Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing of Proposed Rule Change To Harmonize the Corporate Governance Framework With That of the NASDAQ Stock Market LLC, NASDAQ PHLX LLC, and NASDAQ BX, Inc., 20508-20525 [2017-08813]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 82, Number 83 (Tuesday, May 2, 2017)]
[Notices]
[Pages 20508-20525]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-08813]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80530; File No. SR-ISE-2017-32]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
of Proposed Rule Change To Harmonize the Corporate Governance Framework 
With That of the NASDAQ Stock Market LLC, NASDAQ PHLX LLC, and NASDAQ 
BX, Inc.

April 26, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on April 11, 2017, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule change as described in Items I, II, and III below, 
which Items have been prepared by the Exchange. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to a rule change (the ``Proposed Rule 
Change'') in connection with the proposed merger (the ``Merger'') with 
a newly-formed Delaware limited liability company under the Exchange's 
ultimate parent, Nasdaq, Inc., resulting in the Exchange as the 
surviving entity. Following the Merger, the Exchange's board and 
committee structure, and all related corporate governance processes, 
will be harmonized with that of the three other registered national 
securities exchanges and self-regulatory organizations owned by Nasdaq, 
Inc., namely: The NASDAQ Stock Market LLC (``NSM''), NASDAQ PHLX LLC 
(``Phlx''), and NASDAQ BX, Inc. (``BX'' and together with NSM and Phlx, 
the ``Nasdaq Exchanges'').
    The text of the proposed rule change is available on the Exchange's 
Web site at www.ise.com, at the principal office of the Exchange, and 
at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange was recently acquired by Nasdaq, Inc. (``HoldCo'').\3\ 
Following the acquisition, the Exchange has continued to operate as a 
separate self-regulatory organization (``SRO'') and continues to have 
separate rules, membership rosters, and listings, distinct from the 
rules, membership rosters, and listings of the Nasdaq Exchanges as well 
as from ISE Gemini and ISE Mercury. The Exchange now proposes to 
harmonize the corporate governance framework of the Exchange with that 
of the Nasdaq Exchanges, and submits this Proposed Rule Change to seek 
the Commission's approval of various changes to the Exchange's 
organizational documents and Rules that are necessary in connection 
with the Merger, as described below.
---------------------------------------------------------------------------

    \3\ On June 30, 2016, HoldCo acquired all of the capital stock 
of U.S. Exchange Holdings, Inc., the Exchange's indirect parent 
company (the ``Acquisition''). As a result, the Exchange, in 
addition to its affiliates Nasdaq GEMX, LLC (``ISE Gemini'') and 
Nasdaq MRX, LLC (``ISE Mercury''), became a wholly-owned subsidiary 
of HoldCo, and also became an affiliate of NSM, Phlx, and BX through 
common, ultimate ownership by HoldCo. HoldCo is the ultimate parent 
of the Exchange. See Securities Exchange Act Release No. 78119 (June 
21, 2016), 81 FR 41611 (June 27, 2016) (SR-ISE-2016-11).
---------------------------------------------------------------------------

    The proposed changes consist of: (1) Deleting the Exchange's 
current Third Amended and Restated Limited Liability Company Agreement 
(the ``Current LLC Agreement'') in its entirety and replacing it with a 
new limited liability company agreement (the ``LLC Agreement'') that is 
based on the limited liability company agreement of NSM, (2) deleting 
the Exchange's current Second Amended and Restated Constitution 
(``Current Constitution'' and together with the Current LLC Agreement, 
the ``Current Governing Documents'') in its entirety and replacing it 
with a new set of by-laws (the ``Bylaws'' and together with the LLC 
Agreement, the ``New Governing Documents'') that is based on the by-
laws of NSM, and (3) amending certain rules to reflect the changes to 
its constituent documents through the adoption of the New Governing 
Documents to replace the Current Governing Documents.\4\
---------------------------------------------------------------------------

    \4\ The Exchange's affiliates, ISE Gemini and ISE Mercury, will 
submit nearly identical proposed rule changes.
---------------------------------------------------------------------------

    All of the proposed changes are designed to align the Exchange's 
corporate governance framework to the existing structure at the Nasdaq 
Exchanges, particularly as it relates to board and committee structure, 
nomination and election processes, and related governance practices.\5\ 
The Exchange is not proposing any amendments to its ownership structure 
and International Securities Exchange Holdings, Inc. (``ISE Holdings'') 
will remain as the Exchange's sole limited liability company member 
(``Sole LLC Member'') and owner of 100% of the Exchange's limited 
liability company

[[Page 20509]]

interests. Furthermore, the Exchange is not proposing any amendments to 
its trading rules at this time relating to the Merger other than the 
minor clarifying changes and technical amendments as noted below.
---------------------------------------------------------------------------

    \5\ The new LLC Agreement and Bylaws are based in form and 
substance on The NASDAQ Stock Market LLC's Second Amended Limited 
Liability Company Agreement (the ``NSM LLC Agreement'') and By-Laws 
(the ``NSM Bylaws''). Additionally, the majority of provisions in 
the organizational documents of Phlx and BX were also based on those 
of NSM with differences that relate mainly to disciplinary processes 
(for Phlx) or to corporate structure (for BX). Notwithstanding, the 
vast majority of the new governance framework and processes proposed 
herein are materially identical to those of all three Nasdaq 
Exchanges.
---------------------------------------------------------------------------

A. The Merger

    In order to effectuate the proposed changes above, the Exchange 
proposes to merge with a Delaware limited liability company 
(``NewCo''), newly-formed as a wholly-owned subsidiary of ISE Holdings, 
resulting in the Exchange as the surviving entity. Specifically, 
pursuant to the Delaware Limited Liability Company Act, as amended from 
time to time (the ``LLC Act''), NewCo would be formed under ISE 
Holdings upon filing a certificate of formation with the Secretary of 
State of the State of Delaware (``DE Secretary of State''). 
Subsequently, the Exchange would enter into an agreement and plan of 
merger with NewCo (the ``Merger Agreement''), under which NewCo would 
merge into the Exchange, with the Exchange surviving the Merger. The 
Merger Agreement contemplates that the merged limited liability company 
(i.e., the Exchange) would have a new LLC Agreement and new Bylaws, 
which would be attached to the Merger Agreement. Then, a certificate of 
merger would be filed with the DE Secretary of State, which will 
effectuate the Merger at the time of filing. The new LLC Agreement and 
the new Bylaws would also become effective at the time of filing the 
certificate of merger. Under the LLC Act, the Merger is subject to 
approval by the Exchange Board and by ISE Holdings as the Sole LLC 
Member. The Exchange represents that it has obtained or will obtain the 
necessary approvals prior to filing the certificate of merger with the 
DE Secretary of State.
    Following the Merger, the Exchange proposes to be governed by the 
New Governing Documents in accordance with the LLC Act. The specific 
changes effected by the New Governing Documents to the current 
documents are discussed in the following sections.

B. Limited Liability Company Agreement

    Following the Merger, the Exchange proposes to adopt the LLC 
Agreement,\6\ which would replace the Current LLC Agreement.\7\ The 
proposed LLC Agreement reflects the expectation that the Exchange will 
be operated with a governance structure substantially similar to that 
of the Nasdaq Exchanges, and substantially mirrors the provisions found 
in the NSM LLC Agreement other than as specifically noted herein.\8\ 
Schedule B of the LLC Agreement describes the proposed ownership of the 
Exchange's limited liability company interests, which ownership 
structure is identical to that currently in place. ISE Holdings would 
remain as the Sole LLC Member (and a member of the Exchange within the 
meaning of the LLC Act) and the sole owner of 100% of the limited 
liability company interests of the Exchange. Except as specified below, 
the proposed changes do not affect the manner of the Exchange's 
operations or governance structure.
---------------------------------------------------------------------------

    \6\ The proposed LLC Agreement is attached hereto as Exhibit 5A 
[sic].
    \7\ The Current LLC Agreement is attached hereto as Exhibit 5B 
[sic].
    \8\ See the Second Amended Limited Liability Company Agreement 
of The NASDAQ Stock Market LLC (the ``NSM LLC Agreement''). The 
Second Amended Limited Liability Company Agreement of NASDAQ PHLX 
LLC (the ``Phlx LLC Agreement'') is also based on and is 
substantially similar to the NSM LLC Agreement. BX is a Delaware 
corporation and is governed by a Certificate of Incorporation, not 
an LLC Agreement. However, the board structure is identical across 
the Nasdaq Exchanges and therefore, BX's Second Restated Certificate 
of Incorporation (the ``BX COI'') contains substantially similar 
governance provisions as the NSM LLC Agreement and Phlx LLC 
Agreement.
---------------------------------------------------------------------------

    Section 1 of the LLC Agreement, titled ``Name,'' specifies the name 
of the surviving entity of the Merger as the name of the Exchange. 
Section 2 of the LLC Agreement, titled ``Principal Business Office,'' 
provides for the principal business office of the Exchange and such 
other location as may hereafter be determined by the Board.
    Sections 3 and 4 of the LLC Agreement, titled ``Registered Office'' 
and ``Registered Agent,'' specifies the place of the Exchange's 
registered office and the entity acting as its registered agent, which 
is the same place and entity used by the Nasdaq Exchanges.\9\ The 
Exchange proposes to replace its current registered office and agent 
set forth in Section 1.5 of the Current LLC Agreement with the 
registered office and agent used by the Nasdaq Exchanges for 
administrative efficiency. This change will not have any material 
substantive effect on the current operations or the governance of the 
Exchange.
---------------------------------------------------------------------------

    \9\ See NSM LLC Agreement, Sections 3 and 4; Phlx LLC Agreement, 
Section 3; and BX COI, Article Second.
---------------------------------------------------------------------------

    Section 5 of the LLC Agreement, titled ``Member,'' provides that 
the mailing address of the Sole LLC Member is set forth on Schedule B 
of the LLC Agreement. As noted above, ISE Holdings will remain as the 
Sole LLC Member of the Exchange.
    Section 6 of the LLC Agreement, titled ``Certificates,'' refers to 
the filing of the Certificate of Merger with respect to the Merger. 
Such provision acknowledges and confirms that such filings, which were 
necessary for the merger to be effected, were authorized by the 
Exchange. This Section additionally sets forth those person(s) who have 
the authority to file any other certificates with the Delaware 
Secretary of State on behalf of the Exchange pursuant to the LLC Act. 
This provision is purely administrative in nature and therefore will 
have no material substantive effect on the current operations or the 
governance of the Exchange.
    Section 7 of the LLC Agreement, titled ``Purposes,'' discusses the 
Exchange's business purpose, which provides that the Exchange may 
engage in any lawful act or activity for which limited liability 
companies may be formed under the LLC Act and any and all activities 
necessary or incidental to the foregoing. Without limiting these 
general powers, proposed Section 7 also specifically provides that the 
Exchange's business would include actions that support its regulatory 
responsibilities under the Act, including: (i) Supporting the 
operation, regulation, and surveillance of the national securities 
exchange operated by the Exchange, (ii) preventing fraudulent and 
manipulative acts and practices, promoting just and equitable 
principles of trade, fostering cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, removing impediments to and perfecting the mechanisms of a 
free and open market and a national market system, and, in general, 
protecting investors and the public interest, (iii) supporting the 
various elements of the national market system pursuant to Section 11A 
of the Act and the rules thereunder, (iv) fulfilling the Exchange's 
self-regulatory responsibilities as set forth in the Act, and (v) 
supporting such other initiatives as the Board may deem appropriate. 
Section 7 mirrors the Section 7 of the NSM LLC Agreement, and is 
similar to the language in Section 1.3 of the Current LLC Agreement of 
the Exchange.
    Section 8 of the LLC Agreement, titled ``Powers,'' discusses the 
general powers of the Exchange, the Board and the officers of the 
Exchange. Specifically, the Exchange, the Board and the officers on 
behalf of the Exchange (i) shall have and exercise all powers 
necessary, convenient or incidental to accomplish its purposes as set 
forth in Section 7 of the LLC Agreement and (ii) shall have and 
exercise all of the powers and rights conferred upon limited liability 
companies formed pursuant to the LLC

[[Page 20510]]

Act. Section 8 is based on Section 8 of the NSM LLC Agreement, and is 
similar to the provisions in the Current LLC Agreement and the Current 
Bylaws.\10\
---------------------------------------------------------------------------

    \10\ See Current LLC Agreement, Sections 5.1 and 5.7 and Current 
Constitution, Sections 3.1 and 4.1.
---------------------------------------------------------------------------

    Section 9 of the LLC Agreement, titled ``Management,'' sets forth 
the proposed management structure of the Exchange. Section 9(a) 
pertains to the Board of the Exchange and provides that the Board will 
manage the Exchange's business and affairs, similar to the provisions 
in Section 5.1 of the Current LLC Agreement.\11\ By adopting new 
Section 9(a), the Exchange proposes to mirror the board structure of 
the Nasdaq Exchanges.\12\ The Exchange proposes to add language to 
indicate that the Sole LLC Member may determine at any time in its sole 
and absolute discretion the number of Directors \13\ to constitute the 
Board.\14\ The authorized number of Directors may be increased or 
decreased by the Sole LLC Member at any time in its sole and absolute 
discretion, upon notice to all Directors, but no decrease in the number 
of Directors shall shorten the term of any incumbent Member 
Representative Director.\15\ This language mirrors Section 9(a) of the 
NSM LLC Agreement. In addition, the exact composition of the Board is 
subject to the requirements in the Bylaws relating to independence and 
fair representation of members, which are described in detail below.
---------------------------------------------------------------------------

    \11\ See also Current Constitution, Section 3.1.
    \12\ See NSM LLC Agreement, Section 9; Phlx LLC Agreement, 
Section 8; and BX COI, Article Fifth.
    \13\ ``Director'' will be defined as the persons elected or 
appointed to the board of directors from time to time in accordance 
with the LLC Agreement and the Bylaws, in their capacity as managers 
of the Exchange. See proposed Bylaw Article I(j), which is based on 
NSM Bylaw Article I(i).
    \14\ See proposed LLC Agreement, Section 9(a). In contrast, the 
Current Governing Documents have specific limits on the size of the 
Board in that the Exchange is required to have no less than fifteen 
and no more than sixteen directors. See Current LLC Agreement, 
Section 5.2 and Current Constitution, Section 3.2(a).
    \15\ Currently, the number of directors may only be changed by 
the approval of the affirmative vote of the holders of two-thirds of 
the then outstanding Exchange Rights. See Current Constitution, 
Section 3.2(a).
---------------------------------------------------------------------------

Fair Representation of Members
    The Exchange proposes in Section 9(a), similar to the Nasdaq 
Exchanges, that at least 20% of the Directors would be Member 
Representative Directors.\16\ Member Representative Directors are 
elected or appointed after having been nominated by a Member Nominating 
Committee \17\ composed of representatives of the Exchange members or 
by Exchange members in the manner described in the proposed Bylaws.\18\ 
Currently, there are six directors on the Board who are officers, 
directors or partners of Exchange members, and are elected by a 
plurality of the holders of Exchange Rights \19\ (the ``Exchange 
Directors''), of which: (i) Two must be elected by a plurality of the 
holders of Primary Market Maker (``PMM'') Exchange Rights, (ii) two 
must be elected by a plurality of holders of Competitive Market Maker 
(``CMM'') Exchange Rights, and (iii) two must be elected by a plurality 
of holders of Electronic Access Member (``EAM'') Exchange Rights.\20\ 
The Exchange adopted the current board structure as it relates to 
Exchange Directors to comply with Section 6(b) of the Act, which 
provides that the Exchange must, among other things, assure fair 
representation of its members (here, the PMMs, CMMs, and EAMs) in the 
selection of its directors and administration of its affairs (the 
``fair representation requirement'').\21\ Therefore, the Exchange 
believes that the Exchange Directors serve the same function on the 
current Board as ``Member Representative Directors'' on the boards of 
the Nasdaq Exchanges in that the Exchange Directors give members a 
voice in the Exchange's use of self-regulatory authority.\22\
---------------------------------------------------------------------------

