Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To Harmonize the Corporate Governance Framework of Nasdaq ISE, LLC With That of The NASDAQ Stock Market LLC, NASDAQ PHLX LLC, and NASDAQ BX, Inc., 36497-36508 [2017-16398]

Download as PDF Federal Register / Vol. 82, No. 149 / Friday, August 4, 2017 / Notices company (an ‘‘interval fund’’) to make repurchase offers of between five and twenty-five percent of its outstanding shares at net asset value at periodic intervals pursuant to a fundamental policy of the interval fund. Rule 23c– 3(b)(1) under the Act permits an interval fund to deduct from repurchase proceeds only a repurchase fee, not to exceed two percent of the proceeds, that is paid to the interval fund and is reasonably intended to compensate the fund for expenses directly related to the repurchase. A Fund will not impose a repurchase fee on investors who purchase and tender their shares. 3. Section 23(c)(3) provides that the Commission may issue an order that would permit a closed-end investment company to repurchase its shares in circumstances in which the repurchase is made in a manner or on a basis that does not unfairly discriminate against any holders of the class or classes of securities to be purchased. 4. Applicants request relief under section 6(c), discussed above, and section 23(c)(3) from rule 23c–3 to the extent necessary for the Funds to impose EWCs on shares of the Funds submitted for repurchase that have been held for less than a specified period. 5. Applicants state that the EWCs they intend to impose are functionally similar to CDSLs imposed by open-end investment companies under rule 6c–10 under the Act. Rule 6c–10 permits openend investment companies to impose CDSLs, subject to certain conditions. Applicants note that rule 6c–10 is grounded in policy considerations supporting the employment of CDSLs where there are adequate safeguards for the investor and state that the same policy considerations support imposition of EWCs in the interval fund context. In addition, applicants state that EWCs may be necessary for the distributor to recover distribution costs. Applicants represent that any EWC imposed by the Funds will comply with rule 6c–10 under the Act as if the rule were applicable to closed-end investment companies. The Funds will disclose EWCs in accordance with the requirements of Form N–1A concerning CDSLs. Asset-Based Service and Distribution Fees 1. Section 17(d) of the Act and rule 17d–1 under the Act prohibit an affiliated person of a registered investment company, or an affiliated person of such person, acting as principal, from participating in or effecting any transaction in connection with any joint enterprise or joint arrangement in which the investment VerDate Sep<11>2014 15:13 Aug 03, 2017 Jkt 241001 company participates unless the Commission issues an order permitting the transaction. In reviewing applications submitted under section 17(d) and rule 17d–1, the Commission considers whether the participation of the investment company in a joint enterprise or joint arrangement is consistent with the provisions, policies and purposes of the Act, and the extent to which the participation is on a basis different from or less advantageous than that of other participants. 2. Rule 17d–3 under the Act provides an exemption from section 17(d) and rule 17d–1 to permit open-end investment companies to enter into distribution arrangements pursuant to rule 12b–1 under the Act. Applicants request an order under section 17(d) and rule 17d–1 under the Act to the extent necessary to permit the Funds to impose asset-based service and distribution fees. Applicants have agreed to comply with rules 12b–1 and 17d–3 as if those rules applied to closed-end investment companies, which they believe will resolve any concerns that might arise in connection with a Fund financing the distribution of its shares through assetbased service and distribution fees. 3. For the reasons stated above, applicants submit that the exemptions requested under section 6(c) are necessary and appropriate in the public interest and are consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. Applicants further submit that the relief requested pursuant to section 23(c)(3) will be consistent with the protection of investors and will insure that applicants do not unfairly discriminate against any holders of the class of securities to be purchased. Finally, applicants state that the Funds’ imposition of asset-based service and distribution fees is consistent with the provisions, policies and purposes of the Act and does not involve participation on a basis different from or less advantageous than that of other participants. Applicants’ Condition Applicants agree that any order granting the requested relief will be subject to the following condition: Each Fund relying on the order will comply with the provisions of rules 6c– 10, 12b–1, 17d–3, 18f–3, 22d–1, and, where applicable, 11a–3 under the Act, as amended from time to time, as if those rules applied to closed-end management investment companies, and will comply with the Sales Charge Rule, as amended from time to time, as if that rule applied to all closed-end management investment companies. PO 00000 Frm 00142 Fmt 4703 Sfmt 4703 36497 For the Commission, by the Division of Investment Management, under delegated authority. Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–16392 Filed 8–3–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–81263; File No. SR–ISE– 2017–32] Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To Harmonize the Corporate Governance Framework of Nasdaq ISE, LLC With That of The NASDAQ Stock Market LLC, NASDAQ PHLX LLC, and NASDAQ BX, Inc. July 31, 2017. I. Introduction On April 11, 2017, Nasdaq ISE, LLC (‘‘ISE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 proposed rule changes to its corporate governance documents and trading rules to align its corporate governance framework to the structure of other exchanges owned by its ultimate parent company, Nasdaq, Inc. The proposed rule change was published for comment in the Federal Register on May 2, 2017.3 The Commission received no comments on the proposal. On June 14, 2017, the Commission extended the time period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change.4 On July 6, 2017, the Exchange filed Amendment No. 1 to the proposed rule change.5 The 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 80530 (April 26, 2017), 82 FR 20508 (‘‘Notice’’). 4 See Securities Exchange Act Release No. 80923, 82 FR 28102 (June 20, 2017). 5 As discussed further herein, Amendment No. 1, which replaces the original filing in its entirety, includes, among other things: (1) Changes to the Exchange’s proposed Limited Liability Company Agreement (‘‘New LLC Agreement’’) and proposed By-Laws (‘‘New By-Laws,’’ and together with the New LLC Agreement, the ‘‘New Governing Documents’’) to better align these proposed documents with certain provisions in ISE’s existing governing documents and the governing documents 2 17 E:\FR\FM\04AUN1.SGM Continued 04AUN1 36498 Federal Register / Vol. 82, No. 149 / Friday, August 4, 2017 / Notices Commission is publishing this notice to solicit comment on Amendment No. 1 from interested persons and is approving the proposed rule change, as modified by Amendment No. 1, on an accelerated basis. II. Background On June 21, 2016, the Commission approved a proposed rule change relating to a corporate transaction in which Nasdaq, Inc. would become the ultimate parent of ISE (the ‘‘Nasdaq Acquisition’’), Nasdaq GEMX, LLC (‘‘GEMX’’), and Nasdaq MRX, LLC (‘‘MRX,’’ and together with ISE and GEMX, the ‘‘ISE Exchanges’’).6 On June 30, 2016, pursuant to this transaction, Nasdaq, Inc. acquired all of the capital stock of U.S. Exchange Holdings, Inc. (‘‘Exchange Holdings’’), and thereby became the indirect, ultimate parent of the ISE Exchanges.7 Nasdaq, Inc. is also the ultimate parent of NASDAQ BX, Inc. (‘‘BX’’), The NASDAQ Stock Market LLC (‘‘Nasdaq’’), and NASDAQ PHLX LLC (‘‘Phlx’’ and, together with Nasdaq and BX, the ‘‘Nasdaq Exchanges’’).8 The of other exchanges, including provisions concerning limitations on board committee powers, the confidentiality of books and records, the nomination of certain board directors by petition, and the confidentiality of board meetings pertaining to the Exchange’s self-regulatory functions; (2) revisions to the proposed amendments to ISE’s rules regarding ownership, voting, and transfer restrictions relating to certain market maker rights on the Exchange; (3) revisions to the related discussion of the purpose of the proposed changes; (4) clarification of certain aspects of the proposed rule changes (e.g., the nomination of Member Representative members to committees; and certain market maker rights and their related ownership, voting, and transfer restrictions); and (5) certain technical corrections (e.g., correcting incorrect cross references to Exhibits 5A, 5B, 5C, and 5D, updating the proposed implementation date and the description of the Exchange’s most recent annual election of its board, and amending the proposed New LLC Agreement to reflect the current address of the Exchange and its Sole LLC Member). When the Exchange filed Amendment No. 1 with the Commission, it also submitted Amendment No. 1 to the public comment file for SR–ISE–2017–32 (available at: https://www.sec.gov/comments/sr-ise2017-32/ise201732.htm). 6 See Securities Exchange Act Release No. 78119 (June 21, 2016), 81 FR 41611 (June 27, 2016) (SR– ISE–2016–11; SR–ISEGemini–2016–05; SR– ISEMercury–2016–10) (‘‘Nasdaq Acquisition Order’’) (order approving Nasdaq, Inc.’s acquisition of ISE, GEMX (f/k/a ISE Gemini, LLC), and MRX (f/ k/a ISE Mercury, LLC)). 7 See Notice, supra note 3, at 20508 n.3. Exchange Holdings is the sole owner of ISE Holdings, Inc. (‘‘ISE Holdings,’’ and together with Exchange Holdings and Nasdaq, Inc., the ‘‘Upstream Owners’’), which is the sole owner of 100% of the Exchange’s limited liability company interests. See Notice, supra note 3, at 20508–09; see also Nasdaq Acquisition Order, supra note 6, at 41611. ISE Holdings is also the sole direct owner of GEMX and MRX. See Nasdaq Acquisition Order, supra note 6, at 41611. 8 See Notice, supra note 3, at 20508. See also Nasdaq Acquisition Order, supra note 6, at 41611. As a result of this transaction, the ISE Exchanges VerDate Sep<11>2014 15:13 Aug 03, 2017 Jkt 241001 Commission notes that the corporate governance documents of ISE, specifically its Third Amended and Restated Limited Liability Company Agreement (‘‘Current LLC Agreement’’) and its Second Amended and Restated Constitution (‘‘Current Constitution’’ and, together with the Current LLC Agreement, the ‘‘Current Governing Documents’’) are rules of the Exchange,9 as are the governing documents of ISE’s Upstream Owners,10 which include certain provisions that are designed to maintain the independence of ISE’s selfregulatory functions (as well as the selfregulatory functions of the Upstream Owners’ other self-regulatory subsidiaries, i.e., the Nasdaq Exchanges).11 The Exchange intends to effect a merger with a newly-formed Delaware limited liability company (‘‘Merger’’) under Nasdaq, Inc. that would result in ISE as the surviving entity with new corporate governance documents. In connection with that Merger, the Exchange proposes various changes to its corporate governance documents and rules (‘‘Rules’’).12 Specifically, the Exchange proposes to: (1) Delete the Exchange’s Current LLC Agreement in its entirety and replace it with the New LLC Agreement, which is based on the limited liability company agreement of Nasdaq; 13 (2) delete the Exchange’s Current Constitution in its entirety and replace it with the New By-Laws, which are based on the by-laws of Nasdaq; 14 and (3) amend certain of its Rules to reflect the replacement of the Current Governing Documents with the New Governing Documents.15 The Exchange represents that the proposed changes are designed to align the Exchange’s corporate governance framework with the existing structure of the Nasdaq Exchanges, particularly as it relates to the board and committee and the Nasdaq Exchanges became affiliates. See Nasdaq Acquisition Order, supra note 6, at 41611 n.8. 9 See Securities Exchange Act Release No. 53705 (April 21, 2006), 71 FR 25260, 25262–63 (April 28, 2006) (‘‘ISE HoldCo Order’’) (order approving SR– ISE–2006–04). 10 See Nasdaq Acquisition Order, supra note 6, at 41612; Securities Exchange Act Release No. 56955 (December 13, 2007), 72 FR 71979, 71981–82 (December 19, 2007) (order approving SR–ISE– 2007–101); ISE HoldCo Order, supra note 9, at 25262. 11 See, e.g., Nasdaq Acquisition Order, supra note 6, at 41612–13; ISE HoldCo Order, supra note 9, at 25264. 12 The Rules as proposed to be amended pursuant to the proposed rule change are referred to herein as the ‘‘New Rules.’’ 13 See Notice, supra note 3, at 20508 n.5. 14 Id. 15 The Exchange states that its affiliates, GEMX and MRX, will submit nearly identical proposed rule changes. See Notice, supra note 3, at 20508 n.4. PO 00000 Frm 00143 Fmt 4703 Sfmt 4703 structure, nomination and election processes, and related governance practices.16 The Exchange also represents that it is not proposing any amendments to its ownership structure. The Exchange does not propose any amendments to the governing documents of its Upstream Owners.17 Thus, the provisions in the governing documents of these entities, which were designed to maintain the independence of ISE’s self-regulatory functions, would remain unchanged. The Exchange also represents that it is not proposing any amendments to its Rules at this time, other than to reflect the changes to its governing documents as described in more detail below.18 The Exchange states that it intends to implement its proposed rule change no later than by the end of the third quarter of 2017.19 III. Discussion and Commission Findings After careful review, the Commission finds that the proposed rule change, as modified by Amendment No. 1, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.20 Specifically, as discussed in more detail below, the Commission finds that the proposed rule change is consistent with Sections 6(b)(1) and 6(b)(3) of the Act,21 which require, among other things, that a national securities exchange be so organized and have the capacity to carry out the purposes of the Act, and to comply and enforce compliance by its members and persons associated with its members, with the provisions of the Act, the rules and regulations thereunder, and the rules of the exchange, and assure the fair representation of its members and persons associated with its members in the selection of its directors and administration of its affairs, and provide that one or more directors shall be representative of issuers and investors and not be associated with a member of the exchange, broker, or dealer. Further, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,22 which requires, 16 See id. at 20508. generally id.; Amendment No. 1. 18 See Notice, supra note 3, at 20509 and 20522. See also Amendment No. 1. 19 See Amendment No. 1. The Exchange also states that it will alert its members in the form of a regulatory alert to provide notification of the implementation date. Id. 20 In approving these proposed rule changes, the Commission has considered the proposed rules’ impact on efficiency, competition and capital formation. 15 U.S.C. 78c(f). 21 15 U.S.C. 78f(b)(1) and (b)(3). 22 15 U.S.C. 78f(b)(5). 17 See E:\FR\FM\04AUN1.SGM 04AUN1 Federal Register / Vol. 82, No. 149 / Friday, August 4, 2017 / Notices among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices; to promote just and equitable principles of trade; to foster cooperation and coordination with persons engaged in regulating, clearing, settling, and processing information with respect to, and facilitating transactions in securities; 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. A. Ownership of the Exchange ISE is currently structured as a Delaware limited liability company (‘‘Delaware LLC’’) 23 and, as discussed above, is a wholly-owned subsidiary of ISE Holdings. ISE Holdings, in turn is a wholly-owned subsidiary of Exchange Holdings, which is wholly-owned by Nasdaq, Inc. Pursuant to the Current LLC Agreement, ISE Holdings is defined as the Sole LLC Member.24 As the Sole LLC Member, ISE Holdings may assign all (but not less than all) of its interest in the Exchange, subject to prior approval by the Commission pursuant to the rule filing procedures under Section 19 of the Act.25 Pursuant to the proposed rule change, ISE will be merged with a newly formed Delaware LLC, whereby ISE will be the surviving entity, governed by the New Governing Documents. ISE Holdings will continue to be the direct owner of ISE and will be defined as the ‘‘Company Member’’ or ‘‘Sole LLC Member’’ in the New LLC Agreement and New By-Laws.26 Additionally, pursuant to the New LLC Agreement, ISE Holdings will not be permitted to assign, in whole or in part, its limited liability company interest in the Exchange, unless such transfer or assignment is filed with and approved by the Commission pursuant to the rule filing procedures under Section 19 of the Act.27 The Commission believes that the proposed restrictions on ISE Holdings’ 23 See Current LLC Agreement. id. The Current Constitution also defines ISE Holdings as the Sole LLC Member of the Exchange and permits assignment of its LLC interest as provided in the Current LLC Agreement. See Current Constitution, Section 1.1. 25 See Current LLC Agreement, Section 7.1. 26 See New LLC Agreement, Schedule A; and New By-Laws, Article I(f). 27 See New LLC Agreement, Section 20. Pursuant to Section 7.1 of the Current LLC Agreement, ISE Holdings may only assign all (but not less than all) of its ownership interest, and any assignment of ISE Holdings’ interest in ISE would similarly be subject to approval by the Commission pursuant to the rule filing procedures under Section 19 of the Act. 24 See VerDate Sep<11>2014 15:13 Aug 03, 2017 Jkt 241001 assignment of its ownership interest in ISE, taken together with restrictions on voting and ownership limitations in the governing documents of ISE’s Upstream Owners that were previously approved by the Commission,28 are designed to minimize the potential that a person could improperly interfere with, or restrict the ability of, the Commission or ISE to effectively carry out its regulatory oversight responsibilities under the Act. The Commission also notes that the restrictions on transfer of ownership interest in the Exchange will be similar to those currently in place. In this regard, the Commission believes the proposed rule change is consistent with Section 6(b)(1) of the Act 29 in particular, which requires that an exchange be organized and have the capacity to be able to carry out the purposes of the Act and to comply, and to enforce compliance by its members and persons associated with its members, with the provisions of the Act, the rules and regulations thereunder, and the rules of the exchange. B. Governance of the Exchange With the replacement of the Current Governing Documents with the New Governing Documents, the Exchange proposes to replace certain provisions pertaining to governance of the Exchange with related provisions that are based on provisions currently in the Nasdaq LLC Agreement and Nasdaq ByLaws.30 These changes include, among others, provisions governing: the composition of the Exchange’s board of directors (‘‘Board’’ or ‘‘Board of Directors,’’ and each member of the Board of Directors a ‘‘Director’’); the process for nominating, electing, and removing Directors; the filling of vacancies on the Exchange’s Board; its board committee structure; and regulatory independence of the 28 See Nasdaq Acquisition Order, supra note 6, at 41612–17 (discussing provisions, including voting and ownership limitations, in the governing documents of Nasdaq, Inc. and other Upstream Owners that are designed to maintain the independence of their self-regulatory subsidiaries); ISE HoldCo Order, supra note 9, at 25262–63 (discussing voting and ownership limitations in the governing documents of ISE Holdings); see also Securities Exchange Act Release No. 76998 (January 29, 2016), 81 FR 6066, 6067, 6069, 6071–73 (February 4, 2016) (‘‘Mercury Exchange Approval’’) (approving the registration of ISE Mercury, LLC as a national securities exchange and discussing the provisions in the governing documents of ISE Holdings and other Upstream Owners that are designed to preserve the self-regulatory function of the national securities exchanges they control, which includes ISE). 29 15 U.S.C. 78(b)(1). 30 See Notice, supra note 3, at 20514–17; and Amendment No. 1. PO 00000 Frm 00144 Fmt 4703 Sfmt 4703 36499 Exchange.31 As noted above, the Exchange intends that the New Governing Documents would be implemented no later than by the end of the third quarter of 2017.32 1. Board of Directors: Powers and Composition Under the New Governing Documents and consistent with the Current LLC Agreement,33 the business and affairs of the Exchange will be managed under the discretion of its Board, which will be vested with the power to do any and all acts necessary or for the furtherance of the purposes described in the New LLC Agreement, including fulfilling the Exchange’s self-regulatory responsibilities as set forth in the Act.34 The new Board will also have the power to bind the Exchange and delegate powers,35 as it does today.36 ISE Holdings, as the Sole LLC Member, may determine at any time, in its sole and absolute discretion, the number of Directors to constitute the Board of Directors.37 At least 20% of the Directors shall be ‘‘Member Representative Directors.’’ 38 Additionally, the Board of Directors must include a number of ‘‘NonIndustry Directors,’’ including at least one ‘‘Public Director’’ and at least one ‘‘issuer representative’’ (or if the Board consists of ten or more Directors, at least two issuer representatives), that equals or exceeds the sum of the number of Industry Directors and Member Representative Directors.39 31 See Notice, supra note 3, at 20514–17; and Amendment No. 1. 32 See supra note 19 and accompanying text. 33 See Current LLC Agreement, Article II, Section 2.2 and Article V, Sections 5.1 and 5.7; and Current Constitution, Article III, Section 3.1. 34 See New LLC Agreement, Sections 7, 8, and 9(a). 35 See New LLC Agreement, Section 9(b). 36 See Current LLC Agreement, Article II, Section 2.2; and Current Constitution, Article V, Section 5.1. 37 See New LLC Agreement, Section 9(a). 38 See id. 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 Exchange Member pursuant to the New By-Laws and may be, but is not required to be, an officer, director, employee, or agent of an Exchange Member. See New By-Laws, Article I(r). 