange Bylaws, Article IV, Section 7. 32 See Edge Exchange Bylaws, Article I(cc). 15 U.S.C. 78s(b). 34 See Edge Exchange Bylaws, Article IV, Section 33 See sradovich on DSK3GMQ082PROD with NOTICES 7. 35 The provisions in the CBOE Holdings Charter apply to ‘‘Regulated Securities Exchange Subsidiary,’’ which is defined as a national securities exchange controlled directly, or indirectly, by CBOE Holdings. The provisions in the CBOE V Operating Agreement apply to ‘‘Exchange Subsidiaries,’’ which is defined as any direct or indirect subsidiary of CBOE V that is registered with the Commission as a national securities exchange as provided in Section 6 of the Act. The Exchanges will be Regulated Securities Exchange Subsidiaries and Exchange Subsidiaries upon the Closing. VerDate Sep<11>2014 17:40 Dec 21, 2016 Jkt 241001 Exchanges to operate in a manner that complies with the federal securities laws, including the objectives of Sections 6(b)‘‘36 and 19(g) 37 of the Act, and facilitate the ability of the Exchanges and the Commission to fulfill their regulatory and oversight obligations under the Act.38 For example, under the CBOE Holdings Charter and the CBOE V Operating Agreement, for so long as CBOE Holdings or CBOE V, as the case may be, directly or indirectly, controls any of the Exchanges, the board of directors (or sole member in the case of CBOE V), officers, employees and agents of each of CBOE Holdings and CBOE V, must give due regard to the preservation of the independence of the selfregulatory functions of each of the Exchanges, as well as to its obligations to investors and the general public and shall not take any actions that would interfere with the effectuation of any decisions by a board of directors of one of the Exchanges relating to its regulatory functions (including disciplinary matters), or which would interfere with the ability of such Exchange to carry out its responsibilities under the Act.39 The CBOE Holdings Charter and the CBOE V Operating Agreement would further require that CBOE Holdings or CBOE V, as the case may be, comply with the U.S. federal securities laws and rules and regulations thereunder and shall cooperate with the Commission and each of the Exchanges, pursuant to and to the extent of their respective regulatory authority.40 In addition, the CBOE Holdings Charter and the CBOE V Operating Agreement, provide that the officers, directors, employees and agents of CBOE Holdings and CBOE V, as the case may be, by virtue of the acceptance of their position, shall be deemed to agree to: (1) comply with the U.S. federal securities laws and the rules and regulations thereunder; and (2) to cooperate with the Commission and the Exchanges in respect of the Commission’s oversight responsibilities regarding the Exchanges and the selfregulatory functions and responsibilities of the Exchanges, and CBOE Holdings and CBOE V will take reasonable steps to cause its officers, directors, 36 15 U.S.C. 78f(b). U.S.C. 78s(g). 38 See, e.g., CBOE Holdings Charter Article FOURTEENTH and proposed CBOE V Operating Agreement, Article VIII, Section 8.4. 39 See CBOE Holdings Charter, Article SIXTEENTH, para. (c) and proposed CBOE V Operating Agreement, Article X, Section 10.1(a). 40 See CBOE Holdings Charter, Article SIXTEENTH, para. (d) and proposed CBOE V Operating Agreement, Article X, Section 10.2(a). 37 15 PO 00000 Frm 00111 Fmt 4703 Sfmt 4703 93991 employees and agents to so cooperate.41 Furthermore, CBOE Holdings, CBOE V and their respective officers, directors, employees and agents will be deemed to irrevocably submit to the jurisdiction of the U.S. federal courts, the Commission, and each Exchange, as applicable, for purposes of any suit, action, or proceeding pursuant to the U.S. federal securities laws or the rules or regulations thereunder arising out of, or relating to, the activities of such exchange.42 The CBOE Holdings Charter and the CBOE V Operating Agreement provide that CBOE Holdings, CBOE V and their respective officers, directors, employees and agents must submit to the Commission’s jurisdiction with respect to activities relating to any of the Exchanges,43 and, for so long as CBOE Holdings or CBOE V controls, directly or indirectly, such Exchange, CBOE Holdings and CBOE V agree to provide the Commission and each Exchange with access to its books and records that are related to the operation or administration of each Exchange.44 In addition, to the extent they are related to the operation or administration of the Exchanges, the books, records, premises, officers, directors (in the case of CBOE Holdings), agents, and employees of CBOE Holdings and CBOE V shall be deemed to be the books, records, premises, officers, directors (in the case of CBOE Holdings), agents, and employees of the respective Exchange for purposes of, and subject to oversight pursuant to, the Act.45 The CBOE Holdings Charter and CBOE V Operating Agreement also provide that all books and records of each Exchange reflecting confidential information pertaining to the selfregulatory function of the Exchanges (including but not limited to disciplinary matters, trading data, trading practices and audit information) that shall come into the possession of CBOE Holdings or CBOE V, as the case may be, shall not be made available other than to those officers, directors (or sole member in the case of CBOE V), employees and agents of CBOE Holdings or CBOE V, as the case may be, that have a reasonable need to know the contents thereof, and shall be retained 41 See CBOE Holdings Charter, Article SIXTEENTH, para. (a) and proposed CBOE V Operating Agreement, Article X, Section 10.2(a). 42 See CBOE Holdings Charter, Article FOURTEENTH and proposed CBOE V Operating Agreement, Article X, Section 10.3. 43 See id. 44 See CBOE Holdings Charter, Article FIFTEENTH and proposed CBOE V Operating Agreement, Article VIII, Section 8.4(b). 45 Id. E:\FR\FM\22DEN1.SGM 22DEN1 93992 Federal Register / Vol. 81, No. 246 / Thursday, December 22, 2016 / Notices sradovich on DSK3GMQ082PROD with NOTICES in confidence by CBOE Holdings or CBOE V, the members of the board of directors or the sole member, respectively, its officers, employees and agents, and not used for any nonregulatory purposes.46 The CBOE Holdings Charter and CBOE V Operating Agreement, however, specify that the CBOE Holdings Charter and CBOE V Operating Agreement (including these confidentiality provisions) shall not be interpreted so as to limit or impede the rights of the Commission or the Exchanges to access and examine such confidential information pursuant to the federal securities laws and the rules and regulations thereunder, or to limit or impede the ability of any officers, directors (or sole member in the case of CBOE V), employees or agents of CBOE Holdings or CBOE V, as the case may be, to disclose such confidential information to the Commission or the Exchanges.47 The CBOE Holdings Charter, CBOE Holdings Bylaws and the CBOE V Operating Agreement provide that, for so long as CBOE Holdings or CBOE V, as the case may be, controls, directly or indirectly, a registered national securities exchange, before any amendment to, or repeal of, any provision of the proposed CBOE Holdings Charter, CBOE Holdings Bylaws or the CBOE V Operating Agreement, as the case may be, may be effective, those changes must be submitted to the board of directors of each of the Exchanges, and if the amendment is required to be filed with, or filed with and approved by the Commission pursuant to Section 19(b) of the Act,48 such change shall not be effective until filed with, or filed with and approved by, the Commission.49 The Commission finds that these provisions are consistent with the Act, and that they are intended to assist each Exchange in fulfilling its self-regulatory obligations and in administering and complying with the requirements of the Act. The Commission also notes that, even in the absence of these provisions, under Section 20(a) of the Act,50 any person with a controlling interest in any of the Exchanges shall be jointly and severally liable with and to the same extent that each Exchange is liable under any provision of the Act, unless 46 See CBOE Holdings Charter, Article FIFTEENTH and proposed CBOE V Operating Agreement, Article VIII, Section 8.4(a). 47 See id. 48 15 U.S.C. 78s(b). 49 See CBOE Holdings Charter, Article TWELFTH, CBOE Holdings Bylaws, Article 10, Section 10.1 and proposed CBOE V Operating Agreement, Article XI, Section 11.2. 50 15 U.S.C. 78t(a). VerDate Sep<11>2014 17:40 Dec 21, 2016 Jkt 241001 the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action. In addition, Section 20(e) of the Act 51 creates aiding and abetting liability for any person who knowingly provides substantial assistance to another person in violation of any provision of the Act or rule thereunder. Further, Section 21C of the Act 52 authorizes the Commission to enter a cease-and-desist order against any person who has been ‘‘a cause of’’ a violation of any provision of the Act through an act or omission that the person knew or should have known would contribute to the violation. 3. Change in Control Upon the Closing, BGM will cease to exist and the business of BGM will be carried on by CBOE V which will be a wholly owned subsidiary of CBOE Holdings. The BGM Charter includes certain restrictions on the ability to vote and own shares of stock of BGM. Specifically, the BGM Charter provides that: (1) No Person,53 either alone or together with its Related Persons,54 may own, directly or indirectly, of record or beneficially, shares constituting more than 40 percent of any class of its capital stock, and no Member, 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 its capital stock (‘‘BGM Ownership Limitation’’), and (2) subject to certain exceptions, 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 its then issued and outstanding capital stock (‘‘BGM Voting Limitation’’).55 The BGM Charter also provides that the BGM Ownership Limitation and the BGM Voting Limitation may be waived (except with respect to Members and their Related Persons) pursuant to a resolution duly adopted by the board of directors of BGM if, in connection with taking such action, the board of directors states in such resolution that it is the determination of the board of directors that the waiver: (1) Will not impair the ability of each Exchange to carry out its functions and 51 15 U.S.C. 78t(e). 