    \16\ See NSM LLC Agreement, Section 9; Phlx LLC Agreement, 
Section 8; BX Bylaws, Section 4.3. ``Member Representative 
Director'' will be defined as a Director who has been elected or 
appointed after having been nominated by the Member Nominating 
Committee or by an ISE Member. A Member Representative Director may, 
but is not required to be, an officer, director, employee, or agent 
of an ISE Member. See proposed Bylaw Article I(r), which is based on 
NSM Bylaw Article I(q).
    \17\ See proposed Section 6(b) of Bylaw Article III. ``Member 
Nominating Committee'' will be defined as the Member Nominating 
Committee appointed pursuant to the Bylaws. See proposed Bylaw 
Article I(q), which is based on NSM Bylaw Article I(p).
    \18\ The Commission has previously found that the requirement in 
the NSM LLC Agreement that 20% of the directors shall be ``Member 
Representative Directors'' and the means by which they are elected 
by the members provides for the fair representation of members in 
the selection of directors and administration of NSM consistent with 
the requirement in Section 6(b) of the Act. See Securities Exchange 
Act Release No. 53128 (Jan. 13, 2006), 71 FR 3550 (January 23, 2006) 
(Order Granting Registration as a National Securities Exchange).
    \19\ See Rule 300 Series. ``Exchange Rights'' means the PMM 
Rights, CMM Rights and EAM Rights collectively. See Rule 100(a)(17). 
PMM Rights, CMM Rights and EAM Rights have the meaning set forth in 
Article VI of the Current LLC Agreement. See Rules 100(a)(11), 
100(a)(14) and 100(a)(36). See also Current Constitution, Section 
13.1(q). PMMs, CMMs, and EAMs represent the three classes of 
membership on the Exchange. See Current Constitution, Sections 
13.1(g), 13.1(l) and 13.1(bb).
    \20\ See Current Constitution, Section 3.2(b).
    \21\ See Section 6(b)(3) of the Act, 15 U.S.C. 78f(b)(3). Upon 
granting the Exchange's application for registration as a national 
securities exchange, the Commission found that the board composition 
requirements related to the Exchange Directors satisfied the 
principles of fair representation as required by Section 6(b) the 
Act. See Securities Exchange Act Release No. 42455 (February 24, 
2000), 65 FR 11401 (March 2, 2000) (Order Granting Registration as a 
National Securities Exchange).
    \22\ Currently, the six Exchange Directors comprise 37.5% of the 
sixteen-member Board.
---------------------------------------------------------------------------

    By adopting the new Board structure set forth in the New Governing 
Documents, the Exchange is proposing to replace the Exchange Director 
positions and all related concepts thereto,\23\ with Member 
Representative Director positions and all related concepts that will be 
further discussed below. The Exchange believes that the new Board 
structure will still provide for the fair representation of its members 
because the new structure is well-established as meeting the fair 
representation requirement.\24\ It should be noted that there are 
certain additional protections other than the right to elect Exchange 
Directors that are afforded to the holders of PMM Rights and CMM Rights 
(the ``Market Maker Rights'') set forth in the Current Governing 
Documents, namely: (i) The right to vote on any change in, amendment or 
modification of the Core Rights or the definition of ``Core Rights'' 
\25\ and (ii) the right to transfer or lease PMM or CMM Rights upon 
approval of the Exchange.\26\ These rights reflect ISE's original 
membership structure, where the original Market Maker Rights provided 
the holders with an equity ownership interest in ISE as well as trading 
rights on the Exchange.\27\

[[Page 20511]]

Today, the Market Maker Rights do not confer any equity ownership in 
the Exchange and the Market Maker Rights are, for all practical 
purposes, rights to trade on the Exchange. As such, the Exchange 
believes that provisions governing the trading privileges of its 
members are more appropriately located in the Rules than in its 
organizational documents. Already, all of the provisions governing the 
transfer and lease of Market Maker Rights located in the Current 
Governing Documents are also substantially set forth in the Rules,\28\ 
and the Exchange is not proposing any changes to those rules or to any 
of its trading rules in connection with the Merger. As described in 
more detail below, the Exchange will amend its Rules only (i) to 
clarify any Rules that refer back to the Current LLC Agreement or the 
Current Constitution in the rule text or (ii) to relocate or 
memorialize in the rulebook certain rights and protections afforded to 
the Market Marker Rights holders, which are primarily found in the 
Current Governing Documents as discussed above. As such, the holders of 
Exchange Rights will continue to have the same trading privileges they 
currently hold as PMMs, CMMs and EAMs under the Exchange Rules and the 
proposed Board structure of the Exchange will not change any trading 
privileges. Virtually all of the proposed changes regarding the removal 
of Exchange Director positions and related concepts from the Exchange's 
organizational documents are corporate in nature, and are intended 
simply to conform the organizational documents with those of the Nasdaq 
Exchanges in order to harmonize the Exchange's board structure with its 
affiliates. The proposed changes will primarily affect current board 
composition requirements, the current nomination and election processes 
of the directors and the current committee composition requirements. 
These provisions are outlined in detail in the proposed Bylaws of the 
Exchange, which will be discussed below.
---------------------------------------------------------------------------

    \23\ Related concepts include: ``CMM Directors,'' ``CMM Right,'' 
``Competitive Market Maker,'' ``Core Rights,'' ``EAM Directors,'' 
``EAM Right,'' ``Electronic Access Member,'' ``Exchange Directors,'' 
``Exchange Rights,'' ``PMM Director,'' ``PMM Rights,'' ``Primary 
Market Maker,'' and ``Voting Rights.'' See Current LLC Agreement, 
Section 2.2 and Current Constitution, Section 13 for the 
definitions.
    \24\ See note 18 above.
    \25\ See Current LLC Agreement, Section 6.3(b) and Current 
Constitution, Section 10.1. ``Core Rights'' represents the voting 
rights with respect to any increase in the number of authorized PMM 
and CMM rights. See Current LLC Agreement, Section 2.2. The number 
of authorized PMM Rights and CMM Rights are 10 and 160, 
respectively. See Current LLC Agreement, Section 6.1.
    \26\ See Current LLC Agreement, Article VI and Current 
Constitution, Article XII. As stated below, most of the transfer and 
lease provisions in the Current Governing Documents are also already 
in the current Rule 300 Series. See note 28 below.
    \27\ See Securities Exchange Act Release No. 42455 (February 24, 
2000), 65 FR 11401 (March 2, 2000) (Order Granting Registration as a 
National Securities Exchange). All of the initial Market Maker 
Rights provided the rights holders with an equity ownership interest 
in ISE as well as trading rights on the Exchange. As such, those 
rights were transferable or leasable to approved persons or entities 
(i.e., Exchange members or non-member owners as provided in Rule 
300(a)). Additionally, holders of the Market Maker Rights had the 
right to vote on corporate actions such as increasing the number of 
memberships in a class (akin to the voting rights related to ``Core 
Rights'' today). From the beginning, the holders of EAM Rights had 
no equity interests in the Exchange and only had rights to trade on 
the Exchange. Those rights were not transferable by the holders, and 
could only be held by Exchange members. The Exchange has since 
demutualized and reorganized into a holding company structure, all 
of which resulted in the separation of the equity ownership rights 
in the Exchange (currently all held by ISE Holdings as the Sole LLC 
Member) from the trading privileges on the Exchange (currently held 
by PMMs, CMMs, and EAMs). The ability to transfer the PMM Rights and 
CMM Rights (and the non-transferability of the EAM rights), however, 
still remains the same today, as reflected in the Exchange's rules 
as well as the Current Governing Documents. See Rule 307(a); Current 
LLC Agreement, Section 6.4; and Current Constitution, Sections 
12.1(c), 12.2(c), and 12.3(b).
    \28\ See Rule 300 Series. For example, the holders of PMM Rights 
and CMM Rights (the ``Market Maker Rights'') have the right to 
transfer and lease the Market Maker Rights to an Exchange member. 
See Rules 307 and 308. Holders of Market Maker Rights that are not 
Exchange members are required to lease their Market Maker Rights to 
an Exchange member. See Rule 300(b). Such transfers or leases will 
be subject to the trading concentration limits associated with PMM 
Rights and CMM Rights. See Rule 303.
---------------------------------------------------------------------------

    New Section 9(a) of the LLC Agreement also proposes that all 
Directors other than the Member Representative Directors shall be 
elected by the Sole LLC Member in the manner described in the proposed 
Bylaws. Mirroring Section 9(a) of the NSM LLC Agreement, each Director 
elected, designated or appointed by the Sole LLC Member shall hold 
office until a successor is elected and qualified or until such 
Director's earlier death, resignation, expulsion or removal. As noted 
above, Member Representative Directors shall be elected in accordance 
with the Bylaws. Each Director shall execute and deliver an instrument 
accepting such appointment and agreeing to be bound by all the terms 
and conditions of the LLC Agreement and the Bylaws. A Director need not 
be an Exchange member.
    The Exchange is also proposing to adopt the exact verbiage of 
Section 9 of the NSM LLC Agreement with respect to the Powers of the 
Board, the By-Laws, the Meeting of the Board of Directors, Quorum; LLC 
Acts of the Board and Electronic Communications.\29\ The section 
discussing the Powers of the Board is similar to the current provisions 
in the Current Constitution in that the Board is vested with the power 
to do any and all acts necessary or for the furtherance of the purposes 
described in the LLC Agreement, including all powers, statutory or 
otherwise.\30\ The Board also has the power to bind the Exchange and 
delegate powers.\31\ As discussed in the Bylaws section below, the 
Bylaws proposed to be adopted by the Exchange, the Sole LLC Member and 
the Board in Section 9(c) of the LLC Agreement will replace the Current 
Constitution of the Exchange.
---------------------------------------------------------------------------

    \29\ See proposed Sections 9(b) through (f) of the Exchange's 
LLC Agreement.
    \30\ See Current Constitution, Section 3.1.
    \31\ See Current LLC Agreement, Section 2.2 (providing that the 
Sole LLC Member does not have the power to bind the Exchange, said 
power being vested solely and exclusively in the Board) and Current 
Constitution, Sections 3.1, 4.12 and 5.1.
---------------------------------------------------------------------------

    The Meeting of the Board contains standard Delaware limited 
liability company provisions governing regular and special meetings of 
the board, and related notice provisions. Similar language is found in 
Section 3.6 of the Current Constitution, and the Exchange is proposing 
to streamline these administrative procedures across the Nasdaq 
Exchanges.
    The subsections, Quorum; LLC Acts of the Board and Electronic 
Communications, contain standard Delaware limited liability company 
provisions governing quorum rules for Board actions, Board action by 
unanimous written consent, and how Board and committee members may 
participate in Board and committee meetings, as applicable. The 
Exchange notes that these provisions are similar in all material 
respects to those in the Current Governing Documents \32\ and relate 
primarily to the administrative processes of the Board. Therefore, the 
Exchange is proposing to streamline these processes across the Nasdaq 
Exchanges for the sake of efficiency.
---------------------------------------------------------------------------

    \32\ See Current Constitution, Sections 3.6 and 3.7.
---------------------------------------------------------------------------

    Section 9(g) of the LLC Agreement generally discusses the standing 
committees and provides that the Board may designate one or more 
committees. By adopting new Section 9(g), the Exchange is proposing to 
delete the current committees set forth in Article V of the Current 
Constitution and adopt the standing committees similar to those of the 
Nasdaq Exchanges. Article V of the Current Constitution provides for 
the following committees: An Executive Committee, a Corporate 
Governance Committee, a Finance and Audit Committee, a Compensation 
Committee, and such other additional committees as may be established 
by Board resolution. Article V also provides for a nominating 
committee, which is a committee of the Exchange and not the Board, and 
nominates the Exchange Directors for election to the Board (the 
``Exchange Director Nominating Committee''). The Exchange proposes to 
replace these rules with ``Committees Composed Solely of Directors'' 
and ``Committees Not Composed Solely of Directors'' at newly proposed 
and named Bylaw Article III. The details of those committees will be 
discussed below in the Bylaws section.
    The Exchange proposes to adopt identical provisions set forth in 
Section 9(g) of the NSM LLC Agreement with respect to the standing 
committees.\33\ First, the Board may designate one or more Directors as 
alternate members of any committee who may replace any absent or 
disqualified member at any meeting of the committee. Second, the 
Committee members shall hold office

[[Page 20512]]

for such period as may be fixed by a resolution adopted by the Board. 
Any member of a committee may be removed from such committee only by 
the Board. Vacancies shall be filled by the Board. Third, each 
committee may adopt its own rules of procedure and may meet at stated 
times or on such notice as such committee may determine. Each committee 
shall be required to keep regular minutes of its meetings and report 
the same to the Board when required. Fourth, a majority of the 
committee shall constitute a quorum and the vote of a majority present 
shall be an act of the committee. Finally, to the extent provided in 
the resolution of the Board, any committee that consists solely of one 
or more Directors shall have and may exercise all the powers and 
authority of the Board in the management of the business and affairs of 
the Exchange. Such committee or committees shall have such name or 
names as may be determined from time to time by resolution adopted by 
the Board. Further, in the absence or disqualification of a member of a 
committee composed solely of Directors, the member or members thereof 
present at any meeting and not disqualified from voting, whether or not 
such members constitute a quorum, may unanimously appoint another 
member of the Board to act at the meeting in the place of any such 
absent or disqualified member. The foregoing provisions are similar to 
the language found in Section 5.1 of the Current Constitution.
---------------------------------------------------------------------------

    \33\ See proposed LLC Agreement, Section 9(g)(i)-(v).
---------------------------------------------------------------------------

    Similar to Section 3.9 of the Current Constitution, proposed 
Section 9(h) provides that the compensation of Directors shall be fixed 
by the Board. This language mirrors the provisions in Section 9(h) of 
the NSM LLC Agreement. The Removal and Resignation of Directors 
language in proposed Section 9(i) also mirrors Section 9(i) of the NSM 
LLC Agreement, and is similar to the resignation and removal language 
in Section 5.4 of the Current LLC Agreement and Sections 3.4 and 3.5 of 
the Current Constitution. The Directors as Agents language in proposed 
Section 9(j) provides that the Directors are agents of the Exchange and 
mirrors Section 9(j) of the NSM LLC Agreement.
    Section 10, titled ``Officers,'' the Exchange proposes to adopt 
identical language regarding officer appointments found in Section 10 
of the NSM LLC Agreement, which provisions are similar in nature to the 
existing provisions in Article IV of the Current Constitution.
    Section 11, titled ``Limited Liability,'' contains standard 
Delaware limited liability company language on the limitation of 
liability of the Sole LLC Member and the Directors in the manner 
permitted under the LLC Act. The proposed language is similar to the 
limitation of liability language found in the Current LLC Agreement 
\34\ and mirrors Section 11 of the NSM LLC Agreement.
---------------------------------------------------------------------------

    \34\ See Current LLC Agreement, Sections 2.3 and 5.8.
---------------------------------------------------------------------------

