Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; Notice of Filing of Amendment Nos. 2 and 3 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendments Nos. 1, 2, and 3 Thereto, in Connection With a Proposed Transaction Involving CHX Holdings, Inc. and the Intercontinental Exchange, Inc., 34182-34190 [2018-15370]
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34182
Federal Register / Vol. 83, No. 139 / Thursday, July 19, 2018 / Notices
board of directors or the equivalent of
such board, together with any response
by senior management, within 60
calendar days after its submission to
senior management. These reports are
required to be submitted on Form SCI.
The Commission staff estimates that the
total annual ongoing burden for all
respondents will be, on average, 44
hours (1 hour per respondent × 44
respondents). The Commission staff
estimates that all respondents will
incur, on average, an estimated ongoing
annual internal cost of compliance of
$18,128 ($412 per respondent × 44
respondents).
In addition, the Commission staff
estimates that all respondents will
incur, on average, annual costs of
$2,200,000 ($50,000 × 44 respondents)
for outside legal advice in preparation of
certain notifications required by Rule
1003(b).
Rule 1006 requires each SCI entity,
with a few exceptions, to file any
notification, review, description,
analysis, or report to the Commission
required under Regulation SCI
electronically on Form SCI through the
EFFS. An SCI entity will submit to the
Commission an EAUF to register each
individual at the SCI entity who will
access the EFFS system on behalf of the
SCI entity. The Commission staff
estimates that the total annual initial
burden for 2 new respondents will be
0.6 hours (0.3 hours per respondent × 2
respondents), and the annual ongoing
burden for all respondents will be, on
average, 6.6 hours (0.15 hours per
respondent × 44 respondents). The
Commission staff estimates that the 2
new respondents would incur an initial
internal cost of compliance of $248
($124 per respondent × 2 respondents),
as well as outside costs to obtain a
digital ID of $100 ($50 per respondent
× 2 respondents). In addition, all
respondents will incur, on average, an
estimated ongoing annual internal cost
of compliance of $2,728 ($62 per
respondent × 44 respondents), as well as
outside costs to obtain a digital ID of
$2,200 ($50 per respondent × 44
respondents).
Rule 1002(a) requires each SCI entity,
upon any responsible SCI personnel
having a reasonable basis to conclude
that an SCI event has occurred, to begin
to take appropriate corrective action.
The Commission staff estimates that the
total annual initial recordkeeping
burden for 2 new respondents will be
228 hours (114 hours per respondent ×
2 respondents), and the annual ongoing
recordkeeping burden for all
respondents will be, on average, 1,716
hours (39 hours per respondent × 44
respondents). The Commission staff
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estimates that the 2 new respondents
would incur an initial internal cost of
compliance of $85,056 ($42,528 per
respondent × 2 respondents). In
addition, all respondents will incur, on
average, an estimated ongoing annual
internal cost of compliance of $677,468
($15,397 per respondent × 44
respondents).
Rule 1003(a)(1) requires each SCI
entity to establish reasonable written
criteria for identifying a change to its
SCI systems and the security of indirect
SCI systems as material. The
Commission staff estimates that the total
annual initial recordkeeping burden for
2 new respondents will be 228 hours
(114 hours per respondent × 2
respondents), and the annual ongoing
recordkeeping burden for all
respondents will be, on average, 1,188
hours (27 hours per respondent × 44
respondents). The Commission staff
estimates that the 2 new respondents
would incur an initial internal cost of
compliance of $85,056 ($42,528 per
respondent × 2 respondents). In
addition, all respondents will incur, on
average, an estimated ongoing annual
internal cost of compliance of $507,584
($11,536 per respondent × 44
respondents).
Regulation SCI also requires SCI
entities to identify certain types of
events and systems. The Commission
staff estimates that the total annual
initial recordkeeping burden for 2 new
respondents will be 396 hours (198
hours per respondent × 2 respondents),
and the annual ongoing recordkeeping
burden for all respondents will be, on
average, 1,716 hours (39 hours per
respondent × 44 respondents). The
Commission staff estimates that the 2
new respondents would incur an initial
internal cost of compliance of $139,412
($69,706 per respondent × 2
respondents). In addition, all
respondents will incur, on average, an
estimated ongoing annual internal cost
of compliance of $677,468 ($15,397 per
respondent × 44 respondents).
Rules 1005 and 1007 establish
recordkeeping requirements for SCI
entities other than SROs. The
Commission staff estimates that for a
new respondent that is not an SRO the
average annual initial burden would be
170 hours (170 hours × 1 respondent),
and the annual ongoing burden for all
respondents will be, on average, 275
hours (25 hours × 11 respondents). The
Commission staff estimates that a new
respondent would incur an estimated
internal initial internal cost of
compliance of $11,370, as well as a onetime cost of $900 to modify existing
recordkeeping systems. In addition, all
respondents will incur, on average, an
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estimated ongoing internal cost of
compliance of $18,975 ($1,725 × 11
respondents).
Written comments are invited on: (a)
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
Commission, including whether the
information shall have practical utility;
(b) the accuracy of the Commission’s
estimates of the burden of the proposed
collection of information; (c) ways to
enhance the quality, utility, and clarity
of the information to be collected; and
(d) ways to minimize the burden of the
collection of information on
respondents, including through the use
of automated collection techniques or
other forms of information technology.
Consideration will be given to
comments and suggestions submitted in
writing within 60 days of this
publication.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
under the PRA unless it displays a
currently valid OMB control number.
Please direct your written comments
to: Pamela Dyson, Director/Chief
Information Officer, Securities and
Exchange Commission, c/o Candace
Kenner, 100 F Street NE, Washington,
DC 20549, or send an email to: PRA_
Mailbox@sec.gov.
Dated: July 13, 2018.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–15381 Filed 7–18–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–83635; File No. SR–CHX–
2018–004]
Self-Regulatory Organizations;
Chicago Stock Exchange, Inc.; Notice
of Filing of Amendment Nos. 2 and 3
and Order Granting Accelerated
Approval of a Proposed Rule Change,
as Modified by Amendments Nos. 1, 2,
and 3 Thereto, in Connection With a
Proposed Transaction Involving CHX
Holdings, Inc. and the Intercontinental
Exchange, Inc.
July 13, 2018.
I. Introduction
On May 8, 2018, the Chicago Stock
Exchange, Inc. (‘‘CHX’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Exchange
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Act’’) 1 and Rule 19b–4 thereunder,2 a
proposed rule change in connection
with a transaction (‘‘Transaction’’)
whereby a wholly-owned subsidiary of
NYSE Group, Inc. (‘‘NYSE Group’’)
would merge with and into the
Exchange’s parent, CHX Holdings, Inc.
(‘‘CHX Holdings’’), with CHX Holdings
continuing as the surviving corporation.
Pursuant to the Transaction, the
Exchange and CHX Holdings would
become indirect subsidiaries of
Intercontinental Exchange, Inc. (‘‘ICE’’).
On May 17, 2018, the Exchange filed
Amendment No. 1 to the proposal.3 The
proposed rule change, as modified by
Amendment No. 1, was published for
comment in the Federal Register on
May 29, 2018.4 On June 11, 2018, the
Exchange filed Amendment No. 2 to the
proposal.5 On June 26, 2018, the
Exchange filed Amendment No. 3 to the
proposal.6 The Commission received no
comments on the proposal.
After careful review, the Commission
finds that the proposed rule change is
consistent with the requirements of the
Exchange Act and the rules and
regulations thereunder applicable to a
national securities exchange.7 In
particular, the Commission finds that
the proposed rule change is consistent
with Sections 6(b)(1) and (3) of the
Exchange Act,8 which, among other
things, require a national securities
exchange to be so organized and have
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 In Amendment No. 1, the Exchange proposed to:
(1) Add new CHX Article 22, Rule 28, relating to
requirements for trading securities issued by ICE or
its affiliates; and (2) amend proposed CHX Article
19, Rule 2(b), relating to certain requirements with
respect to a wholly-owned subsidiary of NYSE
Group that would act as an inbound router to the
Exchange. Amendment No. 1 was reflected in the
notice of filing of proposed rule change that was
published in the Federal Register. See infra note 4.
4 See Securities Exchange Act Release No. 83303
(May 22, 2018), 83 FR 24517 (‘‘Notice’’).
5 In Amendment No. 2, the Exchange proposed to
amend Article FIFTH, Paragraph (g) of the CHX
certificate of incorporation (‘‘CHX Certificate’’) and
Article II, Section 6 of the CHX bylaws (‘‘CHX
Bylaws’’) to provide that a vacancy in the CHX
board of directors would be filled either by the
remaining director(s) or stockholder action.
Amendment No. 2 is available at: https://
www.sec.gov/comments/sr-chx-2018-004/
chx2018004-3818683-162751.pdf.
6 In Amendment No. 3, the Exchange proposed
technical changes to the CHX Certificate so that the
date the original certificate of incorporation was
filed and the original name of the Exchange appear
in the preamble instead of Article FIRST, and to
delete ‘‘the’’ from the title of the CHX Certificate.
Amendment No. 3 is available at: https://
www.sec.gov/comments/sr-chx-2018-004/
chx2018004-3918683-166986.pdf.
7 In approving the proposed rule changes, the
Commission has considered their impact on
efficiency, competition and capital formation. See
15 U.S.C. 78c(f).
8 15 U.S.C. 78f(b)(1) and (b)(3).
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the capacity to be able to carry out the
purposes of the Exchange Act, and to
enforce compliance by its members and
persons associated with its members
with the provisions of the Exchange Act,
the rules and regulations thereunder,
and the rules of the exchange, and
assure the fair representation of its
members in the selection of its directors
and administration of its affairs, and
provide that one or more directors shall
be representative of issuers and
investors and not be associated with a
member of the exchange, broker, or
dealer. The Commission also finds that
the proposal is consistent with Section
6(b)(5) of the Exchange Act,9 which
requires that the rules of the exchange
be designed to promote just and
equitable principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest.
II. Discussion
A. Current and Proposed Ownership of
the Exchange
Currently, the Exchange is a whollyowned subsidiary of CHX Holdings, and
CHX Holdings is beneficially owned by
197 firms or individuals, including
Participants 10 or affiliates of
Participants.
Pursuant to the terms of a Merger
Agreement, dated April 4, 2018, by and
among CHX Holdings, ICE, and Kondor
Merger Sub, Inc., a wholly-owned
subsidiary of NYSE Group (‘‘Merger
Sub’’), Merger Sub would merge with
and into CHX Holdings, and CHX
Holdings would be the entity surviving
the merger. Current holders of the
common and preferred stock of CHX
Holdings would receive cash in
exchange for their shares.
Upon closing of the Transaction
(‘‘Closing’’), NYSE Group would hold
all of the outstanding and issued shares
of CHX Holdings. NYSE Group is a
wholly-owned subsidiary of NYSE
Holdings, which is in turn wholly
owned by ICE Holdings. ICE Holdings is
wholly-owned by ICE (together, with
NYSE Group, NYSE Holdings, and ICE,
the ‘‘ICE Holding Companies’’).11 CHX
Holdings would continue to be the
record and beneficial owner of all of the
issued and outstanding shares of capital
stock of CHX and the sole member of
U.S.C. 78f(b)(5).
‘‘Participant’’ is considered a ‘‘member’’ of
the Exchange for purposes of the Exchange Act. See
CHX Article 1, Rule 1(s) (Definitions).
11 ICE is a public company listed on the NYSE.
ICE, ICE Holdings, and NYSE Group are Delaware
corporations and NYSE Holdings is a Delaware
limited liability corporation.
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10 A
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34183
the Exchange’s affiliated routing broker
dealer, CHXBD, LLC (‘‘CHXBD’’).
Closing is subject to satisfaction of
customary conditions for a transaction
of this nature, including approval of this
proposed rule change by the
Commission.
Following the Transaction, the
Exchange would continue to be
registered as a national securities
exchange and as a separate selfregulatory organization (‘‘SRO’’). As
such, the Exchange would continue to
have separate rules, membership rosters,
and listings that would be distinct from
the rules, membership rosters, and
listings of the four other registered
national securities exchanges and SROs
owned by NYSE Group, namely, the
New York Stock Exchange LLC
(‘‘NYSE’’), NYSE American LLC (‘‘NYSE
American’’), NYSE Arca, Inc. (‘‘NYSE
Arca’’), and NYSE National, Inc.
(‘‘NYSE National’’ and together with
NYSE, NYSE American and NYSE Arca,
the ‘‘NYSE Exchanges’’).
B. Proposed Rule Changes
Section 19(b) of the Exchange Act and
Rule 19b–4 thereunder require an SRO
to file proposed rule changes with the
Commission. To effectuate the change in
the ownership structure in connection
with the proposed Transaction, the
Exchange has proposed to amend the
CHX Certificate, the CHX Bylaws, the
CHX Holdings certificate of
incorporation (‘‘CHX Holdings
Certificate’’), CHX Holdings bylaws
(‘‘CHX Holdings Bylaws’’), and the
Exchange’s rules. Although CHX
Holdings, NYSE Group, NYSE Holdings,
ICE Holdings, and ICE are not SROs,
certain provisions of their proposed
certificates of incorporation and bylaws,
along with other corporate documents,
are rules of the Exchange, if they are
stated policies, practices, or
interpretations, as defined in Rule 19b–
4 under the Exchange Act, and must be
filed with the Commission pursuant to
Section 19(b)(1) of the Exchange Act
and Rule 19b–4 thereunder.12
Accordingly, the Exchange has filed,
and has proposed to adopt, as rules of
the Exchange: (1) The certificate of
incorporation of NYSE Group (‘‘NYSE
Group Certificate’’); (2) the bylaws of
NYSE Group (‘‘NYSE Group Bylaws’’);
(3) the limited liability company
agreement of NYSE Holdings LLC
(‘‘NYSE Holdings Agreement’’); (4) the
certificate of incorporation of ICE
Holdings (‘‘ICE Holdings Certificate’’);
(5) the bylaws of ICE Holdings (‘‘ICE
Holdings Bylaws’’); (6) the certificate of
12 See Section 3(a)(27) of the Exchange Act, 15
U.S.C. 78c(a)(27).
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incorporation of ICE (‘‘ICE Certificate’’);
(7) the bylaws of ICE (‘‘ICE Bylaws’’);
and (8) the independence policy of the
board of directors of ICE. In addition,
the Exchange has filed with the
Commission the text of a proposed
resolution of CHX Holdings’ board of
directors to waive certain ownership
and voting limitations to permit the
Transaction.
