Self-Regulatory Organizations; MEMX LLC; Notice of Filing of a Proposed Rule Change To Amend the Corporate Documents of the Exchange's Parent Company, 60683-60694 [2021-23927]
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Federal Register / Vol. 86, No. 210 / Wednesday, November 3, 2021 / Notices
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 such
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–PEARL–2021–52, and
should be submitted on or before
November 24, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–23932 Filed 11–2–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–93452; File No. SR–MEMX–
2021–15]
Self-Regulatory Organizations; MEMX
LLC; Notice of Filing of a Proposed
Rule Change To Amend the Corporate
Documents of the Exchange’s Parent
Company
khammond on DSKJM1Z7X2PROD with NOTICES
October 28, 2021.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on October
22, 2021, MEMX LLC (‘‘MEMX’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
16 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing with the
Commission a proposed rule change to
amend and restate the Fifth Amended
and Restated Limited Liability Company
Agreement (the ‘‘Fifth Amended Holdco
LLC Agreement’’) of MEMX Holdings
LLC (‘‘Holdco’’) as the Sixth Amended
and Restated Limited Liability Company
Agreement of Holdco (the ‘‘Sixth
Amended Holdco LLC Agreement’’) to
reflect certain amendments, as further
described below.3 Holdco is the parent
company of the Exchange and directly
or indirectly owns all of the limited
liability company membership interests
in the Exchange. The text of the
proposed rule change is provided in
Exhibit 5.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend and
restate the Holdco LLC Agreement to
reflect: (i) Amendments related to the
creation of the Class C Units 4 and the
Common Units 5 in connection with the
3 References herein to the ‘‘Holdco LLC
Agreement’’ refer to the Fifth Amended Holdco LLC
Agreement or the Sixth Amended Holdco LLC
Agreement, as appropriate in the context.
4 As proposed, the term ‘‘Class C Units’’ means
the Class C–1 Units and the Class C–2 Units; the
term ‘‘Class C–1 Units’’ means the Units having the
privileges, preference, duties, liabilities, obligations
and rights specified with respect to ‘‘Class C–1
Units’’ in the Holdco LLC Agreement; and the term
‘‘Class C–2 Units’’ means the Units having the
privileges, preference, duties, liabilities, obligations
and rights specified with respect to ‘‘Class C–2
Units’’ in the Holdco LLC Agreement. The term
‘‘Units’’ means a unit representing a fractional part
of the membership interests of the members of
Holdco. Currently, there are two classes of Units—
the Class A Units (which are divided into the Class
A–1 Units and the Class A–2 Units) and the Class
B Units.
5 As proposed, the term ‘‘Common Units’’ means
the Units having the privileges, preference, duties,
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60683
sale by Holdco of Class C Units to
certain Members 6 in a capital raise
transaction (the ‘‘Transaction’’); (ii)
amendments related to the voting rights
of the Members associated with the
ownership of certain Units consistent
with certain BHCA 7 considerations; (iii)
amendments to provisions related to the
election by a Member to specify the
maximum voting percentage that such
Member may have with respect to any
determination under the Holdco LLC
Agreement consistent with certain
BHCA considerations; (iv) amendments
to various other provisions related to
BHCA considerations; (v) amendments
related to certain governance changes
with respect to the Holdco Board in
connection with the Transaction; and
(vi) various clarifying, updating,
conforming, and other non-substantive
amendments. Each of these amendments
is discussed below.8
Background
There are two primary purposes of the
Exchange’s proposal to amend and
restate the Holdco LLC Agreement as
described herein—
(1) to create two new classes of
membership interests in Holdco (i.e., the
Class C Units and the Common Units), each
of which is divided into a ‘‘voting’’ series and
a ‘‘non-voting’’ series, and effectuate the sale
by Holdco of Class C Units to certain
Members pursuant to the Transaction; 9 and
(2) to divide each of the two existing
series 10 of Class A Units (i.e., the Class A–
liabilities, obligations and rights specified with
respect to ‘‘Common Units’’ in the Holdco LLC
Agreement. As proposed, the Common Units are
divided into the Voting Common Units and the
Nonvoting Common Units.
6 The term ‘‘Member’’ refers to a person (i.e., an
individual or entity) that owns one or more Units
and is admitted as a limited liability company
member of Holdco.
7 The term ‘‘BHCA’’ means the United States
Bank Holding Company Act of 1956, as amended
and in effect from time to time, and the rules and
regulations promulgated thereunder.
8 All section references herein are to sections of
the Holdco LLC Agreement unless indicated
otherwise.
9 The Exchange notes that no Common Units will
be sold in connection with the Transaction;
however, as proposed, Class C Units are convertible
into Common Units, as further described below.
10 The Exchange notes that Section 3.2, which
provides for the authorization and issuance of the
Class A Units, currently refers to the Class A–1
Units and the Class A–2 Units as separate ‘‘classes’’
of Units; however, the Exchange is proposing to
amend Section 3.2 to reflect that the Class A–1
Units and the Class A–2 Units are separate ‘‘series’’
of Units. The Holdco Board believes that the Class
A–1 Units and the Class A–2 Units are more
appropriately designated as separate ‘‘series’’
instead of ‘‘classes’’ of Units, as such Units have
identical privileges, preference, duties, liabilities,
obligations, and rights under the Holdco LLC
Agreement and the only difference between such
Units is the original purchase price paid by the
applicable Members. In connection with this
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1 Units and the Class A–2 Units) into a
‘‘voting’’ series and a ‘‘non-voting’’ series in
a manner consistent with the proposed
voting structure of the Class C Units and the
Common Units.
khammond on DSKJM1Z7X2PROD with NOTICES
The proceeds resulting from the sale
of Class C Units pursuant to the
Transaction will be paid to Holdco by
the Members participating in the
Transaction as purchasers of Class C
Units (the ‘‘Participating Members’’),
and such proceeds will be used by
Holdco for general corporate expenses,
including to support the operations and
regulation of the Exchange, which is a
subsidiary of Holdco. All Participating
Members are currently investors in, and
Members of, Holdco. Although each
Member’s proportionate ownership of
Holdco will change as a result of the
Transaction, no Member will own,
directly or indirectly, Units constituting
more than twenty percent (20%) of any
class of Units or will otherwise exceed
any ownership or voting limitation
applicable to the Members set forth in
the Holdco LLC Agreement after giving
effect to the Transaction.11
Currently, the Holdco LLC Agreement
provides for a governance structure of
Holdco in which the Members (i.e.,
persons that own one or more Units) do
not have any voting or management
rights, except in certain very limited
circumstances,12 and the authority to
manage and control the business and
affairs of Holdco, including the right to
amend or modify the Holdco LLC
Agreement, is otherwise vested in the
Holdco Board.13 Due to certain
requirements and restrictions under the
BHCA applicable to certain Members,
the Exchange is now proposing to
modify this governance structure to
proposed amendment, the Exchange also proposes
to replace certain references to the term ‘‘Class’’
with references to the term ‘‘series’’ (and to add
other references to the term ‘‘series’’) throughout
the Holdco LLC Agreement, as appropriate, and to
delete ‘‘Class’’ as a defined term in Section 1.1, as
such term would no longer be used as a stand-alone
term.
11 See Section 3.5, which sets forth certain
limitations with respect to the ownership and
voting of Units.
12 Section 4.6 currently provides that, except as
required by applicable law or the provisions of
Section 15.9, Members do not have any voting or
management rights. Section 15.9 provides that a
Member’s consent is required in connection with
amendments or modifications to the Holdco LLC
Agreement that modify the rights or obligations of
such Member in a manner that is disproportionately
adverse to such Member (or a type, class or series
of Units held by such Member) or that materially
increase an existing obligation or impose a new
material obligation on such Member. As further
described below, the Exchange is proposing to
amend Sections 4.6 and 4.7 to reflect the
prescription of certain additional voting rights
associated with the Class A Units.
13 See Sections 4.6, 8.2, and 15.9.
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provide for certain voting rights of the
Members associated with the ownership
of the Class A Units, the Class C Units,
and the Common Units by dividing such
classes of Units into ‘‘voting’’ and ‘‘nonvoting’’ series and prescribing certain
matters on which such series are
entitled to vote. The Exchange notes
that the sole purpose of the proposed
changes to Holdco’s governance
structure with respect to the Members’
voting rights associated with the
ownership of such Units in this regard
is to facilitate certain Members’
continued compliance with
requirements and restrictions under the
BHCA regarding investments in
nonbanking companies, in light of
recent amendments to the BHCA
regulations issued by the Board of
Governors of the Federal Reserve
System regarding the framework for
determining ‘‘control’’ under the BHCA,
which became effective on September
30, 2020, as well as interpretations of
such amendments by certain Members
that are subject to the BHCA.
Additionally, in connection with the
Transaction, three Members that do not
currently have the right to nominate a
director (‘‘Director’’) to the Holdco
Board—Citicorp North America, Inc.
(‘‘Citi’’), UBS Americas Inc. (‘‘UBS’’),
and Wells Fargo Central Pacific
Holdings, Inc. (‘‘Wells Fargo’’)—will
receive the right to nominate a Director,
thereby increasing the size of the
Holdco Board from eleven to fourteen
Directors. Other than such change to the
composition of the Holdco Board, a
proposed change to the definition of
Supermajority Board Vote,14 and the
proposed changes related to the
Members’ voting rights associated with
the ownership of the Class A Units, the
Class C Units, and the Common Units,
each as further described below, the
governance of Holdco would continue
under its existing structure. None of the
amendments to the Holdco LLC
Agreement proposed herein would
impact the governance of the Exchange.
The Transaction and all amendments
to the Holdco LLC Agreement proposed
herein were previously approved by the
Holdco Board on October 22, 2021, in
accordance with the Holdco LLC
Agreement. The Exchange expects the
Transaction to close on or shortly after
the date on which the amendments to
the Holdco LLC Agreement proposed
herein become effective. The
amendments to the Holdco LLC
Agreement proposed herein will become
effective on the date that such
14 See Section 1.1 for the definition of
Supermajority Board Vote.
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amendments are approved by the
Commission (the ‘‘Effective Date’’).
Amendments Related to the Creation of
the Class C Units and the Common
Units
In connection with the Transaction,
the Exchange is proposing to amend the
Holdco LLC Agreement to create two
new classes of Units—the Class C Units
and the Common Units—in order to
effectuate the sale of Class C Units by
Holdco to the Participating Members. As
proposed, the Class C Units and the
Common Units are each divided into a
‘‘voting’’ series (i.e., the Class C–1 Units
and the Voting Common Units,
respectively) with certain voting rights
as prescribed in amended Section 4.7
and a ‘‘non-voting’’ series (i.e., the Class
C–2 Units and the Nonvoting Common
Units, respectively) with more limited
voting rights as prescribed in amended
Section 4.7, as further described below.
The sole purpose of creating separate
series of Class C Units and Common
Units with different voting rights (i.e., a
‘‘voting’’ series and a ‘‘non-voting’’
series) is to facilitate certain Members’
compliance with the BHCA, as
described above.
Currently, Section 3.2 contains
provisions related to the authorization
and issuance of the Class A Units
(including the Class A–1 Units and the
Class A–2 Units) and that specify the
voting rights associated with such
Units.15 The Exchange proposes to
amend Section 3.2 to reflect the creation
of the Class C Units and the Common
Units and to add new paragraphs (e) and
(f) that contain provisions related to the
authorization and issuance of the Class
C Units (including the Class C–1 Units
and the Class C–2 Units) and the
Common Units (including the Voting
Common Units and the Nonvoting
Common Units) and that specify the
voting rights associated with such
Units.16 In connection with the creation
of the Class C Units and the Common
Units, the Exchange also proposes to
add definitions of the following terms in
Section 1.1 (the ‘‘Definitions’’ section of
the Holdco LLC Agreement): Class C
15 The Exchange notes that it is proposing to
amend Section 3.2 to reflect changes to the voting
rights associated with the Class A Units, as further
described below.
16 The voting rights associated with the Class C
Units and the Common Units are specified in
proposed new paragraphs (e) and (f) of Section 3.2
by reference to the applicable paragraphs of
amended Section 4.7, which prescribe the actions
on which such Units are entitled to vote, as further
described below.
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khammond on DSKJM1Z7X2PROD with NOTICES
Member; 17 Class C–1 Units; 18 Class C–
2 Units; 19 Class C Unit Original
Purchase Price; 20 Class C Units; 21
Common Member; 22 Common Units; 23
Converted Common Units; 24 Converted
Common Member; 25 Nonvoting
Common Units; 26 and Voting Common
Units.27 The Exchange also proposes to
amend the definitions of ‘‘Units’’ and
‘‘Pro Rata Portion’’ in Section 1.1 to
reflect the creation of, and include
references to, the Class C Units and the
Common Units.
The Exchange notes that no Common
Units will be sold in connection with
the Transaction and, as stated in
proposed new Section 3.2(f), no
Common Units will be issued and
outstanding as of the Effective Date.
However, as proposed, Class C Units are
convertible into Common Units, and
proposed Section 3.2(f) provides in this
regard that Common Units will only be
issuable in connection with an
investment in Holdco or upon
conversion of Class C Units as set forth
in proposed new Section 3.11. In this
connection, the Exchange proposes to
add a new Section 3.11 entitled ‘‘Class
C Unit Conversion’’ that provides for the
conversion rights of Class C Units, and
to re-number existing Section 3.11 to
17 As proposed, the term ‘‘Class C Member’’
means a Member holding Class C–1 Units or Class
C–2 Units, as applicable, in its capacity as such,
together with its Affiliates that hold Class C–1 Units
or Class C–2 Units, as applicable (for the sake of
clarity, such Member and such Affiliates shall be
considered to be one (1) Class C Member).
18 See supra note 4 for the proposed definition of
the term ‘‘Class C–1 Units’’.
19 See supra note 4 for the proposed definition of
the term ‘‘Class C–2 Units’’.
20 As proposed, the term ‘‘Class C Unit Original
Purchase Price’’ means the purchase price per Class
C Unit set forth in the Members Schedule as of the
Effective Date.
21 See supra note 4 for the proposed definition of
the term ‘‘Class C Units’’.
22 As proposed, the term ‘‘Common Member’’
means a Member holding Common Units in its
capacity as such, together with its Affiliates that
hold Common Units (for the sake of clarity, such
Member and such Affiliates shall be considered to
be one (1) Common Member).
23 See supra note 5 for the proposed definition of
the term ‘‘Common Units’’.
24 As proposed, the term ‘‘Converted Common
Units’’ means the Common Units which were
issued in connection with the conversion of Class
C Units pursuant to proposed new Section 3.11, as
further described below.
25 As proposed, the term ‘‘Converted Common
Member’’ means a Member holding Converted
Common Units in its capacity as such, together with
its Affiliates that hold Converted Common Units
(for the sake of clarity, such Member and such
Affiliates shall be considered to be one (1)
Converted Common Member).
26 As proposed, the term ‘‘Nonvoting Common
Units’’ refers to the Nonvoting Common Units
described in proposed new Section 3.2(f)(iii).
27 As proposed, the term ‘‘Voting Common Units’’
refers to the Voting Common Units described in
proposed new Section 3.2(f)(ii).
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Section 3.12 and update relevant section
references throughout the Holdco LLC
Agreement accordingly. Proposed
Section 3.11(a) provides for the optional
conversion of Class C Units as set forth
in proposed new Exhibit G to the
Holdco LLC Agreement,28 and proposed
Section 3.11(b) provides for the
mandatory conversion of Class C Units
upon the consummation of a Qualified
Public Offering.29 Proposed Section
3.11(c) provides that in the event of any
conversion to Common Units of any
Class C Units, Class C–1 Units shall be
converted into Voting Common Units,
and Class C–2 Units shall be converted
into Nonvoting Common Units. This
conversion structure is designed to keep
the same voting construct in place with
respect to the Common Units that are
issued upon the conversion of any Class
C Units in a manner consistent with the
BHCA considerations described above.
The primary distinction between the
Class C Units and the Common Units, as
well as the primary purpose of
providing for the convertibility of Class
C Units into Common Units, is the
respective priority of Distributions 30
made to the Members with respect to
such Units, which is the main economic
consequence of a Member’s ownership
of such Units. The respective priority of
Distributions made to the Members with
respect to the different classes of Units
is currently set forth in Section 7.3 for
Distributions other than of proceeds in
the event of a liquidation of Holdco and
in Section 13.3 for Distributions of
28 The Exchange proposes to add new Exhibit G
to the Holdco LLC Agreement, which contains
provisions related to the conversion rights of the
Class C Units. Specifically, proposed new Exhibit
G includes provisions related to the mechanics of,
and processes associated with, the optional
conversion of Class C Units into Common Units; the
ratio of Common Units issuable upon the optional
conversion of Class C Units; and the adjustment to
the Class C Unit Conversion Price and other actions
in connection with certain diluting issuances of
Common Units, Distributions payable on the
Common Units, stock splits and combinations, and
reorganizations of Holdco. The Exchange also
proposes to add a definition of the term ‘‘Exempted
Securities’’ in Section 1.1 to reference the definition
of such term as set forth in Exhibit G, which refers
to the types of Units that are deemed not to be
diluting issues for purposes of adjustments to the
Class C Unit Conversion Price, and to amend the
definition of the term ‘‘New Securities’’ in Section
9.1(b) to exclude from such term the conversion of
Class C Units pursuant to proposed new Sections
3.10(d), 3.10(e), or 3.11 and certain Common Units
that are deemed Exempted Securities. The
Exchange also proposes to add any matter subject
to determination by Supermajority Board Vote
pursuant to Section 1.4 of Exhibit G as a
Supermajority Board Matter in Exhibit C. See
Section 1.1 for the definition of Supermajority
Board Matter.
29 See Section 1.1 for the definition of Qualified
Public Offering.
30 See Section 1.1 for the definition of
Distribution.
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proceeds in the event of a liquidation of
Holdco. In this connection, the
Exchange proposes to amend Sections
7.3 and 13.3 to reflect the respective
priority of Distributions with respect to
the Class C Units and the Common
Units under such sections. As such
proposed amendments include the
addition of new paragraphs, and the renumbering of certain existing
paragraphs, in Sections 7.3 and 13.3, the
Exchange also proposes to update
relevant section references throughout
the Holdco LLC Agreement accordingly.