    Sections 12 through 14 of the LLC Agreement, which are virtually 
identical to Sections 12 through 14 of the NSM LLC Agreement, are 
equity-related provisions that encompass the topics of capital 
contributions, additional capital contributions, and allocations of 
profits and losses. These provisions set forth the basic economic 
arrangement of the Sole LLC Member and remain consistent with the 
economic arrangement under the Current Governing Documents.\35\ 
Proposed Section 15, which relates to distributions, provides that ISE 
Holdings, as the Sole LLC Member, is generally entitled to all 
distributions made by the Exchange. Similar to Section 3.3 of the 
Current LLC Agreement, however, proposed Section 15 also contains a 
stipulation that (i) the Exchange shall not be required to make a 
distribution to the Sole LLC Member on account of its interest in the 
Exchange if such distribution would violate the LLC Act or any other 
applicable law or is otherwise required to fulfill the regulatory 
functions or responsibilities of the Exchange, and (ii) Regulatory 
Funds shall not be used for non-regulatory purposes, but rather shall 
be used to fund the legal, regulatory and surveillance operations of 
the Exchange and the Exchange shall not make a distribution to the Sole 
LLC Member using Regulatory Funds. ``Regulatory Funds'' means fees, 
fines, or penalties derived from the regulatory operations of the 
Exchange. ``Regulatory Funds'' shall not be construed to include 
revenues derived from listing fees, market data revenues, transaction 
revenues, or any other aspect of the commercial operations of the 
Exchange, even if a portion of such revenues are used to pay costs 
associated with the regulatory operations of the Exchange.\36\ This 
provision is designed to preclude the Exchange from using its authority 
to raise Regulatory Funds for the purpose of benefitting its Sole LLC 
Member.
---------------------------------------------------------------------------

    \35\ See Current LLC Agreement, Sections 3.1 and 3.2.
    \36\ See proposed LLC Agreement, Schedule A.
---------------------------------------------------------------------------

    Similar to Section 4.1 of the Current LLC Agreement, Section 16 of 
the LLC Agreement, titled ``Books and Records,'' sets forth certain 
information relating to general administrative matters with respect to 
the books and records of the Exchange. Specifically, the Board shall 
keep or cause to be kept complete and accurate books of account and 
records with respect to the Exchange's business. The books of the 
Exchange shall at all times be maintained by the Board. The Sole LLC 
Member and its duly authorized representatives shall have the right to 
examine the Exchange books, records and documents during normal 
business hours. The Exchange, and the Board on behalf of the Exchange, 
shall not have the right to keep confidential from the Sole LLC Member 
any information that the Board would otherwise be permitted to keep 
confidential from the Sole LLC Member pursuant to Section 18-305(c) of 
the LLC Act. The Exchange's books of account shall be kept using the 
method of accounting determined by the Sole LLC Member. Further, the 
Exchange's independent auditor shall be an independent public 
accounting firm selected by the Board.\37\ Finally, the Exchange 
proposes to retain some of the existing concepts on books and records 
from Section 4.1(b) of the Current LLC Agreement in the new Section 
16.\38\ First, the books of account and records with respect to the 
Exchange's business must be kept within the United States. Second, 
other than as provided in Section 16 with respect to the Sole LLC 
Member and the Commission, all confidential information pertaining to 
the self-regulatory function of the Exchange (including but not limited 
to disciplinary matters, trading data, trading practices and audit 
information) contained in the books and records of the Exchange shall: 
(i) Not be made available to any persons other than to those officers, 
directors, employees and agents of the Exchange that have a reasonable 
need to know the contents thereof; (ii) be retained in confidence by 
the Exchange and the officers, directors, employees and agents of the 
Exchange;

[[Page 20513]]

and (iii) not be used for any non-regulatory purposes. Nothing in the 
LLC Agreement shall be interpreted as to limit or impede the rights of 
the Commission to access and examine such confidential information 
pursuant to the federal securities laws and the rules and regulations 
thereunder, or to limit and impede the ability of any officers, 
directors, employees or agents of the Exchange to disclose such 
confidential information to the Commission.
---------------------------------------------------------------------------

    \37\ See Section 16 of the NSM LLC Agreement for identical 
provisions.
    \38\ These concepts are generally not in the governing documents 
of the Nasdaq Exchanges, and relate to where the Exchange's books 
and records must be maintained and who may access such books and 
records, in particular those that contain confidential information 
pertaining to the self-regulatory function of the Exchange. While 
Phlx has a requirement under Section 15 of the Phlx LLC Agreement to 
keep its books and records in the United States, neither BX nor NSM 
has this requirement under their respective governing documents. 
Furthermore, none of the Nasdaq Exchanges have in their governing 
documents a provision that explicitly sets forth the Commission's 
right to access their books and records. The Nasdaq Exchanges will 
each separately file proposed rule changes to harmonize the books 
and records provisions in their respective governing documents with 
the language the Exchange proposes for Section 16.
---------------------------------------------------------------------------

    Section 17, titled ``Reports,'' is being added to mirror the 
language of the NSM LLC Agreement, and requires the Board, after the 
end of each fiscal year, to use reasonable efforts to cause the 
Exchange's independent accountants, if any, to prepare and transmit to 
the Sole LLC Member any tax information that the Sole LLC Member may 
reasonably need to prepare its federal, state and local income tax 
returns for such fiscal year.\39\ Section 18, titled ``Other 
Business,'' is standard language in the Delaware limited liability 
company context and merely states that the Sole LLC Member and any 
Director, officer, employee or agent of the Exchange may engage in 
other business and that the Exchange has no rights to such other 
business or the proceeds derived therefrom. The Exchange is proposing 
to mirror the language found in Section 18 of the NSM LLC Agreement.
---------------------------------------------------------------------------

    \39\ See Section 17 of the NSM LLC Agreement for identical 
provisions.
---------------------------------------------------------------------------

    Section 19, titled ``Exculpation and Indemnification,'' is based on 
Section 19 of the NSM LLC Agreement. Similar to the provisions in 
Article VI of the Current Constitution, the language provides for the 
exculpation and indemnification of ISE Holdings and any officer, 
Director, employee or agent of the Exchange or of the affiliate of ISE 
Holdings. Section 20, titled Assignment, is based on Section 20 of the 
NSM LLC Agreement, but retains similar transfer restrictions from 
Section 7.1 of the Current LLC Agreement on any assignments by the Sole 
LLC Member and prohibits the Sole LLC Member from transferring or 
assigning its limited liability company interest in the Exchange, 
unless the Commission approves such transfer or assignment pursuant to 
a rule filing under Section 19 of the Act.\40\ Section 21, titled 
``Dissolution,'' sets forth the events which will cause the dissolution 
of the Exchange, as prescribed by mandatory provisions of the LLC Act 
or as otherwise agreed among the parties, and is based on Section 21 of 
the NSM LLC Agreement. The proposed language is similar to the language 
currently in Section 7.2 of the Current LLC Agreement.
---------------------------------------------------------------------------

    \40\ BX has a similar provision in Section 9.4(c) of the BX 
Bylaws, which restricts HoldCo, as BX's sole shareholder, from 
transferring any shares of stock to any entity unless such transfer 
is filed and approved by the Commission pursuant to a rule filing. 
In contrast, Section 20 of the NSM LLC Agreement allows HoldCo, as 
NSM's sole LLC member, to assign NSM's limited liability company 
interest solely to an affiliate of HoldCo, but does not require 
approval by the Commission for such assignments. Phlx follows the 
NSM model. As such, Phlx and NSM will each separately file a 
proposed rule change to harmonize their assignment provisions with 
the Exchange's proposal hereunder.
---------------------------------------------------------------------------

    Sections 22 through 28 of the proposed LLC Agreement contain 
general provisions which are relatively standard in Delaware limited 
liability company agreements.\41\ These provisions include: A benefits 
of agreement clause, a severability clause, an entire agreement clause, 
a binding agreement clause, a governing law clause, an amendment 
provision and a notice provision. The Exchange notes that its members 
are acknowledged in proposed Section 22 as holding rights under the LLC 
Agreement and included as third-party beneficiaries to the LLC 
Agreement as is similarly provided in Section 22 of the NSM LLC 
Agreement.
---------------------------------------------------------------------------

    \41\ For example, see Sections 22 through 28 of the NSM LLC 
Agreement and Sections 22 through 28 of the Phlx LLC Agreement.
---------------------------------------------------------------------------

    Section 27, titled ``Amendments,'' provides that the LLC Agreement 
may be amended by a resolution adopted by the Board and a written 
agreement executed and delivered by the Sole LLC Member, and further 
provides that all such amendments to the LLC Agreement will not become 
effective until filed with, or filed with and approved by, the 
Commission, as required under Section 19 of the Exchange Act and the 
rules promulgated thereunder.\42\
---------------------------------------------------------------------------

    \42\ This provision is based in concept on Section 6-9 of the 
Phlx Bylaws, which requires Phlx to file any amendments to the Phlx 
Bylaws with the Commission. The Phlx LLC Agreement, however, does 
not have a similar requirement for amendments to the Phlx LLC 
Agreement. As well, neither BX nor NSM has filing requirements for 
amendments in their respective governing documents. Therefore, the 
Nasdaq Exchanges will each separately file proposed rule changes 
with the Commission to add this requirement in (as applicable): The 
Phlx LLC Agreement, the BX COI, the BX Bylaws, the NSM LLC Agreement 
and the NSM Bylaws.
---------------------------------------------------------------------------

    The Exchange proposes to add a new Schedule A to the LLC Agreement, 
which contains key definitions used in the LLC Agreement. The Exchange 
also proposes a section on rules of construction further explaining the 
definitions in proposed Schedule A.

C. Bylaws

    The Exchange proposes to adopt the Bylaws,\43\ which would replace 
the Exchange's Current Constitution.\44\ The Bylaws reflect the 
expectation that the Exchange will be operated with governance 
structures similar to those of the Nasdaq Exchanges. Accordingly, the 
Exchange proposes to adopt Bylaws that set forth the same corporate 
governance framework and related processes as those contained in the 
Bylaws of the Nasdaq Exchanges. Article I of the Bylaws, titled 
``Definitions,'' contains key definitions used in the Bylaws, and are 
based on the defined terms used in NSM Bylaw Article I.
---------------------------------------------------------------------------

    \43\ The proposed Bylaws are attached hereto as Exhibit 5C 
[sic].
    \44\ The Current Constitution is attached hereto as Exhibit 5D 
[sic].
---------------------------------------------------------------------------

Nomination and Election Process
    Article II of the Bylaws, titled ``Annual Election of Member 
Representative Directors and Other Actions by Exchange Members,'' 
mirrors the language in NSM Bylaw Article II,\45\ and contains key 
provisions regarding the processes for the nomination and election of 
Member Representative Directors. As discussed in the LLC Agreement 
section above, the Exchange is proposing to replace the Exchange 
Directors with Member Representative Directors to harmonize its board 
structure with the Nasdaq Exchanges. The proposed nomination and 
election process for Member Representative Directors described in new 
Article II would replace the current processes for the Exchange 
Directors set forth in the Current Governing Documents.
---------------------------------------------------------------------------

    \45\ Phlx and BX also have the identical nomination and election 
processes for their Member Representative Directors. See Phlx Bylaw 
Article II and Section 4.4 of the BX Bylaws.
---------------------------------------------------------------------------

Current Nomination and Election Process
    Under the current nomination and election process, nominees for 
election of the Exchange Directors are selected each year by the 
Exchange Director Nominating Committee (which is not a Board committee 
but composed of three Exchange member representatives).\46\ A petition 
process will also allow holders of the Exchange Rights to nominate 
alternate candidates for consideration as

[[Page 20514]]

Exchange Directors.\47\ At an annual meeting of the holders of Exchange 
Rights, the Exchange Directors are elected by a plurality of the votes 
cast at the meeting by the holders of Exchange Rights entitled to vote 
thereon.\48\ Following the full nomination, petition, and voting 
process, each Exchange Director holds office for a term of two 
years.\49\
---------------------------------------------------------------------------

    \46\ See Current Constitution, Section 3.10(a). With respect to 
the Exchange Director Nominating Committee process, the Secretary of 
the Exchange, on behalf of the Exchange Director Nominating 
Committee, will circulate a memorandum to all holders of Exchange 
Rights soliciting interest in presenting Exchange Director 
candidates to the Exchange Director Nominating Committee. Shortly 
after the receipt of candidate submissions, the Exchange Director 
Nominating Committee will conduct a short interview with each 
candidate. Following all interviews, the Exchange Director 
Nominating Committee, by majority vote, will select its Exchange 
Director candidates and the Secretary of the Exchange will inform 
the holders of Exchange Rights of the Exchange Director Nominating 
Committee's selections.
    \47\ See Current Constitution, Section 3.10(a). Specifically, in 
addition to the Exchange Director nominees named by the Nominating 
Committee, persons eligible to serve as such may be nominated for 
election to the Board by a petition, signed by the holders of not 
less than 5% of the outstanding Exchange Rights of the series 
entitled to elect such person if there are more than eighty (80) 
Exchange Rights in the series entitled to vote, ten percent (10%) of 
the outstanding rights of such series entitled to elect such person 
if there are between eighty (80) and forty (40) Exchange Rights in 
the series entitled to vote, and twenty-five percent (25%) of the 
outstanding Exchange Rights of such series entitled to elect such 
person if there are less than forty (40) Exchange Rights in the 
series entitled to vote. For purposes of determining whether a 
person has been nominated for election by petition by the requisite 
percentage, no Exchange member, alone or together with its 
affiliates, may account for more than fifty percent (50%) of the 
signatures of the holders of outstanding Exchange Rights of the 
series entitled to elect such person, and any such signatures by 
such Exchange members, alone or together with its affiliates, in 
excess of such fifty percent (50%) limitation shall be disregarded. 
Id.
    \48\ See Current Constitution, Sections 2.1 and 2.5. A holder of 
Exchange Rights, together with any affiliate, may not exercise the 
voting rights (including with respect to the election of Exchange 
Directors) associated with more than twenty percent (20%) of the PMM 
Rights, CMM Rights or EAM Rights. See Current LLC Agreement, Section 
6.5(a).
    \49\ See Current Constitution, Section 3.2(c).
---------------------------------------------------------------------------

    Specifically pursuant to Section 3.2(c) of the Current 
Constitution, the Exchange Directors are divided into two classes, 
designated as Class I and Class II directors. Each of Class I and Class 
II is comprised of half of the PMM Directors, CMM Directors and EAM 
Directors. The Exchange Directors of each class holds office until 
their successors are duly elected and qualified. At each annual meeting 
of the holders of Exchange Rights, the successors of the class of 
Exchange Directors whose term expires at that meeting will be elected 
by the Exchange Rights holders to hold office for a term expiring at 
the annual meeting held in the second year following the year of their 
election, and until their successors are elected and qualified.\50\ No 
Exchange Director may serve more than three consecutive terms, and 
after a two-year hiatus, may be eligible to serve as an Exchange 
Director again.\51\
---------------------------------------------------------------------------

    \50\ Id.
    \51\ See Current Constitution, Sections 3.2(e). The Exchange 
does not impose term limits on Non-Industry Directors.
---------------------------------------------------------------------------