1. Proposed Rule Changes To Waive the
Ownership and Voting Limitations
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The current CHX Holdings certificate
of incorporation (‘‘Current CHX
Holdings Certificate’’) provides that that
no Person,13 either alone or together
with its Related Persons,14 may, directly
or indirectly: (1) Own shares of stock of
CHX Holdings representing more than
40 percent of the then outstanding votes
entitled to be cast on any matter; (2) if
it is a Participant, own shares of stock
of CHX Holdings representing more
than 20 percent of the then outstanding
votes entitled to be cast on any matter;
or (3) pursuant to any voting trust,
agreement, plan or other arrangement,
vote or cause the voting of shares of the
stock of CHX Holdings or give any
consent or proxy with respect to shares
representing more than 20 percent of the
voting power of the then issued and
outstanding capital stock of CHX
Holdings; or enter into any agreement,
plan or other arrangement
(‘‘Arrangement’’) with any other Person,
either alone or together with its Related
Persons, under circumstances that
would result in the subject shares of
CHX Holdings not being voted on any
matter or matters or any proxy relating
thereto being withheld, where the effect
of such Arrangement would be to enable
any Person, either alone or together with
its Related Persons, to vote, possess the
right to vote or cause the voting of
shares of CHX Holdings which would
13 Current CHX Holdings Certificate, Article
FIFTH, Paragraph (a)(i) defines ‘‘Person’’ as ‘‘an
individual, partnership (general or limited), joint
stock company, corporation, limited liability
company, trust or unincorporated organization, or
any governmental entity or agency or political
subdivision thereof.’’
14 Current CHX Holdings Certificate, Article
FIFTH, Paragraph (a)(ii) defines ‘‘Related Persons’’
as ‘‘(A) with respect to any Person, all ‘affiliates’
and ‘associates’ of such Person (as such terms are
defined in Rule 12b–2 under the . . . Act . . .); (B)
with respect to any Person that holds a permit
issued by the . . . Exchange . . . to trade securities
on the . . . Exchange (a ‘Participant’), any broker
or dealer with which a Participant is associated;
and (C) any two or more Persons that have any
agreement, arrangement or understanding (whether
or not in writing) to act together for the purpose of
acquiring, voting, holding or disposing of shares of
the capital stock of’’ CHX Holdings.
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represent more than 20 percent of such
voting power.15
The CHX Holdings Certificate
provides that the first and third
ownership and voting limitations set
forth above may be waived by the CHX
Holdings board of directors by adopting
an amendment to the bylaws, if, in
connection with the adoption of such
amendment, the board of directors also
adopts certain resolutions.16 In
addition, the CHX Holdings Certificate
provides that, notwithstanding the first
and second ownership and voting
limitations, a proposed sale, assignment
or transfer of CHX Holdings stock above
the percentage limitations shall not
become effective until the board of
directors of CHX Holdings has
determined, by resolution, that such
purchaser and its Related Persons are
not subject to any applicable statutory
disqualification.17
Waiver of the ownership and voting
limitations must be filed with and
approved by the Commission pursuant
to Section 19 of the Exchange Act.18
Furthermore, such Person seeking the
waiver must deliver to the CHX
Holdings board of directors not less than
45 days prior to any vote or acquisition,
as appropriate, a notice of the intent to
exceed the ownership and voting
restrictions.19
Because NYSE Group’s acquisition of
all of the shares of CHX Holdings at
Closing would violate these ownership
and voting limitations, the CHX
15 Article FIFTH, Paragraph (b)(ii) of the Current
CHX Holdings Certificate. Article FIFTH includes
provisions to address violations of the current
ownership and voting limitations. See Article
FIFTH, Paragraphs (d) and (e) of the Current CHX
Holdings Certificate.
16 Article FIFTH, Paragraph (b)(iii)(B) of the
Current CHX Holdings Certificate, which provides
that any such resolution must state that the board
of director’s determination is that such amendment
(a) will not impair the ability of the Exchange to
carry out its functions and responsibilities as an
‘‘exchange’’ under the Exchange Act, and the rules
under the Exchange Act; (b) is otherwise in the best
interests of CHX Holdings and its stockholders and
the Exchange; (c) will not impair the ability of the
Commission to enforce the Exchange Act, and (d)
such amendment shall not be effective until
approved by the Commission.
17 See Article FIFTH, Paragraph (b)(iv) of the
Current CHX Holdings Certificate, which provides
that, notwithstanding the first and second
ownership and voting limitations, ‘‘in any case
where a Person, either alone or together with its
Related Persons, would own or vote more than the
above percentage limitations upon consummation
of any proposed sale, assignment or transfer of’’
CHX Holdings’ stock, ‘‘such sale, assignment or
transfer shall not become effective until the Board
of Directors’’ of CHX Holdings ‘‘shall have
determined, by resolution, that such Person and its
Related Persons are not subject to any applicable
‘statutory disqualification’ (within the meaning of
Section 3(a)(39)’’ of the Exchange Act.
18 See Article FIFTH, Paragraph (b)(v) of the
Current CHX Holdings Certificate.
19 Id.
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Holdings board of directors determined
that in order to effect the Transaction,
a waiver of the ownership and voting
limitations with respect to the ICE
Holding Companies would be required.
To do so, the board of directors adopted
resolutions (‘‘Resolutions’’), making
certain determinations with respect to
the ICE Holding Companies and the
Transaction that are necessary to waive
the ownership and voting limits.
Specifically, the board of directors of
CHX Holdings made the following
determinations: (1) The acquisition of
the proposed ownership by the ICE
Holdings Companies will not impair the
ability of the Exchange to carry out its
functions and responsibilities as an
‘‘exchange’’ under the Exchange Act and
the rules thereunder; are otherwise in
the best interests of CHX Holdings and
its stockholders and the Exchange; and
will not impair the ability of the
Commission to enforce the Exchange
Act; and (2) none of the ICE Holding
Companies, nor any of its Related
Persons, is subject to ‘‘statutory
disqualification’’ within the meaning of
Section 3(a)(39) of the Exchange Act.
Article IV, Section 2(a) of the
proposed CHX Holdings Certificate
would ensure that any change in
ownership of CHX Holdings would be
subject to Commission approval, by
providing that NYSE Group may not
transfer or assign any stock unless such
transfer or assignment is filed with and
approved by the Commission under
Section 19 of the Exchange Act.20 The
governing documents of NYSE Group,
NYSE Holdings, and ICE Holdings also
provide that any transfer or assignment
of stock must be filed with or approved
by the Commission under Section 19 of
the Exchange Act.21 Each of the NYSE
Group Certificate, NYSE Holdings
Agreement, and ICE Holdings Certificate
provides that any changes to the
provisions of such agreement must
either be filed with and approved by the
Commission pursuant to Section 19 of
the Exchange Act or must be submitted
to the Exchange’s board of directors, and
if the board so decides, the changes
must be filed with and approved by the
Commission.22
The Commission believes that it is
consistent with the Exchange Act to
allow the ICE Holding Companies to
wholly-own and vote all of the
outstanding common stock of CHX
Holdings. The Commission notes that
20 15
U.S.C. 78s(b)(1).
NYSE Group Certificate Article IV, Section
4(a), NYSE Holdings Agreement Article VII, Section
7.2, and ICE Holdings Certificate Article IV.C.
22 See NYSE Group Certificate Article XII, NYSE
Holdings Agreement Article XVI, Section 16.1, and
ICE Holdings Certificate Article X.
21 See
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ICE, the new top-level holding company
for the Exchanges, currently owns other
national securities exchanges and is
subject to governance documents that
restrict concentration of ownership and
voting rights.23 As discussed below,
CHX Holdings has also included in its
corporate documents certain provisions
designed to maintain the independence
of the Exchange’s regulatory
functions.24 Accordingly, the
Commission does not believe that the
Transaction will impair the ability of
the Exchange to carry out its functions
and responsibilities as an ‘‘exchange’’
under the Exchange Act and the rules
and regulations promulgated
thereunder, or the ability of the
Commission to enforce the Exchange
Act and the rules and regulations
promulgated thereunder.
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2. Ownership and Voting Limitations
In connection with the Transaction,
upon Closing, ICE will become the
indirect owner (through ICE Holdings,
NYSE Holdings, NYSE Group, and CHX
Holdings) of the Exchange.25 The ICE
Certificate includes restrictions on the
ability to own and vote shares of capital
stock of ICE. These limitations are
designed to prevent any stockholder
from exercising undue control over the
operation of the Exchange and to assure
that the Exchange and the Commission
are able to carry out their regulatory
obligations under the Exchange Act.
Specifically, the ICE Certificate
includes restrictions on the ability to
vote and own shares of stock of ICE. For
so long as ICE directly or indirectly
controls a national securities exchange,
the ICE Certificate provides that no
person, either alone or together with its
related persons, shall be: (1) Entitled to
vote or cause the voting of more than 10
percent of the then outstanding votes
entitled to be cast on a matter, or (2)
permitted to own shares of stock of ICE
representing in the aggregate more than
20 percent of the then outstanding votes
entitled to be cast on any matter. The
ICE Certificate provides that ICE will be
required to disregard any votes
purported to be cast in excess of the
voting restriction. The ICE Certificate
23 See Article V of the ICE Certificate. See infra
Section II.B.2.
24 See Article XI of the proposed CHX Holdings
Certificate and Article III of the proposed CHX
Holdings Bylaws.
25 Because the governing documents of CHX
Holdings, NYSE Group, NYSE Holdings, and ICE
Holdings provide that any transfer or assignment of
stock must be filed with or approved by the
Commission under Section 19 of the Exchange Act,
any change in control of such ICE Holding
Companies would be subject to Commission
approval. See supra notes 19–22 and accompanying
text.
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also provides that in the event that any
person(s) exceeds the ownership
restrictions, it will be obligated to sell
promptly, and ICE will be obligated to
purchase promptly, at a price equal to
the par value of such shares and to the
extent funds are legally available for
such purchase, the number of shares of
ICE necessary so that such person,
together with its related persons, will
beneficially own shares of ICE
representing in the aggregate no more
than 20 percent of the then outstanding
votes entitled to be cast on any matter,
after taking into account that such
repurchased shares will become
treasury shares and will no longer be
deemed to be outstanding. The ICE
board of directors may waive the
ownership and voting restrictions if it
makes certain determinations and
expressly resolves to permit the
ownership and voting that is subject to
such restrictions, and such resolutions
have been filed with, and approved by,
the Commission under Section 19(b) of
the Exchange Act. The ICE Certificate
further provides that the board of
directors may not approve either voting
or ownership rights in excess of a 20
percent threshold with respect to any
person that is a member of an exchange
controlled by ICE or who is subject to
any statutory disqualification.
The Commission believes that ICE’s
ownership and voting limitations are
reasonably designed to prevent any
stockholder from exercising undue
control over the operation of ICE, and in
turn, over the operation of the
Exchange. The Commission also notes
that these ownership and voting
limitations have previously been
approved by the Commission 26 and are
consistent with those approved by the
Commission for other SROs 27 and
26 See, e.g., Securities Exchange Act Release No.
71721 (March 13, 2014), 79 FR 15367 (March 19,
2014) (SR–NYSE–2014–04; SR–NYSEMKT–2014–
10; SR–NYSEArca–2014–08).
27 See, e.g., Securities Exchange Act Release Nos.
79585 (December 16, 2016), 81 FR 93988 (December
22, 2016) (SR–BatsBZX–2016–68) (approving
similar restrictions in connection with the merger
of Bats Global Markets, Inc. and CBOE Holdings,
Inc.) (‘‘BATS–CBOE Approval Order’’); 78119 (June
21, 2016), 81 FR 41611 (June 27, 2016) (SR–ISE–
2016–11, SR–ISE Gemini–2016–05, SR–ISE
Mercury–2016–10) (approving similar restrictions
proposed in connection with Nasdaq, Inc. becoming
the indirect parent of International Securities
Exchange, ISE Gemini, LLC, and ISE Mercury, LLC);
74270 (February 13, 2015), 80 FR 9286 (February
20, 2015) (SR–NSX–2014–017) (approving similar
restrictions in connection with National Stock
Exchange, Inc. becoming a wholly-owned
subsidiary of National Stock Exchange Holdings,
Inc.); 71449 (January 30, 2014), 79 FR 6961
(February 5, 2014) (SR–EDGA–2013–34; SR–EDGX–
2013–43) (approving similar restrictions in
connection with the merger of BATS Global
Markets, Inc. and Direct Edge Holdings LLC); 71375
(January 23, 2014), 79 FR 4771 (January 29, 2014)
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34185
believes that they are reasonably
designed to assure that the Exchange
and the Commission are able to carry
out their regulatory obligations under
the Exchange Act and in administering
and complying with the requirements of
the Exchange Act. Moreover, the
Commission believes that the ownership
and voting limits are reasonably
designed to eliminate the potential that
the control of the Exchange by one or
few stockholders would improperly
interfere with or impair the ability of the
Commission or the Exchange to
effectively carry out their regulatory
oversight responsibilities under the
Exchange Act.