As noted above, there are currently
two classes of Units—the Class A Units
and the Class B Units.31 As the Class B
Units represent an incentive pool and
do not have many of the rights and
obligations associated with the Class A
Units, there are currently several terms
and provisions in the Holdco LLC
Agreement that are associated only with
the Class A Units and the Class A
Members, and thus, make specific
reference to ‘‘Class A Units’’ and/or
‘‘Class A Members.’’ However, as
proposed, the Class C Units will
generally have the same rights and
obligations as the Class A Units with
two primary distinctions: (i) The
convertibility of Class C Units into
Common Units; and (ii) the respective
priority of Distributions under Sections
7.3 and 13.3. Other than these
distinctions, a Member’s ownership of
Class A Units and/or Class C Units
would generally confer the same rights
and obligations on such Member with
respect to such Units. Accordingly, the
Exchange is proposing to make several
amendments throughout the Holdco
LLC Agreement to reflect that the Class
C Units have such rights and obligations
and to otherwise reflect the creation of
the Class C Units, including to add
references to ‘‘Class C Units’’ or ‘‘Class
C Member’’ alongside references to
‘‘Class A Units’’ or ‘‘Class A Member,’’
as applicable, where appropriate for this
purpose; replace references to ‘‘Class A
Member’’ with references to ‘‘Member’’
where appropriate for this purpose; add
proposed new Section 10.1(a)(ii)(C)(II)
related to the transfer of Class C Units
as permitted by the Holdco Board,
which is consistent with the current
provision related to the transfer of Class
A Units as permitted by the Holdco
31 The Class B Units are intended to be an
incentive pool and may only be issued to
employees, officers, directors, or other service
providers of Holdco or any subsidiary of Holdco
pursuant to the Amended and Restated MEMX
Holdings LLC 2018 Profits Interests Plan (the
‘‘Incentive Plan’’). The Class B Units have no voting
rights, except as required by applicable law, and do
not have many of the rights and obligations
associated with the Class A Units as set forth in the
Holdco LLC Agreement. See Section 3.3.
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Board in current Section 10.1(a)(i)(C); 32
and change the defined term
‘‘Nominating Class A Member’’ to
‘‘Nominating Member’’ in Sections 1.1
and 8.3(a) and replace all references to
such term throughout the Holdco LLC
Agreement accordingly.
Additionally, as proposed, the
Common Units (or the Converted
Common Units, as applicable) will have
certain of the same rights and
obligations as the Class A Units and the
Class C Units. Accordingly, the
Exchange is also proposing to make
several amendments throughout the
Holdco LLC Agreement to reflect that
the Common Units (or the Converted
Common Units, as applicable) have
such rights and obligations, including to
add references to ‘‘Common Units’’ or
‘‘Common Member’’ (or ‘‘Converted
Common Units’’ or ‘‘Converted
Common Member,’’ as applicable)
alongside references to ‘‘Class A Units’’
or ‘‘Class A Member,’’ as applicable,
where appropriate for this purpose;
replace references to ‘‘Class A Member’’
with references to ‘‘Member’’ where
appropriate for this purpose; change the
defined term ‘‘Tag-along Class A
Member’’ to ‘‘Tag-along Member’’ in
Sections 1.1 and 10.5 and update all
references to such term throughout the
Holdco LLC Agreement accordingly;
change the defined term ‘‘Fully
Participating Tag-along Class A
Member’’ to ‘‘Fully Participating Tagalong Member’’ in Sections 1.1 and 10.5
and replace all references to such term
throughout the Holdco LLC Agreement
accordingly; and change the defined
term ‘‘Qualified Class A Member’’ to
‘‘Qualified Member’’ in Sections 1.1 and
12.1 and replace all references to such
term throughout the Holdco LLC
Agreement accordingly.
The Exchange is also proposing to
make amendments to the Holdco LLC
Agreement’s provisions related to
meetings of the Members to reflect
certain rights associated with the Class
C Units in this regard, which
amendments include amending new
Section 4.7(h) (current Section 4.7(a)),
which currently sets forth the
requirements for Directors and Class A
Members to call a meeting of the
Members, to reflect that a meeting of the
Members may also be called by the
Class C Members holding, in the
aggregate, at least twenty percent (20%)
32 In
connection with this proposed amendment,
the Exchange also proposes to add definitions of
‘‘Released Class C Member’’ and ‘‘Released Class C
Units’’ in Section 1.1 and proposed new Section
10.1(a)(ii)(C)(II) that are consistent with the
definitions of ‘‘Released Class A Member’’ and
‘‘Released Class A Units’’ as such terms are
currently defined in current Section 10.1(a)(i)(C).
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of the aggregate then-outstanding Class
C Units and amending new Section
4.7(m) (current Section 4.7(f)) to reflect
that a quorum for the transaction of
business by the Members is the presence
of Members holding at least fifty percent
(50%) of the then-outstanding Class A
Units and Class C Units (considered in
the aggregate). The Exchange notes that,
as proposed, the Common Members
would not have any such rights, and
thus, would not be referenced in these
amended provisions.
As the Participating Members will be
purchasing Class C Units in connection
with the Transaction, such Members
will become Class C Members as of the
Effective Date. In this connection, the
Exchange is proposing to amend the
definitions of the applicable Members
that are defined in Section 1.1 to reflect
that such Members will be Class C
Members as of the Effective Date.33
Amendments Related to the Voting
Rights of Members Associated With the
Ownership of Certain Units
As noted above, in order to facilitate
certain Members’ continued compliance
with certain restrictions under the
BHCA in light of recent amendments to
the relevant BHCA regulations, the
Exchange is proposing to amend the
Holdco LLC Agreement to modify the
governance structure of Holdco, which
currently does not provide for any
voting or management rights of the
Members (except in certain very limited
circumstances 34) to provide for certain
voting rights of the Members associated
with the existing Class A Units, as well
as the proposed new Class C Units and
Common Units, as prescribed in
amended Section 4.7, which is further
described below.
In this connection, consistent with the
voting/non-voting construct of the
proposed new Class C Units and
Common Units, the Exchange is
proposing to amend the Holdco LLC
Agreement to divide each existing series
of the Class A Units (i.e., the Class A–
1 Units and the Class A–2 Units) into a
‘‘voting’’ series and a ‘‘non-voting’’
series. Specifically, as proposed, the
existing Class A–1 Units and Class A–
2 Units would be designated as the
‘‘voting’’ series of the Class A Units
(referred to collectively as the ‘‘Voting
Class A Units’’) and the proposed new
33 The Participating Members that are defined in
Section 1.1 are Bank of America, Citadel, Fidelity,
Goldman Sachs, Jane Street, JPMorgan, Morgan
Stanley, UBS, Virtu, and Wells Fargo. The Exchange
notes that it is also proposing to add ‘‘Citi’’ as a
defined term in Section 1.1, which would reflect
that Citi is a Class C Member, as further described
below.
34 See supra note 12.
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Nonvoting Class A–1 Units and
Nonvoting Class A–2 Units would be
designated as the ‘‘non-voting’’ series of
the Class A Units (referred to
collectively as the ‘‘Nonvoting Class A
Units’’).35 In this connection, the
Exchange proposes to amend Section
3.2 to reflect the creation of the
Nonvoting Class A–1 Units and the
Nonvoting Class A–2 Units and to add
new paragraphs (c) and (d) that contain
provisions related to the authorization
and issuance of the Nonvoting Class A–
1 Units and the Nonvoting Class A–2
Units and that specify the voting rights
associated with such Units.36 In
connection with the creation of the
Nonvoting Class A–1 Units and the
Nonvoting Class A–2 Units, the
Exchange also proposes to add
definitions of the following terms in
Section 1.1: Nonvoting Class A Units; 37
Nonvoting Class A–1 Units; 38
Nonvoting Class A–2 Units; 39 and
Voting Class A Units.40 The Exchange
also proposes to amend the definitions
of ‘‘Class A Member’’ and ‘‘Class A
Units’’ in Section 1.1 to reflect the
creation of the Nonvoting Class A–1
Units and the Nonvoting Class A–2
Units, as well as to include references
to the Nonvoting Class A Units, the
Nonvoting Class A–1 Units, and/or the
Nonvoting Class A–2 Units, as
applicable, throughout the Holdco LLC
Agreement where appropriate for this
purpose.
The proposed changes to the voting
rights of the Members are reflected in
the proposed amendments to Section
4.7, which include the addition of new
paragraphs (a) through (g) that prescribe
the actions on which the various series
of Units are entitled to vote, as follows:
• Proposed new paragraph (a)
provides that the following actions shall
35 The Exchange notes that no additional Class A
Units will be issued in connection with the
Transaction or the amendments to the Holdco LLC
Agreement proposed herein; instead, certain of the
issued and outstanding Class A–1 Units and Class
A–2 Units currently held by the Class A Members
would be reclassified into Nonvoting Class A–1
Units and Nonvoting Class A–2 Units, respectively.
36 The voting rights associated with the
Nonvoting Class A–1 Units and the Nonvoting Class
A–2 Units are specified in proposed new
paragraphs (c) and (d) of Section 3.2 by reference
to the applicable paragraphs of amended Section
4.7, which prescribe the actions on which such
Units are entitled to vote, as further described
below.
37 As proposed, the term ‘‘Nonvoting Class A
Units’’ means the Nonvoting Class A–1 Units and
the Nonvoting Class A–2 Units.
38 As proposed, the term ‘‘Nonvoting Class A–1
Units’’ refers to the Nonvoting Class A–1 Units
described in proposed new Section 3.2(c).
39 As proposed, the term ‘‘Nonvoting Class A–2
Units’’ refers to the Nonvoting Class A–2 Units
described in proposed new Section 3.2(d).
40 As proposed, the term ‘‘Voting Class A Units’’
means Class A–1 Units and the Class A–2 Units.
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not be effected without the approval of
a majority of the then-outstanding
Voting Class A Units, voting together as
a single class: (i) Subject to Sections
7.2(b), 7.3 and 13.3, approval of any
Distributions of profits or capital of
Holdco to the Members (other than Tax
Advances 41); (ii) approval of a
transaction to which Holdco is a party
and which results in a Change of
Control; 42 (iii) any liquidation,
dissolution or winding up of any
subsidiary of Holdco (other than the
Exchange) and, if applicable, the related
appointment of a liquidating trustee;
and (iv) commencement, filing or
initiation of any proceeding relating to
voluntary or involuntary bankruptcy or
insolvency with respect to Holdco;
• proposed new paragraph (b)
provides that any waiver or amendment
of any provision of the Holdco LLC
Agreement which would significantly
and adversely affect the rights,
preferences, powers or privileges of the
Class A–1 Units and Class A–2 Units
shall not be effected without the
approval of the majority of the thenoutstanding Voting Class A Units,
voting together as a single class;
• proposed new paragraph (c)
provides that the following actions shall
not be effected without the approval of
a majority of the then-outstanding Class
C–1 Units and Voting Common Units,
voting together as a single class: (i)
Subject to Sections 7.2(b), 7.3 and 13.3,
approval of any Distributions of profits
or capital of Holdco to the Members
(other than Tax Advances); (ii) approval
of a transaction to which Holdco is a
party and which results in a Change of
Control; (iii) any liquidation,
dissolution or winding up of any
subsidiary of Holdco (other than the
Exchange) and, if applicable, the related
appointment of a liquidating trustee;
and (iv) commencement, filing or
initiation of any proceeding relating to
voluntary or involuntary bankruptcy or
insolvency with respect to Holdco;
• proposed new paragraph (d)
provides that any waiver or amendment
of any provision of the Holdco LLC
Agreement which would materially and
adversely affect the rights, preferences,
powers or privileges of the Class C–1
Units shall not be effected without the
approval of a majority of the thenoutstanding Class C–1 Units;
• proposed new paragraph (e)
provides that the following actions
(which shall be construed in a manner
consistent with 12 CFR 225.2(q)(2)(i))
41 See Section 1.1 for the definition of Tax
Advances.
42 See Section 1.1 for the definition of Change of
Control.
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shall not be effected without the
approval of the majority of the thenoutstanding Class C–1 Units and Class
C–2 Units, voting together as a single
class: (i) Any issuance of Units or Unit
Equivalents 43 of Holdco that have (A) a
preference in respect of Distributions or
return of capital that is senior to the
holders of the Class C Units or (B) no
right to convert into Common Units; and
(ii) any exchange, reclassification or
cancellation (whether by merger,
consolidation or otherwise) or
modification of the terms of all or part
of the Class C Units which exchange,
reclassification, cancellation or
modification, as applicable,
significantly and adversely affects the
rights or preferences of the Class C
Units;
• proposed new paragraph (f)
provides that the following actions
(which shall be construed in a manner
consistent with 12 CFR 225.2(q)(2)(i))
shall not be effected without the
approval of the majority of the thenoutstanding Class A–1 Units, Class A–
2 Units, Nonvoting Class A–1 Units and
Nonvoting Class A–2 Units, voting
together as a single class: (i) Any
issuance of Units or Unit Equivalents of
Holdco that have a preference in respect
of Distributions or return of capital that
is senior to the holders of the Class A
Units; and (ii) any exchange,
reclassification or cancellation (whether
by merger, consolidation or otherwise)
or modification of the terms of all or
part of the Class A Units which
exchange, reclassification, cancellation
or modification, as applicable,
significantly and adversely affects the
rights or preferences of the Class A
Units; and
• proposed new paragraph (g)
provides any liquidation, dissolution or
winding up of Holdco (which shall be
construed in a manner consistent with
12 CFR 225.2(q)(2)(i)) shall not be
effected without the approval of the
majority of the then-outstanding Class
A–1 Units, Class A–2 Units, Nonvoting
Class A–1 Units, Nonvoting Class A–2
Units, Class C–1 Units, Class C–2 Units,
Voting Common Units and Nonvoting
Common Units, voting together as a
single class.44
The Exchange notes that each of the
actions set forth in proposed new
paragraphs (a) through (g) on which
certain Members are entitled to vote are
43 See Section 1.1 for the definition of Unit
Equivalents.
44 The Exchange notes that each action described
in proposed new paragraphs (a) through (g) would
also require approval of the Holdco Board by
Supermajority Board Vote, which is also currently
required with respect to each of such actions under
the Holdco LLC Agreement.
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significant corporate matters solely
related to the administration,
ownership, capital, or dissolution of
Holdco or any Holdco subsidiary (other
than the Exchange) and, except as set
forth therein (or as otherwise currently
provided in the Holdco LLC
Agreement), the authority to manage
and control the business and affairs of
Holdco, including the right to amend or
modify the Holdco LLC Agreement,
would continue to be vested in the
Holdco Board as it is today. As reflected
in proposed new paragraphs (a) through
(g) of Section 4.7, each of the Voting
Class A Units, the Class C–1 Units, and
the Voting Common Units series has
broader voting rights than the
Nonvoting Class A Units, the Class C–
2 Units, and the Nonvoting Common
Units series, respectively, in that the
former series are entitled to vote in
some capacity on a wider array of
actions than the latter series. The
Exchange notes that the distinctions
with respect to the actions on which
such series are entitled to vote pursuant
to amended Section 4.7, as described
above, are what separate such series into
‘‘voting’’ series and ‘‘non-voting’’ series
for BHCA purposes in a manner
intended to facilitate certain Members’
continued compliance with the BHCA.
As noted above, the sole purpose of
providing for the voting rights
associated with the ‘‘voting’’ and ‘‘nonvoting’’ series of the Class A Units, the
Class C Units, and the Common Units as
set forth in proposed new paragraphs (a)
through (g) of Section 4.7 is to facilitate
such Members’ continued compliance
with the BHCA.
In connection with the foregoing
proposed amendments to Section 4.7,
the Exchange proposes to further amend
Section 4.7 to re-number the existing
paragraphs to begin after proposed new
paragraph (g) and to update relevant
section references throughout the
Holdco LLC Agreement accordingly; to
amend paragraphs (a) and (b) of Section
3.2 to reflect the additional voting rights
associated with the Class A–1 Units and
the Class A–2 Units as prescribed in
amended Section 4.7; to amend Section
7.2(a) to reflect that the Holdco Board’s
discretion regarding the amounts and
timing of Distributions to Members is
subject to the required approvals of the
Voting Class A Units, the Class C–1
Units, and the Voting Common Units, as
applicable, pursuant to proposed new
Sections 4.7(a)(i) and 4.7(c)(i); and to
amend Section 13.1(a) to reflect that a
determination to dissolve and wind up
the affairs of Holdco requires the
approval of the applicable Members
pursuant to proposed new Section 4.7(g)
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in addition to the approval of the
Holdco Board by Supermajority Board
Vote. Additionally, the Exchange
proposes to amend Section 4.6, which
also relates to the voting rights of the
Members, in a manner that conforms
and is consistent with the proposed
amendments to Section 4.7 that provide
for certain voting rights of the Members
associated with the ownership of Class
A Units, Class C Units, and Common
Units; to otherwise reflect the creation
of the Class C Units, the Common Units,
and the Nonvoting Class A Units; to
delete certain language relating to the
treatment of the Class A Units and the
Class B Units for certain BHCA
purposes that is no longer consistent
with the proposed voting structure of
such Units; and to make minor
formatting and other non-substantive
changes.
Amendments Related to a Member’s
Maximum Voting Percentage
In connection with the Transaction
and the proposed amendments to the
voting structure of the Units described
above, including the creation of the
‘‘voting’’ and ‘‘non-voting’’ series of
Class C Units (i.e., the Class C–1 Units
and the Class C–2 Units, respectively)
and the similar division of the Class A
Units into ‘‘voting’’ and ‘‘non-voting’’
series (i.e., the Voting Class A Units and
the Nonvoting Class A Units), the
Exchange is also proposing to amend
the Holdco LLC Agreement’s provisions
related to a Member’s election to specify
the maximum voting percentage that
such Member may have with respect to
any determination under the Holdco
LLC Agreement, which are set forth in
Section 3.10. As with the proposed
amendments to the voting structure of
the Units, the purpose of the
amendments to Section 3.10 is to
facilitate certain Members’ compliance
with the BHCA.