Proposed Nomination and Election Process
    The Exchange is proposing to adopt identical nomination and 
election processes as the Nasdaq Exchanges as set forth in proposed 
Bylaw Article II, Section 1 so that Member Representative Directors 
would be elected to the Board on an annual basis.\52\ For each annual 
election, the Board would select a Record Date \53\ and an Election 
Date.\54\ The Record Date would be at least 10 days but not more than 
60 days prior to the Election Date. The Member Nominating Committee, 
consisting of representatives of the Exchange members, would create a 
list of one or more candidates for each Member Representative Director 
position (the ``List of Candidates'') on the Board to be elected on the 
Election Date. Promptly after selection of the Election Date, in a 
notice transmitted to the Exchange members and in a prominent location 
on a publicly accessible Web site, the Exchange (i) shall announce the 
Election Date and the List of Candidates, and (ii) shall describe the 
procedures for Exchange members to nominate candidates for election at 
the next annual meeting. In the event of a Contested Election, the 
Exchange shall also send its members the List of Candidates and a 
formal notice of the Election Date, which notice shall be sent by the 
Exchange at least 10 days but no more than 60 days prior to the 
Election Date to the Exchange members that were Exchange members on the 
Record Date, by any means, including electronic transmission, as 
determined by the Board or committee thereof.
---------------------------------------------------------------------------

    \52\ See Section 1 of NSM Bylaw Article II, Section 2-1 of the 
Phlx Bylaws and Section 4.4 of the BX Bylaws. Currently, the 
Exchange Directors are elected for two-year terms.
    \53\ ``Record Date'' will be defined as a date selected by the 
Board for the purpose of determining the Exchange members entitled 
to vote for the election of Member Representative Directors on an 
Election Date in the event of a Contested Election. See proposed 
Bylaw Article I(bb), which is based on NSM Bylaw Article I(aa). 
``Contested Election'' will be defined as an election for one or 
more Member Representative Directors for which the number of 
candidates on the List of Candidates exceeds the number of positions 
to be elected. See proposed Bylaw Article I(g), which is based on 
NSM Bylaw Article I(ee).
    \54\ ``Election Date'' will be defined as a date selected by the 
Board on an annual basis, on which the Exchange members may vote 
with respect to Member Representative Directors in the event of a 
contested election. See proposed Bylaw Article I(k), which is based 
on NSM Bylaw Article I(j).
---------------------------------------------------------------------------

    An additional candidate may be added to the List of Candidates by 
any Exchange member that submits a timely and duly executed written 
nomination to the Secretary of the Exchange. To be timely, an Exchange 
member's notice would have to be delivered to the Secretary at the 
principal executive offices of the Exchange not later than the close of 
business on the 90th day nor earlier than the close of business on the 
120th day prior to the first anniversary of the preceding year's 
Election Date, provided however that in the event that the Election 
Date is more than 30 days before or more than 70 days after such 
anniversary date, notice by the Exchange member must be so delivered 
not earlier than the close of business on the 120th day prior to such 
Election Date and not later than the close of business on the later of 
the 90th day prior to such Voting Election or the tenth day following 
the day on which public announcement of such Election Date is first 
made by the Exchange. Such Exchange member's notice shall set forth: 
(i) As to the person whom the Exchange member proposes to nominate for 
election as a Member Representative Director, all information relating 
to that person that is required to be disclosed in solicitations of 
proxies for election of directors in an election contest, or is 
otherwise required, in each case pursuant to Regulation 14A under the 
Act and the rules thereunder (and such person's written consent to be 
named in the List of Candidates as a nominee and to serving as a 
Director if elected); (ii) a petition in support of the nomination duly 
executed by the Executive Representatives \55\ of 10% or more of all 
Exchange members; and (iii) the name and address of the Exchange 
members making the nomination. The Exchange may require any proposed 
nominee to furnish such other information as it may reasonably require 
to determine the eligibility of such proposed nominee to

[[Page 20515]]

serve as a Member Representative Director.
---------------------------------------------------------------------------

    \55\ ``Executive Representative'' will be defined as an 
individual appointed by an Exchange member to represent, vote, and 
act for the Exchange member in all the affairs of the Exchange; 
provided, however, that other representatives of an Exchange member 
may also serve on the Board or committees of the Exchange or 
otherwise take part in the affairs of the Exchange. If an Exchange 
member is also a member of FINRA, the Exchange executive 
representative shall be the same person appointed to serve as the 
FINRA executive representative. An Exchange member may change its 
executive representative or appoint a substitute for its executive 
representative upon giving notice thereof to the Exchange Secretary 
via electronic process or such other process as the Exchange may 
prescribe. An executive representative of an Exchange member or a 
substitute shall be a member of senior management and registered 
principal of the Exchange member. Each executive representative 
shall maintain an Internet electronic mail account for communication 
with the Exchange and shall update firm contact information as 
prescribed by the Exchange. Each member shall review and, if 
necessary, update its executive representative designation and 
contact information in the manner prescribed by the Exchange. See 
proposed Bylaw Article I(l), which is based on NSM Bylaw Article 
I(k) and NSM Rule 1150.
---------------------------------------------------------------------------

    If by the date on which an Exchange member may no longer submit a 
timely nomination, there is only one candidate for each Member 
Representative Director position to be elected on the Election Date, 
the Member Representative Directors will be elected by ISE Holdings as 
the Sole LLC Member from the List of Candidates. In the event of a 
Contested Election, the Exchange would conduct a vote to determine the 
candidates on the List of Candidates in accordance with proposed 
Section 2 of Bylaw Article II, which mirrors the language found in 
Section 2 of the NSM Bylaw Article II.
    If there is a Contested Election, each Exchange member would have 
the right to cast one vote for each Member Representative Director 
position to be filled; provided, however, that any such vote must be 
cast for a person on the List of Candidates. However, an Exchange 
member, either alone or together with its affiliates, may not cast 
votes representing more than 20% of the votes cast for a candidate, and 
any votes cast by the Exchange member, either alone or together with 
its affiliates, in excess of such 20% limitation would be 
disregarded.\56\ The votes would be cast by written ballot, electronic 
transmission or any other means as set forth in a notice to the 
Exchange members sent by the Exchange prior to the Election Date. Only 
votes received prior to 11:59 p.m. Eastern Time on the Election Date 
would count for the election of a Member Representative Director. The 
persons on the List of Candidates who receive the most votes would be 
elected to the Member Representative Director positions.
---------------------------------------------------------------------------

    \56\ This is the same as the 20% voting limitation included in 
Section 6.5(a) of the Exchange's Current LLC Agreement. See note 48 
above.
---------------------------------------------------------------------------

    New Section 3 of Bylaw Article II proposes that if a Member 
Representative Director position becomes vacant prior to the expiration 
of such person's term, or it an increase in the size of the Board 
results in the creation of a new Member Representative Director 
position, the Sole LLC Member will elect a person from a list of 
candidates prepared by the Member Nominating Committee to fill such 
vacancy, except that if the remaining term of office for the vacant 
Director position is less than six months, no replacement will be 
required. The proposal would replace the current process for filling 
Exchange Director vacancies on the Board,\57\ and mirrors Section 3 of 
NSM Bylaw Article II. Finally, new Section 4 of Bylaw Article II, 
copied from Section 4 of NSM Bylaw Article II, proposes that the 
Exchange will not be required to hold meetings of the Exchange 
members.\58\
---------------------------------------------------------------------------

    \57\ See Current Constitution, Sections 3.3.
    \58\ In contrast, the Current Constitution requires that an 
annual meeting of the holders of Exchange Rights be held for the 
purpose of electing Exchange Directors to fill expiring terms. See 
Current Constitution, Section 2.1. As noted above for the proposed 
process, the Exchange members may vote in the event of a Contested 
Election, through a balloting process without a formal meeting.
---------------------------------------------------------------------------

    Related to the proposed changes to the Exchange's nomination and 
election process described above, the Exchange also proposes to create 
a Member Nominating Committee, which would replace the current Exchange 
Director Nominating Committee in nominating candidates for director 
positions that meet the fair representation requirement. New Section 
6(b) of Bylaw Article III, which is copied from Section 6(b) of NSM 
Bylaw Article III, proposes that the Member Nominating Committee would 
nominate candidates for each Member Representative Director position on 
the Board, and would also nominate candidates for appointment by the 
Board for positions on any committees with positions reserved for 
Member Representative members. The Member Nominating Committee would 
consist of no fewer than three and no more than six members. All 
members of the Member Nominating Committee would be a current 
associated person of a current Exchange member. The Board would appoint 
such individuals after appropriate consultation with the Exchange 
members. Member Nominating Committee members would be appointed 
annually by the Board and may be removed by a majority vote of the 
Board.
    The Exchange believes that the proposed process for selecting 
Member Representative Directors, together with the requirement in the 
proposed LLC Agreement that the Board be comprised of at least 20% 
Member Representative Directors as discussed in the LLC Agreement 
section above, will continue to provide for a fair representation of 
its members on the Board. Similar to the nomination and election 
process currently in place, proposed Bylaw Article II includes a 
process by which members can directly petition and vote for 
representation on the Board. In addition, the proposed Member 
Nominating Committee would be composed solely of persons associated 
with Exchange members, similar to the current Exchange Director 
Nominating Committee, and is selected after consultation with 
representatives of Exchange members. The Commission has previously 
approved rule changes for substantially similar board nomination and 
election processes for the Nasdaq Exchanges.\59\
---------------------------------------------------------------------------

    \59\ See e.g. Securities Exchange Act Release No. 53128 (Jan. 
13, 2006), see note 18 above; Securities Exchange Act Release No. 
58324 (August 7, 2008), 73 FR 46936 (August 12, 2008) (SR-BSE-2008-
02, -23, -25, SR-BSECC-2001-01) (Order Approving a Proposal by BX to 
Amend and Restate its COI and its Constitution to Reflect its 
Acquisition by the NASDAQ OMX Group); and Securities Exchange Act 
Release No. 59794 (April 20, 2009), 74 FR 18761 (April 24, 2009) 
(SR-Phlx-2009-17) (Order Approving Proposed Rule Change Relating to 
the Nomination and Election of Candidates for Governor and 
Independent Governor).
---------------------------------------------------------------------------

Board Composition
    The Exchange is proposing to adopt Article III of the Bylaws, 
titled ``Board of Directors,'' which is based on NSM Bylaw Article III. 
Section 1 of Bylaw Article III proposes that if any Director position 
other than a Member Representative Director position becomes vacant, 
whether because of death, disability, disqualification, removal, or 
resignation, the Nominating Committee (discussed below) shall nominate, 
and the Sole LLC Member shall select, a person satisfying the 
classification (Industry, Non-Industry, or Public Director), if 
applicable, for the directorship to fill such vacancy.
    Section 2(a) of Bylaw Article III sets forth the proposed Board 
composition requirements and provides that a Director may not be 
subject to a statutory disqualification. The Exchange is proposing to 
replace the current Board qualification requirements with the ones set 
forth in the new Section 2(a), which mirrors the qualifications 
language in Section 2(a) of NSM Bylaw Article III. This proposed change 
to the current Board composition is in addition to the proposal 
discussed in the LLC Agreement section above to give the Sole LLC 
Member discretion to determine the size of the Board from time to 
time.\60\
---------------------------------------------------------------------------

    \60\ See proposed Section 9(a) of the LLC Agreement.
---------------------------------------------------------------------------

    Currently, the number of directors on the Board must be no less 
than fifteen and no more than sixteen,\61\ and includes: (i) Eight (8) 
directors who meet the qualifications of ``non-industry 
representatives'' set forth in the Current Constitution \62\ and 
elected by ISE

[[Page 20516]]

Holdings as the Sole LLC Member, at least two (2) of whom must meet the 
qualifications of ``Public Directors,'' \63\ (ii) one (1) director, who 
is the Chief Executive Officer of the Exchange (the ``CEO 
Director''),\64\ (iii) six (6) Exchange Directors, as described above, 
and (iv) one (1) Former Employee Director, who may be elected by the 
Sole LLC Member in its sole and absolute discretion.\65\
---------------------------------------------------------------------------

    \61\ See Current Constitution, Section 3.2(a). Currently, the 
Board is comprised of sixteen directors.
    \62\ See Current Constitution, Section 3.2(b). The term ``non-
industry representative'' means any person who would not be 
considered an ``industry representative,'' as well as (i) a person 
affiliated with a broker or dealer that operates solely to assist 
the securities-related activities of the business of non-member 
affiliates, or (ii) an employee of an entity that is affiliated with 
a broker or dealer that does not account for a material portion of 
the revenues of the consolidated entity, and who is primarily 
engaged in the business of the non-member entity. See Current 
Constitution, Section 13.1(w). The term ``industry representative'' 
means a person who is an officer, director or employee of a broker 
or dealer or who has been employed in any such capacity at any time 
within the prior three (3) years, as well as a person who has a 
consulting or employment relationship with or has provided 
professional services to the Exchange and a person who had any such 
relationship or provided any such services to the Exchange at any 
time within the prior three (3) years. See Current Constitution, 
Section 13.1(t).
    \63\ ``Public Director'' means is a non-industry representative 
who has no material relationship with a broker or dealer or any 
affiliate of a broker or dealer or the Exchange or any affiliate of 
the Exchange. See Current Constitution, Section 3.2(b) and Sections 
13.1(aa) and (bb).
    \64\ See Current Constitution, Section 3.2(b). The Chief 
Executive Officer of the Exchange is elected by the Board and will 
be nominated by the Board for a directorship by virtue of his or her 
office. See Current Constitution, Section 4.6(a). The Chief 
Executive Officer will only serve on the Board for so long as such 
person remains the Chief Executive Officer. See Current 
Constitution, Section 3.2(e).
    \65\ The Former Employee Director is a director who meets the 
requirements of a ``non-industry representative,'' except that such 
person was employed by the Exchange at any time during the three (3) 
year period prior to his or her initial election. The Exchange is 
not required under its Current Constitution to fill this director 
position. See Current Constitution, Section 3.2(b).
---------------------------------------------------------------------------

    The Exchange is proposing to replace the aforementioned Board 
composition with the board structure in place at the Nasdaq Exchanges. 
As is the case with the Nasdaq Exchanges, the proposed Board 
composition would be required to reflect a balance among ``Industry 
Directors,'' ``Member Representative Directors,'' and ``Non-Industry 
Directors,'' including ``Public Directors.'' \66\ The new Board 
structure would be as follows:
---------------------------------------------------------------------------

    \66\ See Section 2(a) of NSM Bylaw Article III, Section 3-2(a) 
of Phlx Bylaws and Section 4.3 of BX Bylaws.
---------------------------------------------------------------------------

     At least twenty percent (20%) of the directors on the 
Board would be ``Member Representative Directors;'' \67\
---------------------------------------------------------------------------

    \67\ See proposed LLC Agreement, Section 9(a). ``Member 
Representative Director'' will be defined as a Director who has been 
elected or appointed after having been nominated by the Member 
Nominating Committee or by an ISE Member. A Member Representative 
Director may, but is not required to be, an officer, director, 
employee, or agent of an Exchange member. See proposed Bylaws, 
Article I(r), which is based on NSM Bylaw Article I(q).
---------------------------------------------------------------------------

     The number of ``Non-Industry Directors'' \68\ would equal 
or exceed the sum of the number of ``Industry Directors'' \69\ and 
``Member Representative Directors'' \70\
---------------------------------------------------------------------------