52 15 U.S.C. 78u–3. 53 See BGM Charter, Article FIFTH, para. (a)(i) (defining ‘‘Person’’). 54 See id. at Article FIFTH, para. (a)(ii) (defining ‘‘Related Persons’’). 55 See BGM Charter, Article FIFTH, para. (b). PO 00000 Frm 00112 Fmt 4703 Sfmt 4703 responsibilities as an ‘‘exchange’’ under the Act and the rules and regulations promulgated thereunder; (2) is otherwise in the best interests of BGM, its stockholders, and the Exchanges; (3) will not impair the ability of the Commission to enforce the Act and the rules and regulations promulgated thereunder; and (4) shall not be effective until it is filed with and approved by the Commission.56 As described above, as a result of the Merger (and prior to its separate existence ceasing as a result of the Subsequent Merger), BGM will become a wholly owned subsidiary of CBOE Holdings, such that CBOE Holdings will possess ownership and voting rights in BGM in excess of the BGM Ownership Limitation and the BGM Voting Limitation. As a result of the Subsequent Merger, BGM will merge with and into CBOE V, terminating the BGM Charter. Therefore, the Exchanges represented that the board of directors of BGM determined that in order to effect the Transaction, a waiver of the BGM Ownership Limitation and the BGM Voting Limitation with respect to CBOE Holdings would be required. To do so, the board of directors of BGM adopted the Resolutions, making certain determinations with respect to CBOE Holdings and the Transaction that are necessary to waive the BGM Ownership Limitation and BGM Voting Limitation. Specifically, the board of directors of BGM made the following determinations: (1) The acquisition of the proposed ownership by CBOE Holdings in BGM will not impair the ability of each Exchange to carry out its functions and responsibilities as an ‘‘exchange’’ under the Act and the rules and regulations promulgated thereunder, is otherwise in the best interests of BGM, its stockholders and the Exchanges, and will not impair the ability of the Commission to enforce the Act and the rules and regulations promulgated thereunder; (2) the acquisition or exercise of the proposed voting rights by CBOE Holdings in BGM will not impair the ability of each Exchange to carry out its functions and responsibilities as an ‘‘exchange’’ under the Act and the rules and regulations promulgated thereunder, that it is otherwise in the best interests of the 56 See BGM Charter, Article FIFTH, para. (b)(ii)(B). In granting such a waiver, the BGM board of directors has the discretion to impose on the person and its Related Persons, such conditions and restrictions that it deems necessary, appropriate or desirable in furtherance of the objectives of the Act and the rules and regulations promulgated thereunder, and the governance of each Exchange. Id. E:\FR\FM\22DEN1.SGM 22DEN1 Federal Register / Vol. 81, No. 246 / Thursday, December 22, 2016 / Notices BGM, its stockholders and the Exchanges, and that it will not impair the ability of the Commission to enforce the Act and the rules and regulations promulgated thereunder; (3) neither CBOE Holdings, nor any of its Related Persons,57 is subject to ‘‘statutory disqualification’’ within the meaning of Section 3(a)(39) of the Act; 58 and (4) neither CBOE Holdings, nor any of its Related Persons is a Member.59 The Commission believes that it is consistent with the Act to allow CBOE Holdings to wholly-own and vote all of the outstanding common stock of BGM. The Commission notes that CBOE Holdings, the new top-level holding company for the Exchanges, currently owns other national securities exchanges and is subject to governance documents that restrict concentration of ownership and voting rights.60 The Commission also notes that, the BGM Holdings Charter and the Direct Edge Operating Agreement will specify that BGM Holdings’ sole stockholder and Direct Edge’s sole member will be CBOE V, a wholly owned subsidiary of CBOE Holdings.61 As noted above, any changes to the CBOE V Operating Agreement, including any change in the provision that identifies CBOE Holdings as the sole member of CBOE V, must be filed with and approved by the Commission pursuant to Section 19 of the Act.62 In addition, and as discussed above, CBOE Holdings and CBOE V have also included in their corporate documents certain provisions designed to maintain the independence of each Exchange’s regulatory functions from CBOE Holdings and CBOE V.63 Accordingly, the Commission does not believe that the Transaction will impair the ability of any of the Exchanges to carry out the functions and responsibilities as an ‘‘exchange’’ under the Act and the rules and regulations promulgated thereunder, or the ability of the Commission to enforce the Act and the rules and regulations promulgated thereunder. 57 See supra note 53. U.S.C. 78c(a)(39). 59 The Resolutions also contain a determination that the execution and delivery of the Merger Agreement by CBOE constituted notice of CBOE’s intention to acquire ownership and voting rights in excess of the BGM Ownership Limitation and BGM Voting Limitation, respectively, in writing and not less than 45 days before the Closing. See BGM Charter, Article FIFTH, para. (b)(iv). 60 See supra notes 14–22 and accompanying text. 61 See supra notes 27–28 and accompanying text. 62 See supra note 26 and accompanying text. 63 See supra note 39 and accompanying text. sradovich on DSK3GMQ082PROD with NOTICES 58 15 VerDate Sep<11>2014 17:40 Dec 21, 2016 Jkt 241001 4. Miscellaneous Changes to the Bylaws and Rules of the Exchanges a. Bylaws of the Exchanges The board of directors of each Exchange will continue to be the governing body of their respective Exchange and possess all of the powers necessary for the management of the business and affairs of their respective Exchange and the execution of their respective responsibilities as SROs. In connection with the Transaction, each Exchange proposed a change to their Bylaws. Each Exchange proposes to amend Section 2 of Article XI of their Bylaws to remove references to BGM and add references to CBOE Holdings and CBOE V.64 The Exchanges’ Bylaws prohibit directors of BGM, or BGM Holdings or Direct Edge, as applicable, who are not also directors, officers, staff, counsel or advisors of the Exchange from participating in any meetings of the Exchange’s board of directors (or any committee thereof) pertaining to the self-regulatory function of the Exchange (including disciplinary matters).65 The Exchanges proposed to delete references to BGM from this provision and add references to CBOE Holdings and CBOE V, which following the Transaction, will become the indirect owners of each Exchange. The Commission believes that removing references to BGM and replacing them with references to CBOE Holdings and CBOE V in Section 2 of Article XI of the Exchanges’ Bylaws is consistent with the Act. b. Member Eligibility Rule 2.3 of each of the Exchanges’ rulebooks generally provides that in order to be eligible for membership in one of the Exchanges, a registered broker or dealer is required to be a member of at least one other national securities association or national securities exchange. Membership in the Exchanges’ affiliated national securities exchanges (either BZX, BYX, EDGA, or EDGX as the case may be) is not sufficient for purposes of membership eligibility.66 According to the Exchanges, the rule is designed to ensure that a member of any of the Exchanges would be supervised by a national securities association or national securities exchange that functions as the member’s designated examining authority (‘‘DEA’’).67 The Exchanges do not function as the DEA 64 See Article XI, Section 2 of Bats Exchange Bylaws and Edge Exchange Bylaws. 65 See id. 66 See BZX, BYX, EDGX and EDGA Rule 2.3. 67 See Notices, supra note 6, at 80107, 80099, 80120–21, and 80152. PO 00000 Frm 00113 Fmt 4703 Sfmt 4703 93993 for any of its members.68 As discussed above, as a result of the Transaction, the Exchanges will become affiliated with the CBOE Exchanges. One of these exchanges, CBOE, does act as the DEA for certain of its members.69 However, C2 does not function as the DEA for any of its members.70 The Exchanges stated that they continue to believe that it is appropriate to limit membership to registered broker-dealers that are members of at least one national securities association or national securities exchange that is not affiliated with the Exchanges.71 Therefore, the Exchanges proposed to amend Rule 2.3 to specify that a registered broker-dealer will be eligible for membership only if it is a member of a national securities association or national securities exchange other than BZX, BYX, EDGA, EDGX, or C2. The Exchanges are not excluding CBOE from the rule because it is possible for CBOE to function as a DEA for its members.72 The Commission notes that the proposed changes to Rule 2.3 of each Exchanges’ rulebook extends the membership eligibility criteria in a way that is consistent with the current rule, taking into account the Exchanges’ new affiliation with the CBOE Exchanges. c. Affiliation Between Exchange and a Member Rule 2.10 of each Exchange generally provides that, without the prior approval of the Commission, (i) each Exchange or any entity with which each Exchange is affiliated (as defined in Rule 12b–2 under the Act 73), may not directly or indirectly acquire or maintain an ownership interest in a Member of the Exchange, and (ii) a Member of an Exchange may not be or become an affiliate of the Exchange, or an affiliate of any affiliate of the Exchanges. The Exchanges note that the purpose of Rule 2.10 is to prevent or manage potential conflicts of interest that could arise from the Exchanges or 68 See id. id. 70 See id. 71 See id. 72 In addition, to ensure there is no confusion with respect to the possibility that a broker or dealer could qualify for membership in the Exchange based solely on membership in CBOE Futures or any other national securities exchange notice-registered with the Commission pursuant to Section 6(g) of the Act that lists or trades securityfutures products, the Exchanges propose to also specify that eligibility for membership requires membership in a national securities association registered pursuant to Section 15A of the Act or a national securities exchange registered with the Commission pursuant to Section 6(a) of the Act, so as to exclude a national securities exchange registered solely under Section 6(g) of the Act. 73 17 CFR 240.12b–2. 