Currently, Section 3.10 provides that
a Class A Member may notify Holdco of
its election (a ‘‘Restricted Voting
Election’’) to be treated for purposes of
the Holdco LLC Agreement as a
‘‘Restricted Voting Member’’ such that
the maximum percentage of the
aggregate voting interests attributable to
the Class A Units that such Member
may own is the percentage designated in
such Member’s Restricted Voting
Election.45 Notwithstanding the fact that
45 Such maximum percentage is currently referred
to in the Holdco LLC Agreement as a Member’s
‘‘Maximum Aggregate Voting Interest’’ which is
defined in Section 1.1 with a reference to the
definition of such term in Section 3.10. In
connection with the proposed amendments to
Section 3.10 described below, the Exchange is
proposing to delete such defined term and add new
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the Class A Units are currently intended
to not have any voting rights other than
as required by applicable law, this
provision was included in the current
Holdco LLC Agreement out of an
abundance of caution in connection
with the BHCA considerations of certain
Class A Members in order to provide a
mechanism for Class A Members to
manage any potential deemed voting
interests attributable to the Class A
Units for BHCA and/or other regulatory
purposes. Section 3.10 also currently
contains certain notification procedures
of Holdco in connection with its receipt
of any Restricted Voting Election and
provides for certain types of transfers of
Class A Units by a Restricted Voting
Member (e.g., pursuant to a widespread
public distribution to non-Affiliates) in
which the aggregate voting interests
attributable to the Class A Units
transferred by such Restricted Voting
Member would no longer be limited to
such Restricted Voting Member’s
Maximum Aggregate Voting Interest
with respect to the transferee (such
transfers, ‘‘Permitted Regulatory
Transfers’’).46
The Exchange is now proposing to
amend Section 3.10 to maintain the
Restricted Voting Election mechanism
for Class A Members with respect to the
Voting Class A Units (i.e., the ‘‘voting’’
series of the Class A Units) and to
similarly provide for the Restricted
Voting Election mechanism for Class C
Members with respect to the Class C–1
Units (i.e., the ‘‘voting’’ series of the
Class C Units). Specifically, Section
3.10(a) would now provide that any
Class A Member or Class C Member may
make a Restricted Voting Election to
specify its respective maximum Voting
Class A Voting Percentage 47 (the
‘‘Maximum Voting Class A Voting
Percentage’’) or its respective maximum
Class C–1 Voting Percentage 48 (the
defined terms that are conceptually similar with
respect to the respective maximum voting
percentages of a Member’s Class A Voting Units and
Class C–1 Units, as further described below.
46 The Exchange proposes to add the defined term
‘‘Permitted Regulatory Transfers’’ in Section 1.1 to
refer to the definition of such term in proposed new
Section 3.10(e)(i), which refers to such transactions
as set forth therein.
47 The Exchange proposes to add the defined term
‘‘Voting Class A Voting Percentage’’ in Section 1.1
which means at any time of calculation, a fraction,
expressed as a percentage (a) the numerator of
which is be the number of then issued and
outstanding Voting Class A Units held a Class A
Member and (b) the denominator of which is the
number of then issued and outstanding Voting Class
A Units held by all Class A Members.
48 The Exchange proposes to add the defined term
‘‘Class C–1 Voting Percentage’’ in Section 1.1 which
means, at any time of calculation, a fraction,
expressed as a percentage, (i) the numerator of
which is the number of then issued and outstanding
Class C–1 Units held by a Class C Member and (ii)
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‘‘Maximum Class C–1 Voting
Percentage’’).49 Any Maximum Voting
Class A Voting Percentage or Maximum
Class C–1 Voting Percentage specified in
a Restricted Voting Election would
generally be irrevocable, subject to
certain specified exceptions, in a
manner consistent with BHCA
restrictions. In this connection, the
Exchange proposes to amend new
Exhibit F (current Exhibit H) to the
Holdco LLC Agreement, which is the
form of Restricted Voting Election
Notice to be used by a Restricted Voting
Member, to reflect that a Restricted
Voting Member may now specify a
Maximum Voting Class A Voting
Percentage and a Maximum Class C–1
Voting Percentage.
Also in connection with the proposed
voting structure of the Class A Units and
the Class C Units, the Exchange
proposes to provide in new Section
3.10(d) for the automatic conversion of
a Restricted Voting Member’s Voting
Class A Units and Class C–1 Units into
Nonvoting Class A Units and Class C–
2 Units, respectively, to the extent that
a Restricted Voting Member would be
deemed to own, control, or have the
power to vote (for any reason) a number
of Voting Class A Units or Class C–1
Units, as applicable, that causes such
Restricted Voting Member to exceed its
Maximum Voting Class A Voting
Percentage or Maximum Class C–1
Voting Percentage, as applicable. This
automatic conversion feature is
designed to ensure that a Restricted
Voting Member does not exceed its
Maximum Voting Class A Voting
Percentage or Maximum Class C–1
Voting Percentage for any reason to
facilitate any such Restricted Voting
Member’s compliance with the BHCA.
Additionally, the Exchange proposes
to provide in new Section 3.10(e) for: (i)
The automatic conversion of a
Restricted Voting Member’s Nonvoting
Class A Units and Class C–2 Units into
Voting Class A Units and Class C–1
Units, respectively, if such Nonvoting
Class A Units or Class C–2 Units, as
applicable, are transferred to a third
party (other than another Restricted
Voting Member or an Affiliate of the
transferee Restricted Voting Member) in
connection with a Permitted Regulatory
Transfer; and (ii) the optional
the denominator of which is the number of then
issued and outstanding Class C–1 Units held by all
Class C Members.
49 The Exchange proposes to add the defined
terms ‘‘Maximum Voting Class A Voting
Percentage’’ and ‘‘Maximum Class C–1 Voting
Percentage’’ in Section 1.1 to refer to the definitions
of such terms as set forth in Section 3.10(a), which
are consistent with the definitions of such terms
herein.
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conversion (‘‘Permitted Anti-Dilution
Conversion’’) of a Restricted Voting
Member’s Nonvoting Class A Units and
Class C–2 Units into Voting Class A
Units and Class C–1 Units, respectively,
by delivery of a notice to Holdco (a
‘‘Voting Conversion Notice’’) if Holdco
issues any new Units or Unit
Equivalents that cause the Voting Class
A Units or Class C–1 Units, as
applicable, held by such Restricted
Voting Member to represent a Voting
Class A Voting Percentage or Class C–
1 Voting Percentage, as applicable, that
is less than such Restricted Voting
Member’s Voting Class A Voting
Percentage or Class C–1 Voting
Percentage, as applicable, immediately
prior to such issuance (such Restricted
Voting Member’s ‘‘Prior Voting Class A
Voting Percentage’’ and ‘‘Prior Class C–
1 Voting Percentage’’, respectively) to
the extent such conversion does not
exceed such Prior Voting Class A Voting
Percentage or Prior Class C–1 Voting
Percentage, as applicable.50
The Exchange is also proposing to
amend Section 3.10 to include
additional provisions related to the
effect and construction of such section
consistent with the BHCA, which are
designed to facilitate certain Members’
continued compliance with the BHCA
in light of the proposed voting structure
of the Class A Units and the Class C
Units described herein. The Exchange
notes that it is also proposing certain
other amendments to Section 3.10,
including modifications to Holdco’s
notification procedures and other
administrative provisions related to
recordkeeping in connection with any
Restricted Voting Election.
Amendments to Various Provisions
Related to BHCA Considerations
The Exchange is also proposing to
make certain amendments to the Holdco
LLC Agreement to update existing
provisions and include additional
provisions for the purpose of facilitating
certain Members’ continued compliance
with BHCA requirements and
restrictions.
First, the Exchange is proposing to
amend Section 7.5, which relates to
Distributions of securities or other
property held by Holdco made ‘‘in
kind’’ to Members, to update such
provision in a manner consistent with
the BHCA considerations of Members
50 The Exchange proposes to add the defined
terms ‘‘Permitted Anti-Dilution Conversion’’, ‘‘Prior
Class C–1 Voting Percentage’’, ‘‘Prior Voting Class
A Voting Percentage’’, and ‘‘Voting Conversion
Notice’’ in Section 1.1 to refer to the definitions of
such terms as set forth in amended Section 3.10,
which are consistent with the definitions of such
terms herein.
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subject to the BHCA. Currently, Section
7.5 provides that, except as required by
applicable law, Holdco is not authorized
to make Distributions to the Members in
the form of securities or other property
held by Holdco. This restriction on
Distributions made in kind to Members
by Holdco will remain in place, but the
Exchange now proposes to amend
Section 7.5 to also provide that no
Member may be required to accept
consideration with respect to a merger,
business combination or other
transaction to which Holdco or any
Holdco subsidiary is a party in the form
of securities or other property if such
Member notifies Holdco that receipt of
such consideration by such Member
would violate the BHCA or other
applicable law or cause such Member to
control or be presumed to control the
issuer of such asset under the BHCA,
and that in either such case, the affected
Member may elect, in the alternative, to
receive the fair market value of such
consideration in cash. The purpose of
adding this provision is to ensure that
any Member subject to the BHCA is not
required to receive non-cash
consideration if such receipt would
have adverse consequences under the
BHCA with respect to such Member in
connection with a transaction involving
Holdco or any Holdco subsidiary that
involves the distribution of non-cash
consideration to Members made by a
third party (or otherwise not directly
Distributed by Holdco), which is not
currently covered by Section 7.5. Thus,
the purpose of this proposed
amendment is to address an additional
scenario where a distribution of noncash consideration may be made to the
Members in connection with their
ownership of Units in a manner that
protects Members subject to the BHCA
against adverse consequences resulting
from non-cash distributions in
connection therewith and thereby
facilitates such Member’s continued
compliance with the BHCA.
Additionally, the Exchange proposes to
further amend Section 7.5 to provide a
carve-out from the general restriction on
Distributions made in kind to Members
set forth therein to the extent otherwise
expressly provided in the Holdco LLC
Agreement. The purpose of this change
is to resolve a conflict between the
terms of Section 13.3(f), which provides
that a liquidator of Holdco may in
certain circumstances Distribute noncash assets in kind to Members, while
Section 7.5 currently prohibits this only
subject to applicable law. Thus, this
proposed amendment is intended to
resolve an existing conflict between
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such provisions and clarify the intent
thereof.
Also for purposes of facilitating
certain Members’ continued compliance
with the BHCA, the Exchange proposes
to add new paragraph (i) of Section 11.3
to state that Holdco represents and
warrants that Holdco is not a covered
fund (as such term is defined in 12 CFR
248.10(b)), and not a bank, bank holding
company, depository institution or
holding company for a depository
institution, as such terms are defined in
the BHCA, and that Holdco shall not
allow itself to become a covered fund,
bank, bank holding company,
depository institution or holding
company for a depository institution (as
so defined). The Exchanges [sic] notes
that it believes such representations of
Holdco are true as of the date hereof.
Amendments Related to Governance
Changes With Respect to the Holdco
Board in Connection With the
Transaction
In connection with the Transaction,
each of Citi, UBS, and Wells Fargo will
receive the right to nominate a Director.
Additionally, each of Citi, UBS, and
Wells Fargo has expressed that it will
nominate a Director, thereby increasing
the size of the Holdco Board from
eleven to fourteen Directors, as of the
Effective Date. To reflect such
governance changes, the Exchange
proposes to amend the Holdco LLC
Agreement to add a definition of ‘‘Citi’’
in Section 1.1 that is consistent with the
definitions of other Nominating
Members with similar rights and
preferences as Citi; amend the definition
of ‘‘Bank Class A Member’’ 51 in Section
1.1 to include a reference to Citi as a
51 The term ‘‘Bank Class A Member’’ refers to
each of Bank of America, Morgan Stanley, UBS,
JPMorgan, Goldman Sachs, Wells Fargo, and any
other Member that is specifically designated as a
Bank Class A Member (which would also include
Citi, as proposed herein), in each case, together
with each of their respective Affiliates. See Section
1.1. The Exchange notes that the only consequence
of designation as a Bank Class A Member under the
Holdco LLC Agreement is that at least one Director
nominated by any Bank Class A Member (i.e., a
Bank Director) is generally required to establish a
quorum for the transaction of business of the
Holdco Board. See Section 8.6(a). In connection
with the proposed amendments to replace
references to ‘‘Class A Member’’ with references to
‘‘Member’’ where appropriate throughout the
Holdco LLC Agreement, as described above, the
Exchange is proposing to change the defined terms
‘‘Bank Class A Member’’ to ‘‘Bank Member’’; ‘‘Buy
Side Class A Member’’ to ‘‘Buy Side Member’’;
‘‘Market Maker Class A Member’’ to ‘‘Market Maker
Member’’; and ‘‘Retail Broker Class A Member’’ to
‘‘Retail Broker Member’’ in Section 1.1 to reflect
that a Member’s designation as one of these
categories is not tied to its ownership of Class A
Units exclusively and to update references to such
terms throughout the Holdco LLC Agreement
accordingly.
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designated Bank Member; amend the
definitions of ‘‘UBS’’ and ‘‘Wells Fargo’’
in Section 1.1 to reflect that each is now
a Nominating Member and is no longer
an Excluded Class A Member; 52 delete
the definition of ‘‘Excluded Class A
Member’’ in Section 1.1 and make
related conforming changes throughout
the Holdco LLC Agreement to reflect
that there are no longer any Excluded
Class A Members; amend Section 8.3(a)
to reflect the increased size of the
Holdco Board at fourteen Directors; and
amend Section 8.3(b) to reference each
of Citi, UBS, and Wells Fargo as
Members with the right to nominate a
Director.
In addition, the Exchange proposes to
amend the definition of Supermajority
Board Vote in Section 1.1, as further
described below. Currently, the term
Supermajority Board Vote means the
affirmative vote of at least seventy-seven
percent (77%) of the votes of all
Directors then entitled to vote on the
matter under consideration and who
have not recused themselves, whether
or not present at the applicable meeting
of the Board. This aspect of the
definition is not changing, however, the
definition also currently states that if
the affirmative vote threshold results in
the necessity of the affirmative vote of
all such Directors with respect to such
matter, that an affirmative vote of all but
one of such Directors shall instead be
required. This provision is intended to
cover situations where a large number of
Directors are recused from voting on a
matter or the size of the Board is such
that a Board vote would require
unanimity and instead allows a matter
to be approved so long as all but one
Director is in favor of a particular voting
matter. The Exchange proposes to
modify the provision to instead state
that if the affirmative vote threshold
results in the necessity of the affirmative
vote of eight (8) Directors or fewer, an
affirmative vote of all but two (2) such
Directors shall be required instead with
respect to such matter. The proposed
change will ensure that a more
consistent voting structure is
maintained even if several Directors are
recused from voting on a particular
matter. Under the current structure with
eleven (11) Directors a matter can be
approved as an affirmative
Supermajority Board Vote even if two
(2) Directors vote against a matter and
under the proposed structure with
fourteen (14) Directors a matter can be
52 The term ‘‘Excluded Class A Member’’
currently refers to UBS and Wells Fargo and is
generally intended to reference certain Class A
Members that do not have the right to nominate a
Director.
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approved as an affirmative
Supermajority Board Vote even if three
(3) Directors vote against a matter.
Accordingly, the Holdco Board believes
it is appropriate to maintain this relative
voting structure even if eight (8) or
fewer Directors are voting on a
particular matter (i.e., allowing a matter
to be approved even if two (2) Directors
vote against such matter).
Clarifying, Updating, Conforming, and
Other Non-Substantive Amendments
Finally, the Exchange proposes to
make various clarifying, updating,
conforming, and other non-substantive
amendments to the Holdco LLC
Agreement, each of which is discussed
below.
Amendments to the Definition of
‘‘Registration Date’’
The term ‘‘Registration Date’’ is
currently defined in Section 15.9(a) to
mean the date that the Exchange is
registered as a national securities
exchange pursuant to Section 6(a) of the
Act. On May 4, 2020, the Commission
approved the Exchange’s application for
registration as a national securities
exchange, and thus, the Registration
Date occurred on such date.53
Accordingly, the Exchange proposes to
amend the Holdco LLC Agreement to
reflect that the Registration Date
occurred on such date by deleting the
current definition of ‘‘Registration Date’’
in Section 15.9(a) and amending the
definition of ‘‘Registration Date’’ in
Section 1.1 to reference May 4, 2020.
Amendment to the Definition of
‘‘Schwab’’
The Exchange proposes to amend the
definition of ‘‘Schwab’’ in Section 1.1 to
reflect that Schwab is a Nominating
Member, as the Holdco Board
previously granted Schwab the right to
nominate a Director in accordance with
the Holdco LLC Agreement. Thus, the
purpose of this proposed change is to
update the definition of Schwab to
reflect a previously-approved change
with respect to the composition of the
Holdco Board.
Amendments To Delete Obsolete
Provisions and Language
The Exchange proposes to make the
following amendments to the Holdco
LLC Agreement to delete provisions and
language that are now obsolete due to
the passage of time or the occurrence of
certain events:
53 On May 4, 2020, the Commission approved the
Exchange’s application for registration as a national
securities exchange. See Securities Exchange Act
Release No. 88806 (May 4, 2020), 85 FR 27451 (May
8, 2020).
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• Deletion of the defined term
‘‘Exchange Application’’: The Exchange
proposes to delete the defined term
‘‘Exchange Application’’ in Section 1.1,
as such term is not currently used
elsewhere in the Holdco LLC
Agreement. Previously, the term
‘‘Exchange Application’’ was referenced
only in Section 13.1(d) and referred to
the application of the Exchange as a
national securities exchange; however,
Section 13.1(d) (including all references
to the term ‘‘Exchange Application’’)
was deleted in its entirety in connection
with previous amendments to the
Holdco LLC Agreement,54 but the term
‘‘Exchange Application’’ was
inadvertently not deleted from Section
1.1. Thus, this proposed amendment is
intended to add clarity to the Holdco
LLC Agreement by deleting an unused
and obsolete defined term.
• Deletion of language in #11 of
Exhibit C: Exhibit C to the Holdco LLC
Agreement contains an enumerated list
of the Supermajority Board Matters. The
Exchange proposes to delete language in
#11 of Exhibit C that refers to an event
of dissolution as set forth in Section
13.1(d), which was inadvertently not
deleted in connection with the previous
amendments to the Holdco LLC
Agreement that deleted Section 13.1(d)
in its entirety, as described above.