    \68\ ``Non-Industry Director'' will be defined as a Director 
(excluding Staff Directors) who is (i) a Public Director; (ii) an 
officer, director, or employee of an issuer of securities listed on 
the Exchange; or (iii) any other individual who would not be an 
Industry Director. See proposed Bylaws, Article I(w), which is based 
on NSM Bylaw Article I(v).
    \69\ An ``Industry Director'' will be a person with direct ties 
to the securities industry as a result of connections to a broker-
dealer, the Exchange or its affiliates, FINRA, or certain service 
providers to such entities. Specifically, an ``Industry Director'' 
will be defined as a Director (excluding Staff Directors), who (i) 
is or has served in the prior three years as an officer, director, 
or employee of a broker or dealer, excluding an outside director or 
a director not engaged in the day-to-day management of a broker or 
dealer; (ii) is an officer, director (excluding an outside 
director), or employee of an entity that owns more than ten percent 
of the equity of a broker or dealer, and the broker or dealer 
accounts for more than five percent of the gross revenues received 
by the consolidated entity; (iii) owns more than five percent of the 
equity securities of any broker or dealer, whose investments in 
brokers or dealers exceed ten percent of his or her net worth, or 
whose ownership interest otherwise permits him or her to be engaged 
in the day-to-day management of a broker or dealer; (iv) provides 
professional services to brokers or dealers, and such services 
constitute 20 percent or more of the professional revenues received 
by the Director or 20 percent or more of the gross revenues received 
by the Director's firm or partnership; (v) provides professional 
services to a director, officer, or employee of a broker, dealer, or 
corporation that owns 50 percent or more of the voting stock of a 
broker or dealer, and such services relate to the director's, 
officer's, or employee's professional capacity and constitute 20 
percent or more of the professional revenues received by the 
Director or member or 20 percent or more of the gross revenues 
received by the Director's or member's firm or partnership; or (vi) 
has a consulting or employment relationship with or provides 
professional services to the Exchange or any affiliate thereof or to 
FINRA (or any predecessor) or has had any such relationship or 
provided any such services at any time within the prior three years. 
See proposed Bylaws Article I(m), which is based on NSM Bylaw 
Article I(l).
    \70\ See proposed Section 2(a) of Bylaw Article III.
---------------------------------------------------------------------------

     The Board would include at least one ``Public Director'' 
\71\ and at least one issuer representative (or if the Board consists 
of ten or more Directors, at least two issuer representatives);
---------------------------------------------------------------------------

    \71\ Id. ``Public Director'' will be defined as a Director who 
has no material business relationship with a broker or dealer, the 
Exchange or its affiliates, or FINRA. See proposed Bylaw Article 
I(z), which is based on NSM Bylaw Article I(y).
---------------------------------------------------------------------------

     Up to two officers of the Exchange (``Staff Directors'') 
may be elected to the Board.\72\
---------------------------------------------------------------------------

    \72\ See proposed Bylaw Article I(m). Staff Directors will not 
be considered as either Industry or Non-Industry Directors.
---------------------------------------------------------------------------

    Under proposed Section 2(b), which mirrors Section 2(b) of NSM 
Bylaw Article III, a Director would be disqualified and removed 
immediately upon a determination by the Board, by a majority vote of 
the remaining Directors, (a) that the Director no longer satisfies the 
classification for which the Director was elected; and (b) that the 
Director's continued service as such would violate the compositional 
requirements of the Board set forth in proposed Section 2(a). Thus, for 
example, if a Public Director became employed by a broker-dealer and 
the Board thereby had an inadequate number of Public Directors, the 
Director would be disqualified and removed. If a Director is 
disqualified and removed, and the remaining term of office of such 
Director at the time of termination is not more than 6 months, a 
replacement for the Director is not required until the next annual 
meeting. Analogous disqualification provisions exist for committee 
members.\73\
---------------------------------------------------------------------------

    \73\ See proposed Section 4(b) of Bylaw Article III, which 
mirrors the language in Section 4(b) of NSM Bylaw Article III.
---------------------------------------------------------------------------

    Upon the Acquisition, there were a number of harmonizing changes to 
the Board so that the directors on the boards of the Nasdaq Exchanges 
also currently serve as directors on the Exchange Board.\74\ As a 
result, there is a complete overlap of directors on the boards of the 
Exchange, NSM, Phlx and BX. Specifically, there are eight (8) directors 
meeting the qualifications of ``non-industry representatives'' under 
the Current Constitution and ``Non-Industry Directors'' under each of 
the Nasdaq Exchanges' Bylaws.\75\ Furthermore, two of these directors 
also meet the compositional requirements of ``Public Directors'' under 
the Current Constitution and under the Bylaws of each Nasdaq 
Exchange.\76\ The Chief Executive Officer appointed upon the 
Acquisition by the Sole LLC Member became a Board member by virtue of 
his office under the current Constitution, and also meets the 
qualifications of ``Staff Director'' under each of the Nasdaq Exchange 
Bylaws. Five of the six Exchange Directors serving on the

[[Page 20517]]

Board immediately prior to the Acquisition remained on the Board post-
Acquisition. One Exchange Director was appointed by the Exchange 
Director Nominating Committee and elected to the Board upon the 
Acquisition due to his predecessor being term limited out under the 
Current Constitution. The six Exchange Directors also serve as ``Member 
Representative Directors'' on the Nasdaq Exchange boards, therefore 
satisfying the 20% Member Representative Director requirement under 
their Bylaws. Finally, one additional director was appointed to the 
``Former Employee Director'' seat of the Board by the Sole LLC Member, 
meeting the qualifications for such directorship and also meeting the 
qualifications of ``Staff Director'' under each of the Nasdaq Exchange 
Bylaws. As such, the Exchange believes that the current Board also 
satisfies the composition requirements contained in the proposed 
Bylaws.
---------------------------------------------------------------------------

    \74\ These changes consisted of the resignations of all 
directors, other than the Exchange Directors, sitting on the Board 
immediately prior to the consummation of the Acquisition, and the 
appointments of Nasdaq designees to fill these vacancies on the 
Board. The changes were effected through a series of unanimous 
written consents by the Board, as well as unanimous written consents 
by the Exchange Director Nominating Committee and the Corporate 
Governance Committee. The Exchange represents that these changes 
were effected in accordance with the Current Governing Documents.
    \75\ These eight directors also sat on the three Nasdaq Exchange 
boards immediately prior to the Acquisition.
    \76\ In addition, the current Board also satisfies the 
requirement under the Nasdaq Exchange Bylaws that the board be 
composed of at least one Public Director and at least one (or two, 
if the board consists of ten or more directors) issuer 
representatives.
---------------------------------------------------------------------------

    The terms of the current directors will end at the 2017 annual 
election of the Board, to be held on same date as the 2017 annual 
elections of the Nasdaq Exchange boards (currently expected to be held 
on June 19, 2017). As described in the following, the Exchange will 
hold its 2017 annual meeting to elect the Board (the ``2017 Board'') in 
accordance with the nomination, petition and voting processes set forth 
in the Current Governing Documents. Once the New Governing Documents 
become operative, no additional actions will be required under the LLC 
Act with respect to the 2017 Board. It is currently contemplated that 
the 2017 Board will consist of the existing directors serving on the 
current Board to the greatest extent possible and, similar to the 
current Board as described above, the Exchange fully expects that the 
2017 Board will satisfy both board composition requirements in the 
Current Governing Documents as well as in the New Governing 
Documents.\77\ Even though the 2017 Board will not have been nominated 
or voted upon in accordance with New Governing Documents, the Exchange 
believes that the 2017 Board will be consistent with the Act in that it 
will continue to provide for the fair representation of members and 
have one or more directors that would be representative of issuers and 
investors and not be associated with a member of the exchange, broker, 
or dealer. First, six Exchange Directors, who will be officers, 
directors or partners of Exchange members as required by Section 3.2(b) 
of the Current Constitution, will be nominated by the Exchange Director 
Nominating Committee and elected to the 2017 Board by a plurality of 
the holders of the Exchange Rights. These Exchange Directors will be 
subject to the full petition and voting process by membership in 
accordance with Articles II and III of the Current Constitution, which 
process the Commission has already found as satisfying the principles 
of fair representation as required by Section 6(b) of the Act.\78\ 
Furthermore as noted above, the Exchange believes that the Exchange 
Directors serve the same function as the Member Representative 
Directors under the proposed board structure in that both directorships 
give Exchange members a voice in the Exchange's use of self-regulatory 
authority. The Exchange notes that only the corporate governance 
structure is changing under the Proposed Rule Change, and the Exchange 
currently expects that its membership will remain substantially the 
same both before and after the 2017 annual election.
---------------------------------------------------------------------------

    \77\ See Current Constitution, Section 3.2; proposed LLC 
Agreement, Section 9(a); and proposed Bylaw Article III, Section 
2(a).
    \78\ See Securities Exchange Act Release No. 42455 (February 24, 
2000), 65 FR 11401 (March 2, 2000) (Order Granting Registration as a 
National Securities Exchange).
---------------------------------------------------------------------------

    Second, eight directors who meet the requirements of non-industry 
representatives under the Current Constitution as well as Non-Industry 
Directors under the proposed Bylaws will be nominated by the existing 
Corporate Governance Committee and elected by the Sole LLC Member to 
the 2017 Board. The Exchange will also ensure that at least three of 
these directors will be Public Directors or issuer representatives, 
consistent with the composition requirements under the Current 
Constitution and proposed Bylaws. As such, the 2017 Board will reflect 
a balance among the six Exchange Directors (i.e., Member Representative 
Directors) and the eight non-industry representative directors (i.e., 
Non-Industry Directors, including Public Directors or issuer 
representatives). The Exchange's Chief Executive Officer will also be 
elected to the 2017 Board by the Sole LLC Member, thereby satisfying 
the composition requirements of CEO Director and Staff Director under 
the Current Constitution and proposed Bylaws.
    For the annual elections starting in 2018 and subject to approval 
by the Commission, the Exchange will hold its annual elections in 
accordance with the processes contemplated in the New Governing 
Documents and as such, the 2017 Board will serve until the 2018 annual 
election. Specifically upon the Merger, the 2017 Board will appoint a 
Nominating Committee (as discussed in detail below) and a Member 
Nominating Committee, and such committees would nominate candidates for 
the 2018 annual election pursuant to the procedures set forth in 
proposed Bylaw Article I (for Member Representative Directors) and in 
proposed Section 9(a) of the LLC Agreement and proposed Bylaw Article 
III (for all other Directors).
    Section 3 of Bylaw Article III, which is copied from Section 3 of 
NSM Bylaw Article III, contains standard provisions for a Delaware 
limited liability company governing the appropriateness of reliance by 
Directors upon the records of the Exchange. Section 3 also recognizes 
the Exchange's status as an SRO by providing that the Board, when 
evaluating any proposal, shall, to the fullest extent permitted by 
applicable law, take into account all factors that the Board deems 
relevant, including, without limitation, to the extent deemed relevant, 
(i) the potential impact thereof on the integrity, continuity and 
stability of the national securities exchange operated by the Exchange 
and the other operations of the Exchange, on the ability to prevent 
fraudulent and manipulative acts and practices and on investors and the 
public, and (ii) whether such would promote just and equitable 
principles of trade, foster cooperation and coordination with persons 
engaged in regulating, clearing, settling, processing information with 
respect to and facilitating transactions in securities or assist in the 
removal of impediments to or perfection of the mechanisms for a free 
and open market and a national market system. Taken together, these 
provisions are designed to reinforce the notion that the Exchange is 
not solely a commercial enterprise but rather an SRO registered 
pursuant to the Act and subject to the obligations imposed by the Act.
Standing Committees
    The proposed new Sections 4, 5 and 6 of Bylaw Article III, which is 
based on Sections 4, 5 and 6 of the NSM Bylaw Article III, would 
include provisions governing the composition and authority of various 
standing committees established by the Board. Proposed new Section 4 of 
Bylaw Article III would require prospective committee members, who are 
not Directors, to provide the Secretary of the Exchange with certain 
information to classify a committee member as an

[[Page 20518]]

Industry member,\79\ a Member Representative member,\80\ a Non-Industry 
member,\81\ or a Public member.\82\ Analogous new provisions are also 
proposed for prospective Directors.\83\
---------------------------------------------------------------------------

    \79\ ``Industry member'' will be defined as a member of any 
committee appointed by the Board who (i) is or has served in the 
prior three years as an officer, director, or employee of a broker 
or dealer, excluding an outside director or a director not engaged 
in the day-to-day management of a broker or dealer; (ii) is an 
officer, director (excluding an outside director), or employee of an 
entity that owns more than ten percent of the equity of a broker or 
dealer, and the broker or dealer accounts for more than five percent 
of the gross revenues received by the consolidated entity; (iii) 
owns more than five percent of the equity securities of any broker 
or dealer, whose investments in brokers or dealers exceed ten 
percent of his or her net worth, or whose ownership interest 
otherwise permits him or her to be engaged in the day-to-day 
management of a broker or dealer; (iv) provides professional 
services to brokers or dealers, and such services constitute 20 
percent or more of the professional revenues received by the 
committee member or 20 percent or more of the gross revenues 
received by the committee member's firm or partnership; (v) provides 
professional services to a director, officer, or employee of a 
broker, dealer, or corporation that owns 50 percent or more of the 
voting stock of a broker or dealer, and such services relate to the 
director's, officer's, or employee's professional capacity and 
constitute 20 percent or more of the professional revenues received 
by the committee member or 20 percent or more of the gross revenues 
received by the committee member's firm or partnership; or (vi) has 
a consulting or employment relationship with or provides 
professional services to the Exchange or any affiliate thereof or to 
FINRA (or any predecessor) or has had any such relationship or 
provided any such services at any time within the prior three years. 
See proposed Bylaw Article I(n), which is based on NSM Bylaw Article 
I(m).
    \80\ ``Member Representative member'' will be defined as a 
member of any committee appointed by the Board who has been elected 
or appointed after having been nominated by the Member Nominating 
Committee pursuant to the Bylaws. See proposed Bylaw Article I(s), 
which is based on NSM Bylaw Article I(r).
    \81\ ``Non-Industry member'' will be defined as a member of any 
committee appointed by the Board who is (i) a Public member; (ii) an 
officer or employee of an issuer of securities listed on the 
national securities exchange operated by the Exchange; or (iii) any 
other individual who would not be an Industry member. See proposed 
Bylaw Article I(x), which is based on NSM Bylaw Article I(w).
    \82\ ``Public member'' will be defined as a member of any 
committee appointed by the Board who has no material business 
relationship with a broker or dealer, the Exchange or its 
affiliates, or FINRA. See proposed Bylaw Article I(aa), which is 
based on NSM Bylaw Article I(z).
    \83\ See proposed Section 6(b)(v) of Bylaw Article III, which is 
based on Section 6(b)(v) of NSM Bylaw Article III.
---------------------------------------------------------------------------

    Sections 5 and 6 of proposed Bylaw Article III, titled ``Committees 
Composed Solely of Directors'' and ``Committees Not Composed Solely of 
Directors,'' establishes several standing committees and delineates 
their general duties and responsibilities. The proposed committee 
structure is modeled substantially on the committee structures of the 
Nasdaq Exchanges, and are copied to the extent such committees are 
relevant to the Exchange.\84\
---------------------------------------------------------------------------

    \84\ For example, the Exchange does not propose to establish an 
Exchange Listing and Hearing Review Council because the Exchange 
does not offer any original listings. Similarly, the Exchange does 
not propose to establish an Arbitration and Mediation Committee as 
the Exchange's arbitration and mediation program is operated by the 
Financial Industry Regulatory Authority (``FINRA'') in accordance 
with the FINRA rules pursuant to a regulatory services agreement 
dated June 10, 2013, as amended (``RSA''). Under the RSA, FINRA 
provides a comprehensive dispute resolution program for Exchange 
members.
---------------------------------------------------------------------------