In addition to being designed to
eliminate the potential of any
stockholder from exercising undue
control over the Exchange, the
Commission also notes that the
restrictions applicable to members of an
exchange are designed to address the
conflicts of interests that might result
from a member of a national securities
exchange owning interests in the
exchange. As the Commission has noted
in the past, a member’s interest in an
exchange could become so large as to
cast doubts on whether the exchange
may fairly and objectively exercise its
self-regulatory responsibilities with
(SR–BATS–2013–059, SR–BYX–2013–039)
(approving similar restrictions in connection with
the merger of BATS Global Markets, Inc. and Direct
Edge Holdings LLC); 70210 (August 15, 2013), 78
FR 62716 (August 13, 2010), 75 FR 51295 (August
19, 2010) (File No. 10–198) (approving similar
restrictions in connection with the registration Bats
BYX Exchange, Inc. as a national securities
exchange); 61698 (March 12, 2010), 75 FR 13151
(March 18, 2010) (File Nos. 10–194 and 10–196)
(approving similar restrictions in connection with
the registrations of EDGX Exchange, Inc. and EDGA
Exchange, Inc. as national securities exchanges);
58375 (August 18, 2008), 73 FR 49498 (August 21,
2008) (File No. 10–182) (approving similar
restrictions in connection with the registration of
BATS Exchange, Inc. as a national securities
exchange); 56955 (December 13, 2007), 72 FR
71979, 71982–84 (December 19, 2007) (SR–ISE–
2007–101) (approving similar restrictions in
connection with International Securities Exchange
Holdings, Inc. becoming a wholly-owned indirect
subsidiary of Eurex Frankfurt AG); 55293 (February
14, 2007); 53382 (February 27, 2006), 71 FR 11251
(March 6, 2006) (SR–NYSE–2005–77) (approving
similar restrictions in connection with the merger
of New York Stock Exchange, Inc. and
Archipelago); 53963 (June 8, 2006), 71 FR 34660
(June 15, 2006) (File No. SR–NSX–2006–03)
(approving similar restrictions in connection with
the demutualization of the National Stock
Exchange); 53128 (January 13, 2006), 71 FR 3550
(January 23, 2006) (File No. 10–131) (approving
similar restrictions in connection with the
registration the Nasdaq Stock Market LLC as a
national securities exchange); 51149 (February 8,
2005), 70 FR 7531 (February 14, 2005) (SR–CHX–
2004–26) (approving similar restrictions in
connection with the demutualization of CHX); and
49098 (January 16, 2004), 69 FR 3974 (January 27,
2004) (SR–Phlx–2003–73) (approving similar
restrictions in connection with the demutualization
of the Philadelphia Stock Exchange, Inc.).
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respect to such member.28 A member
that is a controlling stockholder of an
exchange could seek to exercise that
controlling influence by directing the
exchange to refrain from, or the
exchange may hesitate to, diligently
monitor and conduct surveillance of the
member’s conduct or diligently enforce
the exchange’s rules and the federal
securities laws with respect to conduct
by the member that violates such
provisions. As such, these restrictions
on Exchange members’ ownership and
voting of ICE stock are expected to
minimize the potential that a person or
entity can improperly interfere with or
restrict the ability of CHX to effectively
carry out its regulatory oversight
responsibilities under the Exchange Act.
3. Jurisdiction; Books and Records; Due
Regard
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As described above, following the
Closing, ICE will remain the sole
stockholder of ICE Holdings, ICE
Holdings will remain the sole
stockholder of NYSE Holdings, NYSE
Holdings will remain the sole member
of NYSE Group, NYSE Group will
become the sole stockholder of CHX
Holdings, and CHX Holdings will
remain the sole stockholder of the
Exchange. Although ICE, ICE Holdings,
NYSE Holdings, NYSE Group, and CHX
Holdings will not carry out any
regulatory functions, their activities
with respect to the operation of the
Exchange must be consistent with, and
must not interfere with, the selfregulatory obligations of the Exchange.
The ICE Bylaws,29 ICE Holdings
Bylaws,30 NYSE Holdings Agreement,31
NYSE Group Certificate,32 and CHX
Holdings Certificate 33 therefore include
certain provisions that are designed to
maintain the independence of the
Exchange’s self-regulatory functions,
enable the Exchange to operate in a
manner that complies with the federal
securities laws, including the objectives
of Sections 6(b) 34 and 19(g) 35 of the
Exchange Act, and facilitate the ability
of the Exchange and the Commission to
fulfill their regulatory and oversight
obligations under the Exchange Act.
28 See, e.g., BATS–CBOE Order, supra note 27, at
93990.
29 See Articles VII, VIII, IX, and IX of the ICE
Bylaws.
30 See Articles VII, VIII, IX, and XI of the ICE
Holdings Bylaws.
31 See Articles XII, XIII, XIV, and Article XVI,
Section 16.1 of the NYSE Holdings Agreement.
32 See Articles IX, X, XI, and XII of the NYSE
Group Certificate.
33 See Articles IX, X, XI, and XII of the proposed
CHX Holdings Certificate.
34 15 U.S.C. 78f(b).
35 15 U.S.C. 78s(g).
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For example, under the CHX Holdings
Certificate, CHX Holdings, its directors,
officers, and employees, must give due
regard to the preservation of the
independence of the self-regulatory
function of the Exchange (to the extent
of the Exchange’s self-regulatory
function), as well as to its obligations to
investors and the general public and
must not take any actions that would
interfere with the effectuation of any
decisions by the board of directors of
the Exchange relating to its regulatory
functions (including disciplinary
matters), or which would interfere with
the ability of the Exchange to carry out
its responsibilities under the Exchange
Act.36
The CHX Holdings Certificate would
further require that CHX Holdings
complies with the U.S. federal securities
laws and rules and regulations
thereunder and shall cooperate with the
Commission and the Exchange,
pursuant to and to the extent of their
respective regulatory authority, and
shall take reasonable steps necessary to
cause its agents to cooperate with the
Commission and, where applicable, the
Exchange, pursuant to their regulatory
authority.37 The CHX Holdings
Certificate also provides that CHX
Holdings shall take reasonable steps
necessary to cause its officers, directors
and employees, prior to accepting their
positions, to consent to the applicability
of Section 7 of Article V
(‘‘Considerations of the Board’’), Article
IX (‘‘Jurisdiction’’), Article X
(‘‘Confidential Information’’), and
Section 3 of Article XI of the CHX
Holdings Certificate (relating to giving
due regard to the independence of the
self-regulatory function of the Exchange)
with respect to their activities related to
the Exchange.38 In addition, the CHX
Holdings Certificate provides that in
discharging his or her responsibilities as
a member of the board or as an officer
or employee of CHX Holdings, each
such director, officer, or employee shall
(1) comply with the federal securities
laws and the rules and regulations
thereunder, (2) cooperate with the
Commission, and (3) cooperate with the
Exchange pursuant to and to the extent
of its regulatory authority.39
Furthermore, CHX Holdings, its
directors and officers, and those of its
employees whose principal place of
business and residence is outside of the
United States, shall be deemed to
irrevocably submit to the jurisdiction of
the United States federal courts and the
Commission for the purposes of any
suit, action, or proceeding pursuant to
the United States federal securities laws
and the rules and regulations
thereunder, commenced or initiated by
the Commission arising out of, or
relating to, the activities of the
Exchange.40
The CHX Holdings Certificate also
provides that as long as CHX Holdings
directly or indirectly controls any
national securities exchange, the books,
records, premises, officers, directors,
and employees of CHX Holdings shall
be deemed to be the books, records,
premises, officers, directors, and
employees of the Exchange for purposes
of and subject to oversight pursuant to
the Exchange Act.41
The CHX Holdings Certificate also
provides that all confidential
information pertaining to the selfregulatory function of the Exchange
(including but not limited to
disciplinary matters, trading data,
trading practices, and audit information)
contained in the books and records of
the Exchange that shall come into the
possession of CHX Holdings, shall not
be made available to any persons other
than to those officers, directors,
employees, and agents of CHX Holdings,
that have a reasonable need to know the
contents thereof, and shall be retained
in confidence by CHX Holdings, and the
officers, directors, employees, and
agents of CHX Holdings, and not used
for any commercial purposes.42 The
CHX Holdings Certificate, however,
specifies that the CHX Holdings
Certificate (including these
confidentiality provisions) shall not be
interpreted so as to limit or impede the
rights of the Commission or the
Exchange to access and examine such
confidential information pursuant to the
federal securities laws and the rules and
regulations thereunder, or to limit or
impede the ability of any officers,
directors, employees, or agents of CHX
Holdings to disclose such confidential
information to the Commission or the
Exchange.43 In addition, the CHX
Holdings Certificate provides that CHX
Holdings’ books and records shall be
subject at all times to inspection and
36 Article XI, Section 3 of the proposed CHX
Holdings Certificate.
37 Article XI, Section 1 of the proposed CHX
Holdings Certificate.
38 Article XI, Section 2 of the proposed CHX
Holdings Certificate.
39 Article V, Section 7 of the proposed CHX
Holdings Certificate.
40 Article IX of the proposed CHX Holdings
Certificate.
41 Article X of the proposed CHX Holdings
Certificate.
42 Article X of the proposed CHX Holdings
Certificate.
43 Article X of the proposed CHX Holdings
Certificate.
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copying by the Commission and the
Exchange.44
The CHX Holdings Certificate and
CHX Holdings Bylaws provide that as
long as CHX Holdings controls, directly
or indirectly, a registered national
securities exchange, before any
amendment to, or repeal of, any
provision of the CHX Holdings
Certificate and CHX Holdings Bylaws,
as the case may be, may be effective,
those changes must be either filed with
or filed with and approved by the
Commission under Section 19 of the
Exchange Act and the rules promulgated
thereunder or submitted to the board of
directors of each such exchange, and if
the amendment is required to be filed
with, or filed with and approved by the
Commission pursuant to Section 19(b)
of the Exchange Act, such change shall
not be effective until filed with, or filed
with and approved by, the
Commission.45
The Commission finds that these
provisions are consistent with the
Exchange Act, and that they are
intended to assist the Exchange in
fulfilling its self-regulatory obligations
and in administering and complying
with the requirements of the Exchange
Act. The Commission also notes that,
even in the absence of these provisions,
under Section 20(a) of the Exchange
Act,46 any person with a controlling
interest in the Exchange shall be jointly
and severally liable with and to the
same extent that the Exchange is liable
under any provision of the Exchange
Act, unless the controlling person acted
in good faith and did not directly or
indirectly induce the act or acts
constituting the violation or cause of
action. In addition, Section 20(e) of the
Exchange Act 47 creates aiding and
abetting liability for any person who
knowingly provides substantial
assistance to another person in violation
of any provision of the Exchange Act or
rule thereunder. Further, Section 21C of
the Exchange Act 48 authorizes the
Commission to enter a cease-and-desist
order against any person who has been
‘‘a cause of’’ a violation of any provision
of the Exchange Act through an act or
omission that the person knew or
should have known would contribute to
the violation.
44 Article X of the proposed CHX Holdings
Certificate.
45 Article XII of the proposed CHX Holdings
Certificate and Section 7.9(b) of the proposed CHX
Holdings Bylaws.
46 15 U.S.C. 78t(a).
47 15 U.S.C. 78t(e).
48 15 U.S.C. 78u–3.
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4. CHX Board of Directors
As noted above, the Exchange will
become part of a corporate family
including five separate registered
national securities exchanges following
consummation of the Transaction. The
Exchange represented that it is
important for each of such exchanges to
have a consistent approach to corporate
governance in certain matters; therefore,
to simplify complexity and create
greater consistency among the NYSE
Exchanges, CHX proposed to revise the
provisions of the CHX Bylaws and CHX
Certificate to mirror the comparable
provisions in the certain of the NYSE
Exchanges.49 Specifically, as discussed
below, the Exchange proposed to make
the number, composition, term of office
and qualifications of the Exchange
board of directors (‘‘Board’’) consistent
with the make-up of the boards of
directors of the NYSE Exchanges.
Currently, the CHX Bylaws generally
provide that the Board shall be
composed of between 10 and 16
directors, the exact number to be
determined by the Board; the CHX
Bylaws also set forth the compositional
requirements for the Board. The
Exchange proposed to amend the CHX
Bylaws to provide that the number of
directors would be determined from
time to time by the stockholders subject
to the compositional requirements for
the Board, which require that at least 50
percent of the directors on the
Exchange’s Board be persons from the
public and not be, or be affiliated with,
a broker-dealer in securities or
employed by, or involved in any
material business relationship with, the
Exchange or its affiliates (‘‘Public
Directors’’); and at least 20 percent of
the directors consist of individuals
nominated by the trading permit holders
who are permitted to trade on the
Exchange’s facilities for the trading of
equities that are securities as covered by
the Exchange Act (collectively, ‘‘Permit
Holders’’) (such directors, the ‘‘STP
Participant Directors’’).50 The Exchange
also proposed that for purposes of
calculating the minimum number of
STP Participant Directors, if 20 percent
of the directors is not a whole number,
such number of directors to be
nominated and selected by the Permit
Holders be rounded up to the next
whole number, and that the term of
office of a director not be affected by
any decrease in the authorized number
of directors.51 The revised provisions
also would require the nominees for a
49 See
50 See
Notice, supra note 4, at 24520.
proposed CHX Bylaws, Article II, Section
2(a).
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51 Id.
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34187
director position to provide to the
Secretary of the Exchange such
information as is reasonably necessary
to serve as the basis for a determination
of the nominee’s qualifications as a
director, and that the Secretary make
such determination concerning the
nominee’s qualifications.52
The Exchange also proposed to amend
Article II, Section 2(c) of the CHX
Bylaws, which sets forth the structure of
the Board. Currently, the Board is
divided into three classes serving threeyear terms, with the term of office of one
class expiring each year, and directors
continue in office after the expiration of
their terms until their successors are
elected or appointed and qualified,
except in the event of early resignation,
removal, or disqualification. The
Exchange proposed to replace this
provision to provide that at each annual
meeting of the stockholders, the
stockholders will elect directors to serve
until the next annual meeting or until
their successors are elected and
qualified.53 The Exchange also proposed
that the Board shall appoint the
Chairman of the Board by majority vote,
and that each director shall hold office
for a term that expires at the annual
meeting of the stockholders next
following his or her election, provided
that if he or she is not re-elected and his
or her successor is not elected and
qualified at the meeting and there
remains a vacancy on the Board, he or
she shall continue to serve until his or
her successor is elected and qualified or
until his or her earlier death,
resignation, or removal.54 The CHX
Bylaws also would provide that a
director may serve for any number of
terms, consecutive or otherwise.55 The
Exchange represented that the change
from a three-class board with staggered
terms to a board with one class of
directors elected annually would make
the organization of the Board consistent
with those of all of the NYSE
Exchanges.56
The Exchange proposed that except as
otherwise provided in the CHX Bylaws
or the Exchange’s rules, the shareholder
shall nominate directors for election at
the annual meeting of the shareholder,
which nominations shall comply with
52 See proposed CHX Bylaws, Article II, Section
2(b). The Exchange noted that proposed Article II,
Sections 2(a) and (b) would be consistent with the
NYSE National Bylaws and NYSE Arca Bylaws. See
Notice, supra note 4, at 24521.
53 See proposed CHX Bylaws, Article II, Section
2(c).
54 See proposed CHX Bylaws, Article II, Section
2(d).