69 See E:\FR\FM\22DEN1.SGM 22DEN1 93994 Federal Register / Vol. 81, No. 246 / Thursday, December 22, 2016 / Notices their affiliates having an ownership interest in a Member.74 Current Rule 2.10 provides that notwithstanding the affiliation prohibitions the rule does not prohibit a member or its affiliate from acquiring or holding an equity interest in BGM that is permitted by the ownership and voting limitations contained in the BGM Charter and the BGM Bylaws. In addition, Rule 2.10 states that it does not prohibit a member from being or becoming an affiliate of the Exchange, or an affiliate of any affiliate of the Exchange, solely by reason of such member or any officer, director, manager, managing member, partner or affiliate of such member being or becoming either (a) a director of the Exchange pursuant to the Bylaws of the Exchange, or (b) a director of the Exchange serving on the board of directors of BGM. The Exchanges propose to replace the references to BGM with CBOE Holdings to reflect that following the Closing, CBOE Holdings will replace BGM as the ultimate parent company of each Exchange.75 The Commission believes that these amendments are consistent with the Act as they are technical in nature. They do not alter any of the restrictions contained in Rule 2.10, rather the amendments merely update the rule text to reflect the new ownership of the Exchanges. sradovich on DSK3GMQ082PROD with NOTICES d. Bats Trading as Inbound Router The Edge Exchanges also proposed to amend Rule 2.12 in each of their rulebooks to replace a reference to BGM with ‘‘the holding company indirectly owning the Exchange and Bats Trading.’’ According to the Edge Exchanges, the rule is designed to ensure that Bats Trading, as inbound router for the Exchanges does not develop or implement changes to its systems on the basis of nonpublic information obtained as a result of its affiliation with the Exchanges until such information is available generally to similarly situation members of the Exchanges in connection with the provision of inbound order routing to one of the Exchanges.76 The proposed 74 See Notices, supra note 6, at 80107, 80099, 80152 and 80121. 75 The Exchanges also proposed to add the three CBOE Exchanges to the list of eligible Exchange affiliates to reflect that following the Closing, the CBOE Exchanges will be affiliates of the Exchanges. See proposed BZX, BYX, EDGA and EDGX Rule 2.10. In addition, the Edge Exchanges also proposed to remove references in Rule 2.10 to DE Route, as DE Route is no longer the routing broker-dealer for the Edge Exchanges. Bats Trading is now the Edge Exchanges’ routing broker-dealer. See proposed EDGA and EDGX Rule 2.10. 76 See Notices, supra note 6, at 80121 and 80152. VerDate Sep<11>2014 17:40 Dec 21, 2016 Jkt 241001 amendment does not alter the obligations Rule 2.12 imposes on the Edge Exchanges, but rather is a technical change to reflect the change in ownership of the Edge Exchanges. The proposed new rule language is consistent with the language used in Rule 2.12 in the Bats Exchanges’ rulebooks. As such, the Commission believes that this change is consistent with the Act. III. Conclusion For the foregoing reasons, the Commission finds that the proposed rule changes are consistent with the Act and the rules and regulations thereunder applicable to a national securities exchange. It is therefore ordered, pursuant to Section 19(b)(2) of the Act 77 that the proposed rule changes (SR–BatsBZX– 2016–68; SR–BatsBYX–2016–29; SR– BatsEDGA–2016–24 and SR–BatsEDGX– 2016–60) are approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.78 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2016–30796 Filed 12–21–16; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–79577; File No. 601–01] Euroclear Bank SA/NV; Order of the Commission Approving an Application To Modify an Existing Exemption From Clearing Agency Registration December 16, 2016 I. Introduction Euroclear Bank SA/NV (‘‘EB’’) filed with the Securities and Exchange Commission (‘‘Commission’’) on May 9, 2016, an application on Form CA–1 requesting to modify an existing exemption 1 from registration as a clearing agency (‘‘Modification 77 15 U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). 1 See Self-Regulatory Organizations; Morgan Guaranty Trust Company of New York, Brussels Office, as Operator of the Euroclear System; Order Approving Application for Exemption From Registration as a Clearing Agency, Exchange Act Release No. 39643 (Feb. 11, 1998), 63 FR 8232 (Feb. 18, 1998) (‘‘Original Exemption Order’’); and SelfRegulatory Organizations; Morgan Guaranty Trust Company, Brussels Office, as Operator of the Euroclear System and Euroclear Bank, S.A.; Order Approving Application to Modify an Existing Exemption From Clearing Agency Registration, Exchange Act Release No. 43775 (Dec. 28, 2000), 66 FR 819 (Jan. 4, 2001) (‘‘2001 Exemption Modification Order’’) (together the ‘‘Existing Exemption’’). 78 17 PO 00000 Frm 00114 Fmt 4703 Sfmt 4703 Application’’) 2 pursuant to Section 17A 3 of the Securities Exchange Act of 1934 (‘‘Exchange Act’’) and Rule 17Ab2–1 thereunder.4 Notice of EB’s Modification Application was published for comment in the Federal Register on September 6, 2016 (‘‘Modification Application Notice’’).5 The comment period closed on October 6, 2016, and the Commission received four comments, all of which were broadly supportive of the application.6 Subject to certain limitations and conditions, the Existing Exemption enables EB, as operator of the Euroclear System,7 to perform the functions of a clearing agency with respect to transactions involving certain U.S. government securities 8 for its U.S. participants 9 without registering as a 2 The descriptions set forth in this notice regarding the structure and operations of EB have been derived primarily from information contained in EB’s amended Form CA–1 application and publicly available sources. The redacted Modification Application and non-confidential exhibits thereto are available on the Commission’s Web site. 3 15 U.S.C. 78q–1. 4 17 CFR 240.17Ab2–1. 5 See Euroclear Bank SA/NV; Notice of Filing of Application To Modify an Existing Exemption From Clearing Agency Registration, Exchange Act Release No. 34–78710 (Aug. 29, 2016), 81 FR 61271 (Sept. 6, 2016). 6 See letters from Mark Jennis, Managing Director, DTCC (Sept. 13, 2016) (‘‘DTCC letter’’); Oscar A. Huettner, Managing Principal, LGM Financial Consulting LLC (Sept. 12, 2016) (‘‘LGM letter’’); Charles Cascarilla, Chief Executive Officer and CoFounder, Paxos (Oct. 6, 2016) (‘‘Paxos letter’’); Kyle Brandon, Managing Director, and Robert Toomey, Esq., Managing Director and Associate General Counsel, Securities Industry and Financial Markets Association (Oct. 6, 2016) (‘‘SIFMA letter’’). 7 ‘‘Euroclear System’’ means the securities settlement system that has been operated by EB or its predecessor since 1968 and the assets, means, and rights related to such services. All services performed by EB that relate to securities settlement and custody are part of the Euroclear System. See Modification Application, Exhibit S–1 at 1. 8 As used herein, the term ‘‘U.S. Government Securities’’ has the same meaning as the term ‘‘eligible U.S. government securities’’ used in the Existing Exemption, which consists of government securities described in Section 3(a)(42) of the Exchange Act, except that it does not include any (i) foreign-targeted U.S. government or agency securities or (ii) securities issued or guaranteed by the International Bank for Reconstruction and Development (i.e., the World Bank) or any other similar international organization, and that are (i) Fedwire-eligible U.S. government securities, (ii) mortgage-backed pass through securities that are guaranteed by the Government National Mortgage Association (‘‘GNMA’’), and (iii) any collateralized mortgage obligation whose underlying securities are Fedwire-eligible U.S. government securities or GNMA guaranteed mortgage-backed pass through securities and which are depository eligible securities. For reference purposes, Fedwire is a large-value transfer system operated by the Board of Governors of the Federal Reserve System that supports the electronic transfer of funds and of book-entry securities. See Original Exemption Order, supra note 1, at 8239. 9 As used herein, the term ‘‘U.S. Participant’’ refers to any Euroclear System participant having a E:\FR\FM\22DEN1.SGM 22DEN1