    Currently, the standing Board committees of the Exchange are: An 
Executive Committee, a Corporate Governance Committee, a Finance and 
Audit Committee, a Compensation Committee, and such other additional 
committees as may be established by Board resolution.\85\ As discussed 
above, the Exchange also has an Exchange Director Nominating Committee, 
which is a committee of the Exchange and not the Board. All committee 
appointments are made by the Board, and each appointee serves for one 
year or until his or her successor is duly appointed.
---------------------------------------------------------------------------

    \85\ See Current Constitution, Article V.
---------------------------------------------------------------------------

Proposed Committees Composed Solely of Directors
    New Section 5 of Bylaw Article III, which copies the language in 
Section 5 of NSM Bylaw Article III, provides for an Executive 
Committee, a Finance Committee, and a Regulatory Oversight Committee.
Creation of an Executive Committee
    The Exchange proposes to adopt new Section 5(a), which provides 
that the Board may appoint an Executive Committee and delineates its 
composition and functions. In particular, the proposed Executive 
Committee may exercise all the powers and authority of the Board in the 
management of the business and affairs of the Exchange between meetings 
of the Board. The number of Non-Industry Directors on the Executive 
Committee must equal or exceed the number of Industry Directors on the 
Executive Committee. The percentage of Public Directors on the 
Executive Committee must be at least as great as the percentage of 
Public Directors on the whole Board, and the percentage of Member 
Representative Directors on the Executive Committee must be at least as 
great as the percentage of Member Representative Directors on the whole 
Board. Currently, the Executive Committee is a permanent standing 
committee of the Board.\86\ Under the new Section 5(a), the Executive 
Committee would be an optional committee, to be appointed only if 
deemed necessary by the Board. The Exchange's proposal is similar to 
all three Nasdaq Exchanges where the Exchange Committee is optional, at 
the discretion of the Board.\87\
---------------------------------------------------------------------------

    \86\ The Executive Committee (consisting of six directors, and 
with the number of non-industry representatives equaling or 
exceeding the number of Exchange Directors) on behalf of the Board 
and subject to its control, has all of the powers of the Board 
except the power to approve any merger, consolidation, sale or 
dissolution of the Exchange. See Current Constitution, Section 5.2.
    \87\ See Section 5(a) of NSM Bylaw Article III, Section 4.13(a) 
of the BX Bylaws and Section 5-2(a) of the Phlx Bylaws.
---------------------------------------------------------------------------

Elimination of the Current Finance and Audit Committee
    The Exchange also proposes to adopt new Section 5(b), which 
provides that the Board may appoint a Finance Committee and delineates 
its composition and functions. In particular, the Finance Committee 
will advise the Board with respect to the oversight of the financial 
operations and conditions of the Exchange, including recommendations 
for the Exchange's annual operating and capital budgets and proposed 
changes to the rates and fees charged by the Exchange. By adopting new 
Section 5, the Exchange is proposing to eliminate the current Finance 
and Audit Committee, and have all of its duties and functions performed 
at the Board level, assigned to other proposed Board committees or to 
the HoldCo audit committee (the ``HoldCo Audit Committee'').\88\
---------------------------------------------------------------------------

    \88\ See Article IV, Section 4.13(g) of the HoldCo By-Laws. See 
also the HoldCo Audit Committee Charter (available at https://ir.nasdaq.com/corporate-governance-document.cfm?DocumentID=195).
---------------------------------------------------------------------------

    Pursuant to its current charter, the Finance and Audit Committee 
\89\ is primarily charged with: (i) Oversight of financial operations 
of the Exchange; (ii) oversight of the Exchange's financial reporting 
process; (iii) oversight of the systems of internal controls 
established by management and the Board, and for monitoring compliance 
with laws and regulations; (iv) evaluation of independent external 
auditors; and (v) direction and oversight of the internal audit 
function. Under the new Section 5(b), the Board would retain oversight 
of the financial operations of the Exchange instead of delegating these 
functions to

[[Page 20519]]

standing committee, and would have to option to appoint a Finance 
Committee at the Board's discretion. The Exchange's proposal is similar 
to all three Nasdaq Exchanges where the Finance Committee is optional, 
at the discretion of the Board.\90\
---------------------------------------------------------------------------

    \89\ The current Finance and Audit Committee must be composed of 
at least three (3) and not more than five (5) directors, all of whom 
must be non-industry representatives. See Current Constitution, 
Section 5.5. In addition, committee members must be ``financially 
literate'' as determined by the Board.
    \90\ See Section 5(b) of NSM Bylaw Article III, Section 4.13(b) 
of the BX Bylaws and Section 5-2(b) of the Phlx Bylaws.
---------------------------------------------------------------------------

    Furthermore, the HoldCo Audit Committee also covers the functions 
of the current Finance and Audit Committee. The HoldCo Audit Committee 
is composed of at least three directors, all of whom must satisfy the 
standards for independence set forth in Section 10A(m) of the Act \91\ 
and Rule 5605 of NSM's listing rules. All committee members must be 
able to read and understand financial statements, and at least one 
member must have past employment experience in finance or accounting, 
requisite professional certification in accounting or any other 
comparable experience or background that results in the individual's 
financial sophistication.
---------------------------------------------------------------------------

    \91\ See U.S.C. 78j-1(m).
---------------------------------------------------------------------------

    The HoldCo Audit Committee has broad authority to review the 
financial information that will be provided to shareholders of HoldCo 
and others, systems of internal controls, and audit, financial 
reporting and legal and compliance processes. Because HoldCo's 
financial statements are prepared on a consolidated basis that includes 
the financial results of HoldCo's subsidiaries, including the Exchange 
and the other Nasdaq Exchange subsidiaries, HoldCo's audit committee 
purview necessarily includes these subsidiaries. The Exchange notes 
that unconsolidated financial statements of the Exchange will still be 
prepared for each fiscal year in accordance with the requirements set 
forth in its application for registration as a national securities 
exchange.\92\ To the extent the current Finance and Audit Committee 
oversees the Exchange's financial reporting process, its activities are 
duplicative of the activities of the HoldCo Audit Committee, which is 
also charged with providing oversight over financial reporting and 
independent auditor selection for HoldCo and all of its subsidiaries, 
including the Exchange and the other Nasdaq Exchange subsidiaries. 
Similarly, the HoldCo Audit Committee has general responsibility for 
oversight over internal controls, and direction and oversight over the 
internal audit function for HoldCo and all of its subsidiaries. Thus, 
the responsibilities of the Exchange's Finance and Audit Committee as 
it relates to the functions set forth in clauses (ii)-(v) above are 
fully duplicated by the responsibilities of the HoldCo Audit Committee. 
Accordingly, the Exchange is proposing to allow the elimination of its 
Finance and Audit Committee. The Commission has previously approved 
similar proposals by the Nasdaq Exchanges to eliminate their respective 
audit committees.\93\
---------------------------------------------------------------------------

    \92\ See note 27 above.
    \93\ See Securities Exchange Act Release No. 60276 (July 9, 
2009), 74 FR 34840 (July 17, 2009) (SR-NASDAQ-2009-042); Securities 
Exchange Act Release No. 60247 (July 6, 2009), 74 FR 33495 (July 13, 
2009) (SR-BX-2009-021); and Securities Exchange Act Release No. 
60687 (September 18, 2009), 74 FR 49060 (September 25, 2009) (SR-
Phlx-2009-59).
---------------------------------------------------------------------------

Creation of a Regulatory Oversight Committee
    The Exchange believes, however, that even in light of the HoldCo 
Audit Committee's overall responsibilities for internal controls and 
the internal audit function, it is nevertheless important for the Board 
to maintain its own independent oversight over the Exchange's controls 
and internal audit matters relating to the Exchange's operations. 
Therefore, the Exchange is proposing to create a Regulatory Oversight 
Committee (``ROC'') so that regulatory oversight functions formerly 
performed by the Finance and Audit Committee may be assumed by the new 
committee.\94\ Like the ROCs of the Nasdaq Exchanges, the new committee 
will have broad authority to oversee the adequacy and effectiveness of 
the Exchange's regulatory and self-regulatory organization 
responsibilities, and will therefore be able to maintain oversight over 
controls in tandem with the HoldCo Audit Committee's overall oversight 
responsibilities.
---------------------------------------------------------------------------

    \94\ See proposed Section 5(c) of Bylaw Article III. The Nasdaq 
Exchanges also have Regulatory Oversight Committees, which have the 
same authority in all material respects to the proposed ROC. See 
Section 5(c) of NSM Bylaw Article III, Section 4.13(c) of the BX 
Bylaws and Section 5-2(c) of the Phlx Bylaws.
---------------------------------------------------------------------------

    Similarly, it is already a formal practice of HoldCo's Internal 
Audit Department, which performs internal audit functions for all 
HoldCo subsidiaries, to report to the Nasdaq Exchange boards on all 
Nasdaq Exchange-related internal audit matters and to direct such 
reports to the ROCs of the Nasdaq Exchanges.\95\ The Exchange proposes 
that the HoldCo Internal Audit Department would also similarly report 
to the Exchange Board and direct such reports to the new ROC. In 
addition, to ensure that the Exchange Board retains authority to direct 
the Department's activities with respect to the Exchange, the 
Department's written procedures will to stipulate that the Exchange's 
ROC may, at any time, direct the Department to conduct an audit of a 
matter of concern to it and report the results of the audit both to the 
Exchange ROC and the HoldCo Audit Committee. The Internal Audit 
Department is currently required to conduct such audits upon the 
request of the Nasdaq Exchange ROCs.
---------------------------------------------------------------------------

    \95\ See the Regulatory Oversight Committee Charter of NSM, Phlx 
and BX (available at https://ir.nasdaq.com/corporate-governance-document.cfm?DocumentID=1097).
---------------------------------------------------------------------------

    To effectuate this change, the Exchange proposes to adopt the new 
Section 5(c) providing for a ROC and delineating its composition and 
functions. In particular, the proposed ROC's responsibilities will be 
to: (i) Oversee the adequacy and effectiveness of the Exchange's 
regulatory and self-regulatory organization responsibilities; (ii) 
assess the Exchange's regulatory performance; and (iii) assist the 
Board and other committees of the Board in reviewing the regulatory 
plan and the overall effectiveness of the Exchange's regulatory 
functions. In furtherance of its functions, the ROC shall: (A) Review 
the Exchange's regulatory budget and specifically inquire into the 
adequacy of resources available in the budget for regulatory 
activities; (B) meet regularly with the Exchange's Chief Regulatory 
Officer in executive session; and (C) be informed about the 
compensation and promotion or termination of the Chief Regulatory 
Officer and the reasons therefor. The Exchange proposes that the ROC 
shall consist of three members, each of whom shall be a Public Director 
and an ``independent director'' as defined in Rule 5605 of the Rules of 
The NASDAQ Stock Market, LLC.
    Given the expansive regulatory and internal oversight of the 
proposed ROC and HoldCo Audit Committee, coupled with the oversight and 
responsibilities of the full Board and HoldCo's Internal Audit 
Department, the Exchange believes that all of the duties and functions 
of the eliminated Finance and Audit Committee would continue to be 
performed in the new governance structure as proposed herein.
Elimination of the Current Compensation Committee
    By adopting the new Board committees in Section 5, the Exchange 
also proposes to eliminate its current Compensation Committee, and to 
prescribe that its duties be performed by the HoldCo management 
compensation committee or the full Board when required. The 
Compensation

[[Page 20520]]

Committee \96\ is primarily charged with reviewing and approving 
compensation policies and plans for the Chief Executive Officer and 
other senior executive officers of the Exchange. Under the Nasdaq 
governance structure, this function is performed by the HoldCo 
management compensation committee or the full boards of the Nasdaq 
Exchanges. The HoldCo By-Laws provide that its management compensation 
committee (a committee consisting of at least two HoldCo board members 
meeting the independence and other eligibility standards in the listing 
rules of NSM) considers and recommends compensation policies, programs, 
and practices for employees of HoldCo. Because many employees 
performing work for the Exchange are also employees of HoldCo, its 
compensation committee already performs these functions for such 
employees. Moreover, certain of its senior officers are also officers 
of HoldCo and other HoldCo subsidiaries because their responsibilities 
relate to multiple entities within the HoldCo corporate structure. 
Accordingly, HoldCo pays these individuals and establishes compensation 
policy for them. Most notably, the current Chief Executive Officer of 
the Exchange is also an ``executive officer'' of HoldCo within the 
meaning of NSM Rule 5605. Under that rule, the compensation of 
executive officers of an issuer of securities, such as the common stock 
of HoldCo, that is listed on NSM, must be determined by, or recommended 
to the board of directors for determination by, a majority of 
independent directors or a compensation committee comprised solely of 
independent directors. Accordingly, the HoldCo board of directors and/
or its compensation committee is legally required to establish the 
compensation for this individual.
---------------------------------------------------------------------------

    \96\ The committee must be composed of at least three and not 
more than five directors who must all meet the ``Non-Industry 
Director'' qualifications under the Current Constitution. See 
Current Constitution, Section 5.4.
---------------------------------------------------------------------------

    To the extent that policies, programs, and practices must also be 
established for any Exchange officers or employees who are not also 
HoldCo officers or employees, the Board would perform such actions 
without the use of a compensation committee (but subject to the recusal 
of the Staff Directors).\97\ Finally, it should be noted that under the 
new Section 5(c) of Bylaw Article III, the ROC of the Board would be 
informed about the compensation and promotion or termination of the 
Exchange's Chief Regulatory Officer and the reasons therefor, to allow 
the ROC to provide oversight over decisions affecting this key officer. 
Therefore, the Exchange believes that the duties and functions of the 
eliminated Compensation Committee would continue to be performed and 
covered in the new corporate governance structure proposed by the New 
Governing Documents. The Commission has previously approved proposals 
by the Nasdaq Exchanges to eliminate their respective compensation 
committees.\98\
---------------------------------------------------------------------------

    \97\ As discussed in the proposed Board composition section 
above, ``Staff Directors'' would be Exchange directors that are also 
serving as officers. Since the Board would not be responsible for 
setting the compensation of any Staff Directors who are also 
officers of HoldCo, they would be permitted to participate in 
discussions concerning compensation of Exchange employees, but would 
recuse themselves from a vote on the subject to allow the 
determination to be made by directors that are not officers or 
employees of the Exchange. If a Staff Director was an officer or 
employee of the Exchange but not of HoldCo, that Staff Director 
would also absent himself or herself from any deliberations 
regarding his or her compensation.
    \98\ See note 93 above.
---------------------------------------------------------------------------

Elimination of the Current Corporate Governance Committee
    Finally, the Exchange also proposes to eliminate the current 
Corporate Governance Committee, and to prescribe that its duties be 
performed by the new Nominating Committee (as discussed below), the new 
ROC or by the full Board when required. The Corporate Governance 
Committee \99\ is primarily charged with: (i) Nominating candidates for 
all vacant or new non-industry representative positions on the Board, 
(ii) overseeing the Exchange's regulatory activities and program, and 
(iii) overseeing and evaluating the governance of the Exchange. As 
discussed below, the Exchange is proposing to establish a new 
Nominating Committee that would nominate candidates for all vacant or 
new non-Member Representative Director positions on the Board, and 
therefore would perform the Non-Industry Director nominating functions 
of the current Corporate Governance Committee.\100\ Furthermore, the 
new ROC would have carry out the regulatory oversight tasks currently 
within purview of the Corporate Governance Committee. In particular, 
the new ROC would (i) oversee the adequacy and effectiveness of the 
Exchange's regulatory and self-regulatory organization 
responsibilities; (ii) assess the Exchange's regulatory performance; 
and (iii) assist the Board and other committees of the Board in 
reviewing the regulatory plan and the overall effectiveness of the 
Exchange's regulatory functions. Its duties would include reviewing the 
Exchange's regulatory budget and inquiring into the adequacy of 
resources available in the budget for regulatory activities; meeting 
regularly with the Exchange's Chief Regulatory Officer in executive 
session; and having oversight over compensation, hiring and termination 
decisions affecting this key officer as discussed above.
---------------------------------------------------------------------------