55 Id.
56 See Notice, supra note 4, at 24522.
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the Exchange’s rules and the CHX
Bylaws.57
The Exchange also proposed to amend
the CHX Bylaw provisions relating to
the nomination and election of the
Board to make these provisions similar
to the provisions in the NYSE Arca and
NYSE National Bylaws, subject to
certain terms specific to the Exchange.58
Currently, the Nominating and
Governance Committee (‘‘NGC’’) of the
Exchange consists of two Public
Directors and two Original STP
Participant Directors, one of whom must
not be a representative of a firm that is
a holder of Series A Preferred Stock of
CHX Holdings. The NGC also is
currently appointed by the Board. The
Exchange proposed that the Nominating
Committee be composed solely of STP
Participant Directors and/or Permit
Holder representatives, and proposed to
rename the NGC to the ‘‘Nominating
Committee.’’ 59
The Exchange also proposed to amend
the provisions relating to the process for
nominating candidates to the Board.
Currently, the Bylaws provide that each
year the NGC shall nominate persons
who will qualify as Participant Directors
pursuant to the procedures set forth in
the Bylaws. The Exchange proposed to
adopt a new process for nominating
nominees to the Board. Specifically,
pursuant to Article II, Section 3(b) of the
CHX Bylaws, CHX proposed that the
Nominating Committee shall publish
the name(s) of one or more Participants
as its nominee(s) for STP Participant
Directors of the Board. The Nominating
Committee would name sufficient
nominees so that at least 20 percent of
the directors consist of STP Participant
Directors, and the names of the
nominees shall be published on a date
in each year sufficient to accommodate
the process described (‘‘Announcement
Date’’). After the name of the proposed
nominee(s) is published, the CHX
Bylaws allow Permit Holders in good
standing to submit a petition to the
Exchange in writing to nominate
additional eligible candidate(s) to fill
STP Participant Director position(s)
during the next term. If a written
petition of at least 10 percent of Permit
Holders in good standing is submitted to
the Nominating Committee within two
weeks after the Announcement Date,
such person(s) would also be nominated
by the Nominating Committee,
57 See proposed CHX Bylaws, Article II, Section
2(f). According to the Exchange, this provision
would be consistent with the NYSE National
Bylaws and NYSE Arca Bylaws. See Notice, supra
note 4, at 24522.
58 See Notice, supra note 4, at 24522.
59 See proposed CHX Bylaws, Article II, Section
3(a).
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provided, however, that no Permit
Holder, either alone or together with
other Permit Holders that are deemed its
affiliates, may account for more than 50
percent of the signatories to the petition
endorsing a particular petition nominee
for the STP Participant Director
position(s) on the Board. Article 2,
Section 3(b) of the CHX Bylaws would
stipulate that each petition for a petition
candidate must include a completed
questionnaire used to gather
information concerning director
candidates, with the form of the
questionnaire provided by the Exchange
upon the request of any Permit Holder.
The same provision also provides that,
notwithstanding anything to the
contrary, the Nominating Committee
shall determine whether any petition
candidate is eligible to serve on the
Board (including whether such person
is free of any statutory disqualification),
and such determination shall be final
and conclusive.
In Article II, Section 3(c) of the CHX
Bylaws, the Exchange also proposed a
petition election process in the event
that the number of nominees exceeds
the number of available seats. In this
case, the Nominating Committee shall
submit the contested nomination to the
Permit Holders for selection. Permit
Holders would be afforded a
confidential voting procedure and be
given no less than 20 calendar days to
submit their votes. A Permit Holder in
good standing may select one nominee
for the contested seat on the Board;
provided, however that no Permit
Holder, either alone or together with
other Permit Holders who are deemed
its affiliates, may account for more than
20 percent of the votes cast for a
particular nominee for the STP
Participant Director position(s) on the
Board. With respect to the contested
position, the Exchange proposed that
the nominee for the Board receiving the
most votes of Permit Holders shall be
submitted by the Nominating
Committee to the Board and that the
Nominating Committee shall also
submit uncontested nominees to the
Board, and tie votes shall be decided by
the Board at its first meeting following
the election. Finally, the Exchange
proposed that the Board shall appoint
the Nominating Committee.60
The Exchange also proposed to amend
Article II, Section 6 of the current CHX
Bylaws, which addresses how vacancies
on the Board shall be filled. Currently,
this provision provides that any vacancy
on the Board due to ‘‘the death,
retirement, resignation, disqualification
or removal of a director’’ or to an
increase in the number of directors
between annual meetings ‘‘shall be
filled only with a person nominated by
the Chairman and Vice Chairman of the
Corporation and elected by a majority of
the directors then in office, though less
than a quorum or by a sole remaining
director,’’ with the caveat that, when
stockholders remove a director from
office for cause, the stockholders may
fill the vacancy at the same meeting.
The Exchange proposed to revise this
provision to also provide that vacancies
also may be filled by action taken by the
stockholders of the Exchange.61
Therefore, pursuant to the CHX Bylaws,
vacancies on the Board may be filled (i)
with a person nominated by the
Chairman and Vice Chairman of the
Exchange and elected by a majority of
the directors then in office, though less
than a quorum or by a sole remaining
director, or (ii) by action taken by the
stockholders of the Exchange. As a
result, CHX Holdings, as the stockholder
of the Exchange, would be able to fill
vacancies on the Board, include any that
exist following the Transaction. The
Exchange represented that this
provision would be consistent with the
bylaws of NYSE Arca and NYSE
National, as well as the bylaws of other
SROs, such as CBOE Exchange, Inc. and
CBOE BYX Exchange, Inc.62
Finally, the Exchange proposed to
restructure and amend Article FIFTH of
the CHX Certificate governing the
composition, nomination and election
of its Board to more closely align with
the proposed amended CHX Bylaws and
the relevant provisions of the other
NYSE Exchanges, to make certain
administrative and conforming
changes.63
In addition, the Exchange has
proposed to amend CHX Article 2, Rules
2, 3, 4, and 11, to conform with
proposed changes to the CHX Bylaws
and CHX Certificate related to the
Exchange Board, which are discussed
above, and to reduce the minimum size
of the Board’s Executive, Finance, and
Regulatory Oversight Committees to
three members, conforming the
committee size to the governing
documents of the NYSE Exchanges, all
of which provide that their respective
regulatory oversight committees consist
of three directors.
The Commission believes that the
proposed changes to the CHX Bylaws
and CHX Certificate related to the
number, composition, term of office,
and qualifications of the Board are
61 See
60 See
proposed CHX Bylaws, Article II, Section
3(d).
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Amendment No. 2, supra note 5, at 4.
Amendment No. 2, supra note 5, at 3.
63 See Notice, supra note 4, at 24523–24.
62 See
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consistent with Section 6(b)(3) of the
Exchange Act in that they assure the fair
representation of CHX members on the
CHX Board, 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. In
particular, the Commission finds that
the requirements that at least 20 percent
of the Board be comprised of STP
Participant Directors and 50 percent of
the Board be comprised of Public
Directors are consistent with the
requirements of Section 6(b)(3). In
addition, the Commission finds that the
proposed provisions of the CHX Bylaws
and CHX Certificate relating to the
number, term of office, and
qualifications of the Board are
consistent with Section 6(b)(1) of the
Exchange Act in that they are designed
to assist the Exchange in fulfilling its
self-regulatory obligations and
administering and complying with the
requirements of the Exchange Act.
5. Miscellaneous Changes to
Organizational Document
The Exchange has proposed to make
non-substantive technical and
conforming changes throughout the
CHX Certificate and CHX Bylaws to
reflect the Exchange’s new ownership,
including updating corporate names,
defined terms, and cross-references. In
addition, the Exchange has proposed to
amend the ICE Independence Policy to
reflect the change in ownership of the
Exchange and to provide similar
protections to the Exchange as are
currently provided to the NYSE
Exchanges by the policy. In addition,
the Exchange has proposed to remove
outdated or obsolete references.
The Commission believes that these
amendments are consistent with the
Exchange Act as they are technical in
nature. They do not alter any of the
restrictions contained in CHX Certificate
or CHX Bylaws. The amendments
merely update such governing
documents to reflect the new ownership
of the Exchange.
sradovich on DSK3GMQ082PROD with NOTICES
6. Inbound Router
The Exchange states that upon
Closing, Archipelago Securities, LLC
(‘‘ArcaSec’’), a Participant of the
Exchange and wholly-owned subsidiary
of NYSE Group, will become an affiliate
of the Exchange. CHX Article 3, Rule 20
provides that a Participant shall not be
or become an affiliate of the Exchange,
or an affiliate of any affiliate of the
Exchange, in the absence of an effective
filing under Section 19(b) of the
VerDate Sep<11>2014
17:34 Jul 18, 2018
Jkt 244001
Exchange Act.64 The Exchange
represents that the Exchange and
ArcaSec will each operate in essentially
the same manner upon Closing as it
operates today, and that therefore, upon
the Closing, ArcaSec will not operate as
a ‘‘facility’’ of the Exchange, as defined
under Section 3(a)(2) of the Exchange
Act,65 and will continue to act, and be
regulated by the Exchange, as a
Participant on the same terms as any
other Participant, apart from CHXBD.
The Exchange has proposed to add a
new subparagraph (b) to CHX Article 19,
Rule 2 to provide that ArcaSec may act
as an inbound router, and to impose
certain limitations and conditions to
ArcaSec’s affiliation with the Exchange
to permit the Exchange to accept
inbound orders that ArcaSec routes.
Specifically, proposed Rule 2(b)(1)
would provide that, for so long as the
Exchange is affiliated with the NYSE
Exchanges and ArcaSec, in its capacity
as a facility of the NYSE Exchanges, is
utilized for the routing of any approved
types of orders from those exchanges to
the Exchange (such function of ArcaSec
is referred to as the ‘‘Inbound Router’’),
each of the Exchange and ArcaSec shall
undertake as follows: (1) The Exchange
shall maintain an agreement pursuant to
Rule 17d–2 under the Exchange Act
(‘‘Rule 17d–2 Plan’’) with a nonaffiliated SRO to relieve the Exchange of
regulatory responsibilities for ArcaSec
with respect to rules that are common
rules between the Exchange and the
non-affiliated SRO; 66 (2) the Exchange
shall maintain a regulatory services
agreement (‘‘RSA’’) with a non-affiliated
SRO to perform regulatory
responsibilities for ArcaSec for unique
Exchange rules; (3) the RSA shall
require the Exchange and the nonaffiliated SRO to monitor ArcaSec for
compliance with the Exchange’s trading
rules, and collect and maintain, in an
easily accessible manner, all alerts,
complaints, investigations and
enforcement actions (collectively
‘‘Exceptions’’) in which ArcaSec (in
routing orders to the Exchange) is
identified as a participant that has
potentially violated applicable
Exchange or Commission rules. The
RSA shall require that the non-affiliated
SRO provide a report, at least quarterly,
to the Chief Regulatory Officer of the
Exchange quantifying all Exceptions; (4)
the Exchange, on behalf of the holding
company owning both the Exchange and
ArcaSec, shall establish and maintain
procedures and internal controls
U.S.C. 78s(b).
U.S.C. 78c(a)(2).
66 ‘‘Common rules’’ would be defined in the Rule
17d–2 Plan.
PO 00000
64 15
65 15
Frm 00092
Fmt 4703
Sfmt 4703
34189
reasonably designed to prevent ArcaSec
from receiving any benefit, taking any
action or engaging in any activity based
on non-public information regarding
planned changes to Exchange systems,
obtained as a result of its affiliation with
the Exchange, until such information is
available generally to similarly situated
Participants of the Exchange in
connection with the provision of
inbound order routing to the Exchange;
and (5) the Exchange may furnish to
ArcaSec the same information on the
same terms that the Exchange makes
available in the normal course of
business to any other Participant.
Proposed Rule 2(b)(2) would state that,
provided the above conditions are
complied with, ArcaSec may provide
inbound routing services to the
Exchange from the NYSE Exchanges.67
In the past, the Commission has
expressed concern that the affiliation of
an exchange with one of its members
raises potential conflicts of interest and
the potential for unfair competitive
advantage.68 Although the Commission
continues to be concerned about
potential unfair competition and
conflicts of interest between an
exchange’s self-regulatory obligations
and its commercial interest when the
exchange is affiliated with one of its
members, the Commission believes that
it is consistent with the Exchange Act to
permit ArcaSec, in its capacity as a
facility of each of the NYSE Exchanges,
to route orders inbound to the
Exchange, subject to the limitations and
conditions described above.69 The
Commission believes that the
limitations and conditions in CHX
Article 19, Rule 2(b) will mitigate its
concerns about potential conflicts of
interest and unfair competitive
advantage. In particular, the
67 The Exchange will ensure a Rule 17d–2 Plan
is in place and comply with the other listed
conditions prior to ArcaSec acting as an Inbound
Router of the Exchange.
68 See, e.g., Securities Exchange Act Release Nos.
53382 (February 27, 2006), 71 FR 11251 (March 6,
2006) (SR–NYSE–2005–77) (order approving the
combination of the New York Stock Exchange, Inc.
and Archipelago Holdings, Inc.); 58673 (September
29, 2008), 73 FR 57707 (October 3, 2008) (SR–
Amex–2008–62 and SR–NYSE–2008–60) (order
approving the combination of NYSE Euronext and
the American Stock Exchange LLC); 59281 (January
22, 2009), 74 FR 5014 (January 28, 2009) (SR–
NYSE–2008–120) (order approving a joint venture
between NYSE and BIDS Holdings L.P.); 61698
(March 12, 2010), 75 FR 13151 (March 18, 2010)
(File Nos. 10–194 and 10–196) (order granting the
exchange registration of EDGX Exchange, Inc. and
EDGA Exchange, Inc.); and 62716 (August 13,
2010), 75 FR 51295 (August 19, 2010) (File No. 10–
198) (order granting the exchange registration of
BATS–Y Exchange, Inc.).
69 The Commission notes that the proposed
conditions are similar to those of other NYSE
Exchanges. See NYSE Arca Rule 7.45–E(c), NYSE
Rule 17(c)(2), and NYSE American Rule 7.45E(c).