• Amendments to Section 8.18(a):
The Exchange proposes to amend
Section 8.18(a) to delete paragraphs (i)
and (ii). Currently, paragraph (i)
provides for an obligation of Holdco to
amend and restate the limited liability
company agreement of the Exchange
(the ‘‘Exchange LLC Agreement’’) that
was in effect prior to the Registration
Date as necessary in order to obtain
registration for the Exchange as a
national securities exchange (such
amended and restated Exchange LLC
Agreement is currently referred to in
Section 8.18(a)(i) as the ‘‘Restated
MEMX LLC Agreement’’), and
paragraph (ii) provides that the
Exchange shall be managed by the
Exchange Board upon the execution and
delivery of the Restated MEMX LLC
Agreement. Each of the events described
in paragraphs (i) and (ii) has already
occurred and the Exchange is currently
managed by the Exchange Board; thus,
such provisions are now obsolete.55 In
connection with the deletion of these
obsolete provisions, the Exchange also
proposes to state in Section 8.18(a) that
54 See Securities Exchange Act Release No. 91478
(April 5, 2021), 86 FR 18570 (April 9, 2021).
55 See id. The Exchange LLC Agreement was
amended and restated as the Second Amended and
Restated Limited Liability Company Agreement of
MEMX LLC, which was executed, delivered, and
became effective on May 19, 2020.
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the Exchange shall be managed by the
Exchange Board to reflect the current
governance of the Exchange.
• Amendments to Section 3.8: The
Exchange proposes to delete language in
Section 3.8 that contemplates a time
prior to the Registration Date, since, as
noted above, the Registration Date
already occurred on May 4, 2020.
• Deletion of Section 11.8: Currently,
Section 11.8 requires certain Members
(or their Affiliates, as applicable) that
operate a U.S.-registered broker-dealer
to connect to the Exchange prior to the
first date on which the Exchange
commences operating a national
securities exchange. As the Exchange
first commenced operations as a
national securities exchange on
September 21, 2020, the Exchange
proposes to delete Section 11.8 in its
entirety, as such provision is now
obsolete.
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Amendments To Replace References to
‘‘Restated MEMX LLC Agreement’’ With
‘‘MEMX LLC Agreement’’
As noted above, the term ‘‘Restated
MEMX LLC Agreement’’ is currently
defined in Section 8.18(a)(i) and refers
to a version of the Exchange LLC
Agreement that was already amended
and restated as necessary in order to
obtain registration for the Exchange as a
national securities exchange. As the
Exchange LLC Agreement was already
amended and restated for this purpose
(i.e., as the Second Amended and
Restated Limited Liability Company of
MEMX LLC, which became effective on
May 19, 2020 and is currently in effect)
and the Exchange is proposing to delete
Section 8.18(a)(i) in its entirety, as
described above, the Exchange proposes
to delete the defined term ‘‘Restated
MEMX LLC Agreement’’ and add
‘‘MEMX LLC Agreement’’ as a defined
term that references the Second
Amended and Restated Limited
Liability Company Agreement of MEMX
LLC. In connection with such changes,
the Exchange also proposes to replace
all references to ‘‘Restated MEMX LLC
Agreement’’ with references to ‘‘MEMX
LLC Agreement’’ so that all such
references are to the Exchange LLC
Agreement that is currently in effect.
Amendments Related to the Removal of
a Director From the Holdco Board
Section 8.4(a) generally provides that
a Director may be removed from his or
her position as such, or replaced at any
time, upon the written request of the
Nominating Member that nominated
such Director. Additionally, Section
8.4(b) provides that a Nominating
Member may irrevocably waive its right
in Section 8.4(a) to remove or replace a
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Director nominated by such Nominating
Member, which the Exchange believes
certain Members may elect to do for
purposes related to compliance with
restrictions under the BHCA’s ‘‘control’’
framework. Section 8.4(b) also currently
provides that if a Nominating Member
makes such an election to irrevocably
waive its right to remove or replace a
Director, and the Director nominated by
such Nominating Member dies, resigns
from the Holdco Board in accordance
with Section 8.4(c) (i.e., delivers his or
her written resignation as a Director to
the Holdco Board), or is removed as a
result of a statutory disqualification,
then the Nominating Member that
nominated such Director may nominate
a new Director to fill such vacancy.
However, currently, Section 8.4 does
not explicitly address the situation
where a Director is terminated or resigns
from his or her employment with such
Nominating Member (or its Affiliate) but
does not also resign from the Holdco
Board by delivering his or her written
resignation as a Director to the Holdco
Board in accordance with Section 8.4(c).
In this situation, the Exchange believes
such Director would be deemed to have
resigned as a Director from the Holdco
Board, but for the avoidance of doubt,
the Exchange is proposing to add new
Section 8.4(f) to provide that any such
Director would be automatically and
immediately removed from his or her
position as a Director upon Holdco’s
receipt of written notice from the
Nominating Member that such Director
has been terminated or resigned from
his or her employment with the
Nominating Member (or its Affiliate). In
this connection, the Exchange also
proposes to amend Section 8.4(b) to
provide that a Nominating Member that
has irrevocably waived its right to
remove or replace a Director pursuant to
Section 8.4(b) may also nominate a new
Director to fill any vacancy resulting
from proposed new Section 8.4(f).
Amendments Related to the Incentive
Plan
The Exchange proposes to amend
Section 3.3(b) to replace the second
reference to the Amended and Restated
MEMX Holdings LLC 2018 Profits
Interests Plan with a reference to the
appropriate defined term (i.e.,
‘‘Incentive Plan’’) and to clarify that any
Class B Units issued by Holdco
pursuant to the MembersX Holdings
LLC 2018 Profits Interests Plan (a
predecessor plan to the Incentive Plan)
or the Incentive Plan prior to the Sixth
Amended Holdco LLC Agreement
Effective Date have not been cancelled,
forfeited, repurchased or redeemed and
subsequently re-issued. Each of these
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amendments is designed to clarify
existing language in the Holdco LLC
Agreement.
Amendments Related to Certain
Agreements Between Holdco and the
Members
The Exchange proposes to add
substantially similar paragraphs in
Sections 10.1, 10.2, 10.4, and 11.5 (i.e.,
proposed new Section 10.1(a)(iii),
proposed new Section 10.2(d), proposed
new Section 10.4(f), and proposed new
Section 11.5(e), respectively) stating that
certain provisions in those sections
constitute an individual agreement
between Holdco, on the one hand, and
each applicable Member, on the other
hand, that such provisions do not
constitute an agreement among the
Members, and that only Holdco (and not
the Members) shall have the right to
enforce such provisions against any
Member.56 The Exchange notes that
these proposed new paragraphs are
intended to clarify, but not
substantively modify, the enforceability
of such existing provisions in the
Holdco LLC Agreement with respect to
Holdco and the Members.
Amendment Related to the Registration
of MEMX Execution Services LLC With
FINRA
Currently, Section 10.6(h) references
MEMX Execution Services LLC 57 as a
subsidiary of Holdco ‘‘which plans to
register with FINRA as a broker-dealer’’;
however, MEMX Executions Services
LLC became registered with FINRA as a
broker-dealer on June 5, 2020. Thus, the
Exchange proposes to amend Section
10.6(h) to update this provision to
reference MEMX Execution Services
LLC as a subsidiary of Holdco ‘‘that is
registered with FINRA as a brokerdealer.’’
Amendments Related to the Fourth
Amended LLC Agreement Effective Date
Currently, the term ‘‘Fourth Amended
LLC Agreement Effective Date’’ is
defined in Section 1.1 as February 19,
2020, which was the date on which the
Fourth Amended and Restated LLC
Agreement of Holdco became effective.
Such term is currently referenced in
Sections 10.6(a) and 12.4(c). The
Exchange proposes to delete the defined
56 The Exchange notes that the provisions
referenced in each of these proposed new
paragraphs are existing provisions, which are
remaining substantially the same, except as
modified to reflect the creation of the Class C Units,
as applicable, or otherwise for formatting purposes
or in a non-substantive manner.
57 MEMX Execution Services LLC is an affiliate of
the Exchange that provides the outbound routing of
orders from the Exchange to other trading centers
pursuant to Exchange Rule 2.11.
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term ‘‘Fourth Amended LLC Agreement
Effective Date’’ in Section 1.1 and to
amend Sections 10.6(a) and 12.4(c) to
replace the references to such term with
references to February 19, 2020 (or the
appropriate date if referencing an
anniversary of such date) and make
related conforming changes. The
purpose of these amendments is to
simplify the Holdco LLC Agreement by
deleting a defined term and instead
making specific reference to the
appropriate dates.
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Amendments Related to the Exhibits to
the Holdco LLC Agreement
Currently, Exhibit E to the Holdco
LLC Agreement is intended to reference
a copy of the Exchange LLC Agreement
and Exhibit F to the Holdco LLC
Agreement is reserved with a
placeholder, as it was deleted in a prior
version of the Holdco LLC Agreement.
The Exchange now proposes to delete
current Exhibit E, as a copy of the
Exchange LLC Agreement is separately
maintained on the Exchange’s public
website (along with the Holdco LLC
Agreement) and there is no longer any
purpose for its reference or inclusion as
an exhibit to the Holdco LLC
Agreement. In connection with this
change, the Exchange also proposes to
re-letter the exhibits to the Holdco LLC
Agreement to reflect the proposed
deletion of Exhibit E, the previous
deletion of Exhibit F, and the proposed
addition of new Exhibit G, as described
above. Accordingly, current Exhibits G,
H, I, and J would be re-lettered as
Exhibits E, F, H, and I, respectively.
Technical and Conforming
Amendments To Reflect the
Amendment and Restatement of the
Holdco LLC Agreement
The Exchange proposes to make
technical and conforming amendments
to the cover page, table of contents,
lead-in, recitals, and exhibits of the
Holdco LLC Agreement to reflect that it
is being amended and restated as the
Sixth Amended Holdco LLC Agreement.
Additionally, the Exchange proposes to
amend the definition of ‘‘Agreement’’ to
reference the Sixth Amended Holdco
LLC Agreement; add ‘‘Fifth Amended
LLC Agreement’’ as a defined term to
mean the Fifth Amended Holdco LLC
Agreement; replace references to
‘‘Fourth Amended LLC Agreement’’
with references to ‘‘Fifth Amended LLC
Agreement’’ throughout the Holdco LLC
Agreement, as appropriate; and update
the certificate legend set forth in
proposed new Section 3.12(b) (currently
Section 3.11(b)) to include a reference to
the Sixth Amended Holdco LLC
Agreement. Each of these proposed
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amendments are conforming changes
intended to reflect the amendment and
restatement of the Holdco LLC
Agreement.
Clean-Up Amendments
Lastly, the Exchange is proposing to
make various non-substantive ‘‘cleanup’’ amendments throughout the Holdco
LLC Agreement to correct typos, update
section references, make minor
grammatical and punctuational edits,
and make other clarification and
ministerial changes to clarify existing
language or modify such language to
conform with the other proposed
amendments described above.
2. Statutory Basis
The Exchange believes that the
proposed amendments to the Holdco
LLC Agreement are consistent with
Section 6(b) of the Act,58 in general, and
further the objectives of Section 6(b)(1)
of the Act,59 in particular, in that such
amendments enable the Exchange to be
so organized as to have the capacity to
be able to carry out the purposes of the
Act and to comply with the provisions
of the Act, the rules and regulations
thereunder, and the rules of the
Exchange. The Exchange also believes
that the proposed amendments are
consistent with Section 6(b)(5) of the
Act,60 which requires the rules of an
exchange to 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.
The Exchange believes that the
creation of the Class C Units and the
Common Units is consistent with the
Act as this will facilitate additional
investments by existing Members of
Holdco, including certain Members that
do not currently have the right to
nominate Directors to serve on the
Holdco Board. Although each Member’s
proportionate ownership of Holdco will
change as a result of the Transaction, no
Member will own, directly or indirectly,
Units constituting more than twenty
percent (20%) of any class of Units or
will otherwise exceed any ownership or
voting limitation applicable to the
Members set forth in the Holdco LLC
Agreement after giving effect to the
Transaction. Thus, the Exchange does
not believe the creation of new Units or
the Transaction will have any impact on
the Exchange’s ability to be organized as
to have the capacity to carry out the
58 15
U.S.C. 78f(b).
U.S.C. 78f(b)(1).
60 15 U.S.C. 78f(b)(5).
59 15
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purposes of the Act and to comply with
the provisions of the Act, the rules and
regulations thereunder, and the rules of
the Exchange, promoting just and
equitable principles of trade, removing
impediments to and perfect the
mechanism of a free and open market,
and protecting investors and the public
interest. Further, the Exchange believes
the proposed changes to the Holdco LLC
Agreement are consistent with, and will
not interfere with, the self-regulatory
obligations of the Exchange. The
Exchange importantly notes that it is not
proposing to amend any of the
provisions within the Holdco LLC
Agreement or the Exchange LLC
Agreement dealing with the availability
or protection of information, books and
records, undue influence, conflicts of
interest, unfair control by an affiliate, or
regulatory independence of the
Exchange.
The Exchange reiterates that the
proposed addition of certain voting
rights of the Members associated with
the existing Class A Units, as well as the
proposed new Class C Units and
Common Units is solely to facilitate
certain Members’ compliance with the
BHCA. The Exchange notes that each of
the actions on which certain Members
are entitled to vote are significant
corporate matters solely related to the
administration, ownership, capital, or
dissolution of Holdco or any Holdco
subsidiary (other than the Exchange)
and, except as set forth therein (or as
otherwise currently provided in the
Holdco LLC Agreement), the authority
to manage and control the business and
affairs of Holdco, including the right to
amend or modify the Holdco LLC
Agreement, would continue to be vested
in the Holdco Board as it is today.
Similarly, the Exchange believes the
amendments to the Holdco LLC
Agreement’s provisions related to a
Member’s election to specify the
maximum voting percentage that such
Member may have with respect to any
determination under the Holdco LLC
Agreement, which are set forth in
Section 3.10, are simply an expansion of
existing provisions regarding
specification of a maximum voting
percentage and are designed to facilitate
certain Members’ compliance with the
BHCA. While the Act does not
separately compel compliance with the
BHCA, the Exchange does not believe
that any of these changes significantly
changes the governance with respect to
Holdco and thus will not impact
governance of the Exchange.
Accordingly, the Exchange believes the
proposed changes will allow it to be
organized as to have the capacity to
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carry out the purposes of the Act and to
comply with the provisions of the Act,
the rules and regulations thereunder,
and the rules of the Exchange,
promoting just and equitable principles
of trade, removing impediments to and
perfect the mechanism of a free and
open market, and protecting investors
and the public interest.
As described above, in connection
with the Transaction, each of Citi, UBS,
and Wells Fargo will receive the right to
nominate a Director and the size of the
Holdco Board will increase from eleven
to fourteen Directors, as of the Effective
Date. The Exchange believes the
proposed amendments to reflect the
governance changes that will result from
the Transaction and to make conforming
changes to defined terms, are
appropriate and consistent with the Act,
as such amendments would update and
clarify the relevant provisions of the
Holdco LLC Agreement to reflect
governance changes with respect to
Holdco, as described above. Similarly,
the Exchange believes the proposed
changes to the definition of
Supermajority Board Vote to provide
that if eight (8) or fewer Directors are
voting on a particular matter that an
affirmative vote is present if all but two
(2) Directors vote in favor of the matter,
as this is consistent with the voting
structure for matters with more than
eight (8) Directors voting, where an
affirmative vote is present even if two
(currently, with eleven Directors) or
three (as proposed, with fourteen
Directors) Directors vote against a
particular matter. The Exchange
believes that updating the Holdco LLC
Agreement with respect to the
governance of Holdco to reflect these
changes would ensure clarity with
respect to the corporate documents of
the Exchange’s parent company, thereby
enabling the Exchange to be so
organized as to have the capacity to
carry out the purposes of the Act and to
comply with the provisions of the Act,
the rules and regulations thereunder,
and the rules of the Exchange,
promoting just and equitable principles
of trade, removing impediments to and
perfect the mechanism of a free and
open market, and protecting investors
and the public interest.
The Exchange believes the proposed
amendments to clarify, correct
inadvertent drafting errors, delete
obsolete language and make other
conforming changes consistent with the
other proposed amendments to the
Holdco LLC Agreement described
above, and make technical and
conforming changes to reflect that the
Holdco LLC Agreement is being
amended and restated from the Fifth
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Amended LLC Agreement to the Sixth
Amended LLC Agreement are consistent
with the Act, as such amendments
would update and clarify the Holdco
LLC Agreement, thereby increasing
transparency and helping to avoid any
potential confusion resulting from
retaining outdated, obsolete, or unclear
provisions. For these reasons, the
Exchange believes such amendments
would enable the Exchange to be so
organized as to have the capacity to
carry out the purposes of the Act and to
comply with the provisions of the Act,
the rules and regulations thereunder,
and the rules of the Exchange, promote
just and equitable principles of trade,
remove impediments to and perfect the
mechanism of a free and open market,
and protect investors and the public
interest.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposal will impose any burden on
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act. The proposal is not
intended to address competitive issues
but rather is concerned solely with the
creation of additional classes of Units in
connection with the Transaction as well
as reflecting governance changes in
connection with the Transaction,
changes to the voting structure of
existing Units consistent with the
structure of the new Units, updates
intended to facilitate compliance with
the BHCA, and updates of Holdco’s
corporate documents related to the
administration and functioning of
Holdco, as described above.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the Exchange consents, the Commission
will: (a) By order approve or disapprove
such proposed rule change, or (b)
institute proceedings to determine
whether the proposed rule change
should be disapproved.
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IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
MEMX–2021–15 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–MEMX–2021–15. 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–MEMX–2021–15 and
should be submitted on or before
November 24, 2021.
E:\FR\FM\03NON1.SGM
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60694
Federal Register / Vol. 86, No. 210 / Wednesday, November 3, 2021 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.61
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–23927 Filed 11–2–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–93451; File No. SR–BX–
2021–048]
Self-Regulatory Organizations; Nasdaq
BX, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Delay the
Implementation of Request for PRISM
October 28, 2021.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on October
14, 2021, Nasdaq BX, Inc. (‘‘BX’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to delay the
implementation of an amendment to
Options 3, Section 7(d)(1)(A) relating to
‘‘Financial Information eXchange’’ or
‘‘FIX’’ in connection with offering BX
Participants the ability to utilize FIX to
submit orders to its Price Improvement
Auction (‘‘PRISM’’) mechanism.
khammond on DSKJM1Z7X2PROD with NOTICES
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
61 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
VerDate Sep<11>2014
17:01 Nov 02, 2021
Jkt 256001
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
BX received approval 3 to amend
Options 3, Section 7(d)(1)(A), relating to
FIX, to offer BX Participants the ability
to utilize FIX to submit orders to its
PRISM mechanism. BX’s amendment
permitted it to offer Participants a
manner in which to send messages
through FIX, to other BX Participants,
for the specific purpose of requesting
another BX Participant submit an
‘‘Initiating Order’’ 4 along with the
sender’s PRISM Order 5 into the PRISM
mechanism 6 for execution pursuant to
Options 3, Section 13.