39 See New By-Laws, Article III, Section 2(a). A ‘‘Non-Industry Director’’ will be defined as a Director (excluding an officer of the Exchange serving as a Director (‘‘Staff Director’’)) 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 New By-Laws, Article I(w). A ‘‘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 New By-Laws, Article I(z). An ‘‘Industry Director’’ will be defined as a E:\FR\FM\04AUN1.SGM Continued 04AUN1 36500 Federal Register / Vol. 82, No. 149 / Friday, August 4, 2017 / Notices Additionally, up to two Staff Directors 40 may be elected to the Board.41 A Director may not be subject to a statutory disqualification.42 A Director will be removed upon a determination by the Board, by a majority vote of the remaining Directors, that the Director no longer satisfies the classification for which the Director was elected and that the Director’s continued service on the Board would violate the board composition requirements.43 As discussed in more detail below,44 the current Board was elected at the Exchange’s 2017 annual election of its Board (the ‘‘2017 Annual Election,’’ and such Board the ‘‘2017 Board’’), which was held on June 19, 2017, pursuant to the Current Governing Documents. When the New Governing Documents become operative, the 2017 Board will appoint a Nominating Committee and a Member Nominating Committee.45 The Director 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. See Notice, supra note 3, at 20516 n.69. See also New By-Laws, Article I(m). 40 See New By-Laws, Article I(m); see also Notice, supra note 3, at 20516 n.72 and accompanying text. 41 See Current LLC Agreement, Article II, Section 2.2. 42 See New LLC Agreement, Section 9(a). 43 See New By-Laws, Article III, Section 2(b). If the remaining term of office of a removed Director is not more than six months, the Board will not be deemed to be in violation of the Article III, Section 2(a) composition requirements during the vacancy by virtue of such vacancy. See id. 44 See infra notes 65–68, 70–71, and accompanying text. 45 See Notice, supra note 3, at 20517. The Nominating Committee will consist of no fewer than six and no more than nine members. The number of Non-Industry members on the Nominating Committee 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, and if the Nominating Committee consists of seven or more members, at least three shall be Public members. The Member Nominating Committee shall consist of no fewer than three and no more than six members. All members of the Member Nominating Committee shall be a current associated person of a current Exchange Member, and the Board will appoint such individuals after appropriate consultation with representatives of Exchange Members. See New By-Laws, Article III, Sections 6(b)(i) and (iii). See also Notice, supra note 3, at 20520–21 (discussing the compositional requirements for, and responsibilities of, the Nominating Committee and Member Nominating Committee). An ‘‘Industry member’’ will be a member of any committee appointed by the Board that is associated with a broker-dealer as defined in the New ByLaws, Article I(n). A ‘‘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 Exchange; or (iii) any other individual who would not be an Industry member. See New ByLaws, Article I(x). A ‘‘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 Company VerDate Sep<11>2014 15:13 Aug 03, 2017 Jkt 241001 Member Nominating Committee will nominate candidates for each Member Representative Director position on the Board,46 as well as nominate candidates for appointment by the Board for each vacant or new position on a committee that is to be filled with a ‘‘Member Representative member’’ 47 under the New By-Laws.48 If an Exchange Member 49 submits a timely and duly executed written nomination to the Secretary of the Exchange, additional candidates may be added to the List of Candidates 50 for the Member Representative Director positions.51 These candidates, together with candidates nominated by the Member Nominating Committee, will then be presented to Exchange Members for election.52 The Nominating Committee or its affiliates, or FINRA. See New By-Laws, Article I(aa). 46 Pursuant to the New By-Laws, Member Representative Directors shall be elected to the Board on an annual basis. See New By-Laws, Article II, Section 1(a). 47 Pursuant to the New By-Laws, a ‘‘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 By-Laws. See New ByLaws, Article I(s). As discussed further below, the required inclusion of such representatives on certain committees, and the process by which they are to be selected, is designed to comply with the fair representation requirements of Section 6(b)(3) of the Act. See infra note 102 and accompanying text. See also Amendment No. 1. In Amendment No. 1, the Exchange clarifies the description of the functions of the Member Nominating Committee. Specifically, the Exchange clarifies that the new Member Nominating Committee is responsible for: (i) The nomination for election of Member Representative Directors to the Board and (ii) the nomination for appointment of Member Representative members to the committees requiring such members. See Amendment No. 1. 48 See New By-Laws, Article III, Section 6(b). 49 ‘‘Exchange Member’’ will be defined as any registered broker or dealer that has been admitted to membership in the national securities exchange operated by ISE. See New By-Laws, Article 1(u). 50 ‘‘List of Candidates’’ will be defined as the list of candidates for Member Representative Director positions to be elected on an Election Date. See New By-Laws, Article 1(p). ‘‘Election Date≥ will be defined as a date selected by the Board on an annual basis, on which Exchange Members may vote with respect to Member Representative Directors in the event of a Contested Election. See New By-Laws, Article 1(k). See also infra note 52, for the definition of ‘‘Contested Election.’’ 51 See New By-Laws, Article II, Section 1(b). See also Amendment No. 1. 52 If there is only one candidate for each Member Representative Director position to be elected on the annual election date, the Member Representative Directors shall be elected by ISE Holdings as the Sole LLC Member. If, as a result of the nomination and petition process, there are more Member Representative Directors candidates than the number of positions to be elected, each Exchange Member shall have the right to cast one vote for each Member Representative Director, and the candidates who receive the most votes shall be elected to the Member Representative Director PO 00000 Frm 00145 Fmt 4703 Sfmt 4703 will nominate candidates for all other vacant or new Director positions on the Board.53 The Commission believes that the proposed composition of the Exchange’s Board satisfies the requirements in Section 6(b)(3) of the Act,54 which requires in part that one or more directors be representative of issuers and investors and not be associated with a member of the exchange, or with a broker or dealer.55 The Commission previously has stated that the inclusion of public, non-industry representatives on exchange oversight bodies is an important mechanism to support an exchange’s ability to protect the public interest,56 and that they can help to ensure that no single group of market participants has the ability to systematically disadvantage others through the exchange governance positions. An Exchange Member, however, either alone or together with its affiliates, may not cast votes representing more than 20% of the votes cast for a candidate. See New By-Laws, Article II, Section 1(c) and Section 2. See also New By-Laws, Article 1(g) (defining ‘‘Contested Election’’ 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). Under the Exchange’s Current Governing Documents, six directors on the Board are officers, directors, or partners of Exchange members, and are elected by a plurality of the holders of Exchange Rights (‘‘Exchange Directors’’), of which two must be elected by holders of PMM Rights, two must be elected by holders of CMM Rights, and two must be elected by holders of EAM Rights. See Notice, supra note 3, at 20510. See also Current Constitution, Article III, Section 3.2. The Exchange states that this current structure was adopted to comply with the fair representation requirements of Section 6(b) of the Act. See Notice, supra note 3, at 20510. Because they give members a voice in the Exchange’s use of its self-regulatory authority, the Exchange believes that Exchange Directors serve the same function as Member Representative Directors on the boards of the Nasdaq Exchanges. See id. The Exchange notes that the Commission has previously found the Nasdaq LLC Agreement’s (1) 20% Member Representative Director requirement, and (2) election process, provide fair representation of Nasdaq members, consistent with the requirements of Section 6(b) of the Act. See Notice, supra note 3, at 20510 n.18 (citing Securities Exchange Act Release No. 53128 (January 13, 2006), 71 FR 3550, 3553 (January 23, 2006) (‘‘Nasdaq Exchange Order’’) (granting the exchange registration of Nasdaq Stock Market, Inc.). The Commission notes that the Board compositional requirements and the process for electing Member Representative Directors in the New Governing Documents are based on the parallel requirements in the Nasdaq LLC Agreement. 53 See New By-Laws, Article III, Section 6(b). 54 15 U.S.C. 78f(b)(3). 55 The Commission also notes that it previously found the compositional requirements for the board of directors of Nasdaq, upon which ISE’s proposed requirements are based, to be consistent with Act. See Nasdaq Exchange Order, supra note 52, at 3553. 56 See, e.g., Regulation of Exchanges and Alternative Trading Systems, Securities Exchange Act Release No. 40760 (December 8, 1998), 63 FR 70844 (December 22, 1998) (‘‘Regulation ATS Release’’). E:\FR\FM\04AUN1.SGM 04AUN1 Federal Register / Vol. 82, No. 149 / Friday, August 4, 2017 / Notices process.57 As it has previously stated, the Commission believes that public directors can provide unbiased perspectives, which may enhance the ability of the Board to address issues in a non-discriminatory fashion and foster the integrity of the Exchange.58 The Commission also believes that the proposed requirement that at least 20% of the Directors be Member Representative Directors, and the means by which they will be chosen by Exchange Members, is consistent with Section 6(b)(3) of the Act,59 because it provides for the fair representation of members in the selection of directors and the administration of ISE. Section 6(b)(3) of the Act requires that ‘‘the rules of the exchange assure a fair representation of its members in the selection of its directors and administration of its affairs and provide that one or more directors shall be representative of issuers and investors and not be associated with a member of the exchange, broker, or dealer.’’ 60 As the Commission previously has noted, this statutory requirement helps to ensure that members have a voice in the Exchange’s use of its self-regulatory authority, and that the Exchange is administered in a way that is equitable to all those persons who trade on its markets or through its facilities.61 In addition, the Commission believes that the requirement that at least one director be a Public Director and one an issuer representative satisfies the requirements of Section 6(b)(3) of the Act.62 2. Transition From Current Board Election Process to the New Election Process In its filing, the Exchange states that, when it was acquired by Nasdaq, Inc., there were a number of harmonizing changes to its Board that resulted in a complete overlap of directors on the ISE 57 See, e.g., Securities Exchange Act Release No 68341 (December 3, 2012), 77 FR 73065, 73067 (December 7, 2012) (‘‘MIAX Exchange Order’’) (granting the exchange registration of the Miami International Securities Exchange LLC). 58 See, e.g., Securities Exchange Act Release No. 53382 (February 27, 2006), 71 FR 11251, 11261 (March 6, 2006) (order approving the New York Stock Exchange, Inc.’s business combination with Archipelago Holdings, Inc.); Nasdaq Exchange Order, supra note 52, at 3553; and Securities Exchange Act Release No. 62716 (August 13, 2010), 75 FR 51295, 51298 (August 19, 2010) (approving the application of BATS Y-Exchange, Inc. for registration as a national securities exchange). 59 15 U.S.C. 78f(b)(3). 60 Id. 61 See, e.g., Nasdaq Exchange Order, supra note 52; and Securities Exchange Act Release No. 58375 (August 18, 2008), 73 FR 49498 (August 21, 2008) (order granting the exchange registration of BATS Exchange, Inc.). 62 15 U.S.C. 78f(b)(3). VerDate Sep<11>2014 15:13 Aug 03, 2017 Jkt 241001 Boards and the Nasdaq Exchanges (the ‘‘Post-Acquisition Board’’).63 ISE also states its belief that the Post-Acquisition Board satisfied the composition requirements contained in both the Current Constitution and the New ByLaws.64 The Exchange states that the terms of the Directors on the PostAcquisition Board ended at the 2017 Annual Election,65 and that all of the Directors on the 2017 Board are Directors that served on the PostAcquisition Board. The Exchange believes that the 2017 Board satisfies both the board composition requirements in the Current Governing Documents, as well as in the New Governing Documents,66 and that once the New Governing Documents become operative, no additional actions with respect to the 2017 Board will be required under the Delaware Limited Liability Company Act.67 Pursuant to the proposal, the 2017 Board will serve until the Exchange’s first annual election of Directors in accordance with the processes under the New Governing Documents in 2018 (‘‘2018 Board’’).68 The Commission believes the Exchange’s proposal to allow the 2017 Board to continue serving until the 2018 Board would be elected pursuant to the process in the New Governing Documents is consistent with the Act, and in particular Section 6(b)(3) of the Act.69 The Exchange states that, although the 2017 Board was not nominated or voted upon in accordance with the New Governing Documents, it believes that the composition of the 2017 Board is consistent with the Act, as it still provides for the fair 63 See Notice, supra note 3, at 20516. Amendment No. 1. 65 The Exchange states that it held its 2017 Annual Election on June 19, 2017, in accordance with the nomination, petition, and voting processes set forth in the Current Governing Documents. See id. 66 The Commission notes that if the Board of Directors in place at the time the New Governing Documents become effective does not satisfy the requirements in the New Governing Documents, the Exchange would need to comply with the procedures for removing Directors and filling vacancies pursuant to the New Governing Documents. See, e.g., supra notes 43, 46, and 51– 53 and accompanying text. 67 See Amendment No. 1. As discussed above, the Exchange proposes that, if approved, the New Governing Documents would be made effective no later than by the end of the third quarter of 2017. See Amendment No. 1; see also supra note 18 and accompanying text. 68 See Notice, supra note 3, at 20517. See also Amendment No. 1. 69 See supra notes 54–62 and accompanying text (discussing the requirements of Section 6(b)(3) and the Commission’s belief that the compositional requirements for the Board of Directors, and the process for electing such Directors under the New Governing Documents, are consistent with those requirements). 64 See PO 00000 Frm 00146 Fmt 4703 Sfmt 4703 36501 representation of members and has one or more directors that are representative of issuers and investors and not associated with a member of the exchange, broker, or dealer. Specifically, the Exchange states that six Directors are officers, directors, or partners of Exchange members, as required by Section 3.2(b) of the Current Constitution, and were elected by a plurality of the holders of ‘‘Exchange Rights.’’ 70 These Exchange Directors were 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 previously found to satisfy the requirements of the Act.71 The Exchange believes that the Exchange Directors serve the same function as the Member Representative Directors under the proposed board structure, as both directorships give Exchange members a voice in the Exchange’s use of its selfregulatory authority.72 The Exchange also notes that only its corporate governance structure would change under the proposed rule change, and that its membership has remained substantially the same both before and after the 2017 Annual Election.73 Additionally, the Commission notes that, under the Current Governing Documents, the 2017 Board will be required to include two Directors that are ‘‘Public Directors.’’ 74 70 See Amendment No. 1. See also Notice, supra note 3, at 20510 and 20513–14 (discussing the Exchange’s current process for the nomination and election of Directors, including the Exchange Directors). ‘‘Exchange Rights’’ currently means, collectively, PMM Rights, CMM Rights, and EAM Rights, which are the trading and other rights associated with the Exchange’s three classes of membership. See Rule 100(a)(17); Current LLC Agreement, Article VI; and Current Constitution, Section 13.1(q). See also Rules 100(a)(11), 100(a)(14), and 100(a)(36); and Current Constitution, Sections 13.1(g), 13.1(l), and 13.1(bb). Under the New Rules, ‘‘Exchange Rights’’ will be defined in New Rule 100(a)(19) as the PMM Rights, CMM Rights, and EAM Rights, which will be defined in New Rules 100(a)(39), 100(a)(11), and 100(a)(15), respectively, and as discussed further below. See infra Section III.C. (discussing amendments to the Exchange’s Rules). 71 See Amendment No. 1; Securities Exchange Act Release No. 42455 (February 24, 2000), 65 FR 11401 (March 2, 2000) (‘‘ISE Exchange Approval’’) (granting ISE’s application for registration as a national securities exchange); and ISE HoldCo Order, supra note 9, at 25265. 72 See Notice, supra note 3 at 20517. See also Amendment No. 1. 73 See Amendment No. 1. 74 See Current Constitution, Section 3.2(b). Pursuant to the Exchange’s Current Constitution, a ‘‘Public Director’’ means 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, Sections 3.2(b) and 13.1(cc). E:\FR\FM\04AUN1.SGM Continued 04AUN1 36502 Federal Register / Vol. 82, No. 149 / Friday, August 4, 2017 / Notices 3. Committees of the Board Pursuant to the New By-Laws, the Exchange may establish committees composed solely of Directors. Specifically, the Exchange may establish an Executive Committee and a Finance Committee, and shall establish a Regulatory Oversight Committee (‘‘ROC’’).75 The Exchange shall also establish certain committees not composed solely of Directors. Specifically, the Exchange shall establish a Nominating Committee and a Member Nominating Committee, which would be elected on an annual basis by ISE Holdings, as the Sole LLC Member,76 and a Quality of Markets Committee (‘‘QMC’’).77 The New LLC Agreement will provide that, 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 the authority of the Board in the management of the business and affairs of the Exchange.78 The powers of any such committee would, however, be limited with respect to approving any matters pertaining to the self-regulatory function of the Exchange or relating to the structure of the market the Exchange regulates.79 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). 75 See New By-Laws, Article III, Section 5. The Exchange states that the proposed provisions relating to the standing committees are substantially similar to the provisions in Section 9(g) of the Nasdaq LLC Agreement with respect to standing committees. See Amendment No. 1. 76 See New By-Laws, Article III, Section 6(b). See also supra note 45 (describing the compositional requirements of these committees). The Board may also designate additional committees consisting of one or more Directors or other persons. See New LLC Agreement, Section 9(g). 77 See New By-Laws, Article III, Section 6(c). See also infra note 102 and accompanying text (describing the compositional requirements of the QMC). 78 See New LLC Agreement, Section 9(g)(v). 79 See id. See also Amendment No. 1. The Exchange notes that the proposed limitation is VerDate Sep<11>2014 15:13 Aug 03, 2017 Jkt 241001 The Exchange proposes that the Executive Committee be an optional committee, to be appointed only if deemed necessary by the Board.80 Because the Executive Committee will have the powers and authority of the Board in the management of the business and affairs of the Exchange between meetings of the Board, its composition must reflect that of the Board. Accordingly, if established, the number of Non-Industry Directors on the Executive Committee must equal or exceed the number of Industry Directors and the percentages of Public Directors and Member Representative Directors must be at least as great as the corresponding percentages on the Board as a whole.81 The Board would retain oversight of the financial operations of the Exchange instead of delegating these functions to a standing committee, but would have the option to appoint a Finance Committee at the Board’s discretion.82 The Finance Committee would 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. The Exchange proposes to eliminate its current Finance and Audit Committee and to have the committee’s functions performed by Nasdaq, Inc.’s Audit Committee (‘‘Nasdaq Audit Committee’’), which is composed of at least three directors of Nasdaq, Inc., all of whom must satisfy the standards for independence set forth in Section 10A(m) of the Act 83 and Nasdaq’s rules.84 The Exchange notes that the Nasdaq Audit Committee has broad authority to review the financial information that will be provided to shareholders of Nasdaq, Inc. and others; systems of internal controls; and audit, financial reporting, and legal and based on substantially similar language in Section 5.2(ii) of MRX’s Constitution and is intended to assure the fair administration and governance of the Exchange. The Exchange does not have this limitation in Section 5.2 of its Current Constitution with respect to any Board committees set up by Board resolution, and is therefore proposing to follow the more current MRX standard. See Amendment No. 1. 80 See New By-Laws, Article III, Section 5(a). 81 See id. 82 See New By-Laws, Article III, Section 5(b). 83 See U.S.C. 78j–1(m). 84 See Nasdaq, Inc. By-Laws, Section 4.13(g). 