Agencies

[Federal Register Volume 81, Number 246 (Thursday, December 22, 2016)]
[Notices]
[Pages 93988-93994]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-30796]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79585; File Nos. SR-BatsBZX-2016-68; SR-BatsBYX-2016-
29; SR-BatsEDGA-2016-24; SR-BatsEDGX-2016-60]


Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Bats BYX 
Exchange, Inc.; Bats EDGA Exchange, Inc.; Bats EDGX Exchange, Inc.; 
Order Granting Approval of Proposed Rule Change in Connection With the 
Proposed Corporate Transaction Involving Bats Global Markets, Inc. and 
CBOE Holdings, Inc.

December 16, 2016.

I. Introduction

    On November 2, 2016, Bats BZX Exchange, Inc. (``BZX''), Bats BYX 
Exchange, Inc. (``BYX'' and, together with BZX, the ``Bats 
Exchanges''), Bats EDGA Exchange, Inc. (``EDGA'') and Bats EDGX 
Exchange, Inc. (``EDGX'' and, together with EDGA, the ``Edge 
Exchanges'') (the Bats Exchanges and the Edge Exchanges are the 
``Exchanges'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) \1\ of the Securities 
Exchange Act of 1934 (``Act''),\2\ and Rule 19b-4 thereunder,\3\ 
proposed rule changes in connection with the proposed corporate 
transaction (the ``Transaction''), as described in more detail below, 
involving their ultimate parent company, Bats Global Markets, Inc. 
(``BGM''), CBOE Holdings, Inc. (``CBOE Holdings''), and two wholly 
owned subsidiaries of CBOE Holdings, CBOE Corporation and CBOE V, LLC 
(``CBOE V''). CBOE Holdings is the parent company of Chicago Board 
Options Exchange, Incorporated (``CBOE'') and C2 Options Exchange, 
Incorporated (``C2''), each a national securities exchange registered 
with the Commission pursuant to Section 6(a) of the Act,\4\ and CBOE 
Futures Exchange, LLC (``CBOE Futures,'' and together with CBOE and C2, 
the ``CBOE Exchanges''), a national securities exchange that lists or 
trades security-futures products notice-registered with the Commission 
pursuant to Section 6(g) of the Act.\5\ The proposed rule changes were 
published for comment in the Federal Register on November 15, 2016.\6\ 
The Commission received no comments on the proposal.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ 15 U.S.C. 78f(a).
    \5\ 15 U.S.C. 78f(g).
    \6\ See Securities Exchange Act Release Nos. 79266 (November 8, 
2016), 81 FR 80101 (November 15, 2016) (SR-BatsBZX-2016-68); 79269 
(November 8, 2016), 81 FR 80093 (November 15, 2016) (SR-BatsBYX-
2016-29); 79265 (November 8, 2016), 81 FR 80146 (November 15, 2016) 
(SR-BatsEDGA-2016-24) and 79264 (November 8, 2016), 81 FR 80114 
(November 15, 2016) (SR-BatsEDGX-2016-60) (``Notices'').
---------------------------------------------------------------------------

    After careful review, the Commission finds that the proposed rule 
changes are consistent with the requirements of the Act and the rules 
and regulations thereunder applicable to a national securities 
exchange.\7\ In particular, the Commission finds that the proposed rule 
changes are consistent with Sections 6(b)(1) and (3) of the Act,\8\ 
which, among other things, require a national securities exchange to be 
so organized and have the capacity to be able to carry out the purposes 
of the Act, 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, and assure 
the fair representation of its members in the selection of its 
directors and administration of its affairs, and provide that one or 
more directors shall be representative of issuers and investors and not 
be associated with a member of the exchange, broker, or dealer. The 
Commission also finds that the proposal is consistent with Section 
6(b)(5) of the Act,\9\ which requires that the rules of the exchange be 
designed to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest.
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    \7\ In approving the proposed rule changes, the Commission has 
considered their impact on efficiency, competition and capital 
formation. See 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f(b)(1) and (b)(3).
    \9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

II. Discussion

A. Corporate Structure

1. Current Structure
    The Exchanges are each Delaware corporations that are national 
securities exchanges registered with the Commission pursuant to Section 
6(a) of the Act.\10\
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(a).
---------------------------------------------------------------------------

    BZX and BYX are each direct, wholly owned subsidiaries of Bats 
Global Market Holdings, Inc. (``BGM Holdings''), a Delaware corporation 
that is a direct, wholly owned subsidiary of BGM. BGM Holdings also 
owns 100 percent of the equity interest in Bats Trading, Inc. (``Bats 
Trading''), a Delaware corporation that is a broker-dealer registered 
with the Commission that provides routing services outbound from, and 
in certain instances inbound to, each Exchange. EDGX and EDGA are 
direct, wholly owned subsidiaries of Direct Edge LLC (``Direct Edge''), 
a Delaware limited liability company that is a direct, wholly owned 
subsidiary of BGM. BGM, a Delaware corporation, is a publicly traded 
company listed on BZX.
    CBOE Holdings, a Delaware corporation, is a publicly traded company 
listed on The NASDAQ Stock Market. CBOE Holdings owns 100 percent of 
the equity interest in the CBOE Exchanges.
2. The Transaction
    In contemplation of the Transaction, CBOE Holdings formed two 
additional entities, CBOE Corporation, a Delaware corporation, and CBOE 
V, a Delaware limited liability company, each of which are direct, 
wholly owned subsidiaries of CBOE Holdings. Neither CBOE Corporation 
nor CBOE V currently have material assets or conduct any operations.
    On September 25, 2016, BGM, CBOE Holdings, CBOE Corporation and 
CBOE V entered into an Agreement and Plan of Merger (the ``Merger 
Agreement''). Pursuant to and subject to the terms of the Merger 
Agreement, upon completion of the mergers described below that 
effectuate the Transaction (the ``Closing''), among other things:
    (i) CBOE Corporation will be merged with and into BGM, whereupon 
the separate existence of CBOE Corporation will cease and BGM will be 
the surviving company (the ``Merger'');
    (ii) by virtue of the Merger and without any action required on the 
part of BGM, CBOE Corporation or any holder of BGM or CBOE Corporation 
stock, each share of BGM common stock (whether voting or non-voting) 
issued and outstanding (with the exception of shares owned by CBOE 
Holdings, BGM or any of their respective subsidiaries and certain 
shares held by persons that are entitled to and properly demand 
appraisal rights) will be converted into

[[Page 93989]]

the right to receive a particular number of shares of CBOE Holdings 
and/or cash, at the election of the holder of such share of BGM common 
stock (the ``Merger Consideration''), and each share of CBOE 
Corporation issued and outstanding will be converted into one share of 
BGM, such that BGM will become a wholly owned subsidiary of CBOE 
Holdings; and
    (iii) immediately following the Merger, BGM will be merged with and 
into CBOE V, whereupon the separate existence of BGM will cease and 
CBOE V will be the surviving company (the ``Subsequent Merger'').
    As a result of the Transaction, BGM will cease to exist and the 
business of BGM will be carried on by CBOE V, which is a wholly owned 
subsidiary of CBOE Holdings.\11\ CBOE V will own 100 percent of the 
equity interest in BGM Holdings and Direct Edge. BGM Holdings will 
continue to own 100 percent of the equity interest in the Bats 
Exchanges and Bats Trading. Direct Edge will continue to own 100 
percent of the equity interest in the Edge Exchanges.
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    \11\ The Commission notes that the Exchanges represented that, 
in connection with the Transaction, CBOE Holdings agreed in the 
Merger Agreement to take all requisite actions so, as of the 
Closing, the CBOE Holdings Board will include three individuals 
designated by BGM who (1) are serving as BGM directors immediately 
prior to the Closing and (2) comply with the policies (including 
clarifications of the policies provided to BGM) of the Nominating 
and Governance Committee of the CBOE Holdings Board as in effect on 
the date of the Merger Agreement and previously provided to BGM 
(each of whom will be appointed to the CBOE Holdings Board as of the 
Closing). The CBOE Holdings Board currently consists of 14 
directors. The Exchanges expect three current CBOE Holdings 
directors to resign effective prior to the Closing and the remaining 
CBOE Holdings directors to fill those vacancies with the three BGM 
directors designated by BGM. See Notices, supra note 6, at 80102 n. 
6, 80094 n. 6, 80147 n. 6, and 80116 n. 6. See also Securities 
Exchange Act Release Nos. 79267 (November 8, 2016), 81 FR 80132 
(November 15, 2016) (SR-C2-2016-022) and 79268 (November 8, 2016), 
81 FR 80157 (November 15, 2016) (SR-CBOE-2016-076) (notice of filing 
of proposed rule changes related to the composition of the CBOE 
Holdings Board).
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B. Proposed Rule Changes