Specifically, the amendment
expanded the capabilities of the FIX
protocol to allow a BX Participant
(sender) to utilize FIX to send a message
to other BX Participants (responders)
with an order the sender represents as
agent (‘‘PRISM Order’’) on behalf of a
Public Customer, broker dealer or other
entity requesting the responders provide
a contra-side Initiating Order (a
‘‘response’’) and begin a PRISM auction
(collectively a ‘‘Request for PRISM’’).7 If
a BX Participant desires to respond to
the request, the BX Participant adds an
Initiating Order to the sender’s PRISM
Order and submits the paired order
directly into PRISM, through FIX, for
processing in accordance with Options
3, Section 13.8
The Exchange originally intended to
begin implementation of the proposed
3 See Securities Exchange Act Release No. 91124
(February 12, 2021), 86 FR 10363 (February 19,
2021) (SR–BX–2020–033) (Order Granting Approval
of a Proposed Rule Change To Utilize the FIX
Protocol To Submit Orders to BX’s Price
Improvement Auction Mechanism) (‘‘Approval
Order’’).
4 An Initiating Order is an order executed against
principal interest or against any other order it
represents as agent. See Options 3, Section 13.
5 A PRISM Order is an order submitted by a BX
Participant that it represents as agent on behalf of
a Public Customer, broker dealer, or any other
entity, electronically, for execution. See Options 3,
Section 13.
6 This proposal does not amend the PRISM rule
within Options 3, Section 13 in connection with
offering Participants the ability to submit a Request
for PRISM through FIX.
7 The Request for PRISM, if accepted and
submitted into PRISM, would become the ‘‘PRISM
Order’’ pursuant to Options 3, Section 13.
8 BX Participants may elect to ‘‘opt in’’ to receive
Requests for PRISM. BX Participants that do not
elect to ‘‘opt in’’ will not receive such requests.
Once a BX Participant elects to receive Requests for
PRISM, they would receive all requests from any
BX Participant submitting a Request for PRISM. The
BX Participant cannot elect to only receive requests
from certain Participants and the sender may not
elect to send the request to a select group of BX
Participants.
PO 00000
Frm 00082
Fmt 4703
Sfmt 4703
rule change by June 30, 2021 9 and
subsequently extended the
implementation until November 1,
2021.10 At this time, the Exchange
proposes to delay the implementation so
that it would begin implementation
prior to June 30, 2022. The Exchange
will issue an Options Trader Alert to
Participants with the date of
implementation.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,11 in general, and furthers the
objectives of Section 6(b)(5) of the Act,12
in particular, in that it is designed to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general to protect
investors and the public interest, by
delaying the implementation of its
amendment to Options 3, Section
7(d)(1)(A) to allow the Exchange
additional time to develop and test this
functionality. The Exchange believes
that additional time to develop and test
this functionality will ensure a
successful launch of the functionality.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange’s proposal to delay the
adoption of the amendment to Options
3, Section 7(d)(1)(A) does not impose an
undue burden on competition. Delaying
the implementation of the functionality
will allow the Exchange additional time
to develop and test the functionality.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
9 See Approval Order page 10364, ‘‘The Exchange
intends to begin implementation of the proposed
rule change by June 30, 2021.’’
10 See Securities Exchange Act Release No. 91864
(May 12, 2021), 86 FR 27003 (May 18, 2021) (SR–
BX–2021–022) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change To Delay the
Implementation of BX’s Request for PRISM).
11 15 U.S.C. 78f(b)
12 15 U.S.C. 78f(b)(5).
E:\FR\FM\03NON1.SGM
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]]>Agencies
[Federal Register Volume 86, Number 210 (Wednesday, November 3, 2021)]
[Notices]
[Pages 60683-60694]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-23927]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93452; File No. SR-MEMX-2021-15]
Self-Regulatory Organizations; MEMX LLC; Notice of Filing of a
Proposed Rule Change To Amend the Corporate Documents of the Exchange's
Parent Company
October 28, 2021.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on October 22, 2021, MEMX LLC (``MEMX'' or the ``Exchange'') filed
with the Securities and Exchange Commission (the ``Commission'') the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing with the Commission a proposed rule change
to amend and restate the Fifth Amended and Restated Limited Liability
Company Agreement (the ``Fifth Amended Holdco LLC Agreement'') of MEMX
Holdings LLC (``Holdco'') as the Sixth Amended and Restated Limited
Liability Company Agreement of Holdco (the ``Sixth Amended Holdco LLC
Agreement'') to reflect certain amendments, as further described
below.\3\ Holdco is the parent company of the Exchange and directly or
indirectly owns all of the limited liability company membership
interests in the Exchange. The text of the proposed rule change is
provided in Exhibit 5.
---------------------------------------------------------------------------
\3\ References herein to the ``Holdco LLC Agreement'' refer to
the Fifth Amended Holdco LLC Agreement or the Sixth Amended Holdco
LLC Agreement, as appropriate in the context.
---------------------------------------------------------------------------
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend and restate the Holdco LLC Agreement
to reflect: (i) Amendments related to the creation of the Class C Units
\4\ and the Common Units \5\ in connection with the sale by Holdco of
Class C Units to certain Members \6\ in a capital raise transaction
(the ``Transaction''); (ii) amendments related to the voting rights of
the Members associated with the ownership of certain Units consistent
with certain BHCA \7\ considerations; (iii) amendments to provisions
related to the election by a Member to specify the maximum voting
percentage that such Member may have with respect to any determination
under the Holdco LLC Agreement consistent with certain BHCA
considerations; (iv) amendments to various other provisions related to
BHCA considerations; (v) amendments related to certain governance
changes with respect to the Holdco Board in connection with the
Transaction; and (vi) various clarifying, updating, conforming, and
other non-substantive amendments. Each of these amendments is discussed
below.\8\
---------------------------------------------------------------------------
\4\ As proposed, the term ``Class C Units'' means the Class C-1
Units and the Class C-2 Units; the term ``Class C-1 Units'' means
the Units having the privileges, preference, duties, liabilities,
obligations and rights specified with respect to ``Class C-1 Units''
in the Holdco LLC Agreement; and the term ``Class C-2 Units'' means
the Units having the privileges, preference, duties, liabilities,
obligations and rights specified with respect to ``Class C-2 Units''
in the Holdco LLC Agreement. The term ``Units'' means a unit
representing a fractional part of the membership interests of the
members of Holdco. Currently, there are two classes of Units--the
Class A Units (which are divided into the Class A-1 Units and the
Class A-2 Units) and the Class B Units.
\5\ As proposed, the term ``Common Units'' means the Units
having the privileges, preference, duties, liabilities, obligations
and rights specified with respect to ``Common Units'' in the Holdco
LLC Agreement. As proposed, the Common Units are divided into the
Voting Common Units and the Nonvoting Common Units.
\6\ The term ``Member'' refers to a person (i.e., an individual
or entity) that owns one or more Units and is admitted as a limited
liability company member of Holdco.
\7\ The term ``BHCA'' means the United States Bank Holding
Company Act of 1956, as amended and in effect from time to time, and
the rules and regulations promulgated thereunder.
\8\ All section references herein are to sections of the Holdco
LLC Agreement unless indicated otherwise.
---------------------------------------------------------------------------
Background
There are two primary purposes of the Exchange's proposal to amend
and restate the Holdco LLC Agreement as described herein--
(1) to create two new classes of membership interests in Holdco
(i.e., the Class C Units and the Common Units), each of which is
divided into a ``voting'' series and a ``non-voting'' series, and
effectuate the sale by Holdco of Class C Units to certain Members
pursuant to the Transaction; \9\ and
---------------------------------------------------------------------------
\9\ The Exchange notes that no Common Units will be sold in
connection with the Transaction; however, as proposed, Class C Units
are convertible into Common Units, as further described below.
---------------------------------------------------------------------------
(2) to divide each of the two existing series \10\ of Class A
Units (i.e., the Class A-
[[Page 60684]]
1 Units and the Class A-2 Units) into a ``voting'' series and a
``non-voting'' series in a manner consistent with the proposed
voting structure of the Class C Units and the Common Units.
---------------------------------------------------------------------------
\10\ The Exchange notes that Section 3.2, which provides for the
authorization and issuance of the Class A Units, currently refers to
the Class A-1 Units and the Class A-2 Units as separate ``classes''
of Units; however, the Exchange is proposing to amend Section 3.2 to
reflect that the Class A-1 Units and the Class A-2 Units are
separate ``series'' of Units. The Holdco Board believes that the
Class A-1 Units and the Class A-2 Units are more appropriately
designated as separate ``series'' instead of ``classes'' of Units,
as such Units have identical privileges, preference, duties,
liabilities, obligations, and rights under the Holdco LLC Agreement
and the only difference between such Units is the original purchase
price paid by the applicable Members. In connection with this
proposed amendment, the Exchange also proposes to replace certain
references to the term ``Class'' with references to the term
``series'' (and to add other references to the term ``series'')
throughout the Holdco LLC Agreement, as appropriate, and to delete
``Class'' as a defined term in Section 1.1, as such term would no
longer be used as a stand-alone term.
The proceeds resulting from the sale of Class C Units pursuant to
the Transaction will be paid to Holdco by the Members participating in
the Transaction as purchasers of Class C Units (the ``Participating
Members''), and such proceeds will be used by Holdco for general
corporate expenses, including to support the operations and regulation
of the Exchange, which is a subsidiary of Holdco. All Participating
Members are currently investors in, and Members of, Holdco. Although
each Member's proportionate ownership of Holdco will change as a result
of the Transaction, no Member will own, directly or indirectly, Units
constituting more than twenty percent (20%) of any class of Units or
will otherwise exceed any ownership or voting limitation applicable to
the Members set forth in the Holdco LLC Agreement after giving effect
to the Transaction.\11\
---------------------------------------------------------------------------
\11\ See Section 3.5, which sets forth certain limitations with
respect to the ownership and voting of Units.
---------------------------------------------------------------------------
Currently, the Holdco LLC Agreement provides for a governance
structure of Holdco in which the Members (i.e., persons that own one or
more Units) do not have any voting or management rights, except in
certain very limited circumstances,\12\ and the authority to manage and
control the business and affairs of Holdco, including the right to
amend or modify the Holdco LLC Agreement, is otherwise vested in the
Holdco Board.\13\ Due to certain requirements and restrictions under
the BHCA applicable to certain Members, the Exchange is now proposing
to modify this governance structure to provide for certain voting
rights of the Members associated with the ownership of the Class A
Units, the Class C Units, and the Common Units by dividing such classes
of Units into ``voting'' and ``non-voting'' series and prescribing
certain matters on which such series are entitled to vote. The Exchange
notes that the sole purpose of the proposed changes to Holdco's
governance structure with respect to the Members' voting rights
associated with the ownership of such Units in this regard is to
facilitate certain Members' continued compliance with requirements and
restrictions under the BHCA regarding investments in nonbanking
companies, in light of recent amendments to the BHCA regulations issued
by the Board of Governors of the Federal Reserve System regarding the
framework for determining ``control'' under the BHCA, which became
effective on September 30, 2020, as well as interpretations of such
amendments by certain Members that are subject to the BHCA.
---------------------------------------------------------------------------
\12\ Section 4.6 currently provides that, except as required by
applicable law or the provisions of Section 15.9, Members do not
have any voting or management rights. Section 15.9 provides that a
Member's consent is required in connection with amendments or
modifications to the Holdco LLC Agreement that modify the rights or
obligations of such Member in a manner that is disproportionately
adverse to such Member (or a type, class or series of Units held by
such Member) or that materially increase an existing obligation or
impose a new material obligation on such Member. As further
described below, the Exchange is proposing to amend Sections 4.6 and
4.7 to reflect the prescription of certain additional voting rights
associated with the Class A Units.
\13\ See Sections 4.6, 8.2, and 15.9.
---------------------------------------------------------------------------
Additionally, in connection with the Transaction, three Members
that do not currently have the right to nominate a director
(``Director'') to the Holdco Board--Citicorp North America, Inc.
(``Citi''), UBS Americas Inc. (``UBS''), and Wells Fargo Central
Pacific Holdings, Inc. (``Wells Fargo'')--will receive the right to
nominate a Director, thereby increasing the size of the Holdco Board
from eleven to fourteen Directors. Other than such change to the
composition of the Holdco Board, a proposed change to the definition of
Supermajority Board Vote,\14\ and the proposed changes related to the
Members' voting rights associated with the ownership of the Class A
Units, the Class C Units, and the Common Units, each as further
described below, the governance of Holdco would continue under its
existing structure. None of the amendments to the Holdco LLC Agreement
proposed herein would impact the governance of the Exchange.
---------------------------------------------------------------------------
\14\ See Section 1.1 for the definition of Supermajority Board
Vote.
---------------------------------------------------------------------------
The Transaction and all amendments to the Holdco LLC Agreement
proposed herein were previously approved by the Holdco Board on October
22, 2021, in accordance with the Holdco LLC Agreement. The Exchange
expects the Transaction to close on or shortly after the date on which
the amendments to the Holdco LLC Agreement proposed herein become
effective. The amendments to the Holdco LLC Agreement proposed herein
will become effective on the date that such amendments are approved by
the Commission (the ``Effective Date'').
Amendments Related to the Creation of the Class C Units and the Common
Units
In connection with the Transaction, the Exchange is proposing to
amend the Holdco LLC Agreement to create two new classes of Units--the
Class C Units and the Common Units--in order to effectuate the sale of
Class C Units by Holdco to the Participating Members. As proposed, the
Class C Units and the Common Units are each divided into a ``voting''
series (i.e., the Class C-1 Units and the Voting Common Units,
respectively) with certain voting rights as prescribed in amended
Section 4.7 and a ``non-voting'' series (i.e., the Class C-2 Units and
the Nonvoting Common Units, respectively) with more limited voting
rights as prescribed in amended Section 4.7, as further described
below. The sole purpose of creating separate series of Class C Units
and Common Units with different voting rights (i.e., a ``voting''
series and a ``non-voting'' series) is to facilitate certain Members'
compliance with the BHCA, as described above.
Currently, Section 3.2 contains provisions related to the
authorization and issuance of the Class A Units (including the Class A-
1 Units and the Class A-2 Units) and that specify the voting rights
associated with such Units.\15\ The Exchange proposes to amend Section
3.2 to reflect the creation of the Class C Units and the Common Units
and to add new paragraphs (e) and (f) that contain provisions related
to the authorization and issuance of the Class C Units (including the
Class C-1 Units and the Class C-2 Units) and the Common Units
(including the Voting Common Units and the Nonvoting Common Units) and
that specify the voting rights associated with such Units.\16\ In
connection with the creation of the Class C Units and the Common Units,
the Exchange also proposes to add definitions of the following terms in
Section 1.1 (the ``Definitions'' section of the Holdco LLC Agreement):
Class C
[[Page 60685]]
Member; \17\ Class C-1 Units; \18\ Class C-2 Units; \19\ Class C Unit
Original Purchase Price; \20\ Class C Units; \21\ Common Member; \22\
Common Units; \23\ Converted Common Units; \24\ Converted Common
Member; \25\ Nonvoting Common Units; \26\ and Voting Common Units.\27\
The Exchange also proposes to amend the definitions of ``Units'' and
``Pro Rata Portion'' in Section 1.1 to reflect the creation of, and
include references to, the Class C Units and the Common Units.
---------------------------------------------------------------------------
\15\ The Exchange notes that it is proposing to amend Section
3.2 to reflect changes to the voting rights associated with the
Class A Units, as further described below.
\16\ The voting rights associated with the Class C Units and the
Common Units are specified in proposed new paragraphs (e) and (f) of
Section 3.2 by reference to the applicable paragraphs of amended
Section 4.7, which prescribe the actions on which such Units are
entitled to vote, as further described below.
\17\ As proposed, the term ``Class C Member'' means a Member
holding Class C-1 Units or Class C-2 Units, as applicable, in its
capacity as such, together with its Affiliates that hold Class C-1
Units or Class C-2 Units, as applicable (for the sake of clarity,
such Member and such Affiliates shall be considered to be one (1)
Class C Member).
\18\ See supra note 4 for the proposed definition of the term
``Class C-1 Units''.
\19\ See supra note 4 for the proposed definition of the term
``Class C-2 Units''.
\20\ As proposed, the term ``Class C Unit Original Purchase
Price'' means the purchase price per Class C Unit set forth in the
Members Schedule as of the Effective Date.
\21\ See supra note 4 for the proposed definition of the term
``Class C Units''.
\22\ As proposed, the term ``Common Member'' means a Member
holding Common Units in its capacity as such, together with its
Affiliates that hold Common Units (for the sake of clarity, such
Member and such Affiliates shall be considered to be one (1) Common
Member).
\23\ See supra note 5 for the proposed definition of the term
``Common Units''.
\24\ As proposed, the term ``Converted Common Units'' means the
Common Units which were issued in connection with the conversion of
Class C Units pursuant to proposed new Section 3.11, as further
described below.
\25\ As proposed, the term ``Converted Common Member'' means a
Member holding Converted Common Units in its capacity as such,
together with its Affiliates that hold Converted Common Units (for
the sake of clarity, such Member and such Affiliates shall be
considered to be one (1) Converted Common Member).
\26\ As proposed, the term ``Nonvoting Common Units'' refers to
the Nonvoting Common Units described in proposed new Section
3.2(f)(iii).
\27\ As proposed, the term ``Voting Common Units'' refers to the
Voting Common Units described in proposed new Section 3.2(f)(ii).
---------------------------------------------------------------------------
The Exchange notes that no Common Units will be sold in connection
with the Transaction and, as stated in proposed new Section 3.2(f), no
Common Units will be issued and outstanding as of the Effective Date.