E:\FR\FM\19JYN1.SGM
19JYN1
34190
Federal Register / Vol. 83, No. 139 / Thursday, July 19, 2018 / Notices
Commission believes that the Rule 17d–
2 Plan, RSA, and Exception reporting
requirements, procedures, and internal
controls would help protect the
independence of the Exchange’s selfregulatory function with respect to
ArcaSec. The Commission also believes
that the proposed rule is designed to
prevent ArcaSec from acting on nonpublic information obtained as a result
of its affiliation with the Exchange, and
that the proposed changes are consistent
with the Exchange Act.
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–CHX–2018–004, and
should be submitted on or before
August 9, 2018.
III. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the Amendment Nos.
2 and 3 to the proposed rule change is
consistent with the Exchange Act.
Comments may be submitted by any of
the following methods:
The Commission finds good cause to
approve the proposed rule change, as
modified by Amendment Nos. 1, 2, and
3 prior to the 30th day after the date of
publication of notice of Amendments
Nos. 2 and 3 in the Federal Register. As
noted above, Amendment Nos. 2 and 3
do not change the structure or purpose
of the proposed rule change as it was
previously published for notice and
comment.70 The Commission believes
that an additional notice and comment
period for Amendment Nos. 2 and 3
before approval of the proposed rule
change would not be in furtherance of
the public interest or the protection of
investors. Accordingly, the Commission
finds good cause, pursuant to Section
19(b)(2) of the Exchange Act,71 to
approve the proposed rule change, as
modified by Amendment Nos. 1, 2, and
3, on an accelerated basis.
sradovich on DSK3GMQ082PROD with NOTICES
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CHX–2018–004 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–CHX–2018–004. 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 website (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 website 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.
Persons submitting comments are
VerDate Sep<11>2014
17:34 Jul 18, 2018
Jkt 244001
IV. Accelerated Approval of Proposed
Rule Change, as Modified by
Amendment Nos. 1, 2, and 3
V. Conclusion
For the foregoing reasons, the
Commission finds that the proposed
rule change, as modified by
Amendments Nos. 1, 2, and 3 is
consistent with the Exchange Act and
the rules and regulations thereunder
applicable to a national securities
exchange.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Exchange Act 72
that the proposed rule change (SR–
CHX–2018–004), as modified by
Amendments Nos. 1, 2, and 3, be, and
hereby is, approved on an accelerated
basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.73
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–15370 Filed 7–18–18; 8:45 am]
BILLING CODE 8011–01–P
PO 00000
70 See
supra notes 5 and 6.
U.S.C. 78s(b)(2).
72 15 U.S.C. 78s(b)(2).
73 17 CFR 200.30–3(a)(12).
71 15
Frm 00093
Fmt 4703
Sfmt 4703
SECURITIES AND EXCHANGE
COMMISSION
Submission for OMB Review;
Comment Request
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736
Extension:
Rule 17f–6; SEC File No. 270–392, OMB
Control No. 3235–0447
Notice is hereby given that, under the
Paperwork Reduction Act of 1995 (44
U.S.C. 3501–3520), the Securities and
Exchange Commission (the
‘‘Commission’’) has submitted to the
Office of Management and Budget a
request for extension of the previously
approved collection of information
discussed below.
Rule 17f–6 (17 CFR 270.17f–6) under
the Investment Company Act of 1940
(15 U.S.C. 80a) permits registered
investment companies (‘‘funds’’) to
maintain assets (i.e., margin) with
futures commission merchants
(‘‘FCMs’’) in connection with
commodity transactions effected on
both domestic and foreign exchanges.
Before the rule was adopted, funds
generally were required to maintain
such assets in special accounts with a
custodian bank.
The rule requires a written contract
that contains certain provisions
designed to ensure important safeguards
and other benefits relating to the
custody of fund assets by FCMs. To
protect fund assets, the contract must
require that FCMs comply with the
segregation or secured amount
requirements of the Commodity
Exchange Act (‘‘CEA’’) and the rules
under that statute. The contract also
must contain a requirement that FCMs
obtain an acknowledgment from any
clearing organization that the fund’s
assets are held on behalf of the FCM’s
customers according to CEA provisions.
Because rule 17f–6 does not impose
any ongoing obligations on funds or
FCMs, Commission staff estimates there
are no costs related to existing contracts
between funds and FCMs. This estimate
does not include the time required by an
FCM to comply with the rule’s contract
requirements because, to the extent that
complying with the contract provisions
could be considered ‘‘collections of
information,’’ the burden hours for
compliance are already included in
other PRA submissions.1
1 The rule requires a contract with the FCM to
contain two provisions requiring the FCM to
comply with existing requirements under the CEA
E:\FR\FM\19JYN1.SGM
19JYN1
]]>Agencies
[Federal Register Volume 83, Number 139 (Thursday, July 19, 2018)]
[Notices]
[Pages 34182-34190]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-15370]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-83635; File No. SR-CHX-2018-004]
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.;
Notice of Filing of Amendment Nos. 2 and 3 and Order Granting
Accelerated Approval of a Proposed Rule Change, as Modified by
Amendments Nos. 1, 2, and 3 Thereto, in Connection With a Proposed
Transaction Involving CHX Holdings, Inc. and the Intercontinental
Exchange, Inc.
July 13, 2018.
I. Introduction
On May 8, 2018, the Chicago Stock Exchange, Inc. (``CHX'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Exchange
[[Page 34183]]
Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change in
connection with a transaction (``Transaction'') whereby a wholly-owned
subsidiary of NYSE Group, Inc. (``NYSE Group'') would merge with and
into the Exchange's parent, CHX Holdings, Inc. (``CHX Holdings''), with
CHX Holdings continuing as the surviving corporation. Pursuant to the
Transaction, the Exchange and CHX Holdings would become indirect
subsidiaries of Intercontinental Exchange, Inc. (``ICE''). On May 17,
2018, the Exchange filed Amendment No. 1 to the proposal.\3\ The
proposed rule change, as modified by Amendment No. 1, was published for
comment in the Federal Register on May 29, 2018.\4\ On June 11, 2018,
the Exchange filed Amendment No. 2 to the proposal.\5\ On June 26,
2018, the Exchange filed Amendment No. 3 to the proposal.\6\ The
Commission received no comments on the proposal.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1, the Exchange proposed to: (1) Add new
CHX Article 22, Rule 28, relating to requirements for trading
securities issued by ICE or its affiliates; and (2) amend proposed
CHX Article 19, Rule 2(b), relating to certain requirements with
respect to a wholly-owned subsidiary of NYSE Group that would act as
an inbound router to the Exchange. Amendment No. 1 was reflected in
the notice of filing of proposed rule change that was published in
the Federal Register. See infra note 4.
\4\ See Securities Exchange Act Release No. 83303 (May 22,
2018), 83 FR 24517 (``Notice'').
\5\ In Amendment No. 2, the Exchange proposed to amend Article
FIFTH, Paragraph (g) of the CHX certificate of incorporation (``CHX
Certificate'') and Article II, Section 6 of the CHX bylaws (``CHX
Bylaws'') to provide that a vacancy in the CHX board of directors
would be filled either by the remaining director(s) or stockholder
action. Amendment No. 2 is available at: https://www.sec.gov/comments/sr-chx-2018-004/chx2018004-3818683-162751.pdf.
\6\ In Amendment No. 3, the Exchange proposed technical changes
to the CHX Certificate so that the date the original certificate of
incorporation was filed and the original name of the Exchange appear
in the preamble instead of Article FIRST, and to delete ``the'' from
the title of the CHX Certificate. Amendment No. 3 is available at:
https://www.sec.gov/comments/sr-chx-2018-004/chx2018004-3918683-166986.pdf.
---------------------------------------------------------------------------
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Exchange Act and the
rules and regulations thereunder applicable to a national securities
exchange.\7\ In particular, the Commission finds that the proposed rule
change is consistent with Sections 6(b)(1) and (3) of the Exchange
Act,\8\ which, among other things, require a national securities
exchange to be so organized and have the capacity to be able to carry
out the purposes of the Exchange Act, and to enforce compliance by its
members and persons associated with its members with the provisions of
the Exchange Act, the rules and regulations thereunder, and the rules
of the exchange, and assure the fair representation of its members in
the selection of its directors and administration of its affairs, and
provide that one or more directors shall be representative of issuers
and investors and not be associated with a member of the exchange,
broker, or dealer. The Commission also finds that the proposal is
consistent with Section 6(b)(5) of the Exchange Act,\9\ which requires
that the rules of the exchange be designed to promote just and
equitable principles of trade, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest.
---------------------------------------------------------------------------
\7\ In approving the proposed rule changes, the Commission has
considered their impact on efficiency, competition and capital
formation. See 15 U.S.C. 78c(f).
\8\ 15 U.S.C. 78f(b)(1) and (b)(3).
\9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
II. Discussion
A. Current and Proposed Ownership of the Exchange
Currently, the Exchange is a wholly-owned subsidiary of CHX
Holdings, and CHX Holdings is beneficially owned by 197 firms or
individuals, including Participants \10\ or affiliates of Participants.
---------------------------------------------------------------------------
\10\ A ``Participant'' is considered a ``member'' of the
Exchange for purposes of the Exchange Act. See CHX Article 1, Rule
1(s) (Definitions).
---------------------------------------------------------------------------
Pursuant to the terms of a Merger Agreement, dated April 4, 2018,
by and among CHX Holdings, ICE, and Kondor Merger Sub, Inc., a wholly-
owned subsidiary of NYSE Group (``Merger Sub''), Merger Sub would merge
with and into CHX Holdings, and CHX Holdings would be the entity
surviving the merger. Current holders of the common and preferred stock
of CHX Holdings would receive cash in exchange for their shares.
Upon closing of the Transaction (``Closing''), NYSE Group would
hold all of the outstanding and issued shares of CHX Holdings. NYSE
Group is a wholly-owned subsidiary of NYSE Holdings, which is in turn
wholly owned by ICE Holdings. ICE Holdings is wholly-owned by ICE
(together, with NYSE Group, NYSE Holdings, and ICE, the ``ICE Holding
Companies'').\11\ CHX Holdings would continue to be the record and
beneficial owner of all of the issued and outstanding shares of capital
stock of CHX and the sole member of the Exchange's affiliated routing
broker dealer, CHXBD, LLC (``CHXBD''). Closing is subject to
satisfaction of customary conditions for a transaction of this nature,
including approval of this proposed rule change by the Commission.
---------------------------------------------------------------------------
\11\ ICE is a public company listed on the NYSE. ICE, ICE
Holdings, and NYSE Group are Delaware corporations and NYSE Holdings
is a Delaware limited liability corporation.
---------------------------------------------------------------------------
Following the Transaction, the Exchange would continue to be
registered as a national securities exchange and as a separate self-
regulatory organization (``SRO''). As such, the Exchange would continue
to have separate rules, membership rosters, and listings that would be
distinct from the rules, membership rosters, and listings of the four
other registered national securities exchanges and SROs owned by NYSE
Group, namely, the New York Stock Exchange LLC (``NYSE''), NYSE
American LLC (``NYSE American''), NYSE Arca, Inc. (``NYSE Arca''), and
NYSE National, Inc. (``NYSE National'' and together with NYSE, NYSE
American and NYSE Arca, the ``NYSE Exchanges'').
B. Proposed Rule Changes
Section 19(b) of the Exchange Act and Rule 19b-4 thereunder require
an SRO to file proposed rule changes with the Commission. To effectuate
the change in the ownership structure in connection with the proposed
Transaction, the Exchange has proposed to amend the CHX Certificate,
the CHX Bylaws, the CHX Holdings certificate of incorporation (``CHX
Holdings Certificate''), CHX Holdings bylaws (``CHX Holdings Bylaws''),
and the Exchange's rules. Although CHX Holdings, NYSE Group, NYSE
Holdings, ICE Holdings, and ICE are not SROs, certain provisions of
their proposed certificates of incorporation and bylaws, along with
other corporate documents, are rules of the Exchange, if they are
stated policies, practices, or interpretations, as defined in Rule 19b-
4 under the Exchange Act, and must be filed with the Commission
pursuant to Section 19(b)(1) of the Exchange Act and Rule 19b-4
thereunder.\12\ Accordingly, the Exchange has filed, and has proposed
to adopt, as rules of the Exchange: (1) The certificate of
incorporation of NYSE Group (``NYSE Group Certificate''); (2) the
bylaws of NYSE Group (``NYSE Group Bylaws''); (3) the limited liability
company agreement of NYSE Holdings LLC (``NYSE Holdings Agreement'');
(4) the certificate of incorporation of ICE Holdings (``ICE Holdings
Certificate''); (5) the bylaws of ICE Holdings (``ICE Holdings
Bylaws''); (6) the certificate of
[[Page 34184]]
incorporation of ICE (``ICE Certificate''); (7) the bylaws of ICE
(``ICE Bylaws''); and (8) the independence policy of the board of
directors of ICE. In addition, the Exchange has filed with the
Commission the text of a proposed resolution of CHX Holdings' board of
directors to waive certain ownership and voting limitations to permit
the Transaction.
---------------------------------------------------------------------------
\12\ See Section 3(a)(27) of the Exchange Act, 15 U.S.C.
78c(a)(27).
---------------------------------------------------------------------------
1. Proposed Rule Changes To Waive the Ownership and Voting Limitations
The current CHX Holdings certificate of incorporation (``Current
CHX Holdings Certificate'') provides that that no Person,\13\ either
alone or together with its Related Persons,\14\ may, directly or
indirectly: (1) Own shares of stock of CHX Holdings representing more
than 40 percent of the then outstanding votes entitled to be cast on
any matter; (2) if it is a Participant, own shares of stock of CHX
Holdings representing more than 20 percent of the then outstanding
votes entitled to be cast on any matter; or (3) pursuant to any voting
trust, agreement, plan or other arrangement, vote or cause the voting
of shares of the stock of CHX Holdings or give any consent or proxy
with respect to shares representing more than 20 percent of the voting
power of the then issued and outstanding capital stock of CHX Holdings;
or enter into any agreement, plan or other arrangement
(``Arrangement'') with any other Person, either alone or together with
its Related Persons, under circumstances that would result in the
subject shares of CHX Holdings not being voted on any matter or matters
or any proxy relating thereto being withheld, where the effect of such
Arrangement would be to enable any Person, either alone or together
with its Related Persons, to vote, possess the right to vote or cause
the voting of shares of CHX Holdings which would represent more than 20
percent of such voting power.\15\
---------------------------------------------------------------------------
\13\ Current CHX Holdings Certificate, Article FIFTH, Paragraph
(a)(i) defines ``Person'' as ``an individual, partnership (general
or limited), joint stock company, corporation, limited liability
company, trust or unincorporated organization, or any governmental
entity or agency or political subdivision thereof.''