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 and must be ‘‘financially literate’’ as determined by the Board. See Current Constitution, Article V, Section 5.5. PO 00000 Frm 00147 Fmt 4703 Sfmt 4703 compliance processes.85 The Exchange states that, 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 Nasdaq Audit Committee, which is also charged with providing oversight over financial reporting and independent auditor selection for Nasdaq, Inc. and all of its subsidiaries.86 The Exchange also notes that the unconsolidated financial statements of the Exchange will still be prepared for each fiscal year.87 The Exchange will also have a Regulatory Oversight Committee (‘‘ROC’’) under the New Governing Documents, which will have broad authority to oversee the adequacy and effectiveness of the Exchange’s regulatory and self-regulatory responsibilities.88 The ROC will consist of three members, each of whom must be a Public Director and an ‘‘independent director,’’ as defined in Nasdaq Rule 5605.89 Pursuant to the New By-Laws, the Exchange will also have a Chief Regulatory Officer (‘‘CRO’’), as it does currently.90 The new CRO will have general responsibility for the supervision of the regulatory operations 85 See Notice, supra note 3, at 20519. id. 87 See id. The Commission notes that registered national securities exchanges have an ongoing requirement to comply with the requirements of Form 1, which include filing audited financial statements with the Commission on an annual basis. See Form 1, General Instructions A.2 and Exhibit I, 17 CFR 249.1; and 17 CFR 240.6a–2(b)(1) (requiring a national securities exchange to file each year, as an amendment to its Form 1, Exhibit I (which requires a Form 1 applicant to file audited financial statements), as of the latest fiscal year of the exchange). 88 See New By-Laws, Article III, Section 5(c). Currently, the Exchange’s regulatory oversight activities are performed by the Exchange’s Corporate Governance Committee, which will not exist under the new governance structure. See Notice, supra note 3, at 20520. The Exchange also states that regulatory oversight functions formerly performed by the Finance and Audit Committee may be assumed by the ROC, and that like the ROCs of the Nasdaq Exchanges, the ISE ROC, because of its broad authority to oversee the adequacy and effectiveness of the Exchange’s selfregulatory responsibilities, will be able to maintain oversight over controls in tandem with the Nasdaq Audit Committee’s overall oversight responsibilities. 89 See New By-Laws, Article III, Section 5(c). 90 See Notice, supra note 3, at 20521 (noting that, although not expressly in its Current Governing Documents, the position of chief regulatory officer has long existed at the Exchange). See also New ByLaws, Article IV, Section 7. In addition to the CRO, pursuant to the New LLC Agreement, the Exchange’s officers will include: a Chief Executive Officer, a President, Vice Presidents, a Chief Regulatory Officer, a Secretary, an Assistant Secretary, a Treasurer, and an Assistant Treasurer. See New By-Laws, Article IV, Sections 4–11. 86 See E:\FR\FM\04AUN1.SGM 04AUN1 Federal Register / Vol. 82, No. 149 / Friday, August 4, 2017 / Notices of the Exchange and will meet with the ROC in executive session at regularly scheduled meetings of the ROC, and at any time upon request of the CRO or any member of the ROC.91 The ROC will assess the Exchange’s regulatory performance, assist the Board in reviewing the regulatory plan and the overall effectiveness of the Exchange’s regulatory functions, review the Exchange’s regulatory budget and inquire into the adequacy of resources available in the budget for regulatory activities, and be informed about the compensation and promotion or termination of the CRO.92 The Exchange also proposes that the Internal Audit Department of Nasdaq, Inc. (‘‘Nasdaq Internal Audit Department’’) would report to the Board on all Exchange-related internal audit matters and direct such reports to the new ROC.93 In addition, to ensure that the Board retains authority to direct the Nasdaq Internal Audit Department’s activities with respect to the Exchange, the Nasdaq Internal Audit Department’s written procedures will stipulate that the ROC may, at any time, direct the Nasdaq Internal Audit Department to conduct an audit of a matter of concern and report the results of the audit both to the ROC and the Nasdaq Audit Committee.94 The Exchange also proposes to eliminate its current Compensation Committee and its Corporate Governance Committee.95 The Compensation Committee is primarily charged with reviewing and approving compensation policies and plans for the Chief Executive Officer and other senior executive officers of the Exchange.96 Under the new governance structure, the functions of the Compensation Committee will be performed by Nasdaq, Inc.’s management compensation committee or, to the extent that policies, programs, and practices must be established for any Exchange officers or employees who are not also officers or employees of Nasdaq, Inc., the full Board.97 The Corporate Governance Committee is primarily charged with: (i) Nominating candidates for all vacant or new non91 See New By-Laws, Article IV, Section 7. The CRO may also serve as the General Counsel of the Exchange. Id. 92 See New By-Laws, Article III, Section 5(c). 93 See Notice, supra note 3, at 20519 & n.95 (citing the Regulatory Oversight Committee Charter of Nasdaq, Phlx, and BX, available at https:// ir.nasdaq.com/corporate-governancedocument.cfm?DocumentID=1097). 94 See id. at 20519. 95 See id. at 20519–20. 96 See id. at 20519. See also Current Constitution, Section 5.6. 97 See Notice, supra note 3, at 20519. VerDate Sep<11>2014 15:13 Aug 03, 2017 Jkt 241001 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.98 Under the new governance structure, the functions of the Corporate Governance Committee will be performed by the new Nominating Committee, the new ROC, or, if required, the full Board.99 As discussed above, the Nominating Committee and Member Nominating Committee will have responsibility for, among other things, nominating candidates for election to the Board. On an annual basis, the members of these committees will nominate candidates for the succeeding year’s respective committees to be elected by ISE Holdings.100 Finally, the Quality of Markets Committee (‘‘QMC’’) 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.101 At least 20% of the QMC must be composed of Member Representative members, and the Non-Industry members on the QMC must equal or exceed the sum of Industry members and Member Representative members.102 98 See id. at 20520. See also Current Constitution, Section 5.4. 99 See Notice, supra note 3, at 20520. 100 See New By-Laws, Article III, Section 6(c). See also supra notes 46–53 and accompanying text. Additional candidates for the Member Nominating Committee may be nominated and elected by Exchange Members pursuant to a petition process. See supra notes 49–52 and accompanying text. The Commission notes that under the New ByLaws, the Member Nominating Committee shall nominate candidates for each Member Representative Director position to be elected by Exchange Members or the Sole LLC Member, and for appointment by the Board for each vacant or new position on any committee that is to be filled with a Member Representative member. See New By-Laws, Article III, Section 6. 101 See New By-Laws, Article III, Section 6(c)(i). 102 See New By-Laws, Article III, Section 6(c)(ii). See also Notice, supra note 3, at 20521; Amendment No. 1. The Exchange also states that the function of Member Representative members on committees is to provide members a voice in the administration of the Exchange’s affairs on certain committees that are responsible for providing advice on any matters pertaining to the Exchange’s self-regulatory function or relating to its market structure. See Amendment No. 1. In order to ensure that its members have the opportunity to formally provide PO 00000 Frm 00148 Fmt 4703 Sfmt 4703 36503 The Commission believes that the Exchange’s proposed committees, which are similar to the committees maintained by other exchanges,103 are designed to help enable the Exchange to carry out its responsibilities under the Act and are consistent with the Act, including Section 6(b)(1), which requires, in part, an exchange to be so organized and have the capacity to carry out the purposes of the Act.104 The Commission further believes that the Exchange’s proposed committees, including their composition and the means by which committee members will be chosen, are consistent with Section 6(b)(3) of the Act because relevant committees provide for the fair representation of members in the administration of the Exchange’s affairs.105 4. Regulatory Independence Certain provisions in ISE’s Current Governing Documents, and those of its Upstream Owners, are designed to help maintain the independence of the regulatory functions of the Exchange.106 The New Governing Documents similarly include provisions designed to help maintain the independence of the regulatory functions of ISE,107 which provisions are substantially similar to those included in the governing documents of other exchanges.108 Specifically: • The Exchange Board will be required, when evaluating any proposal, to take into account all factors that the Board deems relevant, including, without limitation, (1) the potential impact on: The integrity, continuity, and stability of the national securities exchange operated by the Exchange and the other operations of the Exchange; the ability to prevent fraudulent and manipulative acts and practices; and input on matters that are important to them, the Exchange states that at least 20% of the persons serving on any such committees will be individuals who will have been appointed by the Member Nominating Committee and will be representative of the Exchange’s membership. See id. 103 See, e.g., Nasdaq By-Laws Article III, Sections 5–6; BX By-Laws, Article IV, Sections 4.13–14; Phlx By-Laws, Article V, Sections 5–2 to –3. 104 15 U.S.C. 78f(b)(1). 105 See 15 U.S.C. 78f(b)(3). 106 See, e.g., Nasdaq Acquisition Order, supra note 4, at 41613–16; Securities Exchange Act Release No. 56955 (December 13, 2007), 72 FR 71979 (December 19, 2007) (SR–ISE–2007–101) (order approving acquisition of ISE Holdings by Eurex Frankfurt); and ISE HoldCo Order, supra note 9, at 25263–64. 107 See Notice, supra note 3, at 20524. The Commission notes that the Exchange did not propose any amendments to the governing documents of its Upstream Owners. 108 See, e.g., Nasdaq Exchange Order, supra note 52; MIAX Exchange Order, supra note 57; Mercury Exchange Approval, supra note 28. E:\FR\FM\04AUN1.SGM 04AUN1 36504 Federal Register / Vol. 82, No. 149 / Friday, August 4, 2017 / Notices investors and the public, and (2) whether such proposal 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 the perfection of the mechanisms for a free and open market and a national market system.109 • All books and records of ISE reflecting 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) shall be retained in confidence by ISE and its officers, directors, employees and agents; shall not be made available to persons other than to those officers, directors, employees, and agents of ISE that have a reasonable need to know; and will not be used for any non-regulatory purpose.110 109 See New By-Laws, Article III, Section 3. See also Amendment No. 1. In Amendment No. 1, the Exchange proposes to clarify in Article III, Section 3 of the New By-Laws the factors to be considered by the Board when evaluating any proposal. See id. Further, the Exchange states that Article III, Section 3 of the New By-Laws recognizes the Exchange’s status as a self-regulatory organization, and the provisions of Section 3, taken together, are designed to reinforce the notion that the Exchange is not solely a commercial enterprise, but rather a selfregulatory organization registered pursuant to, and subject to the obligations imposed by, the Act. See Notice, supra note 3, at 20517; Amendment No. 1. 110 The corresponding provision in ISE’s Current LLC Agreement prohibits the use of confidential information for any commercial purpose. See Current LLC Agreement, Article IV, Section 4.1(b). The Exchange proposes to modify the standard to prohibit the use of such information for any nonregulatory purpose. See Notice, supra note 3, at 20512; New LLC Agreement, Section 16. The Exchange states that this change is intended to replicate Section 4.1(b)(iii) of MRX’s LLC Agreement, to emphasize the independence of the Exchange’s regulatory function from its commercial interests. See Amendment No. 1. Pursuant to Amendment No. 1, the Exchange is not proposing that ISE, and the Board on behalf of ISE, shall not have the right to keep confidential from ISE Holdings, as 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 Delaware Limited Liability Company Act, 6 Del. C. § 18–101. Additionally, the Exchange is not proposing that ISE Holdings, as the Sole LLC Member and the Exchange’s authorized representative, shall have an explicit right to examine the Exchange’s books, records, and documents during normal business hours. See Amendment No. 1. Although such provisions are in the Nasdaq LLC Agreement (see Nasdaq LLC Agreement, Section 16), they are not in the Current Governing Documents of ISE. The Commission believes that the proposed provisions relating to the books and records of the Exchange are designed to maintain the independence of ISE’s self-regulatory function, and are consistent with the Act. The Commission notes VerDate Sep<11>2014 15:13 Aug 03, 2017 Jkt 241001 • The Exchange proposes that, as is currently the case, the books and records of ISE must be maintained in the United States 111 and are subject at all times to examination by the Commission pursuant to the federal securities laws and the rules and regulations thereunder.112 • Under the New LLC Agreement and New By-Laws, any amendments to those documents will not become effective until filed with, or filed with and approved by, the Commission, as required under Section 19 of the Act and the rules promulgated thereunder.113 that these provisions are substantially similar to those the Commission has previously found to be consistent with the Act in the context of the corporate governance structures of other exchanges. See, e.g., MIAX Exchange Order, supra note 57; Mercury Exchange Approval, supra note 28. The Commission also notes that the governing documents of ISE’s Upstream Owners provide that all books and records of ISE reflecting confidential information pertaining to the self-regulatory function of the Exchange will be subject to confidentiality restrictions. See Certificate of Incorporation of ISE Holdings, Article Eleventh; Certificate of Incorporation of U.S. Exchange Holdings, Article Fourteenth; By-Laws of Nasdaq, Inc., Article XII, Section 12.1(b). 111 See New LLC Agreement, Section 16; see also Current LLC Agreement, Article IV, Section 4.1. 112 See New LLC Agreement, Section 16. The Commission notes that, as is currently the case, the requirement to keep such information confidential shall not limit the Commission’s ability to access and examine such information or limit the ability of officers, directors, employees, or agents of ISE to disclose such information to the Commission. See id. See also Current LLC Agreement, Article IV, Section 4.1(b). The Exchange states that certain provisions in Section 16 of the New LLC Agreement are substantially similar to provisions in Section 16 of the Nasdaq LLC Agreement. See Amendment No. 1. The Exchange also states that it is retaining in the New LLC Agreement certain provisions from its Current LLC Agreement that are not in the governing documents of the Nasdaq Exchanges, such as those relating to where the Exchange’s books and records must be maintained and who may access the books and records, in particular those books and records that contain confidential information pertaining to the self-regulatory function of the Exchange. See Notice, supra note 3, at 20512 & n.38. ISE also states that the Nasdaq Exchanges will separately file proposed rule changes to harmonize the books and records provisions in their respective governing documents with the language in Section 16 of the New LLC Agreement. See Notice, supra note 3, at 20512 n.38. 113 See New LLC Agreement, Section 27; New ByLaws, Article VIII, Section 1. The Commission notes that, although the Current Constitution and Current LLC Agreement do not include a similar, explicit requirement regarding the filing of amendments pursuant to Section 19 of the Act, the Current Constitution and Current LLC Agreement, as rules of the Exchange, are nonetheless subject to the requirements of Section 19 of the Act and the rules and regulations thereunder. Additionally, pursuant to the New By-Laws, either the Sole LLC Member or the vote of a majority of the whole Board may enact amendments to the By-Laws, and that the Board may adopt emergency by-laws. PO 00000 Frm 00149 Fmt 4703 Sfmt 4703 • Additionally, as is currently the case pursuant to the Current LLC Agreement,114 Section 15 of the New LLC Agreement would prohibit the Exchange from using Regulatory Funds to pay dividends.115 The Commission believes that the provisions discussed in this section, which are designed to help ensure the independence of the Exchange’s regulatory function and facilitate the ability of the Exchange to carry out its responsibility and operate in a manner consistent with the Act, are appropriate and consistent with the requirements of the Act, particularly with Section 6(b)(1), which requires, in part, an exchange to be so organized and have the capacity to carry out the purposes of the Act.116 The Commission finds that proposed process regarding amendments to the New Governing Documents is consistent with Section 6(b)(1) of the Act, because it reflects the obligation of the Board to ensure compliance with the rule filing requirements under the Act. Additionally, the Commission finds these changes to be consistent with Section 19(b)(1) of the Act and Rule 19b–4 thereunder,117 which require that a self-regulatory organization file with the Commission all proposed rules, as well as all proposed changes in, additions to, and deletions of its existing rules. These provisions clarify that amendments to the New Governing Documents constitute proposed rule changes within the meaning of Section 19(b)(2) of the Act and Rule 19b–4 thereunder, and are subject to the filing requirements of Section 19 of the Act 114 See Current LLC Agreement, Article III, Section 3.3. 115 Specifically, pursuant to Section 15 of the New LLC Agreement, Regulatory Funds shall not be used 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 (ISE Holdings) using Regulatory Funds. See New LLC Agreement, Section 15. Consistent with Section 3.3 of the Current LLC Agreement, Schedule A of the New LLC Agreement defines ‘‘Regulatory Funds’’ as fees, fines, or penalties derived from the regulatory operations of the Exchange. However, Regulatory Funds do not 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. See New LLC Agreement, Schedule A. ISE states that the Nasdaq Exchanges will separately file proposed rule changes to harmonize the distribution provisions in their respective governing documents with the language in Section 15 of the New LLC Agreement. See Amendment No. 1. 116 15 U.S.C. 78f(b)(1). 117 Id.; 17 CFR 240.19b–4. E:\FR\FM\04AUN1.SGM 04AUN1 Federal Register / Vol. 82, No. 149 / Friday, August 4, 2017 / Notices and the rules and regulations thereunder. The Commission also finds that the prohibition on the use of regulatory fines, fees, or penalties to fund dividends is consistent with Section 6(b)(1) of the Act, because it will further the Exchange’s ability to effectively comply with its statutory obligations and is designed to ensure that the regulatory authority of the Exchange is not improperly used.118 This restriction on the use of regulatory funds is intended to preclude the Exchange from using its authority to raise Regulatory Funds for the purpose of benefiting its shareholders.119 C. Related Rule Amendments While voting rights with respect to Directors will be governed by the New Governing Documents, as is the case today under the Current Governing Documents,120 the Current Governing Documents also afford certain additional rights to the holders of PMM Rights and CMM Rights (PMM Rights and CMM Rights, each as defined below, and together, ‘‘Market Maker Rights’’), namely: 121 (i) the right to vote on any change in, amendment to, or modification of the Core Rights or the definition of ‘‘Core Rights’’; 122 and (ii) the right to transfer or lease Market Maker Rights upon approval of the Exchange.123 The Exchange represents 118 See, e.g., Securities Exchange Act Release No. 51029 (January 12, 2005), 70 FR 3233, 3241 (January 21, 2005) (SR–ISE–2004–29) (approving an ISE rule interpretation that requires that revenues received from regulatory fees or regulatory penalties be segregated and applied to fund the legal, regulatory, and surveillance operations of the Exchange and not used to pay dividends to the holders of Class A Common Stock). 119 See Notice, supra note 3, at 20512. 120 The Commission notes, however, that in the case of a Contested Election for Member Representative Directors, which is discussed above, instead of electing Directors by class, as is the case under the Current Governing Documents, each PMM, CMM, and EAM Rights holder would cast one vote. See supra note 52 and accompanying text. 121 See Notice, supra note 3, at 20510. 122 See Current LLC Agreement, Section 6.3(b) and Current Constitution, Section 10.1. ‘‘Core Rights’’ represent the voting rights with respect to any increase in the number of authorized Market Maker 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. 123 See Current LLC Agreement, Article VI and Current Constitution, Article XII. According to the Exchange, most of the transfer and lease provisions in the Current Governing Documents are also already in the current Rule 300 Series. See Notice, supra note 3, at 20510 n.26. The Commission notes that holders of Exchange Rights also currently have the right to vote on amendments to the Current LLC Agreement or Current By-Laws, if the amendment would alter or change the powers, preferences, or special rights of one or more series of Exchange Rights so as to affect them adversely. See Current LLC Agreement, VerDate Sep<11>2014 15:13 Aug 03, 2017 Jkt 241001 that these rights reflect ISE’s original membership structure, where the original Market Maker Rights provided the holders thereof with an equity ownership interest in ISE, as well as trading rights on the Exchange.124 The Exchange states, however, that today the Market Maker Rights do not confer any equity ownership in the Exchange and are, for all practical purposes, rights to trade on the Exchange.125 As such, the Exchange believes that the provisions governing the trading privileges of PMMs,126 CMMs,127 and EAMs 128 are more appropriately located in its Rules rather than its governance documents. Accordingly, the Exchange proposes to import into its Rules certain provisions relating to Market Maker Rights, as well as Exchange Rights,129 currently found in the Current Governing Documents.130 The Exchange states that it is amending its Rules to: (i) Clarify any Rules that cross-reference the Current Governing Documents in the rule text, since those documents are being replaced by the New Governing Documents; or (ii) relocate or memorialize in the Rules certain rights and protections afforded to the Market Marker Rights holders, Article VIII, Section 8.1 and Current Constitution, Article X, Section 10.1. 