    Section 19(b) of the Act and Rule 19b-4 thereunder require a self-
regulatory organization (``SRO'') to file proposed rule changes with 
the Commission. Although BGM, BGM Holdings, Direct Edge, CBOE Holdings, 
and CBOE V are not SROs, certain provisions of their proposed 
certificates of incorporation and bylaws, along with other corporate 
documents, are rules of the exchange, if they are stated policies, 
practices, or interpretations, as defined in Rule 19b-4 under the Act, 
and must be filed with the Commission pursuant to Section 19(b)(4) of 
the Act and Rule 19b-4 thereunder. Accordingly, each of the Exchanges 
filed with the Commission the following documents, along with other 
corporate documents, in connection with the Transaction: (1) The 
resolutions of BGM's board of directors (the ``BGM Board'') waiving 
certain provisions of the Amended and Restated Certificate of 
Incorporation of BGM (the ``BGM Charter'') and making certain related 
determinations regarding CBOE Holdings and the impact of the 
Transaction on the Exchanges (the ``Resolutions''); (2) the CBOE 
Holdings Second Amended and Restated Certificate of Incorporation (the 
``CBOE Holdings Charter'') and the CBOE Holdings Third Amended and 
Restated Bylaws (the ``CBOE Holdings Bylaws''); (3) the Certificate of 
Formation of CBOE V (the ``CBOE V Certificate'') and the Limited 
Liability Company Operating Agreement of CBOE V (the ``CBOE V Operating 
Agreement''); (4) the proposed amendments to the Amended and Restated 
Certificate of Incorporation of BGM Holdings (the ``BGM Holdings 
Charter''), in the case of the Bats Exchanges; (5) the proposed 
amendments to the Amended and Restated Limited Liability Company 
Operating Agreement of Direct Edge (the ``Direct Edge Operating 
Agreement''), in the case of the Edge exchanges; (6) the proposed 
amendments to the Fourth Amended and Restated Bylaws of the Bats 
Exchanges (each, and collectively, the ``Bats Exchange Bylaws''), in 
the case of the Bats Exchanges; (7) the proposed amendments to the 
Fifth Amended and Restated Bylaws of the Edge Exchanges (each, and 
collectively, the ``Edge Exchange Bylaws''), in the case of the Edge 
Exchanges; and (8) the proposed amendments to various of its rules.\12\
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    \12\ The Bats Exchanges each proposed to amend Rules 2.3 and 
2.10 in their respective rulebooks. See Notices, supra note 6, at 
80107 and 80099. The Edge Exchanges each proposed to amend Rules 
2.3, 2.10, and 2.12 in their respective rulebooks. See Notices, 
supra note 6, at 80152 and 80120-21.
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1. Voting and Ownership Limitations
    In connection with the Transaction, upon the Closing, CBOE Holdings 
will become the indirect owner (through CBOE V and Direct Edge) of EDGA 
and EDGX and the indirect owner (through CBOE V and BGM Holdings) of 
BZX, BYX and Bats Trading. The CBOE Holdings Charter includes 
restrictions on the ability to own and vote shares of capital stock of 
CBOE Holdings.\13\ These limitations are designed to prevent any 
stockholder from exercising undue control over the operation of any of 
the Exchanges and to assure that the Exchanges and the Commission are 
able to carry out their regulatory obligations under the Act.
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    \13\ These provisions are generally consistent with ownership 
and voting limits approved by the Commission for other SROs. See 
e.g., Securities Exchange Act Release Nos. 78119 (June 21, 2016), 81 
FR 41611 (June 27, 2016) (SR-ISE-2016-11, SR-ISE Gemini-2016-05, SR-
ISE Mercury-2016-10) (order approving proposed transaction in which 
Nasdaq, Inc. will become the indirect parent of ISE, ISE Gemini and 
ISE Mercury) (``Nasdaq-ISE Order''); 71449 (January 30, 2014), 79 FR 
6961 (February 5, 2014) (SR-EDGA-2013-34; SR-EDGX-2013-43) (order 
approving proposed business combination involving BATS Global 
Markets, Inc. and Direct Edge Holdings LLC); 71375 (January 23, 
2014), 79 FR 4771 (January 29, 2014) (SR-BATS-2013-059, SR-BYX-2013-
039) (order approving proposed business combination involving BATS 
Global Markets, Inc. and Direct Edge Holdings LLC); 70210 (August 
15, 2013), 78 FR 51758 (August 21, 2013) (SR-NYSE-2013-42, SR-
NYSEMKT-2013-50 and SR-NYSEArca-2013-62) (order approving proposed 
transaction in which NYSE Euronext will become a wholly owned 
subsidiary of IntercontinentalExchange Group, Inc.) 
(``IntercontinentalExchange Group, Inc. Combination Order''); 62716 
(August 13, 2010), 75 FR 51295 (August 19, 2010) (File No. 10-198) 
(order approving registration application of BYX as a national 
securities exchange) (``BYX Approval Order''); 61698 (March 12, 
2010), 75 FR 13151 (March 18, 2010) (File Nos. 10-194 and 10-196) 
(order approving registration application of EDGX Exchange, Inc. and 
EDGA Exchange, Inc.) (``EDGX and EDGA Approval Order''); 58375 
(August 18, 2008), 73 FR 49498 (August 21, 2008) (File No. 10-182) 
(order approving registration of BATS as a national securities 
exchange) (``BATS Approval Order''); 55293 (February 14, 2007), 72 
FR 8033 (February 22, 2007) (SR-NYSE-2006-120) (order approving 
proposed combination between NYSE Group, Inc. and Euronext N.V.) 
(``NYSE-Euronext Merger Order''); 53382 (February 27, 2006), 71 FR 
11251 (March 6, 2006) (SR-NYSE-2005-77) (order approving merger of 
New York Stock Exchange, Inc. and Archipelago, and demutualization 
of New York Stock Exchange, Inc.) (``NYSE Inc.-Archipelago Merger 
Order''); 53963 (June 8, 2006), 71 FR 34660 (June 15, 2006) (File 
No. SR-NSX-2006-03) (``NSX Demutualization Order''); 53128 (January 
13, 2006), 71 FR 3550 (January 23, 2006) (File No. 10-131) (order 
approving registration application of NASDAQ as a national 
securities exchange) (``NASDAQ Approval Order''); 51149 (February 8, 
2005), 70 FR 7531 (February 14, 2005) (SR-CHX-2004-26) (``CHX 
Demutualization Order''); and 49098 (January 16, 2004), 69 FR 3974 
(January 27, 2004) (SR-Phlx-2003-73) (``Phlx Demutualization 
Order'').
---------------------------------------------------------------------------

    Specifically, the CBOE Holdings Charter includes restrictions on 
the ability to vote and own shares of stock of CBOE Holdings. Under the 
CBOE Holdings Charter: (1) No Person,\14\ either alone or together with 
its Related Persons,\15\ as of any record date for the determination of 
stockholders entitled to vote on any matter, shall be entitled to vote 
or cause the voting of shares of stock of CBOE Holdings, beneficially 
owned directly or indirectly by such Person or its Related Persons, in 
person or by proxy or through any voting agreement or other 
arrangement, to the

[[Page 93990]]

extent that such shares represent in the aggregate more than 20 percent 
of the then outstanding votes entitled to be cast on such matter,\16\ 
and (2) no Person, either alone or together with its Related Persons, 
shall be party to any agreement, plan or other arrangement relating to 
shares of stock of CBOE Holdings entitled to vote on any matter with 
any other Person, either alone or together with its Related Persons, 
under circumstances that would result in shares of stock of CBOE 
Holdings that would be subject to such agreement, plan or other 
arrangement not being voted on any matter, or the withholding of any 
proxy relating thereto, where the effect of such agreement, plan or 
other arrangement would be to enable any Person with the right to vote 
any shares of stock of CBOE Holdings, either alone or together with its 
Related Persons, to vote, possess the right to vote or cause the voting 
of shares of stock of CBOE Holdings that would exceed 20% of the then 
outstanding votes entitled to be cast on such matter (``CBOE Holdings 
Voting Restrictions'').\17\
---------------------------------------------------------------------------

    \14\ See CBOE Holdings Charter, Article FIFTH, para. (a)(iv) 
(defining ``Person'').
    \15\ See id. at Article FIFTH, para. (a)(vi) (defining ``Related 
Person'').
    \16\ See id. at Article SIXTH, para. (a).
    \17\ See id.
---------------------------------------------------------------------------

    In addition, the CBOE Holdings Charter includes ownership 
restrictions that provide that no Person, either alone or together with 
its Related Persons, shall be permitted at any time to beneficially own 
directly or indirectly shares of stock of CBOE Holdings representing in 
the aggregate more than 20 percent of the then outstanding shares of 
stock of CBOE Holdings (``CBOE Holdings Ownership Restrictions'').\18\
---------------------------------------------------------------------------

    \18\ See id. at Article SIXTH, para. (b).
---------------------------------------------------------------------------

    If any Person, either alone or together with its Related Persons, 
at any time beneficially owns shares of stock of CBOE Holdings in 
excess of the CBOE Holdings Ownership Restrictions, CBOE Holdings shall 
be obligated to redeem promptly, at a price equal to the par value of 
such shares of stock and to the extent funds are legally available 
therefor, that number of shares of stock of CBOE Holdings necessary so 
that such Person, together with its Related Persons, shall beneficially 
own directly or indirectly shares of stock of CBOE Holdings 
representing in the aggregate no more than 20 percent of the then 
outstanding shares of CBOE Holdings, after taking into account that 
such redeemed shares shall become treasury shares and shall no longer 
be deemed to be outstanding.\19\
---------------------------------------------------------------------------

    \19\ See id. at Article SIXTH para (b)(iii).
---------------------------------------------------------------------------

    The CBOE Holdings board of directors may waive the CBOE Holdings 
Ownership Restrictions and the CBOE Holdings Voting Restrictions, if, 
in connection with taking such action, the board of directors adopts a 
resolution stating that the waiver:
     Will not impair the ability of any Regulated Securities 
Exchange Subsidiary to discharge its responsibilities under the Act and 
the rules and regulations thereunder and is otherwise in the best 
interests of the Corporation, its stockholders and the Regulated 
Securities Exchange Subsidiaries;
     neither such Person nor any of its Related Persons is 
subject to any statutory disqualification (as defined in Section 
3(a)(39) of the Act);
     will not impair the Commission's ability to enforce the 
Act or the rules and regulations promulgated thereunder; and
     for so long as the Corporation directly or indirectly 
controls any Regulated Securities Exchange Subsidiary, neither such 
Person nor any of its Related Persons is a Trading Permit Holder.\20\
---------------------------------------------------------------------------

    \20\ See id. at Article SIXTH para. (a)(ii) and (b)(ii)(B). In 
making this determination, the CBOE Holdings board of directors may 
impose on the Person and its Related Persons such conditions and 
restrictions that it may in its sole discretion deem necessary, 
appropriate or desirable in furtherance of the objectives of the Act 
and the governance of CBOE Holdings. Id. Because the Exchanges admit 
members rather than issue ``trading permits,'' each Exchange 
proposed to amend the Exchange's Bylaws to add clause (ff) to 
Article I to provide that ``Trading Permit Holder'' shall have the 
same meaning as member. As such, the board of directors of CBOE 
Holdings would now be prohibited from waiving the CBOE Holdings 
Ownership or Voting Restrictions for a Person if it or any of its 
Related Persons is a member of one of the Exchanges. See Notices, 
supra note 6, at 80106-07, 80098, 80151-52, and 80120.
---------------------------------------------------------------------------

    Any such waiver would not be effective until approved by the 
Commission pursuant to Section 19 of the Act.\21\ Furthermore, such 
Person seeking the waiver must deliver to CBOE Holdings not less than 
45 days prior to any vote or acquisition, as appropriate, a notice of 
the intent to exceed the CBOE Holdings Ownership Restrictions or the 
CBOE Holdings Voting Restrictions, as appropriate.\22\
---------------------------------------------------------------------------

    \21\ See CBOE Holdings Charter, Article SIXTH, para. (a)(i)(C) 
and (b)(i).
    \22\ See id. at Article SIXTH para. (a)(i)(A) and (b)(i).
---------------------------------------------------------------------------