\14\ Current CHX Holdings Certificate, Article FIFTH, Paragraph
(a)(ii) defines ``Related Persons'' as ``(A) with respect to any
Person, all `affiliates' and `associates' of such Person (as such
terms are defined in Rule 12b-2 under the . . . Act . . .); (B) with
respect to any Person that holds a permit issued by the . . .
Exchange . . . to trade securities on the . . . Exchange (a
`Participant'), any broker or dealer with which a Participant is
associated; and (C) any two or more Persons that have any agreement,
arrangement or understanding (whether or not in writing) to act
together for the purpose of acquiring, voting, holding or disposing
of shares of the capital stock of'' CHX Holdings.
\15\ Article FIFTH, Paragraph (b)(ii) of the Current CHX
Holdings Certificate. Article FIFTH includes provisions to address
violations of the current ownership and voting limitations. See
Article FIFTH, Paragraphs (d) and (e) of the Current CHX Holdings
Certificate.
---------------------------------------------------------------------------
The CHX Holdings Certificate provides that the first and third
ownership and voting limitations set forth above may be waived by the
CHX Holdings board of directors by adopting an amendment to the bylaws,
if, in connection with the adoption of such amendment, the board of
directors also adopts certain resolutions.\16\ In addition, the CHX
Holdings Certificate provides that, notwithstanding the first and
second ownership and voting limitations, a proposed sale, assignment or
transfer of CHX Holdings stock above the percentage limitations shall
not become effective until the board of directors of CHX Holdings has
determined, by resolution, that such purchaser and its Related Persons
are not subject to any applicable statutory disqualification.\17\
---------------------------------------------------------------------------
\16\ Article FIFTH, Paragraph (b)(iii)(B) of the Current CHX
Holdings Certificate, which provides that any such resolution must
state that the board of director's determination is that such
amendment (a) will not impair the ability of the Exchange to carry
out its functions and responsibilities as an ``exchange'' under the
Exchange Act, and the rules under the Exchange Act; (b) is otherwise
in the best interests of CHX Holdings and its stockholders and the
Exchange; (c) will not impair the ability of the Commission to
enforce the Exchange Act, and (d) such amendment shall not be
effective until approved by the Commission.
\17\ See Article FIFTH, Paragraph (b)(iv) of the Current CHX
Holdings Certificate, which provides that, notwithstanding the first
and second ownership and voting limitations, ``in any case where a
Person, either alone or together with its Related Persons, would own
or vote more than the above percentage limitations upon consummation
of any proposed sale, assignment or transfer of'' CHX Holdings'
stock, ``such sale, assignment or transfer shall not become
effective until the Board of Directors'' of CHX Holdings ``shall
have determined, by resolution, that such Person and its Related
Persons are not subject to any applicable `statutory
disqualification' (within the meaning of Section 3(a)(39)'' of the
Exchange Act.
---------------------------------------------------------------------------
Waiver of the ownership and voting limitations must be filed with
and approved by the Commission pursuant to Section 19 of the Exchange
Act.\18\ Furthermore, such Person seeking the waiver must deliver to
the CHX Holdings board of directors not less than 45 days prior to any
vote or acquisition, as appropriate, a notice of the intent to exceed
the ownership and voting restrictions.\19\
---------------------------------------------------------------------------
\18\ See Article FIFTH, Paragraph (b)(v) of the Current CHX
Holdings Certificate.
\19\ Id.
---------------------------------------------------------------------------
Because NYSE Group's acquisition of all of the shares of CHX
Holdings at Closing would violate these ownership and voting
limitations, the CHX Holdings board of directors determined that in
order to effect the Transaction, a waiver of the ownership and voting
limitations with respect to the ICE Holding Companies would be
required. To do so, the board of directors adopted resolutions
(``Resolutions''), making certain determinations with respect to the
ICE Holding Companies and the Transaction that are necessary to waive
the ownership and voting limits. Specifically, the board of directors
of CHX Holdings made the following determinations: (1) The acquisition
of the proposed ownership by the ICE Holdings Companies will not impair
the ability of the Exchange to carry out its functions and
responsibilities as an ``exchange'' under the Exchange Act and the
rules thereunder; are otherwise in the best interests of CHX Holdings
and its stockholders and the Exchange; and will not impair the ability
of the Commission to enforce the Exchange Act; and (2) none of the ICE
Holding Companies, nor any of its Related Persons, is subject to
``statutory disqualification'' within the meaning of Section 3(a)(39)
of the Exchange Act.
Article IV, Section 2(a) of the proposed CHX Holdings Certificate
would ensure that any change in ownership of CHX Holdings would be
subject to Commission approval, by providing that NYSE Group may not
transfer or assign any stock unless such transfer or assignment is
filed with and approved by the Commission under Section 19 of the
Exchange Act.\20\ The governing documents of NYSE Group, NYSE Holdings,
and ICE Holdings also provide that any transfer or assignment of stock
must be filed with or approved by the Commission under Section 19 of
the Exchange Act.\21\ Each of the NYSE Group Certificate, NYSE Holdings
Agreement, and ICE Holdings Certificate provides that any changes to
the provisions of such agreement must either be filed with and approved
by the Commission pursuant to Section 19 of the Exchange Act or must be
submitted to the Exchange's board of directors, and if the board so
decides, the changes must be filed with and approved by the
Commission.\22\
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\20\ 15 U.S.C. 78s(b)(1).
\21\ See NYSE Group Certificate Article IV, Section 4(a), NYSE
Holdings Agreement Article VII, Section 7.2, and ICE Holdings
Certificate Article IV.C.
\22\ See NYSE Group Certificate Article XII, NYSE Holdings
Agreement Article XVI, Section 16.1, and ICE Holdings Certificate
Article X.
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The Commission believes that it is consistent with the Exchange Act
to allow the ICE Holding Companies to wholly-own and vote all of the
outstanding common stock of CHX Holdings. The Commission notes that
[[Page 34185]]
ICE, the new top-level holding company for the Exchanges, currently
owns other national securities exchanges and is subject to governance
documents that restrict concentration of ownership and voting
rights.\23\ As discussed below, CHX Holdings has also included in its
corporate documents certain provisions designed to maintain the
independence of the Exchange's regulatory functions.\24\ Accordingly,
the Commission does not believe that the Transaction will impair the
ability of the Exchange to carry out its functions and responsibilities
as an ``exchange'' under the Exchange Act and the rules and regulations
promulgated thereunder, or the ability of the Commission to enforce the
Exchange Act and the rules and regulations promulgated thereunder.
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\23\ See Article V of the ICE Certificate. See infra Section
II.B.2.
\24\ See Article XI of the proposed CHX Holdings Certificate and
Article III of the proposed CHX Holdings Bylaws.
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2. Ownership and Voting Limitations
In connection with the Transaction, upon Closing, ICE will become
the indirect owner (through ICE Holdings, NYSE Holdings, NYSE Group,
and CHX Holdings) of the Exchange.\25\ The ICE Certificate includes
restrictions on the ability to own and vote shares of capital stock of
ICE. These limitations are designed to prevent any stockholder from
exercising undue control over the operation of the Exchange and to
assure that the Exchange and the Commission are able to carry out their
regulatory obligations under the Exchange Act.
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\25\ Because the governing documents of CHX Holdings, NYSE
Group, NYSE Holdings, and ICE Holdings provide that any transfer or
assignment of stock must be filed with or approved by the Commission
under Section 19 of the Exchange Act, any change in control of such
ICE Holding Companies would be subject to Commission approval. See
supra notes 19-22 and accompanying text.
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Specifically, the ICE Certificate includes restrictions on the
ability to vote and own shares of stock of ICE. For so long as ICE
directly or indirectly controls a national securities exchange, the ICE
Certificate provides that no person, either alone or together with its
related persons, shall be: (1) Entitled to vote or cause the voting of
more than 10 percent of the then outstanding votes entitled to be cast
on a matter, or (2) permitted to own shares of stock of ICE
representing in the aggregate more than 20 percent of the then
outstanding votes entitled to be cast on any matter. The ICE
Certificate provides that ICE will be required to disregard any votes
purported to be cast in excess of the voting restriction. The ICE
Certificate also provides that in the event that any person(s) exceeds
the ownership restrictions, it will be obligated to sell promptly, and
ICE will be obligated to purchase promptly, at a price equal to the par
value of such shares and to the extent funds are legally available for
such purchase, the number of shares of ICE necessary so that such
person, together with its related persons, will beneficially own shares
of ICE representing in the aggregate no more than 20 percent of the
then outstanding votes entitled to be cast on any matter, after taking
into account that such repurchased shares will become treasury shares
and will no longer be deemed to be outstanding. The ICE board of
directors may waive the ownership and voting restrictions if it makes
certain determinations and expressly resolves to permit the ownership
and voting that is subject to such restrictions, and such resolutions
have been filed with, and approved by, the Commission under Section
19(b) of the Exchange Act. The ICE Certificate further provides that
the board of directors may not approve either voting or ownership
rights in excess of a 20 percent threshold with respect to any person
that is a member of an exchange controlled by ICE or who is subject to
any statutory disqualification.
The Commission believes that ICE's ownership and voting limitations
are reasonably designed to prevent any stockholder from exercising
undue control over the operation of ICE, and in turn, over the
operation of the Exchange. The Commission also notes that these
ownership and voting limitations have previously been approved by the
Commission \26\ and are consistent with those approved by the
Commission for other SROs \27\ and believes that they are reasonably
designed to assure that the Exchange and the Commission are able to
carry out their regulatory obligations under the Exchange Act and in
administering and complying with the requirements of the Exchange Act.
Moreover, the Commission believes that the ownership and voting limits
are reasonably designed to eliminate the potential that the control of
the Exchange by one or few stockholders would improperly interfere with
or impair the ability of the Commission or the Exchange to effectively
carry out their regulatory oversight responsibilities under the
Exchange Act.
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\26\ See, e.g., Securities Exchange Act Release No. 71721 (March
13, 2014), 79 FR 15367 (March 19, 2014) (SR-NYSE-2014-04; SR-
NYSEMKT-2014-10; SR-NYSEArca-2014-08).
\27\ See, e.g., Securities Exchange Act Release Nos. 79585
(December 16, 2016), 81 FR 93988 (December 22, 2016) (SR-BatsBZX-
2016-68) (approving similar restrictions in connection with the
merger of Bats Global Markets, Inc. and CBOE Holdings, Inc.)
(``BATS-CBOE Approval Order''); 78119 (June 21, 2016), 81 FR 41611
(June 27, 2016) (SR-ISE-2016-11, SR-ISE Gemini-2016-05, SR-ISE
Mercury-2016-10) (approving similar restrictions proposed in
connection with Nasdaq, Inc. becoming the indirect parent of
International Securities Exchange, ISE Gemini, LLC, and ISE Mercury,
LLC); 74270 (February 13, 2015), 80 FR 9286 (February 20, 2015) (SR-
NSX-2014-017) (approving similar restrictions in connection with
National Stock Exchange, Inc. becoming a wholly-owned subsidiary of
National Stock Exchange Holdings, Inc.); 71449 (January 30, 2014),
79 FR 6961 (February 5, 2014) (SR-EDGA-2013-34; SR-EDGX-2013-43)
(approving similar restrictions in connection with the merger of
BATS Global Markets, Inc. and Direct Edge Holdings LLC); 71375
(January 23, 2014), 79 FR 4771 (January 29, 2014) (SR-BATS-2013-059,
SR-BYX-2013-039) (approving similar restrictions in connection with
the merger of BATS Global Markets, Inc. and Direct Edge Holdings
LLC); 70210 (August 15, 2013), 78 FR 62716 (August 13, 2010), 75 FR
51295 (August 19, 2010) (File No. 10-198) (approving similar
restrictions in connection with the registration Bats BYX Exchange,
Inc. as a national securities exchange); 61698 (March 12, 2010), 75
FR 13151 (March 18, 2010) (File Nos. 10-194 and 10-196) (approving
similar restrictions in connection with the registrations of EDGX
Exchange, Inc. and EDGA Exchange, Inc. as national securities
exchanges); 58375 (August 18, 2008), 73 FR 49498 (August 21, 2008)
(File No. 10-182) (approving similar restrictions in connection with
the registration of BATS Exchange, Inc. as a national securities
exchange); 56955 (December 13, 2007), 72 FR 71979, 71982-84
(December 19, 2007) (SR-ISE-2007-101) (approving similar
restrictions in connection with International Securities Exchange
Holdings, Inc. becoming a wholly-owned indirect subsidiary of Eurex
Frankfurt AG); 55293 (February 14, 2007); 53382 (February 27, 2006),
71 FR 11251 (March 6, 2006) (SR-NYSE-2005-77) (approving similar
restrictions in connection with the merger of New York Stock
Exchange, Inc. and Archipelago); 53963 (June 8, 2006), 71 FR 34660
(June 15, 2006) (File No. SR-NSX-2006-03) (approving similar
restrictions in connection with the demutualization of the National
Stock Exchange); 53128 (January 13, 2006), 71 FR 3550 (January 23,
2006) (File No. 10-131) (approving similar restrictions in
connection with the registration the Nasdaq Stock Market LLC as a
national securities exchange); 51149 (February 8, 2005), 70 FR 7531
(February 14, 2005) (SR-CHX-2004-26) (approving similar restrictions
in connection with the demutualization of CHX); and 49098 (January
16, 2004), 69 FR 3974 (January 27, 2004) (SR-Phlx-2003-73)
(approving similar restrictions in connection with the
demutualization of the Philadelphia Stock Exchange, Inc.).
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In addition to being designed to eliminate the potential of any
stockholder from exercising undue control over the Exchange, the
Commission also notes that the restrictions applicable to members of an
exchange are designed to address the conflicts of interests that might
result from a member of a national securities exchange owning interests
in the exchange. As the Commission has noted in the past, a member's
interest in an exchange could become so large as to cast doubts on
whether the exchange may fairly and objectively exercise its self-
regulatory responsibilities with
[[Page 34186]]
respect to such member.\28\ A member that is a controlling stockholder
of an exchange could seek to exercise that controlling influence by
directing the exchange to refrain from, or the exchange may hesitate
to, diligently monitor and conduct surveillance of the member's conduct
or diligently enforce the exchange's rules and the federal securities
laws with respect to conduct by the member that violates such
provisions. As such, these restrictions on Exchange members' ownership
and voting of ICE stock are expected to minimize the potential that a
person or entity can improperly interfere with or restrict the ability
of CHX to effectively carry out its regulatory oversight
responsibilities under the Exchange Act.