124 See Notice, supra note 3, at 20510 & n.27 (citing ISE Exchange Approval, supra note 71). The Exchange notes that 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, in the past, 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). The Exchange states that, from the beginning, the holders of EAM Rights had no equity interest in the Exchange and only had rights to trade on the Exchange, and that 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 holders of PMM Rights and CMM Rights still retain, however, the ability to transfer those rights. See, e.g., Rule 307(a); Current LLC Agreement, Section 6.4; and Current Constitution, Sections 12.1(c), 12.2(c), and 12.3(b). See also Notice, supra note 3, at 20510 & n.27, 20511. 125 See Notice, supra note 3, at 20511. 126 See infra note 140 for the definition of the term, ‘‘PMM.’’ 127 See infra note 136 for the definition of the term, ‘‘CMM.’’ 128 See infra note 138 for the definition of the term, ‘‘EAM.’’ 129 See supra note 70 for the definition of the term ‘‘Exchange Rights.’’ 130 The Exchange provides that all the provisions governing the transfer and lease of Market Maker Rights in the Current Governing Documents are substantially set forth in the Rules. PO 00000 Frm 00150 Fmt 4703 Sfmt 4703 36505 which today are primarily found in the Current Governing Documents.131 The Exchange represents that the holders of Exchange Rights will continue to have the same trading privileges they currently hold as PMMs, CMMs, and EAMs under its Rules, and the new Board structure of the Exchange will not change any trading privileges.132 Specifically, the Exchange proposed changes to its Rules to, among other things: • Relocate the concept of CMM Rights from the Current LLC Agreement 133 to New Rule 100(a)(11), which will 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)),134 and provide in New Rule 100(a)(11) that there are 160 authorized CMM Rights, as is currently set forth in Section 6.1(a) of the Current LLC Agreement.135 • Relocate to New Rule 100(a)(12) the definition of ‘‘Competitive Market Maker,’’ 136 which is currently only defined in Section 13.1(g) of the Current Constitution. • Relocate the concept of EAM Rights to New Rule 100(a)(15), which will state that the term ‘‘EAM Rights’’ means the non-transferable rights held by an Electronic Access Member.137 131 See Notice, supra note 3, at 20511. The Exchange also proposes certain technical, nonsubstantive changes, such as changing the term ‘‘Constitution’’ to ‘‘By-Laws.’’ 132 See id. 133 See Current LLC Agreement, Article VI, Section 6.2(b). 134 CMM Rights are transferable rights. The holders of CMM Rights may lease or sell these rights in accordance with the Exchange’s rules and Current Governing Documents. As discussed 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 supra note 124. The term ‘‘non-member owners’’ is defined as individuals and organizations that are not Members of the Exchange, or that are otherwise Members, but do not seek to exercise trading privileges associated with the Market Maker Rights that they own. See Rule 300(a). The term ‘‘Member’’ means an organization that has been approved to exercise trading rights associated with Exchange Rights. See current Rule 100(a)(23); New Rule 100(a)(26). 135 See Current LLC Agreement, Article VI, Section 6.1(a). 136 The term ‘‘Competitive Market Maker’’ (referred to herein as ‘‘CMM’’) will be defined to mean a Member that is approved to exercise trading privileges associated with CMM Rights. See New Rule 100(a)(12). 137 EAM Rights are non-transferable. Accordingly, the holders of EAM Rights may not lease or sell these rights (unlike PMM and CMM Rights, which E:\FR\FM\04AUN1.SGM Continued 04AUN1 36506 Federal Register / Vol. 82, No. 149 / Friday, August 4, 2017 / Notices • Relocate to New Rule 100(a)(16) the definition of ‘‘Electronic Access Member,’’ 138 which is currently only defined in Section 13.1(l) of the Current Constitution. • Relocate the definitions for ‘‘Exchange Transaction,’’ ‘‘good standing,’’ and ‘‘System’’ from the Current Constitution to the Rules,139 and delete Rule 100(a)(22), defining ‘‘LLC Agreement,’’ as that term would no longer be used in the Rules, as amended by the proposed rule change. • Relocate the concept of PMM Rights from Article VI of the Current LLC Agreement to New Rule 100(a)(39), which will state that the term ‘‘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)), and will state that there are 10 authorized PMM Rights, as is currently set forth in Section 6.1(a) of the Current LLC Agreement. • Relocate to New Rule 100(a)(40) the definition for ‘‘Primary Market Maker’’ 140 from Section 13.1(bb) of the Current Constitution. The Exchange also proposed to add as new paragraphs (d) and (e) in New 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 states that any increase in the number of authorized PMM or 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, respectively.141 Second, new paragraph (e) states that any amendments to the New Governing are transferable). See Current Constitution Article XII, Section 12.3. See also Notice, supra note 3, at 20522 n.111. The current definition of EAM Rights in Rule 100(a)(14) refers to Article VI of the Current LLC Agreement. 138 The term ‘‘Electronic Access Member’’ (referred to herein as ‘‘EAM’’) will be defined to mean a Member that is approved to exercise trading privileges associated with EAM Rights. See New Rule 100(a)(16). 139 ‘‘Exchange Transaction’’ would be relocated from Section 13.1(r) of the Current Constitution to New Rule 100(a)(20), ‘‘good standing’’ from Section 13.1(s) of the Current Constitution to New Rule 100(a)(23), and ‘‘System’’ from Section 13.1(gg) of the Current Constitution to New Rule 100(a)(53). 140 The term ‘‘Primary Market Maker’’ (referred to herein as ‘‘PMM’’) will be defined to mean a Member that is approved to exercise trading privileges associated with PMM Rights. See New Rule 100(a)(40). 141 See New Rule 300(d). See also supra note 122 and accompanying text (discussing the current Core Rights). VerDate Sep<11>2014 15:13 Aug 03, 2017 Jkt 241001 Documents 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 or CMM Rights, as applicable. As such, to the extent they relate to the Market Maker Rights holders, paragraph (e) preserves the existing amendment rights from the Current Governing Documents.142 The Exchange also proposes to explicitly set forth in its Rules the ownership and voting limitations for the holders of Market Maker Rights.143 Today, a holder or lessee of Exchange Rights, together with any affiliate, is restricted from owning (or exercising any of the non-trading rights associated with) more than 20% of the PMM Rights or CMM Rights.144 Consistent with the current limitation, the Exchange proposes to replace the current Supplementary Material .02 to Rule 303 with New Supplementary Material .02, to state that, ‘‘[i]n addition to the trading concentration limits contained in [Rule 303], no holder or lessee of Market Maker Rights, together with any affiliate, may gain ownership or voting rights in excess of 20% of the outstanding PMM Rights or CMM Rights, as applicable.’’ 145 The Exchange 142 See New Rule 300(e). See also Current LLC Agreement, Section 8.1 and Current Constitution, Section 10.1. As the Exchange notes, 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. See Notice, supra note 3, at 20523 n.114. See also supra note 123. The Commission also notes that any such amendment would also be subject to the voting concentration limitation in the New Supplementary Material .02 to Rule 303, described below (see infra notes 143– 145 and accompanying text), as well as the requirements of Section 19 of the Act and the rules and regulations thereunder (see New LLC Agreement, Section 27; New By-Laws, Article VIII, Section 1). 143 See New Supplementary Material .02 to Rule 303. 144 See Current LLC Agreement, Section 6.5(a). See also Amendment No. 1. Under the Current LLC Agreement, a holder or lessee of Exchange Rights, together with any affiliate, is also restricted from owning (or exercising any of the non-trading rights associated with) more than 20% of the EAM Rights. As discussed above, under the New Governing Documents, a 20% voting limitation will apply to all Exchange Members with respect to participation in Contested Elections, and only holders of PMM and CMM Rights will have a right to vote on certain amendments to the New Governing Documents. See supra notes 52 and 142 and accompanying text. 145 See New Supplementary Material .02 to Rule 303. See also Amendment No. 1. The Exchange states that this voting limitation will be calculated by class (i.e., 20% of outstanding PMM Rights or CMM Rights, as applicable) when PO 00000 Frm 00151 Fmt 4703 Sfmt 4703 also states that the New Governing Documents will not have any provisions related to the Market Maker Rights.146 The Commission notes that, because the only remaining voting rights associated with PMM Rights and CMM Rights will be the Core Rights and the right to vote on certain amendments to the New Governing Documents, as described above, the voting limitation in Supplementary Material .02 to New Rule 303 will only apply to voting on those matters. Voting on the election of Member Representative members will be governed by Article II of the New ByLaws, as described above.147 In the context of a lease of Market Maker Rights, the Exchange proposes to add a requirement in New Rule 308 that the holder of Market Maker Rights must, as is currently required by Section 12.4(b) of the Current Constitution, retain the Core Rights associated with such Market Maker Rights and not transfer such voting rights to the lessee. Section 12.4(b) of the Current Constitution also 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, other than the Core Rights, to the lessee. Currently, the voting rights associated with the PMM Rights and CMM Rights that may be retained or transferred are the right to vote in the election of Exchange Directors and the right to vote on amendments to the Current Governing Documents that may adversely affect Market Maker Rights.148 Pursuant to the New Governing Documents, a holder of Market Maker Rights will continue to have the option of retaining or transferring the right to vote on certain amendments to the New Governing Market Maker Rights holders are voting on Core Rights or on certain amendments to the New Governing Documents, which is how the voting limitation is applied on the Exchange today. See Amendment No. 1. As it relates to voting on the Member Representative Directors only, in the event of a Contested Election, the Exchange states that members will now vote as one class. As such, an Exchange Member (together with any affiliates) may not cast votes representing more than 20% of the votes cast for a candidate. See id. See also New ByLaws, Article II, Section 2. New Supplementary Material .02 to Rule 303 will replace the Current Supplementary Material .02 to Rule 303, which states that in approving any PMM to exercise the trading privileges associated with more than 20% of the outstanding PMM Membership, the Board will not approve any arrangement in which such PMMs would gain ownership or voting rights in excess of those permitted under the Exchange’s Current LLC Agreement or Current Constitution. 146 See Amendment No. 1. 147 See supra notes 46–53 and accompanying text. 148 See Amendment No.1. See also Current LLC Agreement, Article VI, Section 6.3 and Article VIII, Section 8.1; and Current Constitution, Article X, Section 10.1 E:\FR\FM\04AUN1.SGM 04AUN1 Federal Register / Vol. 82, No. 149 / Friday, August 4, 2017 / Notices Documents. With respect to the right to vote in the case of a Contested Election, the Exchange provides that those voting rights will be transferable under a lease agreement for the holders of Market Maker Rights who are also members of the Exchange.149 Non-member owners, who are required to lease out their Market Maker Rights pursuant to Rule 300(b) will no longer have voting rights with respect to Directors that represent Exchange Members.150 The Commission notes that the 20% concentration limitation on voting described above will continue to apply in the case of any transfer of the right to vote in Contested Elections. The Exchange also proposes to amend New Rule 308 to memorialize the manner in which Market Maker Rights may be subleased. Specifically, the Exchange proposes that a lessee of a Market Maker membership in good standing may sublease such membership to a Member with the permission of the owner.151 The Exchange states that this is consistent with the Exchange’s current practice and will not change the manner in which Market Maker Rights are subleased, but will clarify that such rights may be subleased to an Exchange Member only.152 Additionally, the Exchange proposes to relocate to the New Rules the requirement from the Current Constitution that a lessor of Market Maker Rights must retain the Core Rights.153 The Exchange also proposes to clarify that, for the holders of Market Maker Rights who are also members of the Exchange, the right to vote on Directors representing Exchange Members will continue to be transferable under a lease agreement.154 Non-member owners, who are required to lease out their Market Maker Rights pursuant to Rule 300(b), will not have voting rights with respect to electing Member Representative Directors.155 The Exchange states that all voting rights other than Core Rights will remain transferable under a lease agreement, and that New Rule 308(b)(4) requires a lease agreement of Market Maker Rights to include provisions for which party will exercise the voting rights associated 149 See Amendment No. 1. id. 151 See id. 152 Id. See also New Rule 308. 153 See Notice, supra note 3, at 20523. See also Amendment No. 1; and New Rule 308. 154 See Amendment No. 1. 155 As described above, under the New By-Laws, in the case of a Contested Election, each Exchange Member shall have the right to cast one vote for each Member Representative Director. See New ByLaws, Article II, Section 2. See also supra note 52; Amendment No. 1. 150 See VerDate Sep<11>2014 15:13 Aug 03, 2017 Jkt 241001 with the Market Maker Rights being leased.156 Accordingly, apart from being relocated from the Current Constitution to the Rules, the Exchange represents that the proposed amendment to New Rule 308 will not change the current transfer rights associated with Market Maker Rights, other than as described above with respect to non-member owners.157 The Exchange also proposes to amend New Rule 802(b) to 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; and would provide that the foregoing will 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.158 The Exchange states that this proposal is consistent with the manner in which products are allocated to PMMs on the Exchange today.159 According to the Exchange, today, when ISE lists new options classes, it allocates them to one of its PMMs under Rule 802, and that pursuant to delegated authority by the Board, an Allocation Committee, which consists of employees of the Exchange (‘‘Allocation Committee’’), makes allocation decisions according to the guidelines contained in Rule 802.160 The Exchange also states that 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, and as such, the proposed changes are simply to memorialize a longstanding practice on the Exchange.161 The Commission believes that the proposed changes to ISE’s Rules are consistent with the Act and, in particular Section 6(b)(1) of the Act,162 which requires among other things that a national securities exchange be so organized and have the capacity to carry out the purposes of the Act. The Commission notes that many of the proposed changes to ISE’s Rules are technical in nature, such as renumbering of Rules or conforming terminology to reflect the replacement of the Current Governing Documents with the New Governing Documents. 156 See Amendment No. 1. id. 158 See New Rule 802(b)(2). 159 See Notice, supra note 3, at 20523. 160 See id. 161 See id. 162 15 U.S.C. 78f(b)(1). 157 See PO 00000 Frm 00152 Fmt 4703 Sfmt 4703 36507 The Commission also notes that, as described above, the Exchange proposes to relocate definitions and provisions related to Market Maker Rights from the Current Governing Documents into the Rules. The Commission believes that the proposed changes to ISE’s Rules that would prohibit a holder or lessee of Market Maker Rights, together with any affiliate, from gaining ownership or voting rights in excess of 20% of the outstanding PMM Rights or CMM Rights, as applicable, are consistent with the Act. The Commission has previously stated that a regulatory concern can arise if a member’s interest in an exchange becomes so large as to cast doubt on whether the exchange can fairly and objectively exercise its selfregulatory responsibilities with respect to that member.163 The Commission has stated, for example, that a member that directly or indirectly controls an exchange might be tempted to exercise that controlling influence by directing the exchange to refrain from diligently monitoring and surveilling the member’s conduct or diligently enforcing its rules and the federal securities laws with respect to conduct by the member that violates such provisions.164 The Commission believes that the proposal would not give rise to concerns about the Exchange’s ability to effectively carry out its regulatory responsibilities under the Act because the proposed rules change preserves existing ownership and voting limitations. IV. Accelerated Approval The Commission finds good cause, pursuant to Section 19(b)(2) of the Act,165 to approve the proposal, as modified by Amendment No. 1, prior to the 30th day after publication of Amendment No. 1 in the Federal Register. In Amendment No. 1, ISE revises the original proposal to make certain changes discussed in greater detail above. Notably, in Amendment No. 1, ISE revises its proposal to (1) make changes to the Exchange’s New LLC Agreement and New By-Laws to better align these proposed documents with certain provisions in ISE’s existing governing documents and the governing documents of other exchanges, including those concerning limitations on board committee powers, the confidentiality of books and records, the nomination of certain board directors by petition, and the confidentiality of board meetings; (2) revise the proposed 163 See, e.g., ISE HoldCo Order, supra note 9, at 25262 n.38 and accompanying text. 164 See, e.g., id. at 25262. 165 15 U.S.C. 78s(b)(2). E:\FR\FM\04AUN1.SGM 04AUN1 36508 Federal Register / Vol. 82, No. 149 / Friday, August 4, 2017 / Notices amendments to ISE’s rules regarding ownership, voting, and transfer restrictions relating to certain market maker rights on the Exchange; (3) revise the related discussion of the purpose of the proposed changes; (4) add clarification to the description of the proposal regarding the operation of certain provisions; and (5) make certain technical corrections. The Commission believes that Amendment No. 1 does not raise any novel regulatory issues and instead better aligns ISE’s proposed New Governing Documents with certain provisions in its Current Governing Documents and the governing documents of other exchanges that were previously approved by the Commission.166 As discussed more fully above, certain provisions of ISE’s New Governing Documents, as modified by Amendment No. 1, are designed to facilitate the ability of ISE to maintain the independence of its self-regulatory function, enable it to operate in a manner that complies with the federal securities laws, and facilitate the ability of ISE and the Commission to fulfill their regulatory and oversight obligations under the Act.167 The Commission further believes that Amendment No. 1 provides additional clarity in the rule text and the description of the proposal, which is consistent with ISE’s original proposal and supports ISE’s analysis of how its proposal is consistent with the Act, thus facilitating the Commission’s ability to make the findings set forth above to approve the proposal. Accordingly, the Commission finds that good cause exists to approve the proposal, as modified by Amendment No. 1, on an accelerated basis. V. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning Amendment No. 1, including whether Amendment No. 1 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 166 See, e.g., Securities Exchange Act Release Nos. 70050 (July 26, 2013), 78 FR 46622 (August 1, 2013) (granting GEMX’s (f/k/a Topaz Exchange, LLC) application for registration as a national securities exchange); and Mercury Exchange Approval, supra note 28. 167 See supra Section III.B.4 (discussing, for example, certain provisions in ISE’s New Governing Documents that are designed to help maintain the independence of the regulatory functions of the Exchange). VerDate Sep<11>2014 15:13 Aug 03, 2017 Jkt 241001 • Send an email to rule-comments@ sec.gov. Please include File Number SR– ISE–2017–32 on the subject line. SECURITIES AND EXCHANGE COMMISSION Paper Comments [Release No. 34–81269; File No. SR– NYSENAT–2017–03] • 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 August 25, 2017. VI. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,168 that theproposed rule change (SR–ISE–2017– 32), as modified by Amendment No. 1, be, and hereby is, approved on an accelerated basis. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.169 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–16398 Filed 8–3–17; 8:45 am] Self-Regulatory Organizations; NYSE National, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Rule 11.26 To Modify the Date of Appendix B Web site Data Publication Pursuant to the Regulation NMS Plan To Implement a Tick Size Pilot Program July 31, 2017. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that on July 18, 2017, NYSE National, Inc. (the ‘‘Exchange’’ or ‘‘NYSE NAT’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rule 11.26 to modify the date of Appendix B Web site data publication pursuant to the Regulation NMS Plan to Implement a Tick Size Pilot Program (‘‘Plan’’). The proposed rule change is available on the Exchange’s Web site at www.nyse.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 self-regulatory organization 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 those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. BILLING CODE 8011–01–P 1 15 168 15 U.S.C. 78s(b)(2). 169 17 CFR 200.30–3(a)(12). PO 00000 Frm 00153 Fmt 4703 Sfmt 4703 U.S.C. 78s(b)(1). U.S.C. 78a. 3 17 CFR 240.19b–4. 2 15 E:\FR\FM\04AUN1.SGM 04AUN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 82, Number 149 (Friday, August 4, 2017)]
[Notices]
[Pages 36497-36508]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-16398]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81263; File No. SR-ISE-2017-32]

Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
of Amendment No. 1 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To
Harmonize the Corporate Governance Framework of Nasdaq ISE, LLC With
That of The NASDAQ Stock Market LLC, NASDAQ PHLX LLC, and NASDAQ BX,
Inc.

July 31, 2017.

I. Introduction

On April 11, 2017, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed
with the Securities and Exchange Commission (``Commission''), pursuant
to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ proposed rule changes to
its corporate governance documents and trading rules to align its
corporate governance framework to the structure of other exchanges
owned by its ultimate parent company, Nasdaq, Inc. The proposed rule
change was published for comment in the Federal Register on May 2,
2017.\3\ The Commission received no comments on the proposal. On June
14, 2017, the Commission extended the time period within which to
approve the proposed rule change, disapprove the proposed rule change,
or institute proceedings to determine whether to disapprove the
proposed rule change.\4\ On July 6, 2017, the Exchange filed Amendment
No. 1 to the proposed rule change.\5\ The

[[Page 36498]]

Commission is publishing this notice to solicit comment on Amendment
No. 1 from interested persons and is approving the proposed rule
change, as modified by Amendment No. 1, on an accelerated basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 80530 (April 26,
2017), 82 FR 20508 (``Notice'').
\4\ See Securities Exchange Act Release No. 80923, 82 FR 28102
(June 20, 2017).
\5\ As discussed further herein, Amendment No. 1, which replaces
the original filing in its entirety, includes, among other things:
(1) Changes to the Exchange's proposed Limited Liability Company
Agreement (``New LLC Agreement'') and proposed By-Laws (``New By-
Laws,'' and together with the New LLC Agreement, the ``New Governing
Documents'') to better align these proposed documents with certain
provisions in ISE's existing governing documents and the governing
documents of other exchanges, including provisions concerning
limitations on board committee powers, the confidentiality of books
and records, the nomination of certain board directors by petition,
and the confidentiality of board meetings pertaining to the
Exchange's self-regulatory functions; (2) revisions to the proposed
amendments to ISE's rules regarding ownership, voting, and transfer
restrictions relating to certain market maker rights on the
Exchange; (3) revisions to the related discussion of the purpose of
the proposed changes; (4) clarification of certain aspects of the
proposed rule changes (e.g., the nomination of Member Representative
members to committees; and certain market maker rights and their
related ownership, voting, and transfer restrictions); and (5)
certain technical corrections (e.g., correcting incorrect cross
references to Exhibits 5A, 5B, 5C, and 5D, updating the proposed
implementation date and the description of the Exchange's most
recent annual election of its board, and amending the proposed New
LLC Agreement to reflect the current address of the Exchange and its
Sole LLC Member). When the Exchange filed Amendment No. 1 with the
Commission, it also submitted Amendment No. 1 to the public comment
file for SR-ISE-2017-32 (available at: https://www.sec.gov/comments/sr-ise-2017-32/ise201732.htm).
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II. Background

On June 21, 2016, the Commission approved a proposed rule change
relating to a corporate transaction in which Nasdaq, Inc. would become
the ultimate parent of ISE (the ``Nasdaq Acquisition''), Nasdaq GEMX,
LLC (``GEMX''), and Nasdaq MRX, LLC (``MRX,'' and together with ISE and
GEMX, the ``ISE Exchanges'').\6\ On June 30, 2016, pursuant to this
transaction, Nasdaq, Inc. acquired all of the capital stock of U.S.
Exchange Holdings, Inc. (``Exchange Holdings''), and thereby became the
indirect, ultimate parent of the ISE Exchanges.\7\ Nasdaq, Inc. is also
the ultimate parent of NASDAQ BX, Inc. (``BX''), The NASDAQ Stock
Market LLC (``Nasdaq''), and NASDAQ PHLX LLC (``Phlx'' and, together
with Nasdaq and BX, the ``Nasdaq Exchanges'').\8\ The Commission notes
that the corporate governance documents of ISE, specifically its Third
Amended and Restated Limited Liability Company Agreement (``Current LLC
Agreement'') and its Second Amended and Restated Constitution
(``Current Constitution'' and, together with the Current LLC Agreement,
the ``Current Governing Documents'') are rules of the Exchange,\9\ as
are the governing documents of ISE's Upstream Owners,\10\ which include
certain provisions that are designed to maintain the independence of
ISE's self-regulatory functions (as well as the self-regulatory
functions of the Upstream Owners' other self-regulatory subsidiaries,
i.e., the Nasdaq Exchanges).\11\
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\6\ See Securities Exchange Act Release No. 78119 (June 21,
2016), 81 FR 41611 (June 27, 2016) (SR-ISE-2016-11; SR-ISEGemini-
2016-05; SR-ISEMercury-2016-10) (``Nasdaq Acquisition Order'')
(order approving Nasdaq, Inc.'s acquisition of ISE, GEMX (f/k/a ISE
Gemini, LLC), and MRX (f/k/a ISE Mercury, LLC)).
\7\ See Notice, supra note 3, at 20508 n.3. Exchange Holdings is
the sole owner of ISE Holdings, Inc. (``ISE Holdings,'' and together
with Exchange Holdings and Nasdaq, Inc., the ``Upstream Owners''),
which is the sole owner of 100% of the Exchange's limited liability
company interests. See Notice, supra note 3, at 20508-09; see also
Nasdaq Acquisition Order, supra note 6, at 41611. ISE Holdings is
also the sole direct owner of GEMX and MRX. See Nasdaq Acquisition
Order, supra note 6, at 41611.
\8\ See Notice, supra note 3, at 20508. See also Nasdaq
Acquisition Order, supra note 6, at 41611. As a result of this
transaction, the ISE Exchanges and the Nasdaq Exchanges became
affiliates. See Nasdaq Acquisition Order, supra note 6, at 41611
n.8.
\9\ See Securities Exchange Act Release No. 53705 (April 21,
2006), 71 FR 25260, 25262-63 (April 28, 2006) (``ISE HoldCo Order'')
(order approving SR-ISE-2006-04).
\10\ See Nasdaq Acquisition Order, supra note 6, at 41612;
Securities Exchange Act Release No. 56955 (December 13, 2007), 72 FR
71979, 71981-82 (December 19, 2007) (order approving SR-ISE-2007-
101); ISE HoldCo Order, supra note 9, at 25262.
\11\ See, e.g., Nasdaq Acquisition Order, supra note 6, at
41612-13; ISE HoldCo Order, supra note 9, at 25264.
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The Exchange intends to effect a merger with a newly-formed
Delaware limited liability company (``Merger'') under Nasdaq, Inc. that
would result in ISE as the surviving entity with new corporate
governance documents. In connection with that Merger, the Exchange
proposes various changes to its corporate governance documents and
rules (``Rules'').\12\ Specifically, the Exchange proposes to: (1)
Delete the Exchange's Current LLC Agreement in its entirety and replace
it with the New LLC Agreement, which is based on the limited liability
company agreement of Nasdaq; \13\ (2) delete the Exchange's Current
Constitution in its entirety and replace it with the New By-Laws, which
are based on the by-laws of Nasdaq; \14\ and (3) amend certain of its
Rules to reflect the replacement of the Current Governing Documents
with the New Governing Documents.\15\
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\12\ The Rules as proposed to be amended pursuant to the
proposed rule change are referred to herein as the ``New Rules.''
\13\ See Notice, supra note 3, at 20508 n.5.
\14\ Id.
\15\ The Exchange states that its affiliates, GEMX and MRX, will
submit nearly identical proposed rule changes. See Notice, supra
note 3, at 20508 n.4.
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The Exchange represents that the proposed changes are designed to
align the Exchange's corporate governance framework with the existing
structure of the Nasdaq Exchanges, particularly as it relates to the
board and committee structure, nomination and election processes, and
related governance practices.\16\ The Exchange also represents that it
is not proposing any amendments to its ownership structure. The
Exchange does not propose any amendments to the governing documents of
its Upstream Owners.\17\ Thus, the provisions in the governing
documents of these entities, which were designed to maintain the
independence of ISE's self-regulatory functions, would remain
unchanged. The Exchange also represents that it is not proposing any
amendments to its Rules at this time, other than to reflect the changes
to its governing documents as described in more detail below.\18\ The
Exchange states that it intends to implement its proposed rule change
no later than by the end of the third quarter of 2017.\19\
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\16\ See id. at 20508.
\17\ See generally id.; Amendment No. 1.
\18\ See Notice, supra note 3, at 20509 and 20522. See also
Amendment No. 1.
\19\ See Amendment No. 1. The Exchange also states that it will
alert its members in the form of a regulatory alert to provide
notification of the implementation date. Id.
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III. Discussion and Commission Findings

After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 1, is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\20\ Specifically, as
discussed in more detail below, the Commission finds that the proposed
rule change is consistent with Sections 6(b)(1) and 6(b)(3) of the
Act,\21\ which require, among other things, that a national securities
exchange be so organized and have the capacity to carry out the
purposes of the Act, and to comply and enforce compliance by its
members and persons associated with its members, with the provisions of
the Act, the rules and regulations thereunder, and the rules of the
exchange, and assure the fair representation of its members and persons
associated with its members in the selection of its directors and
administration of its affairs, and provide that one or more directors
shall be representative of issuers and investors and not be associated
with a member of the exchange, broker, or dealer. Further, the
Commission finds that the proposed rule change is consistent with
Section 6(b)(5) of the Act,\22\ which requires,

[[Page 36499]]

among other things, that the rules of a national securities exchange be
designed to prevent fraudulent and manipulative acts and practices; to
promote just and equitable principles of trade; to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, and processing information with respect to, and facilitating
transactions in securities; to remove impediments to and perfect the
mechanism of a free and open market and a national market system; and,
in general, to protect investors and the public interest.
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\20\ In approving these proposed rule changes, the Commission
has considered the proposed rules' impact on efficiency, competition
and capital formation. 15 U.S.C. 78c(f).
\21\ 15 U.S.C. 78f(b)(1) and (b)(3).
\22\ 15 U.S.C. 78f(b)(5).
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A. Ownership of the Exchange

ISE is currently structured as a Delaware limited liability company
(``Delaware LLC'') \23\ and, as discussed above, is a wholly-owned
subsidiary of ISE Holdings. ISE Holdings, in turn is a wholly-owned
subsidiary of Exchange Holdings, which is wholly-owned by Nasdaq, Inc.
Pursuant to the Current LLC Agreement, ISE Holdings is defined as the
Sole LLC Member.\24\ As the Sole LLC Member, ISE Holdings may assign
all (but not less than all) of its interest in the Exchange, subject to
prior approval by the Commission pursuant to the rule filing procedures
under Section 19 of the Act.\25\
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\23\ See Current LLC Agreement.
\24\ See id. The Current Constitution also defines ISE Holdings
as the Sole LLC Member of the Exchange and permits assignment of its
LLC interest as provided in the Current LLC Agreement. See Current
Constitution, Section 1.1.
\25\ See Current LLC Agreement, Section 7.1.
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Pursuant to the proposed rule change, ISE will be merged with a
newly formed Delaware LLC, whereby ISE will be the surviving entity,
governed by the New Governing Documents. ISE Holdings will continue to
be the direct owner of ISE and will be defined as the ``Company
Member'' or ``Sole LLC Member'' in the New LLC Agreement and New By-
Laws.\26\ Additionally, pursuant to the New LLC Agreement, ISE Holdings
will not be permitted to assign, in whole or in part, its limited
liability company interest in the Exchange, unless such transfer or
assignment is filed with and approved by the Commission pursuant to the
rule filing procedures under Section 19 of the Act.\27\
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\26\ See New LLC Agreement, Schedule A; and New By-Laws, Article
I(f).
\27\ See New LLC Agreement, Section 20. Pursuant to Section 7.1
of the Current LLC Agreement, ISE Holdings may only assign all (but
not less than all) of its ownership interest, and any assignment of
ISE Holdings' interest in ISE would similarly be subject to approval
by the Commission pursuant to the rule filing procedures under
Section 19 of the Act.
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The Commission believes that the proposed restrictions on ISE
Holdings' assignment of its ownership interest in ISE, taken together
with restrictions on voting and ownership limitations in the governing
documents of ISE's Upstream Owners that were previously approved by the
Commission,\28\ are designed to minimize the potential that a person
could improperly interfere with, or restrict the ability of, the
Commission or ISE to effectively carry out its regulatory oversight
responsibilities under the Act. The Commission also notes that the
restrictions on transfer of ownership interest in the Exchange will be
similar to those currently in place. In this regard, the Commission
believes the proposed rule change is consistent with Section 6(b)(1) of
the Act \29\ in particular, which requires that an exchange be
organized and have the capacity to be able to carry out the purposes of
the Act and to comply, and to enforce compliance by its members and
persons associated with its members, with the provisions of the Act,
the rules and regulations thereunder, and the rules of the exchange.
---------------------------------------------------------------------------

\28\ See Nasdaq Acquisition Order, supra note 6, at 41612-17
(discussing provisions, including voting and ownership limitations,
in the governing documents of Nasdaq, Inc. and other Upstream Owners
that are designed to maintain the independence of their self-
regulatory subsidiaries); ISE HoldCo Order, supra note 9, at 25262-
63 (discussing voting and ownership limitations in the governing
documents of ISE Holdings); see also Securities Exchange Act Release
No. 76998 (January 29, 2016), 81 FR 6066, 6067, 6069, 6071-73
(February 4, 2016) (``Mercury Exchange Approval'') (approving the
registration of ISE Mercury, LLC as a national securities exchange
and discussing the provisions in the governing documents of ISE
Holdings and other Upstream Owners that are designed to preserve the
self-regulatory function of the national securities exchanges they
control, which includes ISE).
\29\ 15 U.S.C. 78(b)(1).
---------------------------------------------------------------------------

B. Governance of the Exchange

With the replacement of the Current Governing Documents with the
New Governing Documents, the Exchange proposes to replace certain
provisions pertaining to governance of the Exchange with related
provisions that are based on provisions currently in the Nasdaq LLC
Agreement and Nasdaq By-Laws.\30\ These changes include, among others,
provisions governing: the composition of the Exchange's board of
directors (``Board'' or ``Board of Directors,'' and each member of the
Board of Directors a ``Director''); the process for nominating,
electing, and removing Directors; the filling of vacancies on the
Exchange's Board; its board committee structure; and regulatory
independence of the Exchange.\31\ As noted above, the Exchange intends
that the New Governing Documents would be implemented no later than by
the end of the third quarter of 2017.\32\
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\30\ See Notice, supra note 3, at 20514-17; and Amendment No. 1.
\31\ See Notice, supra note 3, at 20514-17; and Amendment No. 1.
\32\ See supra note 19 and accompanying text.
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1. Board of Directors: Powers and Composition
Under the New Governing Documents and consistent with the Current
LLC Agreement,\33\ the business and affairs of the Exchange will be
managed under the discretion of its Board, which will be vested with
the power to do any and all acts necessary or for the furtherance of
the purposes described in the New LLC Agreement, including fulfilling
the Exchange's self-regulatory responsibilities as set forth in the
Act.\34\ The new Board will also have the power to bind the Exchange
and delegate powers,\35\ as it does today.\36\
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\33\ See Current LLC Agreement, Article II, Section 2.2 and
Article V, Sections 5.1 and 5.7; and Current Constitution, Article
III, Section 3.1.
\34\ See New LLC Agreement, Sections 7, 8, and 9(a).
\35\ See New LLC Agreement, Section 9(b).
\36\ See Current LLC Agreement, Article II, Section 2.2; and
Current Constitution, Article V, Section 5.1.
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ISE Holdings, as the Sole LLC Member, may determine at any time, in
its sole and absolute discretion, the number of Directors to constitute
the Board of Directors.\37\ At least 20% of the Directors shall be
``Member Representative Directors.'' \38\ Additionally, the Board of
Directors must include a number of ``Non-Industry Directors,''
including at least one ``Public Director'' and at least one ``issuer
representative'' (or if the Board consists of ten or more Directors, at
least two issuer representatives), that equals or exceeds the sum of
the number of Industry Directors and Member Representative
Directors.\39\

[[Page 36500]]

