5014 Federal Register / Vol. 74, No. 17 / Wednesday, January 28, 2009 / Notices 

50 15 U.S.C. 78s(b)(2). 

51 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 58970 

(November 17, 2007), 73 FR 71062 (November 24, 

2008) (‘‘Notice’’). 

4Pursuant to Section 3(a)(2) of the Act, 15 U.S.C. 

78c(a)(2), the term ‘‘facility’’ when used with 

respect to an exchange, includes ‘‘its premises, 

tangible or intangible property whether on the 

premises or not, any right to the use of such 

premises or property or any service thereof for the 

purpose of effecting or reporting a transaction on an 

exchange (including, among other things, any 

system of communication to or from the exchange, 

by ticker or otherwise, maintained by or with the 

consent of the exchange), and any right of the 

exchange to the use of any property or service.’’ 

5See Notice, supra note 3, 73 FR at 71062. The 

terms ‘‘protected quotations’’ and ‘‘automated 

trading centers’’ will have the same meanings as 

defined in Rule 600 of Regulation NMS, 17 CFR 

242.600. 

6See Securities Exchange Act Release No. 59282 

(SR–NYSE–2008–119). 

7 ‘‘Interest’’ means the ownership interest in the 

Company, including its interest in the capital, 

profits, losses, and distributions of the Company. 

See Section 2.1 of the LLC Agreement. A person 

that holds an economic interest in an LLC generally 

must become party to the LLC Agreement and is 

referred to as a ‘‘Member.’’ See id. 

8See Notice, supra note 3, 73 FR at 71062. 

9See Section 8.1(c) of the LLC Agreement. 

10See Sections 8.1(a) and 8.3 of the LLC 

Agreement. 

11See Section 8.1(b) of the LLC Agreement. 

12See Section 8.3(a) of the LLC Agreement. 

13See Section 7.1(a) of the LLC Agreement. 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://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 inspection and copying in 

the Commission’s Public Reference 

Room, 100 F Street, NE., Washington, 

DC 20549, on official business days 

between the hours of 10 a.m. and 3 p.m. 

Copies of such filing also will be 

available for inspection and copying at 

the principal office of NYSE. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–NYSE–2008–119 and 

should be submitted on or before 

February 18, 2009. 

VI. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Exchange Act,50

that the proposed rule change (SR– 

NYSE–2008–119), as modified by 

Amendment No. 1, be, and it hereby is, 

approved on an accelerated basis. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.51

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–1805 Filed 1–27–09; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–59281; File No. SR–NYSE– 

2008–120] 

Self-Regulatory Organizations; New 

York Stock Exchange LLC; Order 

Approving Proposed Rule Change 

Relating to the Limited Liability 

Company Agreement of New York 

Block Exchange, a Facility of NYSE 

January 22, 2009. 

I. Introduction 

On November 14, 2008, the New York 

Stock Exchange, LLC (‘‘NYSE’’ or 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’ or ‘‘SEC’’) a proposed 

rule change, pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Act’’) 1 and Rule 19b–4 

thereunder,2 in connection with the 

formation of a joint venture between 

NYSE and BIDS Holdings L.P. (‘‘BIDS’’), 

a Delaware limited partnership, to 

establish a new electronic trading 

facility of the Exchange, the New York 

Block Exchange (‘‘NYBX’’). The 

proposed rule change was published for 

comment in the Federal Register on 

November 24, 2008.3 The Commission 

received no comments on the proposal. 

This order approves the proposed rule 

change. 

II. Overview 

NYSE proposes to establish NYBX as 

a facility 4 of the Exchange. NYBX 

would provide for electronic matching 

and execution of non-displayed orders 

with the aggregate of all displayed and 

non-displayed orders residing within 

NYBX and the NYSE Display Book. The 

Exchange represents that NYBX would 

consider protected quotations of all 

automated trading centers.5 Only 

securities listed on NYSE would be 

eligible to trade on NYBX. 