---------------------------------------------------------------------------
\28\ See, e.g., BATS-CBOE Order, supra note 27, at 93990.
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3. Jurisdiction; Books and Records; Due Regard
As described above, following the Closing, ICE will remain the sole
stockholder of ICE Holdings, ICE Holdings will remain the sole
stockholder of NYSE Holdings, NYSE Holdings will remain the sole member
of NYSE Group, NYSE Group will become the sole stockholder of CHX
Holdings, and CHX Holdings will remain the sole stockholder of the
Exchange. Although ICE, ICE Holdings, NYSE Holdings, NYSE Group, and
CHX Holdings will not carry out any regulatory functions, their
activities with respect to the operation of the Exchange must be
consistent with, and must not interfere with, the self-regulatory
obligations of the Exchange. The ICE Bylaws,\29\ ICE Holdings
Bylaws,\30\ NYSE Holdings Agreement,\31\ NYSE Group Certificate,\32\
and CHX Holdings Certificate \33\ therefore include certain provisions
that are designed to maintain the independence of the Exchange's self-
regulatory functions, enable the Exchange to operate in a manner that
complies with the federal securities laws, including the objectives of
Sections 6(b) \34\ and 19(g) \35\ of the Exchange Act, and facilitate
the ability of the Exchange and the Commission to fulfill their
regulatory and oversight obligations under the Exchange Act.
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\29\ See Articles VII, VIII, IX, and IX of the ICE Bylaws.
\30\ See Articles VII, VIII, IX, and XI of the ICE Holdings
Bylaws.
\31\ See Articles XII, XIII, XIV, and Article XVI, Section 16.1
of the NYSE Holdings Agreement.
\32\ See Articles IX, X, XI, and XII of the NYSE Group
Certificate.
\33\ See Articles IX, X, XI, and XII of the proposed CHX
Holdings Certificate.
\34\ 15 U.S.C. 78f(b).
\35\ 15 U.S.C. 78s(g).
---------------------------------------------------------------------------
For example, under the CHX Holdings Certificate, CHX Holdings, its
directors, officers, and employees, must give due regard to the
preservation of the independence of the self-regulatory function of the
Exchange (to the extent of the Exchange's self-regulatory function), as
well as to its obligations to investors and the general public and must
not take any actions that would interfere with the effectuation of any
decisions by the board of directors of the Exchange relating to its
regulatory functions (including disciplinary matters), or which would
interfere with the ability of the Exchange to carry out its
responsibilities under the Exchange Act.\36\
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\36\ Article XI, Section 3 of the proposed CHX Holdings
Certificate.
---------------------------------------------------------------------------
The CHX Holdings Certificate would further require that CHX
Holdings complies with the U.S. federal securities laws and rules and
regulations thereunder and shall cooperate with the Commission and the
Exchange, pursuant to and to the extent of their respective regulatory
authority, and shall take reasonable steps necessary to cause its
agents to cooperate with the Commission and, where applicable, the
Exchange, pursuant to their regulatory authority.\37\ The CHX Holdings
Certificate also provides that CHX Holdings shall take reasonable steps
necessary to cause its officers, directors and employees, prior to
accepting their positions, to consent to the applicability of Section 7
of Article V (``Considerations of the Board''), Article IX
(``Jurisdiction''), Article X (``Confidential Information''), and
Section 3 of Article XI of the CHX Holdings Certificate (relating to
giving due regard to the independence of the self-regulatory function
of the Exchange) with respect to their activities related to the
Exchange.\38\ In addition, the CHX Holdings Certificate provides that
in discharging his or her responsibilities as a member of the board or
as an officer or employee of CHX Holdings, each such director, officer,
or employee shall (1) comply with the federal securities laws and the
rules and regulations thereunder, (2) cooperate with the Commission,
and (3) cooperate with the Exchange pursuant to and to the extent of
its regulatory authority.\39\ Furthermore, CHX Holdings, its directors
and officers, and those of its employees whose principal place of
business and residence is outside of the United States, shall be deemed
to irrevocably submit to the jurisdiction of the United States federal
courts and the Commission for the purposes of any suit, action, or
proceeding pursuant to the United States federal securities laws and
the rules and regulations thereunder, commenced or initiated by the
Commission arising out of, or relating to, the activities of the
Exchange.\40\
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\37\ Article XI, Section 1 of the proposed CHX Holdings
Certificate.
\38\ Article XI, Section 2 of the proposed CHX Holdings
Certificate.
\39\ Article V, Section 7 of the proposed CHX Holdings
Certificate.
\40\ Article IX of the proposed CHX Holdings Certificate.
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The CHX Holdings Certificate also provides that as long as CHX
Holdings directly or indirectly controls any national securities
exchange, the books, records, premises, officers, directors, and
employees of CHX Holdings shall be deemed to be the books, records,
premises, officers, directors, and employees of the Exchange for
purposes of and subject to oversight pursuant to the Exchange Act.\41\
---------------------------------------------------------------------------
\41\ Article X of the proposed CHX Holdings Certificate.
---------------------------------------------------------------------------
The CHX Holdings Certificate also provides that all confidential
information pertaining to the self-regulatory function of the Exchange
(including but not limited to disciplinary matters, trading data,
trading practices, and audit information) contained in the books and
records of the Exchange that shall come into the possession of CHX
Holdings, shall not be made available to any persons other than to
those officers, directors, employees, and agents of CHX Holdings, that
have a reasonable need to know the contents thereof, and shall be
retained in confidence by CHX Holdings, and the officers, directors,
employees, and agents of CHX Holdings, and not used for any commercial
purposes.\42\ The CHX Holdings Certificate, however, specifies that the
CHX Holdings Certificate (including these confidentiality provisions)
shall not be interpreted so as to limit or impede the rights of the
Commission or the Exchange to access and examine such confidential
information pursuant to the federal securities laws and the rules and
regulations thereunder, or to limit or impede the ability of any
officers, directors, employees, or agents of CHX Holdings to disclose
such confidential information to the Commission or the Exchange.\43\ In
addition, the CHX Holdings Certificate provides that CHX Holdings'
books and records shall be subject at all times to inspection and
[[Page 34187]]
copying by the Commission and the Exchange.\44\
---------------------------------------------------------------------------
\42\ Article X of the proposed CHX Holdings Certificate.
\43\ Article X of the proposed CHX Holdings Certificate.
\44\ Article X of the proposed CHX Holdings Certificate.
---------------------------------------------------------------------------
The CHX Holdings Certificate and CHX Holdings Bylaws provide that
as long as CHX Holdings controls, directly or indirectly, a registered
national securities exchange, before any amendment to, or repeal of,
any provision of the CHX Holdings Certificate and CHX Holdings Bylaws,
as the case may be, may be effective, those changes must be either
filed with or filed with and approved by the Commission under Section
19 of the Exchange Act and the rules promulgated thereunder or
submitted to the board of directors of each such exchange, and if the
amendment is required to be filed with, or filed with and approved by
the Commission pursuant to Section 19(b) of the Exchange Act, such
change shall not be effective until filed with, or filed with and
approved by, the Commission.\45\
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\45\ Article XII of the proposed CHX Holdings Certificate and
Section 7.9(b) of the proposed CHX Holdings Bylaws.
---------------------------------------------------------------------------
The Commission finds that these provisions are consistent with the
Exchange Act, and that they are intended to assist the Exchange in
fulfilling its self-regulatory obligations and in administering and
complying with the requirements of the Exchange Act. The Commission
also notes that, even in the absence of these provisions, under Section
20(a) of the Exchange Act,\46\ any person with a controlling interest
in the Exchange shall be jointly and severally liable with and to the
same extent that the Exchange is liable under any provision of the
Exchange Act, unless the controlling person acted in good faith and did
not directly or indirectly induce the act or acts constituting the
violation or cause of action. In addition, Section 20(e) of the
Exchange Act \47\ creates aiding and abetting liability for any person
who knowingly provides substantial assistance to another person in
violation of any provision of the Exchange Act or rule thereunder.
Further, Section 21C of the Exchange Act \48\ authorizes the Commission
to enter a cease-and-desist order against any person who has been ``a
cause of'' a violation of any provision of the Exchange Act through an
act or omission that the person knew or should have known would
contribute to the violation.
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\46\ 15 U.S.C. 78t(a).
\47\ 15 U.S.C. 78t(e).
\48\ 15 U.S.C. 78u-3.
---------------------------------------------------------------------------
4. CHX Board of Directors
As noted above, the Exchange will become part of a corporate family
including five separate registered national securities exchanges
following consummation of the Transaction. The Exchange represented
that it is important for each of such exchanges to have a consistent
approach to corporate governance in certain matters; therefore, to
simplify complexity and create greater consistency among the NYSE
Exchanges, CHX proposed to revise the provisions of the CHX Bylaws and
CHX Certificate to mirror the comparable provisions in the certain of
the NYSE Exchanges.\49\ Specifically, as discussed below, the Exchange
proposed to make the number, composition, term of office and
qualifications of the Exchange board of directors (``Board'')
consistent with the make-up of the boards of directors of the NYSE
Exchanges.
---------------------------------------------------------------------------
\49\ See Notice, supra note 4, at 24520.
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Currently, the CHX Bylaws generally provide that the Board shall be
composed of between 10 and 16 directors, the exact number to be
determined by the Board; the CHX Bylaws also set forth the
compositional requirements for the Board. The Exchange proposed to
amend the CHX Bylaws to provide that the number of directors would be
determined from time to time by the stockholders subject to the
compositional requirements for the Board, which require that at least
50 percent of the directors on the Exchange's Board be persons from the
public and not be, or be affiliated with, a broker-dealer in securities
or employed by, or involved in any material business relationship with,
the Exchange or its affiliates (``Public Directors''); and at least 20
percent of the directors consist of individuals nominated by the
trading permit holders who are permitted to trade on the Exchange's
facilities for the trading of equities that are securities as covered
by the Exchange Act (collectively, ``Permit Holders'') (such directors,
the ``STP Participant Directors'').\50\ The Exchange also proposed that
for purposes of calculating the minimum number of STP Participant
Directors, if 20 percent of the directors is not a whole number, such
number of directors to be nominated and selected by the Permit Holders
be rounded up to the next whole number, and that the term of office of
a director not be affected by any decrease in the authorized number of
directors.\51\ The revised provisions also would require the nominees
for a director position to provide to the Secretary of the Exchange
such information as is reasonably necessary to serve as the basis for a
determination of the nominee's qualifications as a director, and that
the Secretary make such determination concerning the nominee's
qualifications.\52\
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\50\ See proposed CHX Bylaws, Article II, Section 2(a).
\51\ Id.
\52\ See proposed CHX Bylaws, Article II, Section 2(b). The
Exchange noted that proposed Article II, Sections 2(a) and (b) would
be consistent with the NYSE National Bylaws and NYSE Arca Bylaws.
See Notice, supra note 4, at 24521.
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The Exchange also proposed to amend Article II, Section 2(c) of the
CHX Bylaws, which sets forth the structure of the Board. Currently, the
Board is divided into three classes serving three-year terms, with the
term of office of one class expiring each year, and directors continue
in office after the expiration of their terms until their successors
are elected or appointed and qualified, except in the event of early
resignation, removal, or disqualification. The Exchange proposed to
replace this provision to provide that at each annual meeting of the
stockholders, the stockholders will elect directors to serve until the
next annual meeting or until their successors are elected and
qualified.\53\ The Exchange also proposed that the Board shall appoint
the Chairman of the Board by majority vote, and that each director
shall hold office for a term that expires at the annual meeting of the
stockholders next following his or her election, provided that if he or
she is not re-elected and his or her successor is not elected and
qualified at the meeting and there remains a vacancy on the Board, he
or she shall continue to serve until his or her successor is elected
and qualified or until his or her earlier death, resignation, or
removal.\54\ The CHX Bylaws also would provide that a director may
serve for any number of terms, consecutive or otherwise.\55\ The
Exchange represented that the change from a three-class board with
staggered terms to a board with one class of directors elected annually
would make the organization of the Board consistent with those of all
of the NYSE Exchanges.\56\
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\53\ See proposed CHX Bylaws, Article II, Section 2(c).
\54\ See proposed CHX Bylaws, Article II, Section 2(d).
\55\ Id.
\56\ See Notice, supra note 4, at 24522.
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The Exchange proposed that except as otherwise provided in the CHX
Bylaws or the Exchange's rules, the shareholder shall nominate
directors for election at the annual meeting of the shareholder, which
nominations shall comply with
[[Page 34188]]
the Exchange's rules and the CHX Bylaws.\57\
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\57\ See proposed CHX Bylaws, Article II, Section 2(f).
According to the Exchange, this provision would be consistent with
the NYSE National Bylaws and NYSE Arca Bylaws. See Notice, supra
note 4, at 24522.
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The Exchange also proposed to amend the CHX Bylaw provisions
relating to the nomination and election of the Board to make these
provisions similar to the provisions in the NYSE Arca and NYSE National
Bylaws, subject to certain terms specific to the Exchange.\58\
Currently, the Nominating and Governance Committee (``NGC'') of the
Exchange consists of two Public Directors and two Original STP
Participant Directors, one of whom must not be a representative of a
firm that is a holder of Series A Preferred Stock of CHX Holdings. The
NGC also is currently appointed by the Board. The Exchange proposed
that the Nominating Committee be composed solely of STP Participant
Directors and/or Permit Holder representatives, and proposed to rename
the NGC to the ``Nominating Committee.'' \59\
---------------------------------------------------------------------------
\58\ See Notice, supra note 4, at 24522.
\59\ See proposed CHX Bylaws, Article II, Section 3(a).