    \99\ The committee must consist of at least three directors, all 
of whom are required to meet the ``Non-Industry Director'' standards 
under the Current Constitution. See Current Constitution, Section 
5.4.
    \100\ See proposed Section 6(b) of Bylaw Article III.
---------------------------------------------------------------------------

    As it relates to the general supervision over the corporate 
governance of the Exchange, the full Board would perform such functions 
without the use of a corporate governance committee, similar to the 
boards of the Nasdaq Exchanges.\101\ In particular, the full Board, led 
by the Chair of the Board,\102\ would perform annual self-assessments, 
oversee annual formal director and Chair evaluations, and periodically 
review the allocations of powers between management and the Board. 
Therefore, the Exchange believes that the duties and functions of the 
eliminated Corporate Governance Committee would continue to be 
performed and covered in the new corporate governance structure 
proposed by the New Governing Documents.
---------------------------------------------------------------------------

    \101\ See the Corporate Governance Guidelines of NSM, Phlx and 
BX (available at https://ir.nasdaq.com/corporate-governance-document.cfm?DocumentID=6027).
    \102\ The Board Chair will be an ``independent director'' (i.e., 
person other than an officer or employee of HoldCo or its 
subsidiaries, including the Exchange) as provided under the listing 
rules of NSM and SEC requirements.
---------------------------------------------------------------------------

Proposed Committees Not Composed Solely of Directors
    In addition to the proposed Board committees discussed above, new 
Section 6 of Bylaw Article III provides for the appointment by the 
Board of certain standing committees, not composed solely of Directors, 
to administer various provisions of the rules that the Exchange expects 
to propose with respect to governance, options trading and member 
discipline. By adopting Section 6, the Exchange proposes to eliminate 
certain standing committees and have their relevant functions performed 
by the new committees, each as described below.
Creation of a Member Nominating Committee
    The new Member Nominating Committee, responsible for the nomination 
of Member Representative

[[Page 20521]]

Directors or Member Representative members, would replace the Exchange 
Director Nominating Committee. The composition requirements of the 
Member Nominating Committee are discussed in the Nomination and 
Election Process section above.
Creation of a Nominating Committee
    The new Nominating Committee will nominate candidates for all other 
vacant or new Director positions on the Board, and therefore, would 
perform the non-industry representative nomination function currently 
assigned to the Corporate Governance Committee. The Nominating 
Committee will consist of no fewer than six and no more than nine 
members, and the number of Non-Industry members (i.e., committee 
members not associated with broker-dealers) shall equal or exceed the 
number of Industry members on the Nominating Committee. If the 
Nominating Committee consists of six members, at least two shall be 
Public members. If the Nominating Committee consists of seven or more 
members, at least three shall be Public members. No officer or employee 
of the Exchange shall serve as a member of the Nominating Committee in 
any voting or non-voting capacity. No more than three of the Nominating 
Committee members and no more than two of the Industry members shall be 
current Directors. A Nominating Committee member may not simultaneously 
serve on the Nominating Committee and the Board, unless such member is 
in his or her final year of service on the Board, and following that 
year, that member may not stand for election to the Board until such 
time as he or she is no longer a member of the Nominating Committee. 
Nominating Committee members will be appointed annually by the Board 
and may be removed by a majority vote of the Board.\103\
---------------------------------------------------------------------------

    \103\ See Section 6(b) of NSM Bylaw Article III, Section 4.14(b) 
of the BX Bylaws and Section 5-3(a) of the Phlx Bylaws for similar 
provisions related to the Nominating Committee.
---------------------------------------------------------------------------

Creation of a Quality of Markets Committee
    The new Quality of Markets Committee (the ``QMC''), which is 
modeled off of the QMCs of the Nasdaq Exchanges,\104\ will have the 
following functions: (i) To provide advice and guidance to the Board on 
issues relating to the fairness, integrity, efficiency, and 
competitiveness of the information, order handling, and execution 
mechanisms of the Exchange from the perspective of investors, both 
individual and institutional, retail firms, market making firms and 
other market participants; and (ii) to advise the Board with respect to 
national market system plans and linkages between the facilities of the 
Exchange and other markets. The QMC shall include broad representation 
of participants in the Exchange, including investors, market makers, 
retail firms, and order entry firms. The QMC shall include a number of 
Member Representative members that is equal to at least 20% of the 
total number of members of the QMC. The number of Non-Industry members 
on the proposed QMC shall equal or exceed the sum of the number of 
Industry members and Member Representative members. A quorum of the QMC 
will consist of a majority of its members, including not less than 50% 
of its Non-Industry members, unless this requirement is waived pursuant 
to proposed Section 6(c)(iii) of Bylaw Article III.
---------------------------------------------------------------------------

    \104\ See Section 6(c) of NSM Bylaw Article III, Section 4.14(c) 
of the BX Bylaws and Section 5-3(c) of the Phlx Bylaws.
---------------------------------------------------------------------------

Other Proposed Bylaw Provisions
    Proposed Section 7 of Bylaw Article III contains standard 
provisions for a Delaware limited liability company requiring recusal 
by Directors or committee members subject to a conflict of interest, 
and providing for the enforceability of contracts in which a Director 
has an interest if appropriately approved or ratified by disinterested 
Directors. This language is based on Section 7 of NSM Bylaw Article 
III. Proposed Section 8 of Bylaw Article III allows for reasonable 
compensation of the Board and committee members, and mirrors Section 8 
of NSM Bylaw Article III.
    Bylaw Article IV, titled ``Officers, Agents, and Employees,'' 
contains provisions governing the Exchange's officers, agents and 
employees, and is based on Article IV of the NSM Bylaws. Proposed 
Section 1 of Bylaw Article IV provides that the Board may delegate the 
duties and powers of any officer of the Exchange to any other officer 
or to any Director for a specified period of time and for any reason 
that the Board may deem sufficient. Proposed Section 2 discusses how an 
officer of the Exchange may resign or may be removed. Proposed Sections 
3 through 11 each specifically provides for the appointment of a Chair 
of the Board,\105\ a Chief Executive Officer, a President, Vice 
Presidents, a Chief Regulatory Officer, a Secretary, an Assistant 
Secretary, a Treasurer, and an Assistant Treasurer.\106\ The Exchange 
notes that proposed Section 7 of Bylaw Article IV specifically provides 
for a Chief Regulatory Officer, a position that is not expressly 
provided for in the Current Governing Documents, who would have general 
supervision of the regulatory operations of the Exchange, including 
responsibility for overseeing the Exchange's surveillance, examination, 
and enforcement functions and for administering any regulatory services 
agreements with another SRO to which the Exchange is a party. The Chief 
Regulatory Officer shall meet with the Regulatory Oversight Committee 
of the Exchange in executive session at regularly scheduled meetings of 
such committee, and at any time upon request of the Chief Regulatory 
Officer or any member of the Regulatory Oversight Committee. The Chief 
Regulatory Officer may also serve as the General Counsel of the 
Exchange. The Exchange notes that while the position of chief 
regulatory officer has long existed at the Exchange, this position is 
not expressly in the Current Governing Documents and now proposes to 
codify this position in the new Bylaws.
---------------------------------------------------------------------------

    \105\ The Chair of the Board would be an independent Director as 
defined in Rule 5605 of the listing rules of The NASDAQ Stock 
Market, LLC.
    \106\ See NSM Bylaw Article IV for substantially similar 
provisions.
---------------------------------------------------------------------------

    Bylaw Article VII, titled ``Miscellaneous Provisions,'' contains 
standard limited liability company provisions relating to waiver of 
notice of meetings and the Exchange's contracting ability. Article 
VIII, titled ``Amendments; Emergency By-Laws,'' authorizes amendments 
to the By-Laws by either the Sole LLC Member or the vote of a majority 
of the whole Board,\107\ as well as the adoption of emergency by-laws 
by the Board. Other than as noted above, Articles VII and VIII mirror 
the language in Articles VII and VIII of the NSM Bylaws.
---------------------------------------------------------------------------

    \107\ As proposed, all such changes must be filed with the 
Commission under Section 19(b) of the Act, 15 U.S.C. 78s(b), and 
become effective thereunder before being implemented. See proposed 
Bylaw Article VIII, Section 1. The BX Bylaws and the NSM Bylaws do 
not have a similar requirement, but Phlx has a similar requirement 
in Section 6-9 of the Phlx Bylaws. BX and NSM will each separately 
file proposed rule changes with the Commission to add this 
requirement in their respective governing documents. See note 42 
above.
---------------------------------------------------------------------------

    Article IX, titled ``Exchange Authorities,'' which mirrors NSM 
Bylaw Article IX, contains specific authorization for the Board to 
adopt rules needed to effect the Exchange's obligations as an SRO, to 
establish disciplinary procedures and impose sanctions on its members, 
to establish standards for membership, to impose dues, fees, 
assessments, and other charges and to take action under

[[Page 20522]]

emergency or extraordinary market conditions.

D. Rules

    The Exchange proposes to amend its current Rules to reflect the 
changes to its constituent documents through the adoption of the New 
Governing Documents to replace the Current Governing Documents.\108\ 
Most proposed changes are non-substantive, and primarily reflect the 
changing terminology from ``Constitution'' to ``By-Laws.'' Furthermore, 
a number of defined terms used in the Rules refer back to the Current 
LLC Agreement or the Current Constitution for their meanings. As 
discussed below, the Exchange proposes to add these defined terms 
originally contained in the Current Governing Documents as new Rules. 
In addition, the Exchange proposes to amend the Rules to add certain 
provisions relating to the Market Maker Rights, primarily to import 
language originally found in the Current Governing Documents as further 
described below. Finally, the Exchange proposes to make a number of 
technical amendments to renumber the Rules, which is a result of adding 
the new definitions as further discussed below.
---------------------------------------------------------------------------

    \108\ The amended Rules are attached hereto as Exhibit 5E [sic].
---------------------------------------------------------------------------

    In Rule 100, titled ``Definitions,'' the Exchange proposes to make 
the following changes:

     Rule 100(a) currently refers to Article XIV of the 
Current Constitution as containing certain defined terms that are 
also used in the Exchange's rulebook.\109\ The proposed change would 
replace the reference to Article XIV of the Current Constitution 
with references to the proposed LLC Agreement and By-Laws.
---------------------------------------------------------------------------

    \109\ The reference to Article XIV of the Current Constitution 
in Rule 100(a) should instead refer to Article XIII because there is 
no Article XIV in the Current Constitution. The Exchange previously 
filed a proposed rule change with the Commission (SR-ISE-2006-26) 
that inadvertently changed the reference in Rule 100(a) from Article 
XIII to Article XIV in the rule filing's Exhibit 5.
---------------------------------------------------------------------------

     Rule 100(a)(11) ``CMM Rights'' currently refers to 
Article VI of the Current LLC Agreement. The proposed change would 
relocate the concept of CMM Rights from the Current LLC Agreement to 
this Rule, and would state that the term CMM Rights means the 
transferable rights held by a Competitive Market Maker or a ``non-
member owner'' (as that term is defined in Rule 300(a)).\110\ The 
number of authorized CMM Rights as set forth in Section 6.1(a) of 
the Current LLC Agreement would also be relocated to Rule 100(a)(11) 
as amended, so that the Rule would further provide that the number 
of authorized CMM Rights will be 160 CMM Rights.
---------------------------------------------------------------------------

    \110\ CMM Rights are transferable rights in that the holders of 
CMM Rights may lease or sell these rights in accordance with the 
Exchange's rules and Current Governing Documents. As discussed in 
the LLC Agreement section above, all Exchange Rights (i.e., PMM, CMM 
and EAM Rights) convey voting rights and trading privileges on the 
Exchange. From ISE's inception, however, only the holders of the PMM 
Rights and CMM Rights could transfer the voting rights and trading 
privileges associated with such Market Maker Rights, while the 
voting rights and trading privileges associated with the EAM Rights 
have never been transferable. See note 27 above.
---------------------------------------------------------------------------

     New Rule 100(a)(12) ``Competitive Market Maker'' would 
be relocated from Section 13.1(g) of the Current Constitution. 
Currently, this term is used throughout the Exchange's rulebook, but 
the definition is only found in the Current Constitution.
     Rules 100(a)(12)-(13) ``covered short position'' and 
``discretion,'' respectively, would be renumbered as Rules 
100(a)(13)-(14).
     Rule 100(a)(14) ``EAM Rights'' currently refers to 
Article VI of the Current LLC Agreement. The proposed change would 
relocate the concept of EAM Rights from the Current LLC Agreement to 
this Rule, and would state that EAM Rights means the non-
transferable rights held by an Electronic Access Member.\111\ The 
Rule would also be renumbered as Rule 100(a)(15).
---------------------------------------------------------------------------

    \111\ EAM Rights are non-transferable in that the holders of EAM 
Rights may not lease or sell these rights (unlike PMM and CMM 
Rights, which are transferable). See note 110 above.
---------------------------------------------------------------------------

     New Rule 100(a)(16) ``Electronic Access Member'' would 
be relocated from Section 13.1(l) of the Current Constitution. 
Currently, this term is used throughout the Exchange's rulebook, but 
the definition is only found in the Current Constitution.
     Rules 100(a)(15)-(17) ``European-style option,'' 
``Exchange Act'' and ``Exchange Rights,'' respectively, would be 
renumbered as Rules 100(a)(17)-(19).
     New Rule 100(a)(20) ``Exchange Transaction'' would be 
relocated from Section 13.1(r) of the Current Constitution. 
Currently, this term is used throughout the Exchange's rulebook, but 
the definition is only found in the Current Constitution.
     Rules 100(a)(18), (18A) and (19) ``exercise price,'' 
``expiration date'' and ``Federal Reserve Board,'' respectively, 
would be renumbered as Rules 100(a)(21), (21A) and (22).
     New Rule 100(a)(23) ``good standing'' would be 
relocated from Section 13.1(s) of the Current Constitution. 
Currently, this term is used throughout the Exchange's rulebook, but 
the definition is only found in the Current Constitution.
     Rules 100(a)(20) and (21) ``he,'' ``him'' or ``his'' 
and ``long position,'' respectively, would be renumbered as Rules 
100(a)(24) and (25).
     Rule 100(a)(22) ``LLC Agreement'' would be deleted as 
that term would no longer be used in the Rules, as amended by this 
rule change.
     Rules 100(a)(23)-(35) ``Member,'' ``Membership,'' 
``market makers,'' ``Market Maker Rights,'' ``Non-Customer,'' ``Non-
Customer Order,'' ``offer,'' ``opening purchase transaction,'' 
``opening writing transaction,'' ``Voluntary Professional,'' 
``options contract,'' ``OPRA,'' ``order'' and ``outstanding,'' 
respectively, would be renumbered as Rules 100(a)(26)-(38).
     Rule 100(a)(36) ``PMM Rights'' currently refers to 
Article VI of the Current LLC Agreement. The proposed change would 
relocate the concept of PMM Rights from the Current LLC Agreement to 
this Rule, and would state that PMM Rights means the transferable 
rights held by a Primary Market Maker or a ``non-member owner'' (as 
that term is defined in Rule 300(a)).\112\ The number of authorized 
PMM Rights as set forth in Section 6.1(a) of the Current LLC 
Agreement would also be relocated to this Rule, so that the amended 
Rule would further provide that the number of authorized PMM Rights 
will be 10 PMM Rights. Finally, the Rule would also be renumbered as 
Rule 100(a)(39).
---------------------------------------------------------------------------

    \112\ See note 110 above.
---------------------------------------------------------------------------

     New Rule 100(a)(40) ``Primary Market Maker'' would be 
relocated from Section 13.1(bb) of the Current Constitution. 
Currently, this term is used throughout the Exchange's rulebook, but 
the definition is only found in the Current Constitution.
     Rules 100(a)(37), (37A), (37B), (37C), (38)-(48) 
``primary market,'' ``Priority Customer,'' ``Priority Customer 
Order,'' ``Professional Order,'' ``Public Customer,'' ``Public 
Customer Order,'' ``put,'' ``Quarterly Options Series,'' ``quote'' 
or ``quotation,'' ``Rules of the Clearing Corporation,'' ``SEC,'' 
``series of options,'' ``short position,'' ``Short Term Option 
Series'' and ``SRO,'' respectively, would be renumbered as Rules 
100(a)(41), (41A), (41B), (41C), (42)-(52).
     New Rule 100(a)(53) ``System'' would be relocated from 
Section 13.1(gg) of the Current Constitution. Currently, this term 
is used throughout the Exchange's rulebook, but the definition is 
only found in the Current Constitution.
     Rules 100(a)(49)-(51) ``type of option,'' ``uncovered'' 
and ``underlying security,'' respectively, would be renumbered as 
Rules 100(a)(54)-(56).