    Members that trade on an exchange traditionally have had ownership 
interests in such exchange. As the Commission has noted in the past, 
however, a member's interest in an exchange could become so large as to 
cast doubt on whether the exchange can fairly and objectively exercise 
its self-regulatory responsibilities with respect to that member.\23\ A 
member that is a controlling shareholder of an exchange might be 
tempted to exercise that controlling influence by directing the 
exchange to refrain from, or the exchange may hesitate to, diligently 
monitor and surveil the member's conduct or diligently enforce its 
rules and the federal securities laws with respect to conduct by the 
member that violates such provisions.\24\
---------------------------------------------------------------------------

    \23\ See, e.g., Nasdaq-ISE Order; IntercontinentalExchange 
Group, Inc. Combination Order; BYX Approval Order; EDGX and EDGA 
Approval Order; BATS Approval Order; NYSE-Euronext Merger Order; 
NYSE Inc.-Archipelago Merger Order; NSX Demutualization Order; 
NASDAQ Approval Order; CHX Demutualization Order; Phlx 
Demutualization Order, supra note 12.
    \24\ See, e.g., id.
---------------------------------------------------------------------------

    In addition, as proposed, CBOE V will be a wholly-owned subsidiary 
of CBOE Holdings and the CBOE V Operating Agreement identifies this 
ownership structure.\25\ Any changes to the CBOE V Operating Agreement, 
including any change in the provision that identifies CBOE Holdings as 
the sole member of CBOE V, must be filed with and approved by the 
Commission pursuant to Section 19 of the Act.\26\ Similarly, as 
proposed, BGM Holdings and Direct Edge will each be wholly-owned 
subsidiaries of CBOE V. The proposed amendments to the BGM Holdings 
Charter and the Direct Edge Operating Agreement identify this ownership 
structure.\27\ Any changes to the BGM Holdings Charter and the Direct 
Edge Operating Agreement, including any change in the provision that 
identifies CBOE V as the sole stockholder of BGM Holdings and the sole 
member of Direct Edge, must be filed with and approved by the 
Commission pursuant to Section 19 of the Act.\28\
---------------------------------------------------------------------------

    \25\ See proposed CBOE V Operating Agreement, Article I, para. 
1.1.
    \26\ See id. at Article V, para. 5.2; 15 U.S.C. 78s(b).
    \27\ See proposed BGM Holdings Charter, Article SEVENTH, para. 
4; proposed Direct Edge Operating Agreement, Article II, Section 
2.01.
    \28\ See BGM Holdings Charter, Article SEVENTH, para. 3., Direct 
Edge Operating Agreement, Article II, Section 2.05, and 15 U.S.C. 
78s(b).
---------------------------------------------------------------------------

    Furthermore, each of the Bats Exchanges will continue to be a 
wholly-owned subsidiary of BGM Holdings and the Bats Exchange Bylaws 
identify this ownership structure.\29\ Any changes to the Bats Exchange 
Bylaws, including any change in the provision that identifies BGM 
Holdings as the sole stockholder of each Bats Exchange, must be filed 
with and approved by the Commission pursuant to Section 19 of the 
Act.\30\ Further, pursuant to the Bats Exchanges' Bylaws, BGM Holdings 
may not transfer or assign, in whole or in part, its ownership interest 
in each Bats

[[Page 93991]]

Exchange.\31\ Similarly, each of the Edge Exchanges will continue to be 
a wholly-owned subsidiary of Direct Edge and the Edge Exchange Bylaws 
identify this ownership structure.\32\ Any changes to the Edge Exchange 
Bylaws, including any change in the provision that identifies Direct 
Edge as the sole stockholder of each Edge Exchange, must be filed with 
and approved by the Commission pursuant to Section 19 of the Act.\33\ 
Further, pursuant to the Edge Exchange Bylaws, Direct Edge may not 
transfer or assign, in whole or in part, its ownership interest in each 
Edge Exchange.\34\
---------------------------------------------------------------------------

    \29\ See Bats Exchange Bylaws, Article I(cc).
    \30\ See 15 U.S.C. 78s(b).
    \31\ See Bats Exchange Bylaws, Article IV, Section 7.
    \32\ See Edge Exchange Bylaws, Article I(cc).
    \33\ See 15 U.S.C. 78s(b).
    \34\ See Edge Exchange Bylaws, Article IV, Section 7.
---------------------------------------------------------------------------

    The Commission believes that these provisions are consistent with 
the Act. These requirements should minimize the potential that a person 
could improperly interfere with or restrict the ability of the 
Commission or the Exchanges to effectively carry out their regulatory 
oversight responsibilities under the Act.
2. Jurisdiction; Books and Records; Due Regard
    As described above, following the Closing, CBOE Holdings will be 
the sole member of CBOE V, CBOE V will be the sole stockholder of BGM 
Holdings and the sole member of Direct Edge, and BGM Holdings and 
Direct Edge will be the sole stockholders of the Bats Exchanges and the 
Edge Exchanges respectively. Although CBOE Holdings, CBOE V, BGM 
Holdings, and Direct Edge will not carry out any regulatory functions, 
their activities with respect to the operation of the Exchanges must be 
consistent with, and must not interfere with, the self-regulatory 
obligations of each Exchange. The CBOE Holdings Charter, CBOE Holdings 
Bylaws, CBOE V Operating Agreement, BGM Holdings Charter, BGM Holdings 
Bylaws, and Direct Edge Operating Agreement therefore include certain 
provisions that are designed to maintain the independence of the 
Exchanges' \35\ self-regulatory functions, enable the Exchanges to 
operate in a manner that complies with the federal securities laws, 
including the objectives of Sections 6(b)``\36\ and 19(g) \37\ of the 
Act, and facilitate the ability of the Exchanges and the Commission to 
fulfill their regulatory and oversight obligations under the Act.\38\
---------------------------------------------------------------------------

    \35\ The provisions in the CBOE Holdings Charter apply to 
``Regulated Securities Exchange Subsidiary,'' which is defined as a 
national securities exchange controlled directly, or indirectly, by 
CBOE Holdings. The provisions in the CBOE V Operating Agreement 
apply to ``Exchange Subsidiaries,'' which is defined as any direct 
or indirect subsidiary of CBOE V that is registered with the 
Commission as a national securities exchange as provided in Section 
6 of the Act. The Exchanges will be Regulated Securities Exchange 
Subsidiaries and Exchange Subsidiaries upon the Closing.
    \36\ 15 U.S.C. 78f(b).
    \37\ 15 U.S.C. 78s(g).
    \38\ See, e.g., CBOE Holdings Charter Article FOURTEENTH and 
proposed CBOE V Operating Agreement, Article VIII, Section 8.4.
---------------------------------------------------------------------------

    For example, under the CBOE Holdings Charter and the CBOE V 
Operating Agreement, for so long as CBOE Holdings or CBOE V, as the 
case may be, directly or indirectly, controls any of the Exchanges, the 
board of directors (or sole member in the case of CBOE V), officers, 
employees and agents of each of CBOE Holdings and CBOE V, must give due 
regard to the preservation of the independence of the self-regulatory 
functions of each of the Exchanges, as well as to its obligations to 
investors and the general public and shall not take any actions that 
would interfere with the effectuation of any decisions by a board of 
directors of one of the Exchanges relating to its regulatory functions 
(including disciplinary matters), or which would interfere with the 
ability of such Exchange to carry out its responsibilities under the 
Act.\39\
---------------------------------------------------------------------------

    \39\ See CBOE Holdings Charter, Article SIXTEENTH, para. (c) and 
proposed CBOE V Operating Agreement, Article X, Section 10.1(a).
---------------------------------------------------------------------------

    The CBOE Holdings Charter and the CBOE V Operating Agreement would 
further require that CBOE Holdings or CBOE V, as the case may be, 
comply with the U.S. federal securities laws and rules and regulations 
thereunder and shall cooperate with the Commission and each of the 
Exchanges, pursuant to and to the extent of their respective regulatory 
authority.\40\ In addition, the CBOE Holdings Charter and the CBOE V 
Operating Agreement, provide that the officers, directors, employees 
and agents of CBOE Holdings and CBOE V, as the case may be, by virtue 
of the acceptance of their position, shall be deemed to agree to: (1) 
comply with the U.S. federal securities laws and the rules and 
regulations thereunder; and (2) to cooperate with the Commission and 
the Exchanges in respect of the Commission's oversight responsibilities 
regarding the Exchanges and the self-regulatory functions and 
responsibilities of the Exchanges, and CBOE Holdings and CBOE V will 
take reasonable steps to cause its officers, directors, employees and 
agents to so cooperate.\41\ Furthermore, CBOE Holdings, CBOE V and 
their respective officers, directors, employees and agents will be 
deemed to irrevocably submit to the jurisdiction of the U.S. federal 
courts, the Commission, and each Exchange, as applicable, for purposes 
of any suit, action, or proceeding pursuant to the U.S. federal 
securities laws or the rules or regulations thereunder arising out of, 
or relating to, the activities of such exchange.\42\
---------------------------------------------------------------------------

    \40\ See CBOE Holdings Charter, Article SIXTEENTH, para. (d) and 
proposed CBOE V Operating Agreement, Article X, Section 10.2(a).
    \41\ See CBOE Holdings Charter, Article SIXTEENTH, para. (a) and 
proposed CBOE V Operating Agreement, Article X, Section 10.2(a).
    \42\ See CBOE Holdings Charter, Article FOURTEENTH and proposed 
CBOE V Operating Agreement, Article X, Section 10.3.
---------------------------------------------------------------------------