Additionally, up to two Staff Directors \40\ may be elected to the
Board.\41\ A Director may not be subject to a statutory
disqualification.\42\ A Director will be removed upon a determination
by the Board, by a majority vote of the remaining Directors, that the
Director no longer satisfies the classification for which the Director
was elected and that the Director's continued service on the Board
would violate the board composition requirements.\43\
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\37\ See New LLC Agreement, Section 9(a).
\38\ See id. 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 Exchange
Member pursuant to the New By-Laws and may be, but is not required
to be, an officer, director, employee, or agent of an Exchange
Member. See New By-Laws, Article I(r).
\39\ See New By-Laws, Article III, Section 2(a). A ``Non-
Industry Director'' will be defined as a Director (excluding an
officer of the Exchange serving as a Director (``Staff Director''))
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 New By-
Laws, Article I(w). A ``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 New By-Laws,
Article I(z). An ``Industry Director'' will be defined as a Director
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. See Notice,
supra note 3, at 20516 n.69. See also New By-Laws, Article I(m).
\40\ See New By-Laws, Article I(m); see also Notice, supra note
3, at 20516 n.72 and accompanying text.
\41\ See Current LLC Agreement, Article II, Section 2.2.
\42\ See New LLC Agreement, Section 9(a).
\43\ See New By-Laws, Article III, Section 2(b). If the
remaining term of office of a removed Director is not more than six
months, the Board will not be deemed to be in violation of the
Article III, Section 2(a) composition requirements during the
vacancy by virtue of such vacancy. See id.
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As discussed in more detail below,\44\ the current Board was
elected at the Exchange's 2017 annual election of its Board (the ``2017
Annual Election,'' and such Board the ``2017 Board''), which was held
on June 19, 2017, pursuant to the Current Governing Documents. When the
New Governing Documents become operative, the 2017 Board will appoint a
Nominating Committee and a Member Nominating Committee.\45\ The Member
Nominating Committee will nominate candidates for each Member
Representative Director position on the Board,\46\ as well as nominate
candidates for appointment by the Board for each vacant or new position
on a committee that is to be filled with a ``Member Representative
member'' \47\ under the New By-Laws.\48\ If an Exchange Member \49\
submits a timely and duly executed written nomination to the Secretary
of the Exchange, additional candidates may be added to the List of
Candidates \50\ for the Member Representative Director positions.\51\
These candidates, together with candidates nominated by the Member
Nominating Committee, will then be presented to Exchange Members for
election.\52\ The Nominating Committee will nominate candidates for all
other vacant or new Director positions on the Board.\53\
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\44\ See infra notes 65-68, 70-71, and accompanying text.
\45\ See Notice, supra note 3, at 20517. The Nominating
Committee will consist of no fewer than six and no more than nine
members. The number of Non-Industry members on the Nominating
Committee 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, and if the
Nominating Committee consists of seven or more members, at least
three shall be Public members. The Member Nominating Committee shall
consist of no fewer than three and no more than six members. All
members of the Member Nominating Committee shall be a current
associated person of a current Exchange Member, and the Board will
appoint such individuals after appropriate consultation with
representatives of Exchange Members. See New By-Laws, Article III,
Sections 6(b)(i) and (iii). See also Notice, supra note 3, at 20520-
21 (discussing the compositional requirements for, and
responsibilities of, the Nominating Committee and Member Nominating
Committee).
An ``Industry member'' will be a member of any committee
appointed by the Board that is associated with a broker-dealer as
defined in the New By-Laws, Article I(n). A ``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 Exchange; or (iii) any other individual
who would not be an Industry member. See New By-Laws, Article I(x).
A ``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 Company or its affiliates, or FINRA.
See New By-Laws, Article I(aa).
\46\ Pursuant to the New By-Laws, Member Representative
Directors shall be elected to the Board on an annual basis. See New
By-Laws, Article II, Section 1(a).
\47\ Pursuant to the New By-Laws, a ``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 By-
Laws. See New By-Laws, Article I(s). As discussed further below, the
required inclusion of such representatives on certain committees,
and the process by which they are to be selected, is designed to
comply with the fair representation requirements of Section 6(b)(3)
of the Act. See infra note 102 and accompanying text. See also
Amendment No. 1.
In Amendment No. 1, the Exchange clarifies the description of
the functions of the Member Nominating Committee. Specifically, the
Exchange clarifies that the new Member Nominating Committee is
responsible for: (i) The nomination for election of Member
Representative Directors to the Board and (ii) the nomination for
appointment of Member Representative members to the committees
requiring such members. See Amendment No. 1.
\48\ See New By-Laws, Article III, Section 6(b).
\49\ ``Exchange Member'' will be defined as any registered
broker or dealer that has been admitted to membership in the
national securities exchange operated by ISE. See New By-Laws,
Article 1(u).
\50\ ``List of Candidates'' will be defined as the list of
candidates for Member Representative Director positions to be
elected on an Election Date. See New By-Laws, Article 1(p).
``Election Date will be defined as a date selected by
the Board on an annual basis, on which Exchange Members may vote
with respect to Member Representative Directors in the event of a
Contested Election. See New By-Laws, Article 1(k). See also infra
note 52, for the definition of ``Contested Election.''
\51\ See New By-Laws, Article II, Section 1(b). See also
Amendment No. 1.
\52\ If there is only one candidate for each Member
Representative Director position to be elected on the annual
election date, the Member Representative Directors shall be elected
by ISE Holdings as the Sole LLC Member. If, as a result of the
nomination and petition process, there are more Member
Representative Directors candidates than the number of positions to
be elected, each Exchange Member shall have the right to cast one
vote for each Member Representative Director, and the candidates who
receive the most votes shall be elected to the Member Representative
Director positions. An Exchange Member, however, either alone or
together with its affiliates, may not cast votes representing more
than 20% of the votes cast for a candidate. See New By-Laws, Article
II, Section 1(c) and Section 2. See also New By-Laws, Article 1(g)
(defining ``Contested Election'' 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).
Under the Exchange's Current Governing Documents, six directors
on the Board are officers, directors, or partners of Exchange
members, and are elected by a plurality of the holders of Exchange
Rights (``Exchange Directors''), of which two must be elected by
holders of PMM Rights, two must be elected by holders of CMM Rights,
and two must be elected by holders of EAM Rights. See Notice, supra
note 3, at 20510. See also Current Constitution, Article III,
Section 3.2. The Exchange states that this current structure was
adopted to comply with the fair representation requirements of
Section 6(b) of the Act. See Notice, supra note 3, at 20510. Because
they give members a voice in the Exchange's use of its self-
regulatory authority, the Exchange believes that Exchange Directors
serve the same function as Member Representative Directors on the
boards of the Nasdaq Exchanges. See id.
The Exchange notes that the Commission has previously found the
Nasdaq LLC Agreement's (1) 20% Member Representative Director
requirement, and (2) election process, provide fair representation
of Nasdaq members, consistent with the requirements of Section 6(b)
of the Act. See Notice, supra note 3, at 20510 n.18 (citing
Securities Exchange Act Release No. 53128 (January 13, 2006), 71 FR
3550, 3553 (January 23, 2006) (``Nasdaq Exchange Order'') (granting
the exchange registration of Nasdaq Stock Market, Inc.). The
Commission notes that the Board compositional requirements and the
process for electing Member Representative Directors in the New
Governing Documents are based on the parallel requirements in the
Nasdaq LLC Agreement.
\53\ See New By-Laws, Article III, Section 6(b).
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The Commission believes that the proposed composition of the
Exchange's Board satisfies the requirements in Section 6(b)(3) of the
Act,\54\ which requires in part that one or more directors be
representative of issuers and investors and not be associated with a
member of the exchange, or with a broker or dealer.\55\ The Commission
previously has stated that the inclusion of public, non-industry
representatives on exchange oversight bodies is an important mechanism
to support an exchange's ability to protect the public interest,\56\
and that they can help to ensure that no single group of market
participants has the ability to systematically disadvantage others
through the exchange governance

[[Page 36501]]

process.\57\ As it has previously stated, the Commission believes that
public directors can provide unbiased perspectives, which may enhance
the ability of the Board to address issues in a non-discriminatory
fashion and foster the integrity of the Exchange.\58\
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\54\ 15 U.S.C. 78f(b)(3).
\55\ The Commission also notes that it previously found the
compositional requirements for the board of directors of Nasdaq,
upon which ISE's proposed requirements are based, to be consistent
with Act. See Nasdaq Exchange Order, supra note 52, at 3553.
\56\ See, e.g., Regulation of Exchanges and Alternative Trading
Systems, Securities Exchange Act Release No. 40760 (December 8,
1998), 63 FR 70844 (December 22, 1998) (``Regulation ATS Release'').
\57\ See, e.g., Securities Exchange Act Release No 68341
(December 3, 2012), 77 FR 73065, 73067 (December 7, 2012) (``MIAX
Exchange Order'') (granting the exchange registration of the Miami
International Securities Exchange LLC).
\58\ See, e.g., Securities Exchange Act Release No. 53382
(February 27, 2006), 71 FR 11251, 11261 (March 6, 2006) (order
approving the New York Stock Exchange, Inc.'s business combination
with Archipelago Holdings, Inc.); Nasdaq Exchange Order, supra note
52, at 3553; and Securities Exchange Act Release No. 62716 (August
13, 2010), 75 FR 51295, 51298 (August 19, 2010) (approving the
application of BATS Y-Exchange, Inc. for registration as a national
securities exchange).
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The Commission also believes that the proposed requirement that at
least 20% of the Directors be Member Representative Directors, and the
means by which they will be chosen by Exchange Members, is consistent
with Section 6(b)(3) of the Act,\59\ because it provides for the fair
representation of members in the selection of directors and the
administration of ISE. Section 6(b)(3) of the Act requires that ``the
rules of the exchange assure a fair representation of its members in
the selection of its directors and administration of its affairs and
provide that one or more directors shall be representative of issuers
and investors and not be associated with a member of the exchange,
broker, or dealer.'' \60\ As the Commission previously has noted, this
statutory requirement helps to ensure that members have a voice in the
Exchange's use of its self-regulatory authority, and that the Exchange
is administered in a way that is equitable to all those persons who
trade on its markets or through its facilities.\61\ In addition, the
Commission believes that the requirement that at least one director be
a Public Director and one an issuer representative satisfies the
requirements of Section 6(b)(3) of the Act.\62\
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\59\ 15 U.S.C. 78f(b)(3).
\60\ Id.
\61\ See, e.g., Nasdaq Exchange Order, supra note 52; and
Securities Exchange Act Release No. 58375 (August 18, 2008), 73 FR
49498 (August 21, 2008) (order granting the exchange registration of
BATS Exchange, Inc.).
\62\ 15 U.S.C. 78f(b)(3).
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2. Transition From Current Board Election Process to the New Election
Process
In its filing, the Exchange states that, when it was acquired by
Nasdaq, Inc., there were a number of harmonizing changes to its Board
that resulted in a complete overlap of directors on the ISE Boards and
the Nasdaq Exchanges (the ``Post-Acquisition Board'').\63\ ISE also
states its belief that the Post-Acquisition Board satisfied the
composition requirements contained in both the Current Constitution and
the New By-Laws.\64\ The Exchange states that the terms of the
Directors on the Post-Acquisition Board ended at the 2017 Annual
Election,\65\ and that all of the Directors on the 2017 Board are
Directors that served on the Post-Acquisition Board. The Exchange
believes that the 2017 Board satisfies both the board composition
requirements in the Current Governing Documents, as well as in the New
Governing Documents,\66\ and that once the New Governing Documents
become operative, no additional actions with respect to the 2017 Board
will be required under the Delaware Limited Liability Company Act.\67\
Pursuant to the proposal, the 2017 Board will serve until the
Exchange's first annual election of Directors in accordance with the
processes under the New Governing Documents in 2018 (``2018
Board'').\68\
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\63\ See Notice, supra note 3, at 20516.
\64\ See Amendment No. 1.
\65\ The Exchange states that it held its 2017 Annual Election
on June 19, 2017, in accordance with the nomination, petition, and
voting processes set forth in the Current Governing Documents. See
id.
\66\ The Commission notes that if the Board of Directors in
place at the time the New Governing Documents become effective does
not satisfy the requirements in the New Governing Documents, the
Exchange would need to comply with the procedures for removing
Directors and filling vacancies pursuant to the New Governing
Documents. See, e.g., supra notes 43, 46, and 51-53 and accompanying
text.
\67\ See Amendment No. 1. As discussed above, the Exchange
proposes that, if approved, the New Governing Documents would be
made effective no later than by the end of the third quarter of
2017. See Amendment No. 1; see also supra note 18 and accompanying
text.
\68\ See Notice, supra note 3, at 20517. See also Amendment No.
1.
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The Commission believes the Exchange's proposal to allow the 2017
Board to continue serving until the 2018 Board would be elected
pursuant to the process in the New Governing Documents is consistent
with the Act, and in particular Section 6(b)(3) of the Act.\69\ The
Exchange states that, although the 2017 Board was not nominated or
voted upon in accordance with the New Governing Documents, it believes
that the composition of the 2017 Board is consistent with the Act, as
it still provides for the fair representation of members and has one or
more directors that are representative of issuers and investors and not
associated with a member of the exchange, broker, or dealer.
Specifically, the Exchange states that six Directors are officers,
directors, or partners of Exchange members, as required by Section
3.2(b) of the Current Constitution, and were elected by a plurality of
the holders of ``Exchange Rights.'' \70\ These Exchange Directors were
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 previously found to satisfy the requirements of
the Act.\71\ The Exchange believes that the Exchange Directors serve
the same function as the Member Representative Directors under the
proposed board structure, as both directorships give Exchange members a
voice in the Exchange's use of its self-regulatory authority.\72\ The
Exchange also notes that only its corporate governance structure would
change under the proposed rule change, and that its membership has
remained substantially the same both before and after the 2017 Annual
Election.\73\ Additionally, the Commission notes that, under the
Current Governing Documents, the 2017 Board will be required to include
two Directors that are ``Public Directors.'' \74\
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\69\ See supra notes 54-62 and accompanying text (discussing the
requirements of Section 6(b)(3) and the Commission's belief that the
compositional requirements for the Board of Directors, and the
process for electing such Directors under the New Governing
Documents, are consistent with those requirements).
\70\ See Amendment No. 1. See also Notice, supra note 3, at
20510 and 20513-14 (discussing the Exchange's current process for
the nomination and election of Directors, including the Exchange
Directors).
``Exchange Rights'' currently means, collectively, PMM Rights,
CMM Rights, and EAM Rights, which are the trading and other rights
associated with the Exchange's three classes of membership. See Rule
100(a)(17); Current LLC Agreement, Article VI; and Current
Constitution, Section 13.1(q). See also Rules 100(a)(11),
100(a)(14), and 100(a)(36); and Current Constitution, Sections
13.1(g), 13.1(l), and 13.1(bb). Under the New Rules, ``Exchange
Rights'' will be defined in New Rule 100(a)(19) as the PMM Rights,
CMM Rights, and EAM Rights, which will be defined in New Rules
100(a)(39), 100(a)(11), and 100(a)(15), respectively, and as
discussed further below. See infra Section III.C. (discussing
amendments to the Exchange's Rules).
\71\ See Amendment No. 1; Securities Exchange Act Release No.
42455 (February 24, 2000), 65 FR 11401 (March 2, 2000) (``ISE
Exchange Approval'') (granting ISE's application for registration as
a national securities exchange); and ISE HoldCo Order, supra note 9,
at 25265.
\72\ See Notice, supra note 3 at 20517. See also Amendment No.
1.
\73\ See Amendment No. 1.
\74\ See Current Constitution, Section 3.2(b).
Pursuant to the Exchange's Current Constitution, a ``Public
Director'' means 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, Sections 3.2(b) and 13.1(cc).
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).

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[[Page 36502]]

3. Committees of the Board
Pursuant to the New By-Laws, the Exchange may establish committees
composed solely of Directors. Specifically, the Exchange may establish
an Executive Committee and a Finance Committee, and shall establish a
Regulatory Oversight Committee (``ROC'').\75\ The Exchange shall also
establish certain committees not composed solely of Directors.
Specifically, the Exchange shall establish a Nominating Committee and a
Member Nominating Committee, which would be elected on an annual basis
by ISE Holdings, as the Sole LLC Member,\76\ and a Quality of Markets
Committee (``QMC'').\77\ The New LLC Agreement will provide that, 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 the authority of the Board in the management of the
business and affairs of the Exchange.\78\ The powers of any such
committee would, however, be limited with respect to approving any
matters pertaining to the self-regulatory function of the Exchange or
relating to the structure of the market the Exchange regulates.\79\
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\75\ See New By-Laws, Article III, Section 5.
The Exchange states that the proposed provisions relating to the
standing committees are substantially similar to the provisions in
Section 9(g) of the Nasdaq LLC Agreement with respect to standing
committees. See Amendment No. 1.
\76\ See New By-Laws, Article III, Section 6(b). See also supra
note 45 (describing the compositional requirements of these
committees).
The Board may also designate additional committees consisting
of one or more Directors or other persons. See New LLC Agreement,
Section 9(g).
\77\ See New By-Laws, Article III, Section 6(c). See also infra
note 102 and accompanying text (describing the compositional
requirements of the QMC).
\78\ See New LLC Agreement, Section 9(g)(v).
\79\ See id. See also Amendment No. 1. The Exchange notes that
the proposed limitation is based on substantially similar language
in Section 5.2(ii) of MRX's Constitution and is intended to assure
the fair administration and governance of the Exchange. The Exchange
does not have this limitation in Section 5.2 of its Current
Constitution with respect to any Board committees set up by Board
resolution, and is therefore proposing to follow the more current
MRX standard. See Amendment No. 1.
---------------------------------------------------------------------------

The Exchange proposes that the Executive Committee be an optional
committee, to be appointed only if deemed necessary by the Board.\80\
Because the Executive Committee will have the powers and authority of
the Board in the management of the business and affairs of the Exchange
between meetings of the Board, its composition must reflect that of the
Board. Accordingly, if established, the number of Non-Industry
Directors on the Executive Committee must equal or exceed the number of
Industry Directors and the percentages of Public Directors and Member
Representative Directors must be at least as great as the corresponding
percentages on the Board as a whole.\81\
---------------------------------------------------------------------------

\80\ See New By-Laws, Article III, Section 5(a).
\81\ See id.
---------------------------------------------------------------------------

The Board would retain oversight of the financial operations of the
Exchange instead of delegating these functions to a standing committee,
but would have the option to appoint a Finance Committee at the Board's
discretion.\82\ The Finance Committee would 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.
---------------------------------------------------------------------------

\82\ See New By-Laws, Article III, Section 5(b).
---------------------------------------------------------------------------

The Exchange proposes to eliminate its current Finance and Audit
Committee and to have the committee's functions performed by Nasdaq,
Inc.'s Audit Committee (``Nasdaq Audit Committee''), which is composed
of at least three directors of Nasdaq, Inc., all of whom must satisfy
the standards for independence set forth in Section 10A(m) of the Act
\83\ and Nasdaq's rules.\84\ The Exchange notes that the Nasdaq Audit
Committee has broad authority to review the financial information that
will be provided to shareholders of Nasdaq, Inc. and others; systems of
internal controls; and audit, financial reporting, and legal and
compliance processes.\85\ The Exchange states that, 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 Nasdaq Audit Committee, which is also charged with providing
oversight over financial reporting and independent auditor selection
for Nasdaq, Inc. and all of its subsidiaries.\86\ The Exchange also
notes that the unconsolidated financial statements of the Exchange will
still be prepared for each fiscal year.\87\
---------------------------------------------------------------------------

\83\ See U.S.C. 78j-1(m).
\84\ See Nasdaq, Inc. By-Laws, Section 4.13(g).
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 and must be ``financially
literate'' as determined by the Board. See Current Constitution,
Article V, Section 5.5.
\85\ See Notice, supra note 3, at 20519.
\86\ See id.
\87\ See id. The Commission notes that registered national
securities exchanges have an ongoing requirement to comply with the
requirements of Form 1, which include filing audited financial
statements with the Commission on an annual basis. See Form 1,
General Instructions A.2 and Exhibit I, 17 CFR 249.1; and 17 CFR
240.6a-2(b)(1) (requiring a national securities exchange to file
each year, as an amendment to its Form 1, Exhibit I (which requires
a Form 1 applicant to file audited financial statements), as of the
latest fiscal year of the exchange).
---------------------------------------------------------------------------

The Exchange will also have a Regulatory Oversight Committee
(``ROC'') under the New Governing Documents, which will have broad
authority to oversee the adequacy and effectiveness of the Exchange's
regulatory and self-regulatory responsibilities.\88\ The ROC will
consist of three members, each of whom must be a Public Director and an
``independent director,'' as defined in Nasdaq Rule 5605.\89\
---------------------------------------------------------------------------

\88\ See New By-Laws, Article III, Section 5(c). Currently, the
Exchange's regulatory oversight activities are performed by the
Exchange's Corporate Governance Committee, which will not exist
under the new governance structure. See Notice, supra note 3, at
20520.
The Exchange also states that regulatory oversight functions
formerly performed by the Finance and Audit Committee may be assumed
by the ROC, and that like the ROCs of the Nasdaq Exchanges, the ISE
ROC, because of its broad authority to oversee the adequacy and
effectiveness of the Exchange's self-regulatory responsibilities,
will be able to maintain oversight over controls in tandem with the
Nasdaq Audit Committee's overall oversight responsibilities.
\89\ See New By-Laws, Article III, Section 5(c).
---------------------------------------------------------------------------