However, as proposed, Class C Units are convertible into Common Units,
and proposed Section 3.2(f) provides in this regard that Common Units
will only be issuable in connection with an investment in Holdco or
upon conversion of Class C Units as set forth in proposed new Section
3.11. In this connection, the Exchange proposes to add a new Section
3.11 entitled ``Class C Unit Conversion'' that provides for the
conversion rights of Class C Units, and to re-number existing Section
3.11 to Section 3.12 and update relevant section references throughout
the Holdco LLC Agreement accordingly. Proposed Section 3.11(a) provides
for the optional conversion of Class C Units as set forth in proposed
new Exhibit G to the Holdco LLC Agreement,\28\ and proposed Section
3.11(b) provides for the mandatory conversion of Class C Units upon the
consummation of a Qualified Public Offering.\29\ Proposed Section
3.11(c) provides that in the event of any conversion to Common Units of
any Class C Units, Class C-1 Units shall be converted into Voting
Common Units, and Class C-2 Units shall be converted into Nonvoting
Common Units. This conversion structure is designed to keep the same
voting construct in place with respect to the Common Units that are
issued upon the conversion of any Class C Units in a manner consistent
with the BHCA considerations described above.
---------------------------------------------------------------------------
\28\ The Exchange proposes to add new Exhibit G to the Holdco
LLC Agreement, which contains provisions related to the conversion
rights of the Class C Units. Specifically, proposed new Exhibit G
includes provisions related to the mechanics of, and processes
associated with, the optional conversion of Class C Units into
Common Units; the ratio of Common Units issuable upon the optional
conversion of Class C Units; and the adjustment to the Class C Unit
Conversion Price and other actions in connection with certain
diluting issuances of Common Units, Distributions payable on the
Common Units, stock splits and combinations, and reorganizations of
Holdco. The Exchange also proposes to add a definition of the term
``Exempted Securities'' in Section 1.1 to reference the definition
of such term as set forth in Exhibit G, which refers to the types of
Units that are deemed not to be diluting issues for purposes of
adjustments to the Class C Unit Conversion Price, and to amend the
definition of the term ``New Securities'' in Section 9.1(b) to
exclude from such term the conversion of Class C Units pursuant to
proposed new Sections 3.10(d), 3.10(e), or 3.11 and certain Common
Units that are deemed Exempted Securities. The Exchange also
proposes to add any matter subject to determination by Supermajority
Board Vote pursuant to Section 1.4 of Exhibit G as a Supermajority
Board Matter in Exhibit C. See Section 1.1 for the definition of
Supermajority Board Matter.
\29\ See Section 1.1 for the definition of Qualified Public
Offering.
---------------------------------------------------------------------------
The primary distinction between the Class C Units and the Common
Units, as well as the primary purpose of providing for the
convertibility of Class C Units into Common Units, is the respective
priority of Distributions \30\ made to the Members with respect to such
Units, which is the main economic consequence of a Member's ownership
of such Units. The respective priority of Distributions made to the
Members with respect to the different classes of Units is currently set
forth in Section 7.3 for Distributions other than of proceeds in the
event of a liquidation of Holdco and in Section 13.3 for Distributions
of proceeds in the event of a liquidation of Holdco. In this
connection, the Exchange proposes to amend Sections 7.3 and 13.3 to
reflect the respective priority of Distributions with respect to the
Class C Units and the Common Units under such sections. As such
proposed amendments include the addition of new paragraphs, and the re-
numbering of certain existing paragraphs, in Sections 7.3 and 13.3, the
Exchange also proposes to update relevant section references throughout
the Holdco LLC Agreement accordingly.
---------------------------------------------------------------------------
\30\ See Section 1.1 for the definition of Distribution.
---------------------------------------------------------------------------
As noted above, there are currently two classes of Units--the Class
A Units and the Class B Units.\31\ As the Class B Units represent an
incentive pool and do not have many of the rights and obligations
associated with the Class A Units, there are currently several terms
and provisions in the Holdco LLC Agreement that are associated only
with the Class A Units and the Class A Members, and thus, make specific
reference to ``Class A Units'' and/or ``Class A Members.'' However, as
proposed, the Class C Units will generally have the same rights and
obligations as the Class A Units with two primary distinctions: (i) The
convertibility of Class C Units into Common Units; and (ii) the
respective priority of Distributions under Sections 7.3 and 13.3. Other
than these distinctions, a Member's ownership of Class A Units and/or
Class C Units would generally confer the same rights and obligations on
such Member with respect to such Units. Accordingly, the Exchange is
proposing to make several amendments throughout the Holdco LLC
Agreement to reflect that the Class C Units have such rights and
obligations and to otherwise reflect the creation of the Class C Units,
including to add references to ``Class C Units'' or ``Class C Member''
alongside references to ``Class A Units'' or ``Class A Member,'' as
applicable, where appropriate for this purpose; replace references to
``Class A Member'' with references to ``Member'' where appropriate for
this purpose; add proposed new Section 10.1(a)(ii)(C)(II) related to
the transfer of Class C Units as permitted by the Holdco Board, which
is consistent with the current provision related to the transfer of
Class A Units as permitted by the Holdco
[[Page 60686]]
Board in current Section 10.1(a)(i)(C); \32\ and change the defined
term ``Nominating Class A Member'' to ``Nominating Member'' in Sections
1.1 and 8.3(a) and replace all references to such term throughout the
Holdco LLC Agreement accordingly.
---------------------------------------------------------------------------
\31\ The Class B Units are intended to be an incentive pool and
may only be issued to employees, officers, directors, or other
service providers of Holdco or any subsidiary of Holdco pursuant to
the Amended and Restated MEMX Holdings LLC 2018 Profits Interests
Plan (the ``Incentive Plan''). The Class B Units have no voting
rights, except as required by applicable law, and do not have many
of the rights and obligations associated with the Class A Units as
set forth in the Holdco LLC Agreement. See Section 3.3.
\32\ In connection with this proposed amendment, the Exchange
also proposes to add definitions of ``Released Class C Member'' and
``Released Class C Units'' in Section 1.1 and proposed new Section
10.1(a)(ii)(C)(II) that are consistent with the definitions of
``Released Class A Member'' and ``Released Class A Units'' as such
terms are currently defined in current Section 10.1(a)(i)(C).
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Additionally, as proposed, the Common Units (or the Converted
Common Units, as applicable) will have certain of the same rights and
obligations as the Class A Units and the Class C Units. Accordingly,
the Exchange is also proposing to make several amendments throughout
the Holdco LLC Agreement to reflect that the Common Units (or the
Converted Common Units, as applicable) have such rights and
obligations, including to add references to ``Common Units'' or
``Common Member'' (or ``Converted Common Units'' or ``Converted Common
Member,'' as applicable) alongside references to ``Class A Units'' or
``Class A Member,'' as applicable, where appropriate for this purpose;
replace references to ``Class A Member'' with references to ``Member''
where appropriate for this purpose; change the defined term ``Tag-along
Class A Member'' to ``Tag-along Member'' in Sections 1.1 and 10.5 and
update all references to such term throughout the Holdco LLC Agreement
accordingly; change the defined term ``Fully Participating Tag-along
Class A Member'' to ``Fully Participating Tag-along Member'' in
Sections 1.1 and 10.5 and replace all references to such term
throughout the Holdco LLC Agreement accordingly; and change the defined
term ``Qualified Class A Member'' to ``Qualified Member'' in Sections
1.1 and 12.1 and replace all references to such term throughout the
Holdco LLC Agreement accordingly.
The Exchange is also proposing to make amendments to the Holdco LLC
Agreement's provisions related to meetings of the Members to reflect
certain rights associated with the Class C Units in this regard, which
amendments include amending new Section 4.7(h) (current Section
4.7(a)), which currently sets forth the requirements for Directors and
Class A Members to call a meeting of the Members, to reflect that a
meeting of the Members may also be called by the Class C Members
holding, in the aggregate, at least twenty percent (20%) of the
aggregate then-outstanding Class C Units and amending new Section
4.7(m) (current Section 4.7(f)) to reflect that a quorum for the
transaction of business by the Members is the presence of Members
holding at least fifty percent (50%) of the then-outstanding Class A
Units and Class C Units (considered in the aggregate). The Exchange
notes that, as proposed, the Common Members would not have any such
rights, and thus, would not be referenced in these amended provisions.
As the Participating Members will be purchasing Class C Units in
connection with the Transaction, such Members will become Class C
Members as of the Effective Date. In this connection, the Exchange is
proposing to amend the definitions of the applicable Members that are
defined in Section 1.1 to reflect that such Members will be Class C
Members as of the Effective Date.\33\
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\33\ The Participating Members that are defined in Section 1.1
are Bank of America, Citadel, Fidelity, Goldman Sachs, Jane Street,
JPMorgan, Morgan Stanley, UBS, Virtu, and Wells Fargo. The Exchange
notes that it is also proposing to add ``Citi'' as a defined term in
Section 1.1, which would reflect that Citi is a Class C Member, as
further described below.
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Amendments Related to the Voting Rights of Members Associated With the
Ownership of Certain Units
As noted above, in order to facilitate certain Members' continued
compliance with certain restrictions under the BHCA in light of recent
amendments to the relevant BHCA regulations, the Exchange is proposing
to amend the Holdco LLC Agreement to modify the governance structure of
Holdco, which currently does not provide for any voting or management
rights of the Members (except in certain very limited circumstances
\34\) to provide for certain voting rights of the Members associated
with the existing Class A Units, as well as the proposed new Class C
Units and Common Units, as prescribed in amended Section 4.7, which is
further described below.
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\34\ See supra note 12.
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In this connection, consistent with the voting/non-voting construct
of the proposed new Class C Units and Common Units, the Exchange is
proposing to amend the Holdco LLC Agreement to divide each existing
series of the Class A Units (i.e., the Class A-1 Units and the Class A-
2 Units) into a ``voting'' series and a ``non-voting'' series.
Specifically, as proposed, the existing Class A-1 Units and Class A-2
Units would be designated as the ``voting'' series of the Class A Units
(referred to collectively as the ``Voting Class A Units'') and the
proposed new Nonvoting Class A-1 Units and Nonvoting Class A-2 Units
would be designated as the ``non-voting'' series of the Class A Units
(referred to collectively as the ``Nonvoting Class A Units'').\35\ In
this connection, the Exchange proposes to amend Section 3.2 to reflect
the creation of the Nonvoting Class A-1 Units and the Nonvoting Class
A-2 Units and to add new paragraphs (c) and (d) that contain provisions
related to the authorization and issuance of the Nonvoting Class A-1
Units and the Nonvoting Class A-2 Units and that specify the voting
rights associated with such Units.\36\ In connection with the creation
of the Nonvoting Class A-1 Units and the Nonvoting Class A-2 Units, the
Exchange also proposes to add definitions of the following terms in
Section 1.1: Nonvoting Class A Units; \37\ Nonvoting Class A-1 Units;
\38\ Nonvoting Class A-2 Units; \39\ and Voting Class A Units.\40\ The
Exchange also proposes to amend the definitions of ``Class A Member''
and ``Class A Units'' in Section 1.1 to reflect the creation of the
Nonvoting Class A-1 Units and the Nonvoting Class A-2 Units, as well as
to include references to the Nonvoting Class A Units, the Nonvoting
Class A-1 Units, and/or the Nonvoting Class A-2 Units, as applicable,
throughout the Holdco LLC Agreement where appropriate for this purpose.
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\35\ The Exchange notes that no additional Class A Units will be
issued in connection with the Transaction or the amendments to the
Holdco LLC Agreement proposed herein; instead, certain of the issued
and outstanding Class A-1 Units and Class A-2 Units currently held
by the Class A Members would be reclassified into Nonvoting Class A-
1 Units and Nonvoting Class A-2 Units, respectively.
\36\ The voting rights associated with the Nonvoting Class A-1
Units and the Nonvoting Class A-2 Units are specified in proposed
new paragraphs (c) and (d) of Section 3.2 by reference to the
applicable paragraphs of amended Section 4.7, which prescribe the
actions on which such Units are entitled to vote, as further
described below.
\37\ As proposed, the term ``Nonvoting Class A Units'' means the
Nonvoting Class A-1 Units and the Nonvoting Class A-2 Units.
\38\ As proposed, the term ``Nonvoting Class A-1 Units'' refers
to the Nonvoting Class A-1 Units described in proposed new Section
3.2(c).
\39\ As proposed, the term ``Nonvoting Class A-2 Units'' refers
to the Nonvoting Class A-2 Units described in proposed new Section
3.2(d).
\40\ As proposed, the term ``Voting Class A Units'' means Class
A-1 Units and the Class A-2 Units.
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The proposed changes to the voting rights of the Members are
reflected in the proposed amendments to Section 4.7, which include the
addition of new paragraphs (a) through (g) that prescribe the actions
on which the various series of Units are entitled to vote, as follows:
Proposed new paragraph (a) provides that the following
actions shall
[[Page 60687]]
not be effected without the approval of a majority of the then-
outstanding Voting Class A Units, voting together as a single class:
(i) Subject to Sections 7.2(b), 7.3 and 13.3, approval of any
Distributions of profits or capital of Holdco to the Members (other
than Tax Advances \41\); (ii) approval of a transaction to which Holdco
is a party and which results in a Change of Control; \42\ (iii) any
liquidation, dissolution or winding up of any subsidiary of Holdco
(other than the Exchange) and, if applicable, the related appointment
of a liquidating trustee; and (iv) commencement, filing or initiation
of any proceeding relating to voluntary or involuntary bankruptcy or
insolvency with respect to Holdco;
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\41\ See Section 1.1 for the definition of Tax Advances.
\42\ See Section 1.1 for the definition of Change of Control.
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proposed new paragraph (b) provides that any waiver or
amendment of any provision of the Holdco LLC Agreement which would
significantly and adversely affect the rights, preferences, powers or
privileges of the Class A-1 Units and Class A-2 Units shall not be
effected without the approval of the majority of the then-outstanding
Voting Class A Units, voting together as a single class;
proposed new paragraph (c) provides that the following
actions shall not be effected without the approval of a majority of the
then-outstanding Class C-1 Units and Voting Common Units, voting
together as a single class: (i) Subject to Sections 7.2(b), 7.3 and
13.3, approval of any Distributions of profits or capital of Holdco to
the Members (other than Tax Advances); (ii) approval of a transaction
to which Holdco is a party and which results in a Change of Control;
(iii) any liquidation, dissolution or winding up of any subsidiary of
Holdco (other than the Exchange) and, if applicable, the related
appointment of a liquidating trustee; and (iv) commencement, filing or
initiation of any proceeding relating to voluntary or involuntary
bankruptcy or insolvency with respect to Holdco;
proposed new paragraph (d) provides that any waiver or
amendment of any provision of the Holdco LLC Agreement which would
materially and adversely affect the rights, preferences, powers or
privileges of the Class C-1 Units shall not be effected without the
approval of a majority of the then-outstanding Class C-1 Units;
proposed new paragraph (e) provides that the following
actions (which shall be construed in a manner consistent with 12 CFR
225.2(q)(2)(i)) shall not be effected without the approval of the
majority of the then-outstanding Class C-1 Units and Class C-2 Units,
voting together as a single class: (i) Any issuance of Units or Unit
Equivalents \43\ of Holdco that have (A) a preference in respect of
Distributions or return of capital that is senior to the holders of the
Class C Units or (B) no right to convert into Common Units; and (ii)
any exchange, reclassification or cancellation (whether by merger,
consolidation or otherwise) or modification of the terms of all or part
of the Class C Units which exchange, reclassification, cancellation or
modification, as applicable, significantly and adversely affects the
rights or preferences of the Class C Units;
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\43\ See Section 1.1 for the definition of Unit Equivalents.
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proposed new paragraph (f) provides that the following
actions (which shall be construed in a manner consistent with 12 CFR
225.2(q)(2)(i)) shall not be effected without the approval of the
majority of the then-outstanding Class A-1 Units, Class A-2 Units,
Nonvoting Class A-1 Units and Nonvoting Class A-2 Units, voting
together as a single class: (i) Any issuance of Units or Unit
Equivalents of Holdco that have a preference in respect of
Distributions or return of capital that is senior to the holders of the
Class A Units; and (ii) any exchange, reclassification or cancellation
(whether by merger, consolidation or otherwise) or modification of the
terms of all or part of the Class A Units which exchange,
reclassification, cancellation or modification, as applicable,
significantly and adversely affects the rights or preferences of the
Class A Units; and
proposed new paragraph (g) provides any liquidation,
dissolution or winding up of Holdco (which shall be construed in a
manner consistent with 12 CFR 225.2(q)(2)(i)) shall not be effected
without the approval of the majority of the then-outstanding Class A-1
Units, Class A-2 Units, Nonvoting Class A-1 Units, Nonvoting Class A-2
Units, Class C-1 Units, Class C-2 Units, Voting Common Units and
Nonvoting Common Units, voting together as a single class.\44\
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\44\ The Exchange notes that each action described in proposed
new paragraphs (a) through (g) would also require approval of the
Holdco Board by Supermajority Board Vote, which is also currently
required with respect to each of such actions under the Holdco LLC
Agreement.
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The Exchange notes that each of the actions set forth in proposed
new paragraphs (a) through (g) on which certain Members are entitled to
vote are significant corporate matters solely related to the
administration, ownership, capital, or dissolution of Holdco or any
Holdco subsidiary (other than the Exchange) and, except as set forth
therein (or as otherwise currently provided in the Holdco LLC
Agreement), the authority to manage and control the business and
affairs of Holdco, including the right to amend or modify the Holdco
LLC Agreement, would continue to be vested in the Holdco Board as it is
today. As reflected in proposed new paragraphs (a) through (g) of
Section 4.7, each of the Voting Class A Units, the Class C-1 Units, and
the Voting Common Units series has broader voting rights than the
Nonvoting Class A Units, the Class C-2 Units, and the Nonvoting Common
Units series, respectively, in that the former series are entitled to
vote in some capacity on a wider array of actions than the latter
series. The Exchange notes that the distinctions with respect to the
actions on which such series are entitled to vote pursuant to amended
Section 4.7, as described above, are what separate such series into
``voting'' series and ``non-voting'' series for BHCA purposes in a
manner intended to facilitate certain Members' continued compliance
with the BHCA. As noted above, the sole purpose of providing for the
voting rights associated with the ``voting'' and ``non-voting'' series
of the Class A Units, the Class C Units, and the Common Units as set
forth in proposed new paragraphs (a) through (g) of Section 4.7 is to
facilitate such Members' continued compliance with the BHCA.