---------------------------------------------------------------------------
The Exchange also proposed to amend the provisions relating to the
process for nominating candidates to the Board. Currently, the Bylaws
provide that each year the NGC shall nominate persons who will qualify
as Participant Directors pursuant to the procedures set forth in the
Bylaws. The Exchange proposed to adopt a new process for nominating
nominees to the Board. Specifically, pursuant to Article II, Section
3(b) of the CHX Bylaws, CHX proposed that the Nominating Committee
shall publish the name(s) of one or more Participants as its nominee(s)
for STP Participant Directors of the Board. The Nominating Committee
would name sufficient nominees so that at least 20 percent of the
directors consist of STP Participant Directors, and the names of the
nominees shall be published on a date in each year sufficient to
accommodate the process described (``Announcement Date''). After the
name of the proposed nominee(s) is published, the CHX Bylaws allow
Permit Holders in good standing to submit a petition to the Exchange in
writing to nominate additional eligible candidate(s) to fill STP
Participant Director position(s) during the next term. If a written
petition of at least 10 percent of Permit Holders in good standing is
submitted to the Nominating Committee within two weeks after the
Announcement Date, such person(s) would also be nominated by the
Nominating Committee, provided, however, that no Permit Holder, either
alone or together with other Permit Holders that are deemed its
affiliates, may account for more than 50 percent of the signatories to
the petition endorsing a particular petition nominee for the STP
Participant Director position(s) on the Board. Article 2, Section 3(b)
of the CHX Bylaws would stipulate that each petition for a petition
candidate must include a completed questionnaire used to gather
information concerning director candidates, with the form of the
questionnaire provided by the Exchange upon the request of any Permit
Holder. The same provision also provides that, notwithstanding anything
to the contrary, the Nominating Committee shall determine whether any
petition candidate is eligible to serve on the Board (including whether
such person is free of any statutory disqualification), and such
determination shall be final and conclusive.
In Article II, Section 3(c) of the CHX Bylaws, the Exchange also
proposed a petition election process in the event that the number of
nominees exceeds the number of available seats. In this case, the
Nominating Committee shall submit the contested nomination to the
Permit Holders for selection. Permit Holders would be afforded a
confidential voting procedure and be given no less than 20 calendar
days to submit their votes. A Permit Holder in good standing may select
one nominee for the contested seat on the Board; provided, however that
no Permit Holder, either alone or together with other Permit Holders
who are deemed its affiliates, may account for more than 20 percent of
the votes cast for a particular nominee for the STP Participant
Director position(s) on the Board. With respect to the contested
position, the Exchange proposed that the nominee for the Board
receiving the most votes of Permit Holders shall be submitted by the
Nominating Committee to the Board and that the Nominating Committee
shall also submit uncontested nominees to the Board, and tie votes
shall be decided by the Board at its first meeting following the
election. Finally, the Exchange proposed that the Board shall appoint
the Nominating Committee.\60\
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\60\ See proposed CHX Bylaws, Article II, Section 3(d).
---------------------------------------------------------------------------
The Exchange also proposed to amend Article II, Section 6 of the
current CHX Bylaws, which addresses how vacancies on the Board shall be
filled. Currently, this provision provides that any vacancy on the
Board due to ``the death, retirement, resignation, disqualification or
removal of a director'' or to an increase in the number of directors
between annual meetings ``shall be filled only with a person nominated
by the Chairman and Vice Chairman of the Corporation and elected by a
majority of the directors then in office, though less than a quorum or
by a sole remaining director,'' with the caveat that, when stockholders
remove a director from office for cause, the stockholders may fill the
vacancy at the same meeting.
The Exchange proposed to revise this provision to also provide that
vacancies also may be filled by action taken by the stockholders of the
Exchange.\61\ Therefore, pursuant to the CHX Bylaws, vacancies on the
Board may be filled (i) with a person nominated by the Chairman and
Vice Chairman of the Exchange and elected by a majority of the
directors then in office, though less than a quorum or by a sole
remaining director, or (ii) by action taken by the stockholders of the
Exchange. As a result, CHX Holdings, as the stockholder of the
Exchange, would be able to fill vacancies on the Board, include any
that exist following the Transaction. The Exchange represented that
this provision would be consistent with the bylaws of NYSE Arca and
NYSE National, as well as the bylaws of other SROs, such as CBOE
Exchange, Inc. and CBOE BYX Exchange, Inc.\62\
---------------------------------------------------------------------------
\61\ See Amendment No. 2, supra note 5, at 4.
\62\ See Amendment No. 2, supra note 5, at 3.
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Finally, the Exchange proposed to restructure and amend Article
FIFTH of the CHX Certificate governing the composition, nomination and
election of its Board to more closely align with the proposed amended
CHX Bylaws and the relevant provisions of the other NYSE Exchanges, to
make certain administrative and conforming changes.\63\
---------------------------------------------------------------------------
\63\ See Notice, supra note 4, at 24523-24.
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In addition, the Exchange has proposed to amend CHX Article 2,
Rules 2, 3, 4, and 11, to conform with proposed changes to the CHX
Bylaws and CHX Certificate related to the Exchange Board, which are
discussed above, and to reduce the minimum size of the Board's
Executive, Finance, and Regulatory Oversight Committees to three
members, conforming the committee size to the governing documents of
the NYSE Exchanges, all of which provide that their respective
regulatory oversight committees consist of three directors.
The Commission believes that the proposed changes to the CHX Bylaws
and CHX Certificate related to the number, composition, term of office,
and qualifications of the Board are
[[Page 34189]]
consistent with Section 6(b)(3) of the Exchange Act in that they assure
the fair representation of CHX members on the CHX Board, 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. In particular, the Commission finds that the requirements
that at least 20 percent of the Board be comprised of STP Participant
Directors and 50 percent of the Board be comprised of Public Directors
are consistent with the requirements of Section 6(b)(3). In addition,
the Commission finds that the proposed provisions of the CHX Bylaws and
CHX Certificate relating to the number, term of office, and
qualifications of the Board are consistent with Section 6(b)(1) of the
Exchange Act in that they are designed to assist the Exchange in
fulfilling its self-regulatory obligations and administering and
complying with the requirements of the Exchange Act.
5. Miscellaneous Changes to Organizational Document
The Exchange has proposed to make non-substantive technical and
conforming changes throughout the CHX Certificate and CHX Bylaws to
reflect the Exchange's new ownership, including updating corporate
names, defined terms, and cross-references. In addition, the Exchange
has proposed to amend the ICE Independence Policy to reflect the change
in ownership of the Exchange and to provide similar protections to the
Exchange as are currently provided to the NYSE Exchanges by the policy.
In addition, the Exchange has proposed to remove outdated or obsolete
references.
The Commission believes that these amendments are consistent with
the Exchange Act as they are technical in nature. They do not alter any
of the restrictions contained in CHX Certificate or CHX Bylaws. The
amendments merely update such governing documents to reflect the new
ownership of the Exchange.
6. Inbound Router
The Exchange states that upon Closing, Archipelago Securities, LLC
(``ArcaSec''), a Participant of the Exchange and wholly-owned
subsidiary of NYSE Group, will become an affiliate of the Exchange. CHX
Article 3, Rule 20 provides that a Participant shall not be or become
an affiliate of the Exchange, or an affiliate of any affiliate of the
Exchange, in the absence of an effective filing under Section 19(b) of
the Exchange Act.\64\ The Exchange represents that the Exchange and
ArcaSec will each operate in essentially the same manner upon Closing
as it operates today, and that therefore, upon the Closing, ArcaSec
will not operate as a ``facility'' of the Exchange, as defined under
Section 3(a)(2) of the Exchange Act,\65\ and will continue to act, and
be regulated by the Exchange, as a Participant on the same terms as any
other Participant, apart from CHXBD.
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\64\ 15 U.S.C. 78s(b).
\65\ 15 U.S.C. 78c(a)(2).
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The Exchange has proposed to add a new subparagraph (b) to CHX
Article 19, Rule 2 to provide that ArcaSec may act as an inbound
router, and to impose certain limitations and conditions to ArcaSec's
affiliation with the Exchange to permit the Exchange to accept inbound
orders that ArcaSec routes. Specifically, proposed Rule 2(b)(1) would
provide that, for so long as the Exchange is affiliated with the NYSE
Exchanges and ArcaSec, in its capacity as a facility of the NYSE
Exchanges, is utilized for the routing of any approved types of orders
from those exchanges to the Exchange (such function of ArcaSec is
referred to as the ``Inbound Router''), each of the Exchange and
ArcaSec shall undertake as follows: (1) The Exchange shall maintain an
agreement pursuant to Rule 17d-2 under the Exchange Act (``Rule 17d-2
Plan'') with a non-affiliated SRO to relieve the Exchange of regulatory
responsibilities for ArcaSec with respect to rules that are common
rules between the Exchange and the non-affiliated SRO; \66\ (2) the
Exchange shall maintain a regulatory services agreement (``RSA'') with
a non-affiliated SRO to perform regulatory responsibilities for ArcaSec
for unique Exchange rules; (3) the RSA shall require the Exchange and
the non-affiliated SRO to monitor ArcaSec for compliance with the
Exchange's trading rules, and collect and maintain, in an easily
accessible manner, all alerts, complaints, investigations and
enforcement actions (collectively ``Exceptions'') in which ArcaSec (in
routing orders to the Exchange) is identified as a participant that has
potentially violated applicable Exchange or Commission rules. The RSA
shall require that the non-affiliated SRO provide a report, at least
quarterly, to the Chief Regulatory Officer of the Exchange quantifying
all Exceptions; (4) the Exchange, on behalf of the holding company
owning both the Exchange and ArcaSec, shall establish and maintain
procedures and internal controls reasonably designed to prevent ArcaSec
from receiving any benefit, taking any action or engaging in any
activity based on non-public information regarding planned changes to
Exchange systems, obtained as a result of its affiliation with the
Exchange, until such information is available generally to similarly
situated Participants of the Exchange in connection with the provision
of inbound order routing to the Exchange; and (5) the Exchange may
furnish to ArcaSec the same information on the same terms that the
Exchange makes available in the normal course of business to any other
Participant. Proposed Rule 2(b)(2) would state that, provided the above
conditions are complied with, ArcaSec may provide inbound routing
services to the Exchange from the NYSE Exchanges.\67\
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\66\ ``Common rules'' would be defined in the Rule 17d-2 Plan.
\67\ The Exchange will ensure a Rule 17d-2 Plan is in place and
comply with the other listed conditions prior to ArcaSec acting as
an Inbound Router of the Exchange.
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In the past, the Commission has expressed concern that the
affiliation of an exchange with one of its members raises potential
conflicts of interest and the potential for unfair competitive
advantage.\68\ Although the Commission continues to be concerned about
potential unfair competition and conflicts of interest between an
exchange's self-regulatory obligations and its commercial interest when
the exchange is affiliated with one of its members, the Commission
believes that it is consistent with the Exchange Act to permit ArcaSec,
in its capacity as a facility of each of the NYSE Exchanges, to route
orders inbound to the Exchange, subject to the limitations and
conditions described above.\69\ The Commission believes that the
limitations and conditions in CHX Article 19, Rule 2(b) will mitigate
its concerns about potential conflicts of interest and unfair
competitive advantage. In particular, the
[[Page 34190]]
Commission believes that the Rule 17d-2 Plan, RSA, and Exception
reporting requirements, procedures, and internal controls would help
protect the independence of the Exchange's self-regulatory function
with respect to ArcaSec. The Commission also believes that the proposed
rule is designed to prevent ArcaSec from acting on non-public
information obtained as a result of its affiliation with the Exchange,
and that the proposed changes are consistent with the Exchange Act.
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\68\ See, e.g., Securities Exchange Act Release Nos. 53382
(February 27, 2006), 71 FR 11251 (March 6, 2006) (SR-NYSE-2005-77)
(order approving the combination of the New York Stock Exchange,
Inc. and Archipelago Holdings, Inc.); 58673 (September 29, 2008), 73
FR 57707 (October 3, 2008) (SR-Amex-2008-62 and SR-NYSE-2008-60)
(order approving the combination of NYSE Euronext and the American
Stock Exchange LLC); 59281 (January 22, 2009), 74 FR 5014 (January
28, 2009) (SR-NYSE-2008-120) (order approving a joint venture
between NYSE and BIDS Holdings L.P.); 61698 (March 12, 2010), 75 FR
13151 (March 18, 2010) (File Nos. 10-194 and 10-196) (order granting
the exchange registration of EDGX Exchange, Inc. and EDGA Exchange,
Inc.); and 62716 (August 13, 2010), 75 FR 51295 (August 19, 2010)
(File No. 10-198) (order granting the exchange registration of BATS-
Y Exchange, Inc.).
\69\ The Commission notes that the proposed conditions are
similar to those of other NYSE Exchanges. See NYSE Arca Rule 7.45-
E(c), NYSE Rule 17(c)(2), and NYSE American Rule 7.45E(c).
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III. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the Amendment
Nos. 2 and 3 to the proposed rule change is consistent with the
Exchange 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 [email protected]. Please include
File Number SR-CHX-2018-004 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-CHX-2018-004. 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 website (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 website 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CHX-2018-004, and should be submitted on
or before August 9, 2018.
IV. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment Nos. 1, 2, and 3
The Commission finds good cause to approve the proposed rule
change, as modified by Amendment Nos. 1, 2, and 3 prior to the 30th day
after the date of publication of notice of Amendments Nos. 2 and 3 in
the Federal Register. As noted above, Amendment Nos. 2 and 3 do not
change the structure or purpose of the proposed rule change as it was
previously published for notice and comment.\70\ The Commission
believes that an additional notice and comment period for Amendment
Nos. 2 and 3 before approval of the proposed rule change would not be
in furtherance of the public interest or the protection of investors.
Accordingly, the Commission finds good cause, pursuant to Section
19(b)(2) of the Exchange Act,\71\ to approve the proposed rule change,
as modified by Amendment Nos. 1, 2, and 3, on an accelerated basis.
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\70\ See supra notes 5 and 6.
\71\ 15 U.S.C. 78s(b)(2).
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V. Conclusion
For the foregoing reasons, the Commission finds that the proposed
rule change, as modified by Amendments Nos. 1, 2, and 3 is consistent
with the Exchange Act and the rules and regulations thereunder
applicable to a national securities exchange.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act \72\ that the proposed rule change (SR-CHX-2018-004), as
modified by Amendments Nos. 1, 2, and 3, be, and hereby is, approved on
an accelerated basis.
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\72\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\73\
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\73\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-15370 Filed 7-18-18; 8:45 am]
BILLING CODE 8011-01-P