Pursuant to the New By-Laws, the Exchange will also have a Chief
Regulatory Officer (``CRO''), as it does currently.\90\ The new CRO
will have general responsibility for the supervision of the regulatory
operations

[[Page 36503]]

of the Exchange and will meet with the ROC in executive session at
regularly scheduled meetings of the ROC, and at any time upon request
of the CRO or any member of the ROC.\91\
---------------------------------------------------------------------------

\90\ See Notice, supra note 3, at 20521 (noting that, although
not expressly in its Current Governing Documents, the position of
chief regulatory officer has long existed at the Exchange). See also
New By-Laws, Article IV, Section 7.
In addition to the CRO, pursuant to the New LLC Agreement, the
Exchange's officers will include: a Chief Executive Officer, a
President, Vice Presidents, a Chief Regulatory Officer, a Secretary,
an Assistant Secretary, a Treasurer, and an Assistant Treasurer. See
New By-Laws, Article IV, Sections 4-11.
\91\ See New By-Laws, Article IV, Section 7. The CRO may also
serve as the General Counsel of the Exchange. Id.
---------------------------------------------------------------------------

The ROC will assess the Exchange's regulatory performance, assist
the Board in reviewing the regulatory plan and the overall
effectiveness of the Exchange's regulatory functions, review the
Exchange's regulatory budget and inquire into the adequacy of resources
available in the budget for regulatory activities, and be informed
about the compensation and promotion or termination of the CRO.\92\
---------------------------------------------------------------------------

\92\ See New By-Laws, Article III, Section 5(c).
---------------------------------------------------------------------------

The Exchange also proposes that the Internal Audit Department of
Nasdaq, Inc. (``Nasdaq Internal Audit Department'') would report to the
Board on all Exchange-related internal audit matters and direct such
reports to the new ROC.\93\ In addition, to ensure that the Board
retains authority to direct the Nasdaq Internal Audit Department's
activities with respect to the Exchange, the Nasdaq Internal Audit
Department's written procedures will stipulate that the ROC may, at any
time, direct the Nasdaq Internal Audit Department to conduct an audit
of a matter of concern and report the results of the audit both to the
ROC and the Nasdaq Audit Committee.\94\
---------------------------------------------------------------------------

\93\ See Notice, supra note 3, at 20519 & n.95 (citing the
Regulatory Oversight Committee Charter of Nasdaq, Phlx, and BX,
available at https://ir.nasdaq.com/corporate-governance-document.cfm?DocumentID=1097).
\94\ See id. at 20519.
---------------------------------------------------------------------------

The Exchange also proposes to eliminate its current Compensation
Committee and its Corporate Governance Committee.\95\ The Compensation
Committee is primarily charged with reviewing and approving
compensation policies and plans for the Chief Executive Officer and
other senior executive officers of the Exchange.\96\ Under the new
governance structure, the functions of the Compensation Committee will
be performed by Nasdaq, Inc.'s management compensation committee or, to
the extent that policies, programs, and practices must be established
for any Exchange officers or employees who are not also officers or
employees of Nasdaq, Inc., the full Board.\97\ The Corporate Governance
Committee 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.\98\ Under the
new governance structure, the functions of the Corporate Governance
Committee will be performed by the new Nominating Committee, the new
ROC, or, if required, the full Board.\99\
---------------------------------------------------------------------------

\95\ See id. at 20519-20.
\96\ See id. at 20519. See also Current Constitution, Section
5.6.
\97\ See Notice, supra note 3, at 20519.
\98\ See id. at 20520. See also Current Constitution, Section
5.4.
\99\ See Notice, supra note 3, at 20520.
---------------------------------------------------------------------------

As discussed above, the Nominating Committee and Member Nominating
Committee will have responsibility for, among other things, nominating
candidates for election to the Board. On an annual basis, the members
of these committees will nominate candidates for the succeeding year's
respective committees to be elected by ISE Holdings.\100\
---------------------------------------------------------------------------

\100\ See New By-Laws, Article III, Section 6(c). See also supra
notes 46-53 and accompanying text. Additional candidates for the
Member Nominating Committee may be nominated and elected by Exchange
Members pursuant to a petition process. See supra notes 49-52 and
accompanying text.
The Commission notes that under the New By-Laws, the Member
Nominating Committee shall nominate candidates for each Member
Representative Director position to be elected by Exchange Members
or the Sole LLC Member, and for appointment by the Board for each
vacant or new position on any committee that is to be filled with a
Member Representative member. See New By-Laws, Article III, Section
6.
---------------------------------------------------------------------------

Finally, the Quality of Markets Committee (``QMC'') 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.\101\ At least 20% of the QMC must be
composed of Member Representative members, and the Non-Industry members
on the QMC must equal or exceed the sum of Industry members and Member
Representative members.\102\
---------------------------------------------------------------------------

\101\ See New By-Laws, Article III, Section 6(c)(i).
\102\ See New By-Laws, Article III, Section 6(c)(ii). See also
Notice, supra note 3, at 20521; Amendment No. 1.
The Exchange also states that the function of Member
Representative members on committees is to provide members a voice
in the administration of the Exchange's affairs on certain
committees that are responsible for providing advice on any matters
pertaining to the Exchange's self-regulatory function or relating to
its market structure. See Amendment No. 1. In order to ensure that
its members have the opportunity to formally provide input on
matters that are important to them, the Exchange states that at
least 20% of the persons serving on any such committees will be
individuals who will have been appointed by the Member Nominating
Committee and will be representative of the Exchange's membership.
See id.
---------------------------------------------------------------------------

The Commission believes that the Exchange's proposed committees,
which are similar to the committees maintained by other exchanges,\103\
are designed to help enable the Exchange to carry out its
responsibilities under the Act and are consistent with the Act,
including Section 6(b)(1), which requires, in part, an exchange to be
so organized and have the capacity to carry out the purposes of the
Act.\104\ The Commission further believes that the Exchange's proposed
committees, including their composition and the means by which
committee members will be chosen, are consistent with Section 6(b)(3)
of the Act because relevant committees provide for the fair
representation of members in the administration of the Exchange's
affairs.\105\
---------------------------------------------------------------------------

\103\ See, e.g., Nasdaq By-Laws Article III, Sections 5-6; BX
By-Laws, Article IV, Sections 4.13-14; Phlx By-Laws, Article V,
Sections 5-2 to -3.
\104\ 15 U.S.C. 78f(b)(1).
\105\ See 15 U.S.C. 78f(b)(3).
---------------------------------------------------------------------------

4. Regulatory Independence
Certain provisions in ISE's Current Governing Documents, and those
of its Upstream Owners, are designed to help maintain the independence
of the regulatory functions of the Exchange.\106\ The New Governing
Documents similarly include provisions designed to help maintain the
independence of the regulatory functions of ISE,\107\ which provisions
are substantially similar to those included in the governing documents
of other exchanges.\108\ Specifically:
---------------------------------------------------------------------------

\106\ See, e.g., Nasdaq Acquisition Order, supra note 4, at
41613-16; Securities Exchange Act Release No. 56955 (December 13,
2007), 72 FR 71979 (December 19, 2007) (SR-ISE-2007-101) (order
approving acquisition of ISE Holdings by Eurex Frankfurt); and ISE
HoldCo Order, supra note 9, at 25263-64.
\107\ See Notice, supra note 3, at 20524. The Commission notes
that the Exchange did not propose any amendments to the governing
documents of its Upstream Owners.
\108\ See, e.g., Nasdaq Exchange Order, supra note 52; MIAX
Exchange Order, supra note 57; Mercury Exchange Approval, supra note
28.
---------------------------------------------------------------------------

The Exchange Board will be required, when evaluating any
proposal, to take into account all factors that the Board deems
relevant, including, without limitation, (1) the potential impact on:
The integrity, continuity, and stability of the national securities
exchange operated by the Exchange and the other operations of the
Exchange; the ability to prevent fraudulent and manipulative acts and
practices; and

[[Page 36504]]

investors and the public, and (2) whether such proposal 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 the
perfection of the mechanisms for a free and open market and a national
market system.\109\
---------------------------------------------------------------------------

\109\ See New By-Laws, Article III, Section 3. See also
Amendment No. 1. In Amendment No. 1, the Exchange proposes to
clarify in Article III, Section 3 of the New By-Laws the factors to
be considered by the Board when evaluating any proposal. See id.
Further, the Exchange states that Article III, Section 3 of the New
By-Laws recognizes the Exchange's status as a self-regulatory
organization, and the provisions of Section 3, taken together, are
designed to reinforce the notion that the Exchange is not solely a
commercial enterprise, but rather a self-regulatory organization
registered pursuant to, and subject to the obligations imposed by,
the Act. See Notice, supra note 3, at 20517; Amendment No. 1.
---------------------------------------------------------------------------

All books and records of ISE reflecting 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) shall be retained in
confidence by ISE and its officers, directors, employees and agents;
shall not be made available to persons other than to those officers,
directors, employees, and agents of ISE that have a reasonable need to
know; and will not be used for any non-regulatory purpose.\110\
---------------------------------------------------------------------------

\110\ The corresponding provision in ISE's Current LLC Agreement
prohibits the use of confidential information for any commercial
purpose. See Current LLC Agreement, Article IV, Section 4.1(b). The
Exchange proposes to modify the standard to prohibit the use of such
information for any non-regulatory purpose. See Notice, supra note
3, at 20512; New LLC Agreement, Section 16. The Exchange states that
this change is intended to replicate Section 4.1(b)(iii) of MRX's
LLC Agreement, to emphasize the independence of the Exchange's
regulatory function from its commercial interests. See Amendment No.
1.
Pursuant to Amendment No. 1, the Exchange is not proposing that
ISE, and the Board on behalf of ISE, shall not have the right to
keep confidential from ISE Holdings, as 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 Delaware Limited Liability Company Act, 6 Del. C. Sec. 18-
101. Additionally, the Exchange is not proposing that ISE Holdings,
as the Sole LLC Member and the Exchange's authorized representative,
shall have an explicit right to examine the Exchange's books,
records, and documents during normal business hours. See Amendment
No. 1. Although such provisions are in the Nasdaq LLC Agreement (see
Nasdaq LLC Agreement, Section 16), they are not in the Current
Governing Documents of ISE.
The Commission believes that the proposed provisions relating to
the books and records of the Exchange are designed to maintain the
independence of ISE's self-regulatory function, and are consistent
with the Act. The Commission notes that these provisions are
substantially similar to those the Commission has previously found
to be consistent with the Act in the context of the corporate
governance structures of other exchanges. See, e.g., MIAX Exchange
Order, supra note 57; Mercury Exchange Approval, supra note 28.
The Commission also notes that the governing documents of ISE's
Upstream Owners provide that all books and records of ISE reflecting
confidential information pertaining to the self-regulatory function
of the Exchange will be subject to confidentiality restrictions. See
Certificate of Incorporation of ISE Holdings, Article Eleventh;
Certificate of Incorporation of U.S. Exchange Holdings, Article
Fourteenth; By-Laws of Nasdaq, Inc., Article XII, Section 12.1(b).
---------------------------------------------------------------------------

The Exchange proposes that, as is currently the case, the
books and records of ISE must be maintained in the United States \111\
and are subject at all times to examination by the Commission pursuant
to the federal securities laws and the rules and regulations
thereunder.\112\
---------------------------------------------------------------------------

\111\ See New LLC Agreement, Section 16; see also Current LLC
Agreement, Article IV, Section 4.1.
\112\ See New LLC Agreement, Section 16. The Commission notes
that, as is currently the case, the requirement to keep such
information confidential shall not limit the Commission's ability to
access and examine such information or limit the ability of
officers, directors, employees, or agents of ISE to disclose such
information to the Commission. See id. See also Current LLC
Agreement, Article IV, Section 4.1(b).
The Exchange states that certain provisions in Section 16 of the
New LLC Agreement are substantially similar to provisions in Section
16 of the Nasdaq LLC Agreement. See Amendment No. 1. The Exchange
also states that it is retaining in the New LLC Agreement certain
provisions from its Current LLC Agreement that are not in the
governing documents of the Nasdaq Exchanges, such as those relating
to where the Exchange's books and records must be maintained and who
may access the books and records, in particular those books and
records that contain confidential information pertaining to the
self-regulatory function of the Exchange. See Notice, supra note 3,
at 20512 & n.38.
ISE also states that the Nasdaq Exchanges will separately file
proposed rule changes to harmonize the books and records provisions
in their respective governing documents with the language in Section
16 of the New LLC Agreement. See Notice, supra note 3, at 20512
n.38.
---------------------------------------------------------------------------

Under the New LLC Agreement and New By-Laws, any
amendments to those documents will not become effective until filed
with, or filed with and approved by, the Commission, as required under
Section 19 of the Act and the rules promulgated thereunder.\113\
---------------------------------------------------------------------------

\113\ See New LLC Agreement, Section 27; New By-Laws, Article
VIII, Section 1.
The Commission notes that, although the Current Constitution and
Current LLC Agreement do not include a similar, explicit requirement
regarding the filing of amendments pursuant to Section 19 of the
Act, the Current Constitution and Current LLC Agreement, as rules of
the Exchange, are nonetheless subject to the requirements of Section
19 of the Act and the rules and regulations thereunder.
Additionally, pursuant to the New By-Laws, either the Sole LLC
Member or the vote of a majority of the whole Board may enact
amendments to the By-Laws, and that the Board may adopt emergency
by-laws.
---------------------------------------------------------------------------

Additionally, as is currently the case pursuant to the
Current LLC Agreement,\114\ Section 15 of the New LLC Agreement would
prohibit the Exchange from using Regulatory Funds to pay
dividends.\115\
---------------------------------------------------------------------------

\114\ See Current LLC Agreement, Article III, Section 3.3.
\115\ Specifically, pursuant to Section 15 of the New LLC
Agreement, Regulatory Funds shall not be used 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 (ISE Holdings) using
Regulatory Funds. See New LLC Agreement, Section 15.
Consistent with Section 3.3 of the Current LLC Agreement,
Schedule A of the New LLC Agreement defines ``Regulatory Funds'' as
fees, fines, or penalties derived from the regulatory operations of
the Exchange. However, Regulatory Funds do not 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. See New
LLC Agreement, Schedule A.
ISE states that the Nasdaq Exchanges will separately file
proposed rule changes to harmonize the distribution provisions in
their respective governing documents with the language in Section 15
of the New LLC Agreement. See Amendment No. 1.
---------------------------------------------------------------------------

The Commission believes that the provisions discussed in this
section, which are designed to help ensure the independence of the
Exchange's regulatory function and facilitate the ability of the
Exchange to carry out its responsibility and operate in a manner
consistent with the Act, are appropriate and consistent with the
requirements of the Act, particularly with Section 6(b)(1), which
requires, in part, an exchange to be so organized and have the capacity
to carry out the purposes of the Act.\116\
---------------------------------------------------------------------------

\116\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------

The Commission finds that proposed process regarding amendments to
the New Governing Documents is consistent with Section 6(b)(1) of the
Act, because it reflects the obligation of the Board to ensure
compliance with the rule filing requirements under the Act.
Additionally, the Commission finds these changes to be consistent with
Section 19(b)(1) of the Act and Rule 19b-4 thereunder,\117\ which
require that a self-regulatory organization file with the Commission
all proposed rules, as well as all proposed changes in, additions to,
and deletions of its existing rules. These provisions clarify that
amendments to the New Governing Documents constitute proposed rule
changes within the meaning of Section 19(b)(2) of the Act and Rule 19b-
4 thereunder, and are subject to the filing requirements of Section 19
of the Act

[[Page 36505]]

and the rules and regulations thereunder.
---------------------------------------------------------------------------

\117\ Id.; 17 CFR 240.19b-4.
---------------------------------------------------------------------------

The Commission also finds that the prohibition on the use of
regulatory fines, fees, or penalties to fund dividends is consistent
with Section 6(b)(1) of the Act, because it will further the Exchange's
ability to effectively comply with its statutory obligations and is
designed to ensure that the regulatory authority of the Exchange is not
improperly used.\118\ This restriction on the use of regulatory funds
is intended to preclude the Exchange from using its authority to raise
Regulatory Funds for the purpose of benefiting its shareholders.\119\
---------------------------------------------------------------------------

\118\ See, e.g., Securities Exchange Act Release No. 51029
(January 12, 2005), 70 FR 3233, 3241 (January 21, 2005) (SR-ISE-
2004-29) (approving an ISE rule interpretation that requires that
revenues received from regulatory fees or regulatory penalties be
segregated and applied to fund the legal, regulatory, and
surveillance operations of the Exchange and not used to pay
dividends to the holders of Class A Common Stock).
\119\ See Notice, supra note 3, at 20512.
---------------------------------------------------------------------------

C. Related Rule Amendments

While voting rights with respect to Directors will be governed by
the New Governing Documents, as is the case today under the Current
Governing Documents,\120\ the Current Governing Documents also afford
certain additional rights to the holders of PMM Rights and CMM Rights
(PMM Rights and CMM Rights, each as defined below, and together,
``Market Maker Rights''), namely: \121\ (i) the right to vote on any
change in, amendment to, or modification of the Core Rights or the
definition of ``Core Rights''; \122\ and (ii) the right to transfer or
lease Market Maker Rights upon approval of the Exchange.\123\ The
Exchange represents that these rights reflect ISE's original membership
structure, where the original Market Maker Rights provided the holders
thereof with an equity ownership interest in ISE, as well as trading
rights on the Exchange.\124\ The Exchange states, however, that today
the Market Maker Rights do not confer any equity ownership in the
Exchange and are, for all practical purposes, rights to trade on the
Exchange.\125\ As such, the Exchange believes that the provisions
governing the trading privileges of PMMs,\126\ CMMs,\127\ and EAMs
\128\ are more appropriately located in its Rules rather than its
governance documents. Accordingly, the Exchange proposes to import into
its Rules certain provisions relating to Market Maker Rights, as well
as Exchange Rights,\129\ currently found in the Current Governing
Documents.\130\ The Exchange states that it is amending its Rules to:
(i) Clarify any Rules that cross-reference the Current Governing
Documents in the rule text, since those documents are being replaced by
the New Governing Documents; or (ii) relocate or memorialize in the
Rules certain rights and protections afforded to the Market Marker
Rights holders, which today are primarily found in the Current
Governing Documents.\131\ The Exchange represents that the holders of
Exchange Rights will continue to have the same trading privileges they
currently hold as PMMs, CMMs, and EAMs under its Rules, and the new
Board structure of the Exchange will not change any trading
privileges.\132\
---------------------------------------------------------------------------