In connection with the foregoing proposed amendments to Section
4.7, the Exchange proposes to further amend Section 4.7 to re-number
the existing paragraphs to begin after proposed new paragraph (g) and
to update relevant section references throughout the Holdco LLC
Agreement accordingly; to amend paragraphs (a) and (b) of Section 3.2
to reflect the additional voting rights associated with the Class A-1
Units and the Class A-2 Units as prescribed in amended Section 4.7; to
amend Section 7.2(a) to reflect that the Holdco Board's discretion
regarding the amounts and timing of Distributions to Members is subject
to the required approvals of the Voting Class A Units, the Class C-1
Units, and the Voting Common Units, as applicable, pursuant to proposed
new Sections 4.7(a)(i) and 4.7(c)(i); and to amend Section 13.1(a) to
reflect that a determination to dissolve and wind up the affairs of
Holdco requires the approval of the applicable Members pursuant to
proposed new Section 4.7(g)
[[Page 60688]]
in addition to the approval of the Holdco Board by Supermajority Board
Vote. Additionally, the Exchange proposes to amend Section 4.6, which
also relates to the voting rights of the Members, in a manner that
conforms and is consistent with the proposed amendments to Section 4.7
that provide for certain voting rights of the Members associated with
the ownership of Class A Units, Class C Units, and Common Units; to
otherwise reflect the creation of the Class C Units, the Common Units,
and the Nonvoting Class A Units; to delete certain language relating to
the treatment of the Class A Units and the Class B Units for certain
BHCA purposes that is no longer consistent with the proposed voting
structure of such Units; and to make minor formatting and other non-
substantive changes.
Amendments Related to a Member's Maximum Voting Percentage
In connection with the Transaction and the proposed amendments to
the voting structure of the Units described above, including the
creation of the ``voting'' and ``non-voting'' series of Class C Units
(i.e., the Class C-1 Units and the Class C-2 Units, respectively) and
the similar division of the Class A Units into ``voting'' and ``non-
voting'' series (i.e., the Voting Class A Units and the Nonvoting Class
A Units), the Exchange is also proposing to amend the Holdco LLC
Agreement's provisions related to a Member's election to specify the
maximum voting percentage that such Member may have with respect to any
determination under the Holdco LLC Agreement, which are set forth in
Section 3.10. As with the proposed amendments to the voting structure
of the Units, the purpose of the amendments to Section 3.10 is to
facilitate certain Members' compliance with the BHCA.
Currently, Section 3.10 provides that a Class A Member may notify
Holdco of its election (a ``Restricted Voting Election'') to be treated
for purposes of the Holdco LLC Agreement as a ``Restricted Voting
Member'' such that the maximum percentage of the aggregate voting
interests attributable to the Class A Units that such Member may own is
the percentage designated in such Member's Restricted Voting
Election.\45\ Notwithstanding the fact that the Class A Units are
currently intended to not have any voting rights other than as required
by applicable law, this provision was included in the current Holdco
LLC Agreement out of an abundance of caution in connection with the
BHCA considerations of certain Class A Members in order to provide a
mechanism for Class A Members to manage any potential deemed voting
interests attributable to the Class A Units for BHCA and/or other
regulatory purposes. Section 3.10 also currently contains certain
notification procedures of Holdco in connection with its receipt of any
Restricted Voting Election and provides for certain types of transfers
of Class A Units by a Restricted Voting Member (e.g., pursuant to a
widespread public distribution to non-Affiliates) in which the
aggregate voting interests attributable to the Class A Units
transferred by such Restricted Voting Member would no longer be limited
to such Restricted Voting Member's Maximum Aggregate Voting Interest
with respect to the transferee (such transfers, ``Permitted Regulatory
Transfers'').\46\
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\45\ Such maximum percentage is currently referred to in the
Holdco LLC Agreement as a Member's ``Maximum Aggregate Voting
Interest'' which is defined in Section 1.1 with a reference to the
definition of such term in Section 3.10. In connection with the
proposed amendments to Section 3.10 described below, the Exchange is
proposing to delete such defined term and add new defined terms that
are conceptually similar with respect to the respective maximum
voting percentages of a Member's Class A Voting Units and Class C-1
Units, as further described below.
\46\ The Exchange proposes to add the defined term ``Permitted
Regulatory Transfers'' in Section 1.1 to refer to the definition of
such term in proposed new Section 3.10(e)(i), which refers to such
transactions as set forth therein.
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The Exchange is now proposing to amend Section 3.10 to maintain the
Restricted Voting Election mechanism for Class A Members with respect
to the Voting Class A Units (i.e., the ``voting'' series of the Class A
Units) and to similarly provide for the Restricted Voting Election
mechanism for Class C Members with respect to the Class C-1 Units
(i.e., the ``voting'' series of the Class C Units). Specifically,
Section 3.10(a) would now provide that any Class A Member or Class C
Member may make a Restricted Voting Election to specify its respective
maximum Voting Class A Voting Percentage \47\ (the ``Maximum Voting
Class A Voting Percentage'') or its respective maximum Class C-1 Voting
Percentage \48\ (the ``Maximum Class C-1 Voting Percentage'').\49\ Any
Maximum Voting Class A Voting Percentage or Maximum Class C-1 Voting
Percentage specified in a Restricted Voting Election would generally be
irrevocable, subject to certain specified exceptions, in a manner
consistent with BHCA restrictions. In this connection, the Exchange
proposes to amend new Exhibit F (current Exhibit H) to the Holdco LLC
Agreement, which is the form of Restricted Voting Election Notice to be
used by a Restricted Voting Member, to reflect that a Restricted Voting
Member may now specify a Maximum Voting Class A Voting Percentage and a
Maximum Class C-1 Voting Percentage.
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\47\ The Exchange proposes to add the defined term ``Voting
Class A Voting Percentage'' in Section 1.1 which means at any time
of calculation, a fraction, expressed as a percentage (a) the
numerator of which is be the number of then issued and outstanding
Voting Class A Units held a Class A Member and (b) the denominator
of which is the number of then issued and outstanding Voting Class A
Units held by all Class A Members.
\48\ The Exchange proposes to add the defined term ``Class C-1
Voting Percentage'' in Section 1.1 which means, at any time of
calculation, a fraction, expressed as a percentage, (i) the
numerator of which is the number of then issued and outstanding
Class C-1 Units held by a Class C Member and (ii) the denominator of
which is the number of then issued and outstanding Class C-1 Units
held by all Class C Members.
\49\ The Exchange proposes to add the defined terms ``Maximum
Voting Class A Voting Percentage'' and ``Maximum Class C-1 Voting
Percentage'' in Section 1.1 to refer to the definitions of such
terms as set forth in Section 3.10(a), which are consistent with the
definitions of such terms herein.
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Also in connection with the proposed voting structure of the Class
A Units and the Class C Units, the Exchange proposes to provide in new
Section 3.10(d) for the automatic conversion of a Restricted Voting
Member's Voting Class A Units and Class C-1 Units into Nonvoting Class
A Units and Class C-2 Units, respectively, to the extent that a
Restricted Voting Member would be deemed to own, control, or have the
power to vote (for any reason) a number of Voting Class A Units or
Class C-1 Units, as applicable, that causes such Restricted Voting
Member to exceed its Maximum Voting Class A Voting Percentage or
Maximum Class C-1 Voting Percentage, as applicable. This automatic
conversion feature is designed to ensure that a Restricted Voting
Member does not exceed its Maximum Voting Class A Voting Percentage or
Maximum Class C-1 Voting Percentage for any reason to facilitate any
such Restricted Voting Member's compliance with the BHCA.
Additionally, the Exchange proposes to provide in new Section
3.10(e) for: (i) The automatic conversion of a Restricted Voting
Member's Nonvoting Class A Units and Class C-2 Units into Voting Class
A Units and Class C-1 Units, respectively, if such Nonvoting Class A
Units or Class C-2 Units, as applicable, are transferred to a third
party (other than another Restricted Voting Member or an Affiliate of
the transferee Restricted Voting Member) in connection with a Permitted
Regulatory Transfer; and (ii) the optional
[[Page 60689]]
conversion (``Permitted Anti-Dilution Conversion'') of a Restricted
Voting Member's Nonvoting Class A Units and Class C-2 Units into Voting
Class A Units and Class C-1 Units, respectively, by delivery of a
notice to Holdco (a ``Voting Conversion Notice'') if Holdco issues any
new Units or Unit Equivalents that cause the Voting Class A Units or
Class C-1 Units, as applicable, held by such Restricted Voting Member
to represent a Voting Class A Voting Percentage or Class C-1 Voting
Percentage, as applicable, that is less than such Restricted Voting
Member's Voting Class A Voting Percentage or Class C-1 Voting
Percentage, as applicable, immediately prior to such issuance (such
Restricted Voting Member's ``Prior Voting Class A Voting Percentage''
and ``Prior Class C-1 Voting Percentage'', respectively) to the extent
such conversion does not exceed such Prior Voting Class A Voting
Percentage or Prior Class C-1 Voting Percentage, as applicable.\50\
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\50\ The Exchange proposes to add the defined terms ``Permitted
Anti-Dilution Conversion'', ``Prior Class C-1 Voting Percentage'',
``Prior Voting Class A Voting Percentage'', and ``Voting Conversion
Notice'' in Section 1.1 to refer to the definitions of such terms as
set forth in amended Section 3.10, which are consistent with the
definitions of such terms herein.
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The Exchange is also proposing to amend Section 3.10 to include
additional provisions related to the effect and construction of such
section consistent with the BHCA, which are designed to facilitate
certain Members' continued compliance with the BHCA in light of the
proposed voting structure of the Class A Units and the Class C Units
described herein. The Exchange notes that it is also proposing certain
other amendments to Section 3.10, including modifications to Holdco's
notification procedures and other administrative provisions related to
recordkeeping in connection with any Restricted Voting Election.
Amendments to Various Provisions Related to BHCA Considerations
The Exchange is also proposing to make certain amendments to the
Holdco LLC Agreement to update existing provisions and include
additional provisions for the purpose of facilitating certain Members'
continued compliance with BHCA requirements and restrictions.
First, the Exchange is proposing to amend Section 7.5, which
relates to Distributions of securities or other property held by Holdco
made ``in kind'' to Members, to update such provision in a manner
consistent with the BHCA considerations of Members subject to the BHCA.
Currently, Section 7.5 provides that, except as required by applicable
law, Holdco is not authorized to make Distributions to the Members in
the form of securities or other property held by Holdco. This
restriction on Distributions made in kind to Members by Holdco will
remain in place, but the Exchange now proposes to amend Section 7.5 to
also provide that no Member may be required to accept consideration
with respect to a merger, business combination or other transaction to
which Holdco or any Holdco subsidiary is a party in the form of
securities or other property if such Member notifies Holdco that
receipt of such consideration by such Member would violate the BHCA or
other applicable law or cause such Member to control or be presumed to
control the issuer of such asset under the BHCA, and that in either
such case, the affected Member may elect, in the alternative, to
receive the fair market value of such consideration in cash. The
purpose of adding this provision is to ensure that any Member subject
to the BHCA is not required to receive non-cash consideration if such
receipt would have adverse consequences under the BHCA with respect to
such Member in connection with a transaction involving Holdco or any
Holdco subsidiary that involves the distribution of non-cash
consideration to Members made by a third party (or otherwise not
directly Distributed by Holdco), which is not currently covered by
Section 7.5. Thus, the purpose of this proposed amendment is to address
an additional scenario where a distribution of non-cash consideration
may be made to the Members in connection with their ownership of Units
in a manner that protects Members subject to the BHCA against adverse
consequences resulting from non-cash distributions in connection
therewith and thereby facilitates such Member's continued compliance
with the BHCA. Additionally, the Exchange proposes to further amend
Section 7.5 to provide a carve-out from the general restriction on
Distributions made in kind to Members set forth therein to the extent
otherwise expressly provided in the Holdco LLC Agreement. The purpose
of this change is to resolve a conflict between the terms of Section
13.3(f), which provides that a liquidator of Holdco may in certain
circumstances Distribute non-cash assets in kind to Members, while
Section 7.5 currently prohibits this only subject to applicable law.
Thus, this proposed amendment is intended to resolve an existing
conflict between such provisions and clarify the intent thereof.
Also for purposes of facilitating certain Members' continued
compliance with the BHCA, the Exchange proposes to add new paragraph
(i) of Section 11.3 to state that Holdco represents and warrants that
Holdco is not a covered fund (as such term is defined in 12 CFR
248.10(b)), and not a bank, bank holding company, depository
institution or holding company for a depository institution, as such
terms are defined in the BHCA, and that Holdco shall not allow itself
to become a covered fund, bank, bank holding company, depository
institution or holding company for a depository institution (as so
defined). The Exchanges [sic] notes that it believes such
representations of Holdco are true as of the date hereof.
Amendments Related to Governance Changes With Respect to the Holdco
Board in Connection With the Transaction
In connection with the Transaction, each of Citi, UBS, and Wells
Fargo will receive the right to nominate a Director. Additionally, each
of Citi, UBS, and Wells Fargo has expressed that it will nominate a
Director, thereby increasing the size of the Holdco Board from eleven
to fourteen Directors, as of the Effective Date. To reflect such
governance changes, the Exchange proposes to amend the Holdco LLC
Agreement to add a definition of ``Citi'' in Section 1.1 that is
consistent with the definitions of other Nominating Members with
similar rights and preferences as Citi; amend the definition of ``Bank
Class A Member'' \51\ in Section 1.1 to include a reference to Citi as
a
[[Page 60690]]
designated Bank Member; amend the definitions of ``UBS'' and ``Wells
Fargo'' in Section 1.1 to reflect that each is now a Nominating Member
and is no longer an Excluded Class A Member; \52\ delete the definition
of ``Excluded Class A Member'' in Section 1.1 and make related
conforming changes throughout the Holdco LLC Agreement to reflect that
there are no longer any Excluded Class A Members; amend Section 8.3(a)
to reflect the increased size of the Holdco Board at fourteen
Directors; and amend Section 8.3(b) to reference each of Citi, UBS, and
Wells Fargo as Members with the right to nominate a Director.
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\51\ The term ``Bank Class A Member'' refers to each of Bank of
America, Morgan Stanley, UBS, JPMorgan, Goldman Sachs, Wells Fargo,
and any other Member that is specifically designated as a Bank Class
A Member (which would also include Citi, as proposed herein), in
each case, together with each of their respective Affiliates. See
Section 1.1. The Exchange notes that the only consequence of
designation as a Bank Class A Member under the Holdco LLC Agreement
is that at least one Director nominated by any Bank Class A Member
(i.e., a Bank Director) is generally required to establish a quorum
for the transaction of business of the Holdco Board. See Section
8.6(a). In connection with the proposed amendments to replace
references to ``Class A Member'' with references to ``Member'' where
appropriate throughout the Holdco LLC Agreement, as described above,
the Exchange is proposing to change the defined terms ``Bank Class A
Member'' to ``Bank Member''; ``Buy Side Class A Member'' to ``Buy
Side Member''; ``Market Maker Class A Member'' to ``Market Maker
Member''; and ``Retail Broker Class A Member'' to ``Retail Broker
Member'' in Section 1.1 to reflect that a Member's designation as
one of these categories is not tied to its ownership of Class A
Units exclusively and to update references to such terms throughout
the Holdco LLC Agreement accordingly.
\52\ The term ``Excluded Class A Member'' currently refers to
UBS and Wells Fargo and is generally intended to reference certain
Class A Members that do not have the right to nominate a Director.
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In addition, the Exchange proposes to amend the definition of
Supermajority Board Vote in Section 1.1, as further described below.
Currently, the term Supermajority Board Vote means the affirmative vote
of at least seventy-seven percent (77%) of the votes of all Directors
then entitled to vote on the matter under consideration and who have
not recused themselves, whether or not present at the applicable
meeting of the Board. This aspect of the definition is not changing,
however, the definition also currently states that if the affirmative
vote threshold results in the necessity of the affirmative vote of all
such Directors with respect to such matter, that an affirmative vote of
all but one of such Directors shall instead be required. This provision
is intended to cover situations where a large number of Directors are
recused from voting on a matter or the size of the Board is such that a
Board vote would require unanimity and instead allows a matter to be
approved so long as all but one Director is in favor of a particular
voting matter. The Exchange proposes to modify the provision to instead
state that if the affirmative vote threshold results in the necessity
of the affirmative vote of eight (8) Directors or fewer, an affirmative
vote of all but two (2) such Directors shall be required instead with
respect to such matter. The proposed change will ensure that a more
consistent voting structure is maintained even if several Directors are
recused from voting on a particular matter. Under the current structure
with eleven (11) Directors a matter can be approved as an affirmative
Supermajority Board Vote even if two (2) Directors vote against a
matter and under the proposed structure with fourteen (14) Directors a
matter can be approved as an affirmative Supermajority Board Vote even
if three (3) Directors vote against a matter. Accordingly, the Holdco
Board believes it is appropriate to maintain this relative voting
structure even if eight (8) or fewer Directors are voting on a
particular matter (i.e., allowing a matter to be approved even if two
(2) Directors vote against such matter).
Clarifying, Updating, Conforming, and Other Non-Substantive Amendments
Finally, the Exchange proposes to make various clarifying,
updating, conforming, and other non-substantive amendments to the
Holdco LLC Agreement, each of which is discussed below.
Amendments to the Definition of ``Registration Date''
The term ``Registration Date'' is currently defined in Section
15.9(a) to mean the date that the Exchange is registered as a national
securities exchange pursuant to Section 6(a) of the Act. On May 4,
2020, the Commission approved the Exchange's application for
registration as a national securities exchange, and thus, the
Registration Date occurred on such date.\53\ Accordingly, the Exchange
proposes to amend the Holdco LLC Agreement to reflect that the
Registration Date occurred on such date by deleting the current
definition of ``Registration Date'' in Section 15.9(a) and amending the
definition of ``Registration Date'' in Section 1.1 to reference May 4,
2020.
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\53\ On May 4, 2020, the Commission approved the Exchange's
application for registration as a national securities exchange. See
Securities Exchange Act Release No. 88806 (May 4, 2020), 85 FR 27451
(May 8, 2020).
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Amendment to the Definition of ``Schwab''
The Exchange proposes to amend the definition of ``Schwab'' in
Section 1.1 to reflect that Schwab is a Nominating Member, as the
Holdco Board previously granted Schwab the right to nominate a Director
in accordance with the Holdco LLC Agreement. Thus, the purpose of this
proposed change is to update the definition of Schwab to reflect a
previously-approved change with respect to the composition of the
Holdco Board.