    The CBOE Holdings Charter and the CBOE V Operating Agreement 
provide that CBOE Holdings, CBOE V and their respective officers, 
directors, employees and agents must submit to the Commission's 
jurisdiction with respect to activities relating to any of the 
Exchanges,\43\ and, for so long as CBOE Holdings or CBOE V controls, 
directly or indirectly, such Exchange, CBOE Holdings and CBOE V agree 
to provide the Commission and each Exchange with access to its books 
and records that are related to the operation or administration of each 
Exchange.\44\ In addition, to the extent they are related to the 
operation or administration of the Exchanges, the books, records, 
premises, officers, directors (in the case of CBOE Holdings), agents, 
and employees of CBOE Holdings and CBOE V shall be deemed to be the 
books, records, premises, officers, directors (in the case of CBOE 
Holdings), agents, and employees of the respective Exchange for 
purposes of, and subject to oversight pursuant to, the Act.\45\
---------------------------------------------------------------------------

    \43\ See id.
    \44\ See CBOE Holdings Charter, Article FIFTEENTH and proposed 
CBOE V Operating Agreement, Article VIII, Section 8.4(b).
    \45\ Id.
---------------------------------------------------------------------------

    The CBOE Holdings Charter and CBOE V Operating Agreement also 
provide that all books and records of each Exchange reflecting 
confidential information pertaining to the self-regulatory function of 
the Exchanges (including but not limited to disciplinary matters, 
trading data, trading practices and audit information) that shall come 
into the possession of CBOE Holdings or CBOE V, as the case may be, 
shall not be made available other than to those officers, directors (or 
sole member in the case of CBOE V), employees and agents of CBOE 
Holdings or CBOE V, as the case may be, that have a reasonable need to 
know the contents thereof, and shall be retained

[[Page 93992]]

in confidence by CBOE Holdings or CBOE V, the members of the board of 
directors or the sole member, respectively, its officers, employees and 
agents, and not used for any non-regulatory purposes.\46\ The CBOE 
Holdings Charter and CBOE V Operating Agreement, however, specify that 
the CBOE Holdings Charter and CBOE V Operating Agreement (including 
these confidentiality provisions) shall not be interpreted so as to 
limit or impede the rights of the Commission or the Exchanges to access 
and examine such confidential information pursuant to the federal 
securities laws and the rules and regulations thereunder, or to limit 
or impede the ability of any officers, directors (or sole member in the 
case of CBOE V), employees or agents of CBOE Holdings or CBOE V, as the 
case may be, to disclose such confidential information to the 
Commission or the Exchanges.\47\
---------------------------------------------------------------------------

    \46\ See CBOE Holdings Charter, Article FIFTEENTH and proposed 
CBOE V Operating Agreement, Article VIII, Section 8.4(a).
    \47\ See id.
---------------------------------------------------------------------------

    The CBOE Holdings Charter, CBOE Holdings Bylaws and the CBOE V 
Operating Agreement provide that, for so long as CBOE Holdings or CBOE 
V, as the case may be, controls, directly or indirectly, a registered 
national securities exchange, before any amendment to, or repeal of, 
any provision of the proposed CBOE Holdings Charter, CBOE Holdings 
Bylaws or the CBOE V Operating Agreement, as the case may be, may be 
effective, those changes must be submitted to the board of directors of 
each of the Exchanges, and if the amendment is required to be filed 
with, or filed with and approved by the Commission pursuant to Section 
19(b) of the Act,\48\ such change shall not be effective until filed 
with, or filed with and approved by, the Commission.\49\
---------------------------------------------------------------------------

    \48\ 15 U.S.C. 78s(b).
    \49\ See CBOE Holdings Charter, Article TWELFTH, CBOE Holdings 
Bylaws, Article 10, Section 10.1 and proposed CBOE V Operating 
Agreement, Article XI, Section 11.2.
---------------------------------------------------------------------------

    The Commission finds that these provisions are consistent with the 
Act, and that they are intended to assist each Exchange in fulfilling 
its self-regulatory obligations and in administering and complying with 
the requirements of the Act. The Commission also notes that, even in 
the absence of these provisions, under Section 20(a) of the Act,\50\ 
any person with a controlling interest in any of the Exchanges shall be 
jointly and severally liable with and to the same extent that each 
Exchange is liable under any provision of the Act, unless the 
controlling person acted in good faith and did not directly or 
indirectly induce the act or acts constituting the violation or cause 
of action. In addition, Section 20(e) of the Act \51\ creates aiding 
and abetting liability for any person who knowingly provides 
substantial assistance to another person in violation of any provision 
of the Act or rule thereunder. Further, Section 21C of the Act \52\ 
authorizes the Commission to enter a cease-and-desist order against any 
person who has been ``a cause of'' a violation of any provision of the 
Act through an act or omission that the person knew or should have 
known would contribute to the violation.
---------------------------------------------------------------------------

    \50\ 15 U.S.C. 78t(a).
    \51\ 15 U.S.C. 78t(e).
    \52\ 15 U.S.C. 78u-3.
---------------------------------------------------------------------------

3. Change in Control
    Upon the Closing, BGM will cease to exist and the business of BGM 
will be carried on by CBOE V which will be a wholly owned subsidiary of 
CBOE Holdings. The BGM Charter includes certain restrictions on the 
ability to vote and own shares of stock of BGM. Specifically, the BGM 
Charter provides that: (1) No Person,\53\ either alone or together with 
its Related Persons,\54\ may own, directly or indirectly, of record or 
beneficially, shares constituting more than 40 percent of any class of 
its capital stock, and no Member, 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 
its capital stock (``BGM Ownership Limitation''), and (2) subject to 
certain exceptions, 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 its then issued and outstanding capital 
stock (``BGM Voting Limitation'').\55\
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    \53\ See BGM Charter, Article FIFTH, para. (a)(i) (defining 
``Person'').
    \54\ See id. at Article FIFTH, para. (a)(ii) (defining ``Related 
Persons'').
    \55\ See BGM Charter, Article FIFTH, para. (b).
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    The BGM Charter also provides that the BGM Ownership Limitation and 
the BGM Voting Limitation may be waived (except with respect to Members 
and their Related Persons) pursuant to a resolution duly adopted by the 
board of directors of BGM if, in connection with taking such action, 
the board of directors states in such resolution that it is the 
determination of the board of directors that the waiver: (1) Will not 
impair the ability of each Exchange to carry out its functions and 
responsibilities as an ``exchange'' under the Act and the rules and 
regulations promulgated thereunder; (2) is otherwise in the best 
interests of BGM, its stockholders, and the Exchanges; (3) will not 
impair the ability of the Commission to enforce the Act and the rules 
and regulations promulgated thereunder; and (4) shall not be effective 
until it is filed with and approved by the Commission.\56\
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    \56\ See BGM Charter, Article FIFTH, para. (b)(ii)(B). In 
granting such a waiver, the BGM board of directors has the 
discretion to impose on the person and its Related Persons, such 
conditions and restrictions that it deems necessary, appropriate or 
desirable in furtherance of the objectives of the Act and the rules 
and regulations promulgated thereunder, and the governance of each 
Exchange. Id.
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    As described above, as a result of the Merger (and prior to its 
separate existence ceasing as a result of the Subsequent Merger), BGM 
will become a wholly owned subsidiary of CBOE Holdings, such that CBOE 
Holdings will possess ownership and voting rights in BGM in excess of 
the BGM Ownership Limitation and the BGM Voting Limitation. As a result 
of the Subsequent Merger, BGM will merge with and into CBOE V, 
terminating the BGM Charter.
    Therefore, the Exchanges represented that the board of directors of 
BGM determined that in order to effect the Transaction, a waiver of the 
BGM Ownership Limitation and the BGM Voting Limitation with respect to 
CBOE Holdings would be required. To do so, the board of directors of 
BGM adopted the Resolutions, making certain determinations with respect 
to CBOE Holdings and the Transaction that are necessary to waive the 
BGM Ownership Limitation and BGM Voting Limitation.
    Specifically, the board of directors of BGM made the following 
determinations: (1) The acquisition of the proposed ownership by CBOE 
Holdings in BGM will not impair the ability of each Exchange to carry 
out its functions and responsibilities as an ``exchange'' under the Act 
and the rules and regulations promulgated thereunder, is otherwise in 
the best interests of BGM, its stockholders and the Exchanges, and will 
not impair the ability of the Commission to enforce the Act and the 
rules and regulations promulgated thereunder; (2) the acquisition or 
exercise of the proposed voting rights by CBOE Holdings in BGM will not 
impair the ability of each Exchange to carry out its functions and 
responsibilities as an ``exchange'' under the Act and the rules and 
regulations promulgated thereunder, that it is otherwise in the best 
interests of the

[[Page 93993]]