\120\ The Commission notes, however, that in the case of a
Contested Election for Member Representative Directors, which is
discussed above, instead of electing Directors by class, as is the
case under the Current Governing Documents, each PMM, CMM, and EAM
Rights holder would cast one vote. See supra note 52 and
accompanying text.
\121\ See Notice, supra note 3, at 20510.
\122\ See Current LLC Agreement, Section 6.3(b) and Current
Constitution, Section 10.1. ``Core Rights'' represent the voting
rights with respect to any increase in the number of authorized
Market Maker 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.
\123\ See Current LLC Agreement, Article VI and Current
Constitution, Article XII. According to the Exchange, most of the
transfer and lease provisions in the Current Governing Documents are
also already in the current Rule 300 Series. See Notice, supra note
3, at 20510 n.26.
The Commission notes that holders of Exchange Rights also
currently have the right to vote on amendments to the Current LLC
Agreement or Current By-Laws, if the amendment would alter or change
the powers, preferences, or special rights of one or more series of
Exchange Rights so as to affect them adversely. See Current LLC
Agreement, Article VIII, Section 8.1 and Current Constitution,
Article X, Section 10.1.
\124\ See Notice, supra note 3, at 20510 & n.27 (citing ISE
Exchange Approval, supra note 71).
The Exchange notes that 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, in the past, 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). The Exchange states that, from the
beginning, the holders of EAM Rights had no equity interest in the
Exchange and only had rights to trade on the Exchange, and that
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 holders of PMM Rights and CMM Rights still retain,
however, the ability to transfer those rights. See, e.g., Rule
307(a); Current LLC Agreement, Section 6.4; and Current
Constitution, Sections 12.1(c), 12.2(c), and 12.3(b). See also
Notice, supra note 3, at 20510 & n.27, 20511.
\125\ See Notice, supra note 3, at 20511.
\126\ See infra note 140 for the definition of the term,
``PMM.''
\127\ See infra note 136 for the definition of the term,
``CMM.''
\128\ See infra note 138 for the definition of the term,
``EAM.''
\129\ See supra note 70 for the definition of the term
``Exchange Rights.''
\130\ The Exchange provides that all the provisions governing
the transfer and lease of Market Maker Rights in the Current
Governing Documents are substantially set forth in the Rules.
\131\ See Notice, supra note 3, at 20511. The Exchange also
proposes certain technical, non-substantive changes, such as
changing the term ``Constitution'' to ``By-Laws.''
\132\ See id.
---------------------------------------------------------------------------

Specifically, the Exchange proposed changes to its Rules to, among
other things:
Relocate the concept of CMM Rights from the Current LLC
Agreement \133\ to New Rule 100(a)(11), which will 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)),\134\ and provide in New Rule 100(a)(11) that there are 160
authorized CMM Rights, as is currently set forth in Section 6.1(a) of
the Current LLC Agreement.\135\
---------------------------------------------------------------------------

\133\ See Current LLC Agreement, Article VI, Section 6.2(b).
\134\ CMM Rights are transferable rights. The holders of CMM
Rights may lease or sell these rights in accordance with the
Exchange's rules and Current Governing Documents. As discussed
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 supra note 124.
The term ``non-member owners'' is defined as individuals and
organizations that are not Members of the Exchange, or that are
otherwise Members, but do not seek to exercise trading privileges
associated with the Market Maker Rights that they own. See Rule
300(a).
The term ``Member'' means an organization that has been
approved to exercise trading rights associated with Exchange Rights.
See current Rule 100(a)(23); New Rule 100(a)(26).
\135\ See Current LLC Agreement, Article VI, Section 6.1(a).
---------------------------------------------------------------------------

Relocate to New Rule 100(a)(12) the definition of
``Competitive Market Maker,'' \136\ which is currently only defined in
Section 13.1(g) of the Current Constitution.
---------------------------------------------------------------------------

\136\ The term ``Competitive Market Maker'' (referred to herein
as ``CMM'') will be defined to mean a Member that is approved to
exercise trading privileges associated with CMM Rights. See New Rule
100(a)(12).
---------------------------------------------------------------------------

Relocate the concept of EAM Rights to New Rule 100(a)(15),
which will state that the term ``EAM Rights'' means the non-
transferable rights held by an Electronic Access Member.\137\
---------------------------------------------------------------------------

\137\ EAM Rights are non-transferable. Accordingly, the holders
of EAM Rights may not lease or sell these rights (unlike PMM and CMM
Rights, which are transferable). See Current Constitution Article
XII, Section 12.3. See also Notice, supra note 3, at 20522 n.111.
The current definition of EAM Rights in Rule 100(a)(14) refers
to Article VI of the Current LLC Agreement.

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

[[Page 36506]]

Relocate to New Rule 100(a)(16) the definition of
``Electronic Access Member,'' \138\ which is currently only defined in
Section 13.1(l) of the Current Constitution.
---------------------------------------------------------------------------

\138\ The term ``Electronic Access Member'' (referred to herein
as ``EAM'') will be defined to mean a Member that is approved to
exercise trading privileges associated with EAM Rights. See New Rule
100(a)(16).
---------------------------------------------------------------------------

Relocate the definitions for ``Exchange Transaction,''
``good standing,'' and ``System'' from the Current Constitution to the
Rules,\139\ and delete Rule 100(a)(22), defining ``LLC Agreement,'' as
that term would no longer be used in the Rules, as amended by the
proposed rule change.
---------------------------------------------------------------------------

\139\ ``Exchange Transaction'' would be relocated from Section
13.1(r) of the Current Constitution to New Rule 100(a)(20), ``good
standing'' from Section 13.1(s) of the Current Constitution to New
Rule 100(a)(23), and ``System'' from Section 13.1(gg) of the Current
Constitution to New Rule 100(a)(53).
---------------------------------------------------------------------------

Relocate the concept of PMM Rights from Article VI of the
Current LLC Agreement to New Rule 100(a)(39), which will state that the
term ``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)), and will state that there are 10 authorized PMM Rights, as is
currently set forth in Section 6.1(a) of the Current LLC Agreement.
Relocate to New Rule 100(a)(40) the definition for
``Primary Market Maker'' \140\ from Section 13.1(bb) of the Current
Constitution.
---------------------------------------------------------------------------

\140\ The term ``Primary Market Maker'' (referred to herein as
``PMM'') will be defined to mean a Member that is approved to
exercise trading privileges associated with PMM Rights. See New Rule
100(a)(40).
---------------------------------------------------------------------------

The Exchange also proposed to add as new paragraphs (d) and (e) in
New 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 states that any increase in the number of authorized PMM
or 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,
respectively.\141\ Second, new paragraph (e) states that any amendments
to the New Governing Documents 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 or CMM Rights, as applicable. As such, to the extent they relate to
the Market Maker Rights holders, paragraph (e) preserves the existing
amendment rights from the Current Governing Documents.\142\
---------------------------------------------------------------------------

\141\ See New Rule 300(d). See also supra note 122 and
accompanying text (discussing the current Core Rights).
\142\ See New Rule 300(e). See also Current LLC Agreement,
Section 8.1 and Current Constitution, Section 10.1. As the Exchange
notes, 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.
See Notice, supra note 3, at 20523 n.114. See also supra note 123.
The Commission also notes that any such amendment would also be
subject to the voting concentration limitation in the New
Supplementary Material .02 to Rule 303, described below (see infra
notes 143-145 and accompanying text), as well as the requirements of
Section 19 of the Act and the rules and regulations thereunder (see
New LLC Agreement, Section 27; New By-Laws, Article VIII, Section
1).
---------------------------------------------------------------------------

The Exchange also proposes to explicitly set forth in its Rules the
ownership and voting limitations for the holders of Market Maker
Rights.\143\ Today, a holder or lessee of Exchange Rights, together
with any affiliate, is restricted from owning (or exercising any of the
non-trading rights associated with) more than 20% of the PMM Rights or
CMM Rights.\144\ Consistent with the current limitation, the Exchange
proposes to replace the current Supplementary Material .02 to Rule 303
with New Supplementary Material .02, to state that, ``[i]n addition to
the trading concentration limits contained in [Rule 303], no holder or
lessee of Market Maker Rights, together with any affiliate, may gain
ownership or voting rights in excess of 20% of the outstanding PMM
Rights or CMM Rights, as applicable.'' \145\ The Exchange also states
that the New Governing Documents will not have any provisions related
to the Market Maker Rights.\146\
---------------------------------------------------------------------------

\143\ See New Supplementary Material .02 to Rule 303.
\144\ See Current LLC Agreement, Section 6.5(a). See also
Amendment No. 1.
Under the Current LLC Agreement, a holder or lessee of Exchange
Rights, together with any affiliate, is also restricted from owning
(or exercising any of the non-trading rights associated with) more
than 20% of the EAM Rights. As discussed above, under the New
Governing Documents, a 20% voting limitation will apply to all
Exchange Members with respect to participation in Contested
Elections, and only holders of PMM and CMM Rights will have a right
to vote on certain amendments to the New Governing Documents. See
supra notes 52 and 142 and accompanying text.
\145\ See New Supplementary Material .02 to Rule 303. See also
Amendment No. 1.
The Exchange states that this voting limitation will be
calculated by class (i.e., 20% of outstanding PMM Rights or CMM
Rights, as applicable) when Market Maker Rights holders are voting
on Core Rights or on certain amendments to the New Governing
Documents, which is how the voting limitation is applied on the
Exchange today. See Amendment No. 1. As it relates to voting on the
Member Representative Directors only, in the event of a Contested
Election, the Exchange states that members will now vote as one
class. As such, an Exchange Member (together with any affiliates)
may not cast votes representing more than 20% of the votes cast for
a candidate. See id. See also New By-Laws, Article II, Section 2.
New Supplementary Material .02 to Rule 303 will replace the
Current Supplementary Material .02 to Rule 303, which states that in
approving any PMM to exercise the trading privileges associated with
more than 20% of the outstanding PMM Membership, the Board will not
approve any arrangement in which such PMMs would gain ownership or
voting rights in excess of those permitted under the Exchange's
Current LLC Agreement or Current Constitution.
\146\ See Amendment No. 1.
---------------------------------------------------------------------------

The Commission notes that, because the only remaining voting rights
associated with PMM Rights and CMM Rights will be the Core Rights and
the right to vote on certain amendments to the New Governing Documents,
as described above, the voting limitation in Supplementary Material .02
to New Rule 303 will only apply to voting on those matters. Voting on
the election of Member Representative members will be governed by
Article II of the New By-Laws, as described above.\147\
---------------------------------------------------------------------------

\147\ See supra notes 46-53 and accompanying text.
---------------------------------------------------------------------------

In the context of a lease of Market Maker Rights, the Exchange
proposes to add a requirement in New Rule 308 that the holder of Market
Maker Rights must, as is currently required by Section 12.4(b) of the
Current Constitution, retain the Core Rights associated with such
Market Maker Rights and not transfer such voting rights to the lessee.
Section 12.4(b) of the Current Constitution also 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,
other than the Core Rights, to the lessee. Currently, the voting rights
associated with the PMM Rights and CMM Rights that may be retained or
transferred are the right to vote in the election of Exchange Directors
and the right to vote on amendments to the Current Governing Documents
that may adversely affect Market Maker Rights.\148\ Pursuant to the New
Governing Documents, a holder of Market Maker Rights will continue to
have the option of retaining or transferring the right to vote on
certain amendments to the New Governing

[[Page 36507]]

Documents. With respect to the right to vote in the case of a Contested
Election, the Exchange provides that those voting rights will be
transferable under a lease agreement for the holders of Market Maker
Rights who are also members of the Exchange.\149\ Non-member owners,
who are required to lease out their Market Maker Rights pursuant to
Rule 300(b) will no longer have voting rights with respect to Directors
that represent Exchange Members.\150\ The Commission notes that the 20%
concentration limitation on voting described above will continue to
apply in the case of any transfer of the right to vote in Contested
Elections.
---------------------------------------------------------------------------

\148\ See Amendment No.1. See also Current LLC Agreement,
Article VI, Section 6.3 and Article VIII, Section 8.1; and Current
Constitution, Article X, Section 10.1
\149\ See Amendment No. 1.
\150\ See id.
---------------------------------------------------------------------------

The Exchange also proposes to amend New Rule 308 to memorialize the
manner in which Market Maker Rights may be subleased. Specifically, the
Exchange proposes that a lessee of a Market Maker membership in good
standing may sublease such membership to a Member with the permission
of the owner.\151\ The Exchange states that this is consistent with the
Exchange's current practice and will not change the manner in which
Market Maker Rights are subleased, but will clarify that such rights
may be subleased to an Exchange Member only.\152\ Additionally, the
Exchange proposes to relocate to the New Rules the requirement from the
Current Constitution that a lessor of Market Maker Rights must retain
the Core Rights.\153\
---------------------------------------------------------------------------

\151\ See id.
\152\ Id. See also New Rule 308.
\153\ See Notice, supra note 3, at 20523. See also Amendment No.
1; and New Rule 308.
---------------------------------------------------------------------------

The Exchange also proposes to clarify that, for the holders of
Market Maker Rights who are also members of the Exchange, the right to
vote on Directors representing Exchange Members will continue to be
transferable under a lease agreement.\154\ Non-member owners, who are
required to lease out their Market Maker Rights pursuant to Rule
300(b), will not have voting rights with respect to electing Member
Representative Directors.\155\ The Exchange states that all voting
rights other than Core Rights will remain transferable under a lease
agreement, and that New Rule 308(b)(4) requires a lease agreement of
Market Maker Rights to include provisions for which party will exercise
the voting rights associated with the Market Maker Rights being
leased.\156\ Accordingly, apart from being relocated from the Current
Constitution to the Rules, the Exchange represents that the proposed
amendment to New Rule 308 will not change the current transfer rights
associated with Market Maker Rights, other than as described above with
respect to non-member owners.\157\
---------------------------------------------------------------------------

\154\ See Amendment No. 1.
\155\ As described above, under the New By-Laws, in the case of
a Contested Election, each Exchange Member shall have the right to
cast one vote for each Member Representative Director. See New By-
Laws, Article II, Section 2. See also supra note 52; Amendment No.
1.
\156\ See Amendment No. 1.
\157\ See id.
---------------------------------------------------------------------------

The Exchange also proposes to amend New Rule 802(b) to 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; and would provide that
the foregoing will 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.\158\ The Exchange states that this proposal
is consistent with the manner in which products are allocated to PMMs
on the Exchange today.\159\ According to the Exchange, today, when ISE
lists new options classes, it allocates them to one of its PMMs under
Rule 802, and that pursuant to delegated authority by the Board, an
Allocation Committee, which consists of employees of the Exchange
(``Allocation Committee''), makes allocation decisions according to the
guidelines contained in Rule 802.\160\ The Exchange also states that
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, and as such, the proposed changes are simply to
memorialize a longstanding practice on the Exchange.\161\
---------------------------------------------------------------------------

\158\ See New Rule 802(b)(2).
\159\ See Notice, supra note 3, at 20523.
\160\ See id.
\161\ See id.
---------------------------------------------------------------------------

The Commission believes that the proposed changes to ISE's Rules
are consistent with the Act and, in particular Section 6(b)(1) of the
Act,\162\ which requires among other things that a national securities
exchange be so organized and have the capacity to carry out the
purposes of the Act. The Commission notes that many of the proposed
changes to ISE's Rules are technical in nature, such as renumbering of
Rules or conforming terminology to reflect the replacement of the
Current Governing Documents with the New Governing Documents. The
Commission also notes that, as described above, the Exchange proposes
to relocate definitions and provisions related to Market Maker Rights
from the Current Governing Documents into the Rules. The Commission
believes that the proposed changes to ISE's Rules that would prohibit a
holder or lessee of Market Maker Rights, together with any affiliate,
from gaining ownership or voting rights in excess of 20% of the
outstanding PMM Rights or CMM Rights, as applicable, are consistent
with the Act. The Commission has previously stated that a regulatory
concern can arise if a member's interest in an exchange becomes so
large as to cast doubt on whether the exchange can fairly and
objectively exercise its self-regulatory responsibilities with respect
to that member.\163\ The Commission has stated, for example, that a
member that directly or indirectly controls an exchange might be
tempted to exercise that controlling influence by directing the
exchange to refrain from diligently monitoring and surveilling the
member's conduct or diligently enforcing its rules and the federal
securities laws with respect to conduct by the member that violates
such provisions.\164\ The Commission believes that the proposal would
not give rise to concerns about the Exchange's ability to effectively
carry out its regulatory responsibilities under the Act because the
proposed rules change preserves existing ownership and voting
limitations.
---------------------------------------------------------------------------

\162\ 15 U.S.C. 78f(b)(1).
\163\ See, e.g., ISE HoldCo Order, supra note 9, at 25262 n.38
and accompanying text.
\164\ See, e.g., id. at 25262.
---------------------------------------------------------------------------

IV. Accelerated Approval

The Commission finds good cause, pursuant to Section 19(b)(2) of
the Act,\165\ to approve the proposal, as modified by Amendment No. 1,
prior to the 30th day after publication of Amendment No. 1 in the
Federal Register. In Amendment No. 1, ISE revises the original proposal
to make certain changes discussed in greater detail above. Notably, in
Amendment No. 1, ISE revises its proposal to (1) make changes to the
Exchange's New LLC Agreement and New By-Laws to better align these
proposed documents with certain provisions in ISE's existing governing
documents and the governing documents of other exchanges, including
those concerning limitations on board committee powers, the
confidentiality of books and records, the nomination of certain board
directors by petition, and the confidentiality of board meetings; (2)
revise the proposed

[[Page 36508]]

amendments to ISE's rules regarding ownership, voting, and transfer
restrictions relating to certain market maker rights on the Exchange;
(3) revise the related discussion of the purpose of the proposed
changes; (4) add clarification to the description of the proposal
regarding the operation of certain provisions; and (5) make certain
technical corrections. The Commission believes that Amendment No. 1
does not raise any novel regulatory issues and instead better aligns
ISE's proposed New Governing Documents with certain provisions in its
Current Governing Documents and the governing documents of other
exchanges that were previously approved by the Commission.\166\ As
discussed more fully above, certain provisions of ISE's New Governing
Documents, as modified by Amendment No. 1, are designed to facilitate
the ability of ISE to maintain the independence of its self-regulatory
function, enable it to operate in a manner that complies with the
federal securities laws, and facilitate the ability of ISE and the
Commission to fulfill their regulatory and oversight obligations under
the Act.\167\ The Commission further believes that Amendment No. 1
provides additional clarity in the rule text and the description of the
proposal, which is consistent with ISE's original proposal and supports
ISE's analysis of how its proposal is consistent with the Act, thus
facilitating the Commission's ability to make the findings set forth
above to approve the proposal. Accordingly, the Commission finds that
good cause exists to approve the proposal, as modified by Amendment No.
1, on an accelerated basis.
---------------------------------------------------------------------------

\165\ 15 U.S.C. 78s(b)(2).
\166\ See, e.g., Securities Exchange Act Release Nos. 70050
(July 26, 2013), 78 FR 46622 (August 1, 2013) (granting GEMX's (f/k/
a Topaz Exchange, LLC) application for registration as a national
securities exchange); and Mercury Exchange Approval, supra note 28.
\167\ See supra Section III.B.4 (discussing, for example,
certain provisions in ISE's New Governing Documents that are
designed to help maintain the independence of the regulatory
functions of the Exchange).
---------------------------------------------------------------------------

V. Solicitation of Comments

Interested persons are invited to submit written data, views, and
arguments concerning Amendment No. 1, including whether Amendment No. 1
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 August 25, 2017.

VI. Conclusion

It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\168\ that theproposed rule change (SR-ISE-2017-32), as modified by
Amendment No. 1, be, and hereby is, approved on an accelerated basis.
---------------------------------------------------------------------------

\168\ 15 U.S.C. 78s(b)(2).

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\169\
Eduardo A. Aleman,
Assistant Secretary.
---------------------------------------------------------------------------

\169\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

[FR Doc. 2017-16398 Filed 8-3-17; 8:45 am]
BILLING CODE 8011-01-P

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