Amendments To Delete Obsolete Provisions and Language
The Exchange proposes to make the following amendments to the
Holdco LLC Agreement to delete provisions and language that are now
obsolete due to the passage of time or the occurrence of certain
events:
Deletion of the defined term ``Exchange Application'': The
Exchange proposes to delete the defined term ``Exchange Application''
in Section 1.1, as such term is not currently used elsewhere in the
Holdco LLC Agreement. Previously, the term ``Exchange Application'' was
referenced only in Section 13.1(d) and referred to the application of
the Exchange as a national securities exchange; however, Section
13.1(d) (including all references to the term ``Exchange Application'')
was deleted in its entirety in connection with previous amendments to
the Holdco LLC Agreement,\54\ but the term ``Exchange Application'' was
inadvertently not deleted from Section 1.1. Thus, this proposed
amendment is intended to add clarity to the Holdco LLC Agreement by
deleting an unused and obsolete defined term.
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\54\ See Securities Exchange Act Release No. 91478 (April 5,
2021), 86 FR 18570 (April 9, 2021).
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Deletion of language in #11 of Exhibit C: Exhibit C to the
Holdco LLC Agreement contains an enumerated list of the Supermajority
Board Matters. The Exchange proposes to delete language in #11 of
Exhibit C that refers to an event of dissolution as set forth in
Section 13.1(d), which was inadvertently not deleted in connection with
the previous amendments to the Holdco LLC Agreement that deleted
Section 13.1(d) in its entirety, as described above.
Amendments to Section 8.18(a): The Exchange proposes to
amend Section 8.18(a) to delete paragraphs (i) and (ii). Currently,
paragraph (i) provides for an obligation of Holdco to amend and restate
the limited liability company agreement of the Exchange (the ``Exchange
LLC Agreement'') that was in effect prior to the Registration Date as
necessary in order to obtain registration for the Exchange as a
national securities exchange (such amended and restated Exchange LLC
Agreement is currently referred to in Section 8.18(a)(i) as the
``Restated MEMX LLC Agreement''), and paragraph (ii) provides that the
Exchange shall be managed by the Exchange Board upon the execution and
delivery of the Restated MEMX LLC Agreement. Each of the events
described in paragraphs (i) and (ii) has already occurred and the
Exchange is currently managed by the Exchange Board; thus, such
provisions are now obsolete.\55\ In connection with the deletion of
these obsolete provisions, the Exchange also proposes to state in
Section 8.18(a) that
[[Page 60691]]
the Exchange shall be managed by the Exchange Board to reflect the
current governance of the Exchange.
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\55\ See id. The Exchange LLC Agreement was amended and restated
as the Second Amended and Restated Limited Liability Company
Agreement of MEMX LLC, which was executed, delivered, and became
effective on May 19, 2020.
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Amendments to Section 3.8: The Exchange proposes to delete
language in Section 3.8 that contemplates a time prior to the
Registration Date, since, as noted above, the Registration Date already
occurred on May 4, 2020.
Deletion of Section 11.8: Currently, Section 11.8 requires
certain Members (or their Affiliates, as applicable) that operate a
U.S.-registered broker-dealer to connect to the Exchange prior to the
first date on which the Exchange commences operating a national
securities exchange. As the Exchange first commenced operations as a
national securities exchange on September 21, 2020, the Exchange
proposes to delete Section 11.8 in its entirety, as such provision is
now obsolete.
Amendments To Replace References to ``Restated MEMX LLC Agreement''
With ``MEMX LLC Agreement''
As noted above, the term ``Restated MEMX LLC Agreement'' is
currently defined in Section 8.18(a)(i) and refers to a version of the
Exchange LLC Agreement that was already amended and restated as
necessary in order to obtain registration for the Exchange as a
national securities exchange. As the Exchange LLC Agreement was already
amended and restated for this purpose (i.e., as the Second Amended and
Restated Limited Liability Company of MEMX LLC, which became effective
on May 19, 2020 and is currently in effect) and the Exchange is
proposing to delete Section 8.18(a)(i) in its entirety, as described
above, the Exchange proposes to delete the defined term ``Restated MEMX
LLC Agreement'' and add ``MEMX LLC Agreement'' as a defined term that
references the Second Amended and Restated Limited Liability Company
Agreement of MEMX LLC. In connection with such changes, the Exchange
also proposes to replace all references to ``Restated MEMX LLC
Agreement'' with references to ``MEMX LLC Agreement'' so that all such
references are to the Exchange LLC Agreement that is currently in
effect.
Amendments Related to the Removal of a Director From the Holdco Board
Section 8.4(a) generally provides that a Director may be removed
from his or her position as such, or replaced at any time, upon the
written request of the Nominating Member that nominated such Director.
Additionally, Section 8.4(b) provides that a Nominating Member may
irrevocably waive its right in Section 8.4(a) to remove or replace a
Director nominated by such Nominating Member, which the Exchange
believes certain Members may elect to do for purposes related to
compliance with restrictions under the BHCA's ``control'' framework.
Section 8.4(b) also currently provides that if a Nominating Member
makes such an election to irrevocably waive its right to remove or
replace a Director, and the Director nominated by such Nominating
Member dies, resigns from the Holdco Board in accordance with Section
8.4(c) (i.e., delivers his or her written resignation as a Director to
the Holdco Board), or is removed as a result of a statutory
disqualification, then the Nominating Member that nominated such
Director may nominate a new Director to fill such vacancy. However,
currently, Section 8.4 does not explicitly address the situation where
a Director is terminated or resigns from his or her employment with
such Nominating Member (or its Affiliate) but does not also resign from
the Holdco Board by delivering his or her written resignation as a
Director to the Holdco Board in accordance with Section 8.4(c). In this
situation, the Exchange believes such Director would be deemed to have
resigned as a Director from the Holdco Board, but for the avoidance of
doubt, the Exchange is proposing to add new Section 8.4(f) to provide
that any such Director would be automatically and immediately removed
from his or her position as a Director upon Holdco's receipt of written
notice from the Nominating Member that such Director has been
terminated or resigned from his or her employment with the Nominating
Member (or its Affiliate). In this connection, the Exchange also
proposes to amend Section 8.4(b) to provide that a Nominating Member
that has irrevocably waived its right to remove or replace a Director
pursuant to Section 8.4(b) may also nominate a new Director to fill any
vacancy resulting from proposed new Section 8.4(f).
Amendments Related to the Incentive Plan
The Exchange proposes to amend Section 3.3(b) to replace the second
reference to the Amended and Restated MEMX Holdings LLC 2018 Profits
Interests Plan with a reference to the appropriate defined term (i.e.,
``Incentive Plan'') and to clarify that any Class B Units issued by
Holdco pursuant to the MembersX Holdings LLC 2018 Profits Interests
Plan (a predecessor plan to the Incentive Plan) or the Incentive Plan
prior to the Sixth Amended Holdco LLC Agreement Effective Date have not
been cancelled, forfeited, repurchased or redeemed and subsequently re-
issued. Each of these amendments is designed to clarify existing
language in the Holdco LLC Agreement.
Amendments Related to Certain Agreements Between Holdco and the Members
The Exchange proposes to add substantially similar paragraphs in
Sections 10.1, 10.2, 10.4, and 11.5 (i.e., proposed new Section
10.1(a)(iii), proposed new Section 10.2(d), proposed new Section
10.4(f), and proposed new Section 11.5(e), respectively) stating that
certain provisions in those sections constitute an individual agreement
between Holdco, on the one hand, and each applicable Member, on the
other hand, that such provisions do not constitute an agreement among
the Members, and that only Holdco (and not the Members) shall have the
right to enforce such provisions against any Member.\56\ The Exchange
notes that these proposed new paragraphs are intended to clarify, but
not substantively modify, the enforceability of such existing
provisions in the Holdco LLC Agreement with respect to Holdco and the
Members.
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\56\ The Exchange notes that the provisions referenced in each
of these proposed new paragraphs are existing provisions, which are
remaining substantially the same, except as modified to reflect the
creation of the Class C Units, as applicable, or otherwise for
formatting purposes or in a non-substantive manner.
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Amendment Related to the Registration of MEMX Execution Services LLC
With FINRA
Currently, Section 10.6(h) references MEMX Execution Services LLC
\57\ as a subsidiary of Holdco ``which plans to register with FINRA as
a broker-dealer''; however, MEMX Executions Services LLC became
registered with FINRA as a broker-dealer on June 5, 2020. Thus, the
Exchange proposes to amend Section 10.6(h) to update this provision to
reference MEMX Execution Services LLC as a subsidiary of Holdco ``that
is registered with FINRA as a broker-dealer.''
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\57\ MEMX Execution Services LLC is an affiliate of the Exchange
that provides the outbound routing of orders from the Exchange to
other trading centers pursuant to Exchange Rule 2.11.
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Amendments Related to the Fourth Amended LLC Agreement Effective Date
Currently, the term ``Fourth Amended LLC Agreement Effective Date''
is defined in Section 1.1 as February 19, 2020, which was the date on
which the Fourth Amended and Restated LLC Agreement of Holdco became
effective. Such term is currently referenced in Sections 10.6(a) and
12.4(c). The Exchange proposes to delete the defined
[[Page 60692]]
term ``Fourth Amended LLC Agreement Effective Date'' in Section 1.1 and
to amend Sections 10.6(a) and 12.4(c) to replace the references to such
term with references to February 19, 2020 (or the appropriate date if
referencing an anniversary of such date) and make related conforming
changes. The purpose of these amendments is to simplify the Holdco LLC
Agreement by deleting a defined term and instead making specific
reference to the appropriate dates.
Amendments Related to the Exhibits to the Holdco LLC Agreement
Currently, Exhibit E to the Holdco LLC Agreement is intended to
reference a copy of the Exchange LLC Agreement and Exhibit F to the
Holdco LLC Agreement is reserved with a placeholder, as it was deleted
in a prior version of the Holdco LLC Agreement. The Exchange now
proposes to delete current Exhibit E, as a copy of the Exchange LLC
Agreement is separately maintained on the Exchange's public website
(along with the Holdco LLC Agreement) and there is no longer any
purpose for its reference or inclusion as an exhibit to the Holdco LLC
Agreement. In connection with this change, the Exchange also proposes
to re-letter the exhibits to the Holdco LLC Agreement to reflect the
proposed deletion of Exhibit E, the previous deletion of Exhibit F, and
the proposed addition of new Exhibit G, as described above.
Accordingly, current Exhibits G, H, I, and J would be re-lettered as
Exhibits E, F, H, and I, respectively.
Technical and Conforming Amendments To Reflect the Amendment and
Restatement of the Holdco LLC Agreement
The Exchange proposes to make technical and conforming amendments
to the cover page, table of contents, lead-in, recitals, and exhibits
of the Holdco LLC Agreement to reflect that it is being amended and
restated as the Sixth Amended Holdco LLC Agreement. Additionally, the
Exchange proposes to amend the definition of ``Agreement'' to reference
the Sixth Amended Holdco LLC Agreement; add ``Fifth Amended LLC
Agreement'' as a defined term to mean the Fifth Amended Holdco LLC
Agreement; replace references to ``Fourth Amended LLC Agreement'' with
references to ``Fifth Amended LLC Agreement'' throughout the Holdco LLC
Agreement, as appropriate; and update the certificate legend set forth
in proposed new Section 3.12(b) (currently Section 3.11(b)) to include
a reference to the Sixth Amended Holdco LLC Agreement. Each of these
proposed amendments are conforming changes intended to reflect the
amendment and restatement of the Holdco LLC Agreement.
Clean-Up Amendments
Lastly, the Exchange is proposing to make various non-substantive
``clean-up'' amendments throughout the Holdco LLC Agreement to correct
typos, update section references, make minor grammatical and
punctuational edits, and make other clarification and ministerial
changes to clarify existing language or modify such language to conform
with the other proposed amendments described above.
2. Statutory Basis
The Exchange believes that the proposed amendments to the Holdco
LLC Agreement are consistent with Section 6(b) of the Act,\58\ in
general, and further the objectives of Section 6(b)(1) of the Act,\59\
in particular, in that such amendments enable the Exchange to be so
organized as to have the capacity to be able to carry out the purposes
of the Act and to comply with the provisions of the Act, the rules and
regulations thereunder, and the rules of the Exchange. The Exchange
also believes that the proposed amendments are consistent with Section
6(b)(5) of the Act,\60\ which requires the rules of an exchange to be
designed to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest.
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\58\ 15 U.S.C. 78f(b).
\59\ 15 U.S.C. 78f(b)(1).
\60\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the creation of the Class C Units and
the Common Units is consistent with the Act as this will facilitate
additional investments by existing Members of Holdco, including certain
Members that do not currently have the right to nominate Directors to
serve on the Holdco Board. Although each Member's proportionate
ownership of Holdco will change as a result of the Transaction, no
Member will own, directly or indirectly, Units constituting more than
twenty percent (20%) of any class of Units or will otherwise exceed any
ownership or voting limitation applicable to the Members set forth in
the Holdco LLC Agreement after giving effect to the Transaction. Thus,
the Exchange does not believe the creation of new Units or the
Transaction will have any impact on the Exchange's ability to be
organized as to have the capacity to carry out the purposes of the Act
and to comply with the provisions of the Act, the rules and regulations
thereunder, and the rules of the Exchange, promoting just and equitable
principles of trade, removing impediments to and perfect the mechanism
of a free and open market, and protecting investors and the public
interest. Further, the Exchange believes the proposed changes to the
Holdco LLC Agreement are consistent with, and will not interfere with,
the self-regulatory obligations of the Exchange. The Exchange
importantly notes that it is not proposing to amend any of the
provisions within the Holdco LLC Agreement or the Exchange LLC
Agreement dealing with the availability or protection of information,
books and records, undue influence, conflicts of interest, unfair
control by an affiliate, or regulatory independence of the Exchange.
The Exchange reiterates that the proposed addition of certain
voting rights of the Members associated with the existing Class A
Units, as well as the proposed new Class C Units and Common Units is
solely to facilitate certain Members' compliance with the BHCA. The
Exchange notes that each of the actions on which certain Members are
entitled to vote are significant corporate matters solely related to
the administration, ownership, capital, or dissolution of Holdco or any
Holdco subsidiary (other than the Exchange) and, except as set forth
therein (or as otherwise currently provided in the Holdco LLC
Agreement), the authority to manage and control the business and
affairs of Holdco, including the right to amend or modify the Holdco
LLC Agreement, would continue to be vested in the Holdco Board as it is
today. Similarly, the Exchange believes the amendments to the Holdco
LLC Agreement's provisions related to a Member's election to specify
the maximum voting percentage that such Member may have with respect to
any determination under the Holdco LLC Agreement, which are set forth
in Section 3.10, are simply an expansion of existing provisions
regarding specification of a maximum voting percentage and are designed
to facilitate certain Members' compliance with the BHCA. While the Act
does not separately compel compliance with the BHCA, the Exchange does
not believe that any of these changes significantly changes the
governance with respect to Holdco and thus will not impact governance
of the Exchange. Accordingly, the Exchange believes the proposed
changes will allow it to be organized as to have the capacity to
[[Page 60693]]
carry out the purposes of the Act and to comply with the provisions of
the Act, the rules and regulations thereunder, and the rules of the
Exchange, promoting just and equitable principles of trade, removing
impediments to and perfect the mechanism of a free and open market, and
protecting investors and the public interest.
As described above, in connection with the Transaction, each of
Citi, UBS, and Wells Fargo will receive the right to nominate a
Director and the size of the Holdco Board will increase from eleven to
fourteen Directors, as of the Effective Date. The Exchange believes the
proposed amendments to reflect the governance changes that will result
from the Transaction and to make conforming changes to defined terms,
are appropriate and consistent with the Act, as such amendments would
update and clarify the relevant provisions of the Holdco LLC Agreement
to reflect governance changes with respect to Holdco, as described
above. Similarly, the Exchange believes the proposed changes to the
definition of Supermajority Board Vote to provide that if eight (8) or
fewer Directors are voting on a particular matter that an affirmative
vote is present if all but two (2) Directors vote in favor of the
matter, as this is consistent with the voting structure for matters
with more than eight (8) Directors voting, where an affirmative vote is
present even if two (currently, with eleven Directors) or three (as
proposed, with fourteen Directors) Directors vote against a particular
matter. The Exchange believes that updating the Holdco LLC Agreement
with respect to the governance of Holdco to reflect these changes would
ensure clarity with respect to the corporate documents of the
Exchange's parent company, thereby enabling the Exchange to be so
organized as to have the capacity to carry out the purposes of the Act
and to comply with the provisions of the Act, the rules and regulations
thereunder, and the rules of the Exchange, promoting just and equitable
principles of trade, removing impediments to and perfect the mechanism
of a free and open market, and protecting investors and the public
interest.
The Exchange believes the proposed amendments to clarify, correct
inadvertent drafting errors, delete obsolete language and make other
conforming changes consistent with the other proposed amendments to the
Holdco LLC Agreement described above, and make technical and conforming
changes to reflect that the Holdco LLC Agreement is being amended and
restated from the Fifth Amended LLC Agreement to the Sixth Amended LLC
Agreement are consistent with the Act, as such amendments would update
and clarify the Holdco LLC Agreement, thereby increasing transparency
and helping to avoid any potential confusion resulting from retaining
outdated, obsolete, or unclear provisions. For these reasons, the
Exchange believes such amendments would enable the Exchange to be so
organized as to have the capacity to carry out the purposes of the Act
and to comply with the provisions of the Act, the rules and regulations
thereunder, and the rules of the Exchange, promote just and equitable
principles of trade, remove impediments to and perfect the mechanism of
a free and open market, and protect investors and the public interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposal will impose any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The proposal is not intended to
address competitive issues but rather is concerned solely with the
creation of additional classes of Units in connection with the
Transaction as well as reflecting governance changes in connection with
the Transaction, changes to the voting structure of existing Units
consistent with the structure of the new Units, updates intended to
facilitate compliance with the BHCA, and updates of Holdco's corporate
documents related to the administration and functioning of Holdco, as
described above.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will: (a) By order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
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-MEMX-2021-15 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-MEMX-2021-15. 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-MEMX-2021-15 and should be submitted on
or before November 24, 2021.
[[Page 60694]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\61\
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\61\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-23927 Filed 11-2-21; 8:45 am]
BILLING CODE 8011-01-P