BGM, its stockholders and the Exchanges, and that it will not impair 
the ability of the Commission to enforce the Act and the rules and 
regulations promulgated thereunder; (3) neither CBOE Holdings, nor any 
of its Related Persons,\57\ is subject to ``statutory 
disqualification'' within the meaning of Section 3(a)(39) of the Act; 
\58\ and (4) neither CBOE Holdings, nor any of its Related Persons is a 
Member.\59\
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    \57\ See supra note 53.
    \58\ 15 U.S.C. 78c(a)(39).
    \59\ The Resolutions also contain a determination that the 
execution and delivery of the Merger Agreement by CBOE constituted 
notice of CBOE's intention to acquire ownership and voting rights in 
excess of the BGM Ownership Limitation and BGM Voting Limitation, 
respectively, in writing and not less than 45 days before the 
Closing. See BGM Charter, Article FIFTH, para. (b)(iv).
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    The Commission believes that it is consistent with the Act to allow 
CBOE Holdings to wholly-own and vote all of the outstanding common 
stock of BGM. The Commission notes that CBOE Holdings, the new top-
level holding company for the Exchanges, currently owns other national 
securities exchanges and is subject to governance documents that 
restrict concentration of ownership and voting rights.\60\ The 
Commission also notes that, the BGM Holdings Charter and the Direct 
Edge Operating Agreement will specify that BGM Holdings' sole 
stockholder and Direct Edge's sole member will be CBOE V, a wholly 
owned subsidiary of CBOE Holdings.\61\ As noted above, any changes to 
the CBOE V Operating Agreement, including any change in the provision 
that identifies CBOE Holdings as the sole member of CBOE V, must be 
filed with and approved by the Commission pursuant to Section 19 of the 
Act.\62\ In addition, and as discussed above, CBOE Holdings and CBOE V 
have also included in their corporate documents certain provisions 
designed to maintain the independence of each Exchange's regulatory 
functions from CBOE Holdings and CBOE V.\63\ Accordingly, the 
Commission does not believe that the Transaction will impair the 
ability of any of the Exchanges to carry out the functions and 
responsibilities as an ``exchange'' under the Act and the rules and 
regulations promulgated thereunder, or the ability of the Commission to 
enforce the Act and the rules and regulations promulgated thereunder.
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    \60\ See supra notes 14-22 and accompanying text.
    \61\ See supra notes 27-28 and accompanying text.
    \62\ See supra note 26 and accompanying text.
    \63\ See supra note 39 and accompanying text.
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4. Miscellaneous Changes to the Bylaws and Rules of the Exchanges
a. Bylaws of the Exchanges
    The board of directors of each Exchange will continue to be the 
governing body of their respective Exchange and possess all of the 
powers necessary for the management of the business and affairs of 
their respective Exchange and the execution of their respective 
responsibilities as SROs. In connection with the Transaction, each 
Exchange proposed a change to their Bylaws. Each Exchange proposes to 
amend Section 2 of Article XI of their Bylaws to remove references to 
BGM and add references to CBOE Holdings and CBOE V.\64\ The Exchanges' 
Bylaws prohibit directors of BGM, or BGM Holdings or Direct Edge, as 
applicable, who are not also directors, officers, staff, counsel or 
advisors of the Exchange from participating in any meetings of the 
Exchange's board of directors (or any committee thereof) pertaining to 
the self-regulatory function of the Exchange (including disciplinary 
matters).\65\ The Exchanges proposed to delete references to BGM from 
this provision and add references to CBOE Holdings and CBOE V, which 
following the Transaction, will become the indirect owners of each 
Exchange. The Commission believes that removing references to BGM and 
replacing them with references to CBOE Holdings and CBOE V in Section 2 
of Article XI of the Exchanges' Bylaws is consistent with the Act.
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    \64\ See Article XI, Section 2 of Bats Exchange Bylaws and Edge 
Exchange Bylaws.
    \65\ See id.
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b. Member Eligibility
    Rule 2.3 of each of the Exchanges' rulebooks generally provides 
that in order to be eligible for membership in one of the Exchanges, a 
registered broker or dealer is required to be a member of at least one 
other national securities association or national securities exchange. 
Membership in the Exchanges' affiliated national securities exchanges 
(either BZX, BYX, EDGA, or EDGX as the case may be) is not sufficient 
for purposes of membership eligibility.\66\ According to the Exchanges, 
the rule is designed to ensure that a member of any of the Exchanges 
would be supervised by a national securities association or national 
securities exchange that functions as the member's designated examining 
authority (``DEA'').\67\ The Exchanges do not function as the DEA for 
any of its members.\68\ As discussed above, as a result of the 
Transaction, the Exchanges will become affiliated with the CBOE 
Exchanges. One of these exchanges, CBOE, does act as the DEA for 
certain of its members.\69\ However, C2 does not function as the DEA 
for any of its members.\70\ The Exchanges stated that they continue to 
believe that it is appropriate to limit membership to registered 
broker-dealers that are members of at least one national securities 
association or national securities exchange that is not affiliated with 
the Exchanges.\71\ Therefore, the Exchanges proposed to amend Rule 2.3 
to specify that a registered broker-dealer will be eligible for 
membership only if it is a member of a national securities association 
or national securities exchange other than BZX, BYX, EDGA, EDGX, or C2. 
The Exchanges are not excluding CBOE from the rule because it is 
possible for CBOE to function as a DEA for its members.\72\
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    \66\ See BZX, BYX, EDGX and EDGA Rule 2.3.
    \67\ See Notices, supra note 6, at 80107, 80099, 80120-21, and 
80152.
    \68\ See id.
    \69\ See id.
    \70\ See id.
    \71\ See id.
    \72\ In addition, to ensure there is no confusion with respect 
to the possibility that a broker or dealer could qualify for 
membership in the Exchange based solely on membership in CBOE 
Futures or any other national securities exchange notice-registered 
with the Commission pursuant to Section 6(g) of the Act that lists 
or trades security-futures products, the Exchanges propose to also 
specify that eligibility for membership requires membership in a 
national securities association registered pursuant to Section 15A 
of the Act or a national securities exchange registered with the 
Commission pursuant to Section 6(a) of the Act, so as to exclude a 
national securities exchange registered solely under Section 6(g) of 
the Act.
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    The Commission notes that the proposed changes to Rule 2.3 of each 
Exchanges' rulebook extends the membership eligibility criteria in a 
way that is consistent with the current rule, taking into account the 
Exchanges' new affiliation with the CBOE Exchanges.
c. Affiliation Between Exchange and a Member
    Rule 2.10 of each Exchange generally provides that, without the 
prior approval of the Commission, (i) each Exchange or any entity with 
which each Exchange is affiliated (as defined in Rule 12b-2 under the 
Act \73\), may not directly or indirectly acquire or maintain an 
ownership interest in a Member of the Exchange, and (ii) a Member of an 
Exchange may not be or become an affiliate of the Exchange, or an 
affiliate of any affiliate of the Exchanges. The Exchanges note that 
the purpose of Rule 2.10 is to prevent or manage potential conflicts of 
interest that could arise from the Exchanges or

[[Page 93994]]

their affiliates having an ownership interest in a Member.\74\
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    \73\ 17 CFR 240.12b-2.
    \74\ See Notices, supra note 6, at 80107, 80099, 80152 and 
80121.
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    Current Rule 2.10 provides that notwithstanding the affiliation 
prohibitions the rule does not prohibit a member or its affiliate from 
acquiring or holding an equity interest in BGM that is permitted by the 
ownership and voting limitations contained in the BGM Charter and the 
BGM Bylaws. In addition, Rule 2.10 states that it does not prohibit a 
member from being or becoming an affiliate of the Exchange, or an 
affiliate of any affiliate of the Exchange, solely by reason of such 
member or any officer, director, manager, managing member, partner or 
affiliate of such member being or becoming either (a) a director of the 
Exchange pursuant to the Bylaws of the Exchange, or (b) a director of 
the Exchange serving on the board of directors of BGM.
    The Exchanges propose to replace the references to BGM with CBOE 
Holdings to reflect that following the Closing, CBOE Holdings will 
replace BGM as the ultimate parent company of each Exchange.\75\ The 
Commission believes that these amendments are consistent with the Act 
as they are technical in nature. They do not alter any of the 
restrictions contained in Rule 2.10, rather the amendments merely 
update the rule text to reflect the new ownership of the Exchanges.
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    \75\ The Exchanges also proposed to add the three CBOE Exchanges 
to the list of eligible Exchange affiliates to reflect that 
following the Closing, the CBOE Exchanges will be affiliates of the 
Exchanges. See proposed BZX, BYX, EDGA and EDGX Rule 2.10. In 
addition, the Edge Exchanges also proposed to remove references in 
Rule 2.10 to DE Route, as DE Route is no longer the routing broker-
dealer for the Edge Exchanges. Bats Trading is now the Edge 
Exchanges' routing broker-dealer. See proposed EDGA and EDGX Rule 
2.10.
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d. Bats Trading as Inbound Router
    The Edge Exchanges also proposed to amend Rule 2.12 in each of 
their rulebooks to replace a reference to BGM with ``the holding 
company indirectly owning the Exchange and Bats Trading.'' According to 
the Edge Exchanges, the rule is designed to ensure that Bats Trading, 
as inbound router for the Exchanges does not develop or implement 
changes to its systems on the basis of nonpublic information obtained 
as a result of its affiliation with the Exchanges until such 
information is available generally to similarly situation members of 
the Exchanges in connection with the provision of inbound order routing 
to one of the Exchanges.\76\ The proposed amendment does not alter the 
obligations Rule 2.12 imposes on the Edge Exchanges, but rather is a 
technical change to reflect the change in ownership of the Edge 
Exchanges. The proposed new rule language is consistent with the 
language used in Rule 2.12 in the Bats Exchanges' rulebooks. As such, 
the Commission believes that this change is consistent with the Act.
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    \76\ See Notices, supra note 6, at 80121 and 80152.
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III. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule changes are consistent with the Act and the rules and regulations 
thereunder applicable to a national securities exchange.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\77\ that the proposed rule changes (SR-BatsBZX-2016-68; SR-BatsBYX-
2016-29; SR-BatsEDGA-2016-24 and SR-BatsEDGX-2016-60) are approved.
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    \77\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\78\
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    \78\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-30796 Filed 12-21-16; 8:45 am]
 BILLING CODE 8011-01-P