NYBX would be owned and operated 

by the New York Block Exchange LLC 

(‘‘Company’’), a Delaware limited 

liability company (‘‘LLC’’). With this 

proposed rule change, the Exchange 

seeks the Commission’s approval of the 

proposed governance structure of the 

Company as reflected in the Limited 

Liability Company Agreement (‘‘LLC 

Agreement’’). In a separate action today, 

the Commission approved the 

Exchange’s proposed rule change to 

establish the trading rules for NYBX.6

NYSE and BIDS each would own a 

50% economic interest (‘‘Interest’’) 7 in 

the Company. In addition to its Interest, 

NYSE would enter into an agreement 

with the Company (‘‘Services 

Agreement’’) pursuant to which NYSE 

would perform certain financial, 

operational, information technology, 

and development services for the 

Company.8 As a self-regulatory 

organization (‘‘SRO’’), NYSE has 

regulatory responsibility for all of its 

facilities, including NYBX. The 

Exchange has delegated certain of its 

self-regulatory responsibilities to its 

wholly owned subsidiary, NYSE 

Regulation, Inc. (‘‘NYSE Regulation’’), 

which performs the regulatory functions 

of NYSE pursuant to a delegation 

agreement. In the LLC Agreement, the 

Members acknowledge and agree that 

NYSE Regulation would carry out 

certain regulatory oversight of NYBX.9

The board of directors of the 

Company (‘‘Board of Directors’’) would 

manage the business and affairs of the 

Company 10 but would delegate the dayto-day operations of the Company and 

the development of NYBX to the 

Exchange pursuant to the Services 

Agreement.11 The Board of Directors 

would consist of two individuals 

designated by NYSE (‘‘NYSE Directors’’) 

and two individuals designated by BIDS 

(‘‘BIDS Directors’’).12 The Members 

would not otherwise participate in the 

management or control of the 

Company’s business.13


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14 In approving the proposed rule change, the 

Commission has considered its impact on 

efficiency, competition, and capital formation. See 

15 U.S.C. 78c(f). 15 15 U.S.C. 78f(b)(1). 16 15 U.S.C. 78f(b)(5). 17See Securities Exchange Act Release Nos. 

55389 (March 2, 2007), 72 FR 10575 (March 8, 

2007) (order approving CBOE Stock Exchange as a 

facility of the Chicago Board Options Exchange) 

(‘‘CBSX Order’’); 54399 (September 1, 2006), 71 FR 

53728 (September 12, 2006) (order approving the 

ISE Stock Exchange as a facility of the International 

Securities Exchange) (‘‘ISE Stock Order’’); 54364 

(August 25, 2006), 71 FR 52185 (order approving 

the Boston Equities Exchange as a facility of the 

Boston Stock Exchange) (‘‘BeX Order’’); and 49065 

(January 13, 2004), 69 FR 2768 (January 20, 2004) 

(order approving the Boston Options Exchange as 

a facility of the Boston Stock Exchange) (‘‘BOX 

Order’’). 

18See Section 6.1(c) of the LLC Agreement. 

19See id. 

20See Sections 8.1(a) and (d) of the LLC 

Agreement. 

21See Section 8.1(d) of the LLC Agreement. 

22See Section 14.1(b) of the LLC Agreement. 

23See Section 14.1(c) of the LLC Agreement. 

24 ‘‘Non-Market Matters’’ means matters relating 

solely to one or more of the following: marketing, 

administrative matters, personnel matters, social or 

team-building events, meetings of Members, 

communication with Members, finance, location 

and timing of Board of Directors meetings, market 

research, real property, equipment, furnishings, 

personal property, intellectual property, insurance, 

contracts unrelated to the operation of NYBX, and 

de minimis items. See Section 2.1 of the LLC 

Agreement. 

25See Section 8.1(e) of the LLC Agreement. 

26 ‘‘NYSE Market Participant’’ means any person 

that is registered with the Exchange for purposes of 

participating in equities trading on one or more of 

the U.S. markets operated by NYSE Euronext, the 

parent company of NYSE. See Section 2.1 of the 

LLC Agreement. 

27See Section 2.1 of the LLC Agreement (defining 

‘‘Regulatory Deficiency’’). 