    The Exchange proposes to add as new paragraphs (d) and (e) in Rule 
300 certain protections in the Current Governing Documents that relate 
to the Market Maker Rights. First, new paragraph (d) preserves the 
concept of Core Rights from the Current Governing Documents, and would 
state that any increase in the number of authorized PMM Rights or 
authorized CMM Rights must be approved by the affirmative vote of the 
holders of at least a majority of the then outstanding PMM Rights, 
voting as a class, and the affirmative vote of the holders of at least 
a majority of the then outstanding CMM Rights, voting as a class.\113\ 
Second, new paragraph (e) would state that any amendments to the LLC 
Agreement or the Bylaws that would alter or change the powers, 
preferences or special rights of one or more series of PMM Rights or 
CMM Rights must also be approved by the holders of a majority of such 
PMM

[[Page 20523]]

Rights or CMM Rights, as applicable. As such, paragraph (e) would 
preserve the existing amendment rights from the Current Governing 
Documents to the extent they relate to the Market Maker Rights 
holders.\114\
---------------------------------------------------------------------------

    \113\ See note 25 above.
    \114\ See Current LLC Agreement, Section 8.1 and Current 
Constitution, Section 10.1. The Exchange notes that the proposed 
amendment rights for the Market Maker Rights holders in Rule 300(e) 
are broader than the ones contained in the Current Governing 
Documents because they will apply for all amendments that affect the 
powers, preferences or special rights of one or more series of PMM 
Rights or CMM Rights, rather than solely to the amendments that 
adversely affect these Market Maker Rights.
---------------------------------------------------------------------------

    The Exchange is proposing in .02 of Supplementary Material to Rule 
303, which sets forth concentration limits for owning multiple PMM 
Rights, to clarify that a Primary Market Maker, together with any 
affiliate, is prohibited from gaining ownership rights or voting rights 
in excess of 20% of the outstanding PMM Rights. The current Rule 
contains the same limitation, but refers back to the Exchange's Current 
LLC Agreement and Current Constitution instead of explicitly providing 
for the 20% ownership and voting limitation on the Primary Market Maker 
and its affiliates.\115\ The proposed change would delete the 
references to the Current Governing Documents and replace it with the 
explicit 20% limitation. The Exchange also proposes to relocate the 
same explicit 20% limitation on CMM Rights from Section 6.5(a) of the 
Current LLC Agreement into .02 of Supplementary Material to Rule 303 to 
clarify that this restriction applies to both Primary Market Makers and 
Competitive Market Makers. The proposed language as it relates to CMM 
Rights would therefore provide that, for the avoidance of doubt, no 
Competitive Market Maker, together with any affiliate, may gain 
ownership or voting rights in excess of 20% of the then outstanding CMM 
Rights.
---------------------------------------------------------------------------

    \115\ See Current LLC Agreement, Section 6.5(a).
---------------------------------------------------------------------------

    The Exchange is proposing to delete references to ``LLC Agreement'' 
in Rule 307(b)(4) ``Sale and Transfer of Market Maker Rights'' and .01 
of Supplementary Material to Rule 307. These provisions refer to the 
concentration limits. As noted in the LLC Agreement section above, all 
provisions related to the trading privileges associated with the 
Exchange Rights located in the Current Governing Documents, including 
the concentration limits, would be set forth solely in the Rules as the 
Current LLC Agreement would be replaced by the proposed LLC Agreement.
    In the introductory paragraph of Rule 308, the Exchange proposes to 
add a requirement that, in the context of a lease of Market Maker 
Rights, the holder of Market Maker Rights must retain the Core Rights 
associated with such Market Maker Rights and not transfer such voting 
rights to the lessee. This requirement is imported from Section 12.4(b) 
of the Current Constitution, which requires that the Core Rights remain 
with the lessor in the context of a lease. Section 12.4(b) further 
provides that under a lease agreement, the lessor may retain the voting 
rights with respect to the PMM Rights and CMM Rights or may transfer 
such voting rights to the lessee. Today, the voting rights associated 
with the PMM Rights and CMM Rights are with respect to the election of 
Exchange Directors and the Core Rights.\116\ As discussed in the LLC 
Agreement section above, the voting rights with respect to the election 
of Exchange Directors will be eliminated under the Proposed Rule 
Change, so the only voting rights that will remain are with respect to 
the Core Rights, which voting rights are not transferable under a lease 
agreement. As such, the Exchange also proposes to amend Rule 308(b)(4), 
which currently requires Market Maker Right lease agreements to include 
provisions covering, as between the parties, which party shall exercise 
the voting rights of the Exchange membership. In particular, the 
Exchange proposes to delete in Rule 308(b)(4) the clause ``which party 
shall exercise the voting rights of the Membership and'' to reflect 
that there will no longer be any transferable voting rights associated 
with the Exchange membership given that the only voting rights that 
will remain are with respect to the Core Rights.
---------------------------------------------------------------------------

    \116\ See Current LLC Agreement, Section 6.3.
---------------------------------------------------------------------------

    In Rule 312 ``Limitation on Affiliation between the Exchange and 
Members,'' the Exchange proposes to replace references to ``Exchange 
Director'' and ``Constitution'' with ``Member Representative Director'' 
and ``By-Laws,'' respectively, for the reasons discussed above. The 
proposed changes in Rule 713(a), Rule 720(a)(1), and .01 and .02 of 
Supplementary Material to Rule 1901 reflect the renumbering of the 
defined terms ``offer,'' ``quotations,'' ``Priority Customer Orders,'' 
``Professional Orders,'' ``Priority Customer'' and ``Non-Customer 
Orders.''
    Finally, the Exchange proposes to amend Rule 802(b) to add a new 
subparagraph (2), which would provide that if a Primary Market Maker 
fulfills its obligations as a Primary Market Maker under the Rules, the 
Exchange will not reallocate the options classes to which such Primary 
Market Maker is appointed, unless otherwise requested by the Primary 
Market Maker. The foregoing, however, would not limit or affect the 
Exchange's responsibility under Rule 802(d) to reallocate any options 
classes in the interests of a fair and orderly market. This proposal is 
consistent with the manner in which products are allocated to PMMs on 
the Exchange today. Currently, when ISE lists new options classes, it 
allocates them to one of its PMMs under Rule 802. Pursuant to delegated 
authority by the Board, an Allocation Committee, which consists of 
employees of the Exchange, makes allocation decisions according to the 
guidelines contained in Rule 802. The Allocation Committee has not 
reallocated the products appointed to a PMM since the Exchange's 
inception for reasons other than as provided in the proposed rule. As 
such, the proposed changes are simply to memorialize a longstanding 
practice on the Exchange.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \117\ in general, and furthers the objectives of 
Section 6(b)(1) of the Act \118\ in particular, in that it enables the 
Exchange to be so organized as to have the capacity to be able to carry 
out the purposes of the Act and to comply, and to enforce compliance by 
its exchange members and persons associated with its exchange members, 
with the provisions of the Act, the rules and regulations thereunder, 
and the rules of the Exchange. The Exchange also believes that this 
proposal furthers the objectives of Section 6(b)(3) and (b)(5) of the 
Act \119\ in particular, in that it is designed to assure a fair 
representation of Exchange members in the selection of its directors 
and administration of its affairs and provide that one or more 
directors would be representative of issuers and investors and not be 
associated with a member of the exchange, broker, or dealer; and is 
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.
---------------------------------------------------------------------------

    \117\ 15 U.S.C. 78f(b).
    \118\ 15 U.S.C. 78f(b)(1).
    \119\ 15 U.S.C. 78f(b)(3) and (b)(5).
---------------------------------------------------------------------------

    The Exchange believes that its proposal to adopt the Board and 
committee structure and related nomination and election processes set 
forth in New Governing Documents are consistent with the Act, including

[[Page 20524]]

Section 6(b)(1) of the Act, which requires, among other things, that a 
national securities exchange be organized to carry out the purposes of 
the Act and comply with the requirements of the Act. In general, the 
proposed changes would make the Exchange's Board and committee 
composition requirements, and related nomination and election 
processes, more consistent with those of its affiliates, BX, NSM and 
Phlx. The Exchange therefore believes that the proposed changes would 
contribute to the orderly operation of the Exchange and would enable 
the Exchange to be so organized as to have the capacity to carry out 
the purposes of the Act and comply with the provisions of the Act by 
its members and persons associated with members.
    Additionally, the Exchange believes that the New Governing 
Documents support a corporate governance framework that is designed to 
insulate the Exchange's regulatory functions from its market and other 
commercial interests so that the Exchange can carry out its regulatory 
obligations in furtherance of Section 6(b)(1) of the Act. Specifically, 
the Exchange believes that creation of a ROC, modeled on the approved 
ROCs of other Nasdaq Exchanges, and the inclusion of the Chief 
Regulatory Officer in the proposed Bylaws, would underscore the 
importance of the Exchange's regulatory function and specifically 
empower an independent committee of the Board to oversee regulation and 
meet regularly with the Chief Regulatory Officer. Furthermore, proposed 
language in the New Governing Documents specifically providing that the 
Exchange's business and the Board's evaluations would include actions 
and evaluations that support and take into account its regulatory 
responsibilities under the Act, reinforce the notion that the Exchange 
is not solely a commercial enterprise, but an SRO subject to the 
obligations imposed by the Act. The restriction on using Regulatory 
Funds to pay dividends to the Sole LLC Member further underscores the 
independence of the Exchange's regulatory function. Finally, the 
Exchange believes that the proposed requirements to include Public 
Directors on the Board (at least two Directors) and that on the ROC 
(all three Directors) would help to ensure that no single group of 
market participants will have the ability to systematically 
disadvantage other market participants through the exchange governance 
process, and would foster the integrity of the Exchange by providing 
unique, unbiased perspectives. Accordingly, the Exchange believes that 
the new board and committee structure contemplated by the proposed New 
Governing Documents is designed to insulate the Exchange's regulatory 
functions from its market and other commercial interests so that the 
Exchange can carry out its regulatory obligations in furtherance of 
Section 6(b)(1) of the Act.
    The Exchange also believes that the proposed 20% requirement for 
Member Representative Directors and the proposed method for selecting 
Member Representative Directors would ensure fair representation of 
Exchange members on the Board and allow members to have a voice in the 
Exchange's use of its self-regulatory authority. In particular, the 
Exchange notes that the Member Nominating Committee would be composed 
solely of persons associated with Exchange members and is selected 
after consultation with representatives of Exchange members. In 
addition, the new Bylaws include a process by which Exchange members 
can directly petition and vote for representation on the Board. For the 
foregoing reasons, the Exchange believes that the proposed change to 
remove the Exchange Director positions and related concepts from its 
organizational documents is consistent with fair representation 
requirement under the Act. Specifically, Exchange members will continue 
to be represented on the Board and on key standing committees, and will 
have a voice in the selection of Member Representative Directors 
through the Member Nominating Committee and through their ability to 
petition and vote on alternate candidates. As noted above, the trading 
privileges associated with the Exchange Rights, as well as the Market 
Maker Rights, which are currently located in the Exchange's 
organizational documents, are already substantively in the Exchange's 
rulebook, and the Rules would be clarified to the extent such Rules 
refer back to the Current Governing Documents.
    The Exchange also believes that the proposed Board and composition 
requirements set forth in the New Governing Documents is consistent 
with the requirements of Section 6(b)(3) of the Act, because the Public 
Director positions on the Board and on the ROC would include the 
representatives of issuers and investors with no material business 
relationship with a broker dealer or the Exchange. Further, the 
Exchange believes that the proposed compositional balance of the 
proposed committees continues to provide for the fair representation of 
members in the administration of the affairs of the Exchange. In 
particular, all members of the new Member Nominating Committee must be 
associated persons of an Exchange member. In addition, at least 20% of 
the new QMC must be composed of Member Representative members. 
Moreover, the proposed compositional requirements provide that the 
Nominating Committee and the QMC must be compositionally balanced 
between Industry members and Non-Industry members. The proposed 
compositional requirements are designed to ensure that members are 
protected from unfair, unfettered actions by an exchange pursuant to 
its rules, and that, in general, an exchange is administered in a way 
that is equitable to all those who trade on its market or through its 
facilities.
    Moreover, the Exchange believes that the new corporate governance 
framework and related processes proposed by the New Governing Documents 
are consistent with Section 6(b)(5) of the Act because they are 
identical to the framework and processes used by the Nasdaq Exchanges, 
which have been well-established as fair and designed to protect 
investors and the public interest. The Exchange believes that adopting 
the New Governing Documents based on the NSM model would streamline the 
Nasdaq Exchanges' governance process, create equivalent governing 
standards among HoldCo's SROs and also provide clarity to its members, 
which is beneficial to both investors and the public interest.
    Finally, the proposed amendments to the Rules as discussed above 
are non-substantive changes to clarify the rule text where the Rule 
referred only to the Current LLC Agreement or to the Current 
Constitution, and also the technical amendments to renumber certain 
Rules.

B. Self-Regulatory Organization's Statement on Burden on Competition

    Because the Proposed Rule Change relates to the corporate 
governance of the Exchange and not to the operations of the Exchange, 
the Exchange does not believe that the proposed rule change will impose 
any burden on competition not necessary or appropriate in furtherance 
of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

[[Page 20525]]

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-ISE-2017-32 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-ISE-2017-32. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-ISE-2017-32 and should be 
submitted on or before May 23, 2017.

For the Commission, by the Division of Trading and Markets, pursuant 
to delegated authority.\120\
---------------------------------------------------------------------------

    \120\ 17 CFR 200.30-3(a)(12).

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-08813 Filed 5-1-17; 8:45 am]
 BILLING CODE 8011-01-P