III. Discussion and Commission 

Findings 

After careful consideration, the 

Commission finds that the proposed 

rule change is consistent with the 

requirements of the Act and the rules 

and regulations thereunder applicable to 

a national securities exchange.14 In 

particular, the Commission finds that 

the proposed rule change is consistent 

with Section 6(b)(1) of the Act,15 which, 

among other things, requires a national 

securities exchange to be so organized 

and have the capacity to be able to carry 

out the purposes of the Act and to 

enforce compliance by its members and 

persons associated with its members 

with the provisions of the Act, the rules 

and regulations thereunder, and the 

rules of the exchange. The Commission 

also finds that the proposed rule change 

is consistent with Section 6(b)(5) of the 

Act,16 which requires, among other 

things, that the rules of a national 

securities exchange be designed to 

prevent fraudulent and manipulative 

acts and practices; to promote just and 

equitable principles of trade; to foster 

cooperation and coordination with 

persons engaged in regulating, clearing, 

settling, and processing information 

with respect to, and facilitating 

transactions in securities; to remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system; and, in 

general, to protect investors and the 

public interest. 

A. NYBX as a Facility of the Exchange 

The Commission believes that the 

proposed rule change is consistent with 

Section 6(b)(1) of the Act in that, upon 

establishing NYBX as a facility of the 

Exchange, NYSE would remain so 

organized and have the capacity to carry 

out the purposes of the Act. As an SRO, 

the Exchange would have regulatory 

control over NYBX and would be 

responsible for ensuring its compliance 

with the federal securities laws and all 

applicable rules and regulations 

thereunder. Furthermore, the Company 

is obligated under the LLC Agreement to 

operate NYBX in a manner consistent 

with the regulatory and oversight 

responsibilities of NYSE and the Act 

and rules and regulations thereunder. 

The Commission notes that it previously 

approved similar structures with respect 

to the operation of exchange facilities.17

Although the Company does not carry 

out any regulatory functions, all of its 

activities must be consistent with the 

Act. As a facility of a national securities 

exchange, NYBX is not solely a 

commercial enterprise but is an integral 

part of an SRO that is registered 

pursuant to the Act and therefore 

subject to obligations imposed by the 

Act. The Commission believes that the 

LLC Agreement is reasonably designed 

to enable the Company to operate in a 

manner that is consistent with this 

principle. The LLC Agreement provides 

that the Company, its Members, and the 

officers, directors, agents, and 

employees of the Company and its 

Members shall comply with the federal 

securities laws and the rules and 

regulations promulgated thereunder and 

cooperate with the Exchange and the 

Commission.18 Further, the Company, 

its Members, and the officers, directors, 

agents, and employees of the Company 

and its Members also agree to engage in 

conduct that fosters and does not 

interfere with the Company’s and the 

Exchange’s ability to carry out their 

respective responsibilities under the 

Act.19

The LLC Agreement likewise provides 

that the Board of Directors collectively 

and each member of the Board of 

Directors individually must comply 

with the federal securities laws and the 

rules and regulations thereunder and 

cooperate with the Exchange and with 

the Commission.20 Moreover, each 

NYSE Director and BIDS Director must 

take into consideration whether his or 

her actions would cause NYBX or the 

Company to engage in conduct that 

fosters, and does not interfere with, the 

Exchange’s or the Company’s ability to 

carry out their respective 

responsibilities under the Act.21

The LLC Agreement stipulates that all 

confidential information pertaining to 

the self-regulatory function of the 

Exchange or the Company (including 

but not limited to disciplinary matters, 

trading data, trading practices, and audit 

information) contained in the books and 

records of the Company would not be 

made available to any persons other 

than to those officers, directors, 

employees, and agents of the Company 

and the Members that have a reasonable 

need to know the contents thereof; 

would be retained in confidence by the 

Company and the Members and their 

respective officers, directors, employees, 

and agents; and would not be used for 

any commercial purposes.22 Nothing in 

the LLC Agreement, however, would 

limit or impede the rights of the 

Commission, the Exchange, or NYSE 

Regulation to access and examine 

confidential information of the 

Company pursuant to the federal 

securities laws or limit or impede the 

ability of a member of the Board of 

Directors, any Member, or any officer, 

director, agent, or employee of a 

Member or the Company to disclose 

confidential information to the 

Commission, the Exchange, or NYSE 

Regulation.23

The LLC Agreement also provides that 

NYSE Regulation will receive notice of 

planned or proposed changes to the 

Company (excluding Non-Market 

Matters 24) or NYBX, and NYSE 

Regulation must not object affirmatively 

to such changes prior to 

implementation.25 If NYSE Regulation 

determines that the planned or 

proposed changes to the Company or 

NYBX could cause the Company or 

NYBX to operate in a manner that is not 

consistent with the provisions of the 

LLC Agreement, the rules of the 

Exchange, or the federal securities laws 

governing NYBX or NYSE Market 

Participants,26 or that otherwise 

impedes the Exchange’s ability to 

regulate NYBX or NYSE Market 

Participants, or to fulfill its obligations 

under the Act as an SRO (each a 

‘‘Regulatory Deficiency’’ 27), NYSE 

Regulation may direct the Company to, 

and the Company must, modify the 


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28See Section 8.1(e) of the LLC Agreement. 

29See id. 

30See Section 13.1 of the LLC Agreement. 

31See id. 

32See Section 7.1(b) of the LLC Agreement 

(enumerating the sections of the LLC Agreement for 

which violations thereof by a Member would permit 

the Board of Directors to suspend or terminate the 

Member’s voting privileges). 

33See Section 3(a)(39) of the Act, 15 U.S.C. 

78c(a)(39) (defining ‘‘statutory disqualification’’). 

34See Section 7.1(b) of the LLC Agreement. 

35See id. 

36See Section 8.3(f) of the LLC Agreement. 

37See Section 8.3(a) of the LLC Agreement. 

38See Section 8.3(b) of the LLC Agreement. 

39See Section 6.1(a) of the LLC Agreement. 

40See id. 

41See Section 6.1(b) of the LLC Agreement. 42See Section 8.1(d) of the LLC Agreement. 43 15 U.S.C. 78s(h)(4) (authorizing the 

Commission, by order, to remove from office or 

censure any officer or director of a national 

securities exchange if it finds, after notice and an 

opportunity for hearing, that such officer or director 

has: (1) willfully violated any provision of the Act 

or the rules and regulations thereunder, or the rules 

of a national securities exchange; (2) willfully 

abused his or her authority; or (3) without 

reasonable justification or excuse, has failed to 

enforce compliance with any such provision by a 

member or person associated with a member of the 

national securities exchange). 

44 15 U.S.C. 78q(b)(1). 

45 15 U.S.C. 78t(a). 

46 15 U.S.C. 78c(a)(27). 

planned or proposed changes as 

necessary to ensure that they do not 

cause a Regulatory Deficiency.28

Likewise, if NYSE Regulation 

determines that a Regulatory Deficiency 

exists or is planned, NYSE Regulation 

may direct the Company to, and the 

Company must, undertake such 

modifications to the Company 

(excluding Non-Market Matters) or 

NYBX as are necessary or appropriate to 

eliminate or prevent the Regulatory 

Deficiency and allow NYSE Regulation 

to perform and fulfill its delegated 

regulatory responsibilities.29

Furthermore, before any amendment 

to or repeal of any provision of the LLC 

Agreement becomes effective, such 

amendment or repeal must be filed 

with, or filed with and approved by, the 

Commission under Section 19 of the 

Act.30 In the alternative, an amendment 

or repeal must be submitted to the board 

of directors of the Exchange and, if the 

Exchange’s board of directors 

determines that such amendment or 

repeal must be filed with, or filed with 

and approved by, the Commission 

before it can be effectuated, then such 

amendment or repeal would not be 

effectuated until filed with, or filed with 

and approved by, the Commission.31

The Commission believes that certain 

additional provisions in the LLC 

Agreement that make accommodation 

for NYSE as the SRO for NYBX are 

consistent with the Act, because they 

enhance the ability of NYSE to carry out 

its self-regulatory responsibilities with 

respect to NYBX. The LLC Agreement 

provides that the Board of Directors, by 

a majority vote, may suspend or 

terminate a Member’s voting privileges 

or membership if the Member materially 

violates a provision of the LLC 

Agreement relating to certain regulatory 

matters 32 or any federal or state 

securities law; such Member is subject 

to statutory disqualification; 33 or such 

action is necessary or appropriate in the 

public interest or for the protection of 

investors.34 The directors designated by 

the Member subject to sanction would 

be excluded from any vote to suspend 

or terminate such Member.35 Moreover, 

in the event of a meeting of the Board 

of Directors solely with respect to the 

business of suspending or terminating a 

Member’s voting privileges or 

membership, the presence of directors 

designated by the Member subject to 

sanction would not be required to 

constitute a quorum to transact the 

business.36

To reflect that NYBX is not solely a 

commercial enterprise, the LLC 

Agreement also stipulates that any 

individual designated to the Board of 

Directors may not be subject to any 

applicable statutory disqualification.37

Further, any director who becomes 

subject to a statutory disqualification 

would be deemed to have automatically 

resigned from the Board of Directors.38

B. Regulatory Jurisdiction Over the 

Company and Its Members 

The Commission also believes that the 

terms of the LLC Agreement provide 

clarification of the Commission’s and 

NYSE’s regulatory jurisdiction over the 

Company and its Members. The LLC 

Agreement provides that, to the extent 

related to the Company’s business, the 

books, records, premises, officers, 

directors, agents, and employees of the 

Company and its Members would be 

deemed to be the books, records, 

premises, officers, directors, agents, and 

employees of the Exchange for purposes 

of, and subject to oversight pursuant to, 

the Act.39 The LLC Agreement also 

provides that the books and records of 

the Company must be maintained at the 

principal office of the Company in New 

York and would be subject at all times 

to inspection and copying by the 

Commission and the Exchange at no 

additional charge to the Commission or 

the Exchange.40

The LLC Agreement further provides 

that the Company, its Members, and the 

officers, directors, agents, and 

employees of the Company and its 

Members irrevocably submit to the 

jurisdiction of the U.S. federal courts, 

the Commission, and the Exchange for 

purposes of any suit, action, or 

proceeding pursuant to U.S. federal 

securities laws and the rules and 

regulations thereunder arising out of, or 

relating to, activities of the Company 

and waive, and agree not to assert by 

way of motion, as a defense or otherwise 

in any such suit, action, or proceeding, 

any claims that they are not personally 

subject to the jurisdiction of the 

Commission; the suit, action, or 

proceeding is an inconvenient forum; 

the venue of the suit, action, or 

proceeding is improper; or that the 

subject matter may not be enforced in or 

by such courts or agency.41 Moreover, 

the Company and each Member must 

take such action as is necessary to 

ensure that the Company’s and such 

Member’s officers, directors, agents, and 

employees consent in writing to the 

application to them of the provisions in 

the LLC Agreement with respect to their 

activities relating to the Company.42

The Commission believes that these 

provisions are consistent with the Act 

because they are reasonably designed to 

facilitate the Commission’s and NYSE’s 

regulatory jurisdiction over the 

Company and NYBX. These provisions 

clarify the Commission’s authority 

under the Act to inspect the Company’s 

books and records by deeming them to 

be the books and records of a national 

securities exchange. Further, these 

provisions clarify that the Commission 

may exercise its authority under Section 

19(h)(4) of the Act 43 with respect to the 

officers and directors of the Company 

and its Members, because such officers 

and directors are deemed to be officers 

and directors of the Exchange. Finally, 

the LLC Agreement clarifies that, to the 

extent that they are related to the 

Company’s business, the books and 

records of the Company are subject to 

the Commission’s examination authority 

under Section 17(b)(1) of the Act.44

Even in the absence of these 

provisions, Section 20(a) of the Act 45

provides that any person with a 

controlling interest in the Company 

would be jointly and severally liable 

with and to the same extent that the 

Company is liable under any provision 

of the Act, unless the controlling person 

acted in good faith and did not directly 

or indirectly induce the act or acts 

constituting the violation or cause of 

action. Moreover, NYSE is required to 

enforce compliance with these 

provisions, because they are ‘‘rules of 

the exchange’’ within the meaning of 

Section 3(a)(27) of the Act.46 A failure 

on the part of NYSE to enforce its rules 


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47 15 U.S.C. 78s(h)(1). 

48See Section 9.1 of the LLC Agreement (defining 

‘‘Transfer’’). 

49 ’’Related Person’’ means, with respect to any 

person, any other person that directly, or indirectly 

through one or more intermediaries, Controls, is 

Controlled by, or is under common Control with, 

such person. See id. ‘‘Control’’ means the 

possession, directly or indirectly, of the power to 

direct or cause the direction of the management or 

policies of a person, whether through ownership or 

voting of securities, by contract or otherwise. See 

id. 

50See Section 9.8(c) of the LLC Agreement. 

51See id. 

52See Securities Exchange Act Release Nos. 

58324 (August 7, 2008), 73 FR 46936 (August 12, 

2008) (order approving the transfer of the Boston 

Stock Exchange’s ownership interest in the Boston 

Options Exchange Group, the operator of the BOX 

facility, to MX U.S. 2, Inc., a wholly owned 

subsidiary of the Montreal Exchange); 44983 

(October 25, 2001), 66 FR 55225 (November 1, 2001) 

(order approving the establishment of Archipelago 

Exchange as a facility of the Pacific Exchange where 

Pacific Exchange’s ownership interest in 

Archipelago Exchange, L.L.C. (‘‘Arca L.L.C.’’), the 

operator of Archipelago Exchange, consisted solely 

of a 10% interest in Archipelago Holdings, LLC, the 

parent company of Arca L.L.C.); 41210 (March 24, 

1999), 64 FR 15857 (April 1, 1999) (order approving 

electronic system operated as a facility of 

Philadelphia Stock Exchange (‘‘Phlx’’), which had 

no ownership interest in the operation of the 

system); and 54538 (September 29, 2006), 71 FR 

59184 (October 6, 2006) (order approving Phlx’s 

New Equity Trading system and operation of 

optional outbound router as a facility of Phlx, 

which had no ownership interest in the third-party 

operator). 

53See Section 9.8(b) of the LLC Agreement. 

54See Section 9.8(b)(i) of the LLC Agreement. 

55See Section 9.8(b)(ii) of the LLC Agreement. 

56See Section 9.8(b)(iii) of the LLC Agreement. 

57See Section 2.1 of the LLC Agreement. 

58See Sections 9.8(d)(i) and (ii) of the LLC 

Agreement. 

59See Section 9.8(d)(iv) of the LLC Agreement. 

60See id. 

61See Section 9.8(a) of the LLC Agreement. 

62 17 CFR 249.1 and 17 CFR 249.1a. 

63This reporting requirement applies only to 

exchanges that have one or more owners, 

shareholders, or partners that are not also members 

of the exchange. See Form 1, Exhibit K. 

64 17 CFR 240.6a–2(a)(2). 

could result in suspension or revocation 

of its registration, pursuant to Section 

19(h)(1) of the Act.47

C. Changes of Ownership Interests in the 

Company 

The Commission believes that the 

provisions in the LLC Agreement 

relating to changes of Interests in, and 

changes in control of, the Company are 

consistent with the Act. The LLC 

Agreement provides that NYSE’s 

Interest would not decline below 50% 

unless and until NYSE had delivered to 

the Board of Directors a notice in 

writing of its intention to Transfer 48 its 

Interest such that the Exchange, either 

alone or together with its Related 

Persons,49 would hold less than a 50% 

Interest in the Company.50 Furthermore, 

before the Exchange could reduce its 

Interest to less than 50%, the Exchange 

must first file a proposed rule change 

with the Commission under Section 

19(b) of the Act and obtain the 

Commission’s approval of that 

proposal.51 NYSE’s regulatory 

obligations for NYBX would endure as 

long as NYBX is a facility of the 

Exchange, regardless of the size of 

NYSE’s Interest in the Company.52

Nevertheless, the Commission believes 

that it is reasonable for the Exchange to 

alert the Commission of any reduction 

in its Interest in the Company. Such a 

reduction could warrant additional 

review of the LLC Agreement to ensure 

that NYSE’s responsibilities as the SRO 

for NYBX are not compromised. 

The LLC Agreement also provides that 

no person that is not a Member as of the 

effective date of the LLC Agreement, 

either alone or together with its Related 

Persons, may directly own an Interest in 

the Company exceeding 20% 

(‘‘Concentration Limitation’’).53 The 

Concentration Limitation, however, 

would not apply to the Exchange.54

Further, the LLC Agreement permits the 

Concentration Limitation to be waived if 

the Board of Directors determines not to 

oppose the acquisition of an Interest 

exceeding the Concentration Limitation 

and the waiver has been filed as a 

proposed rule change under Section 

19(b) of the Act and approved by the 

Commission.55 Nevertheless, the Board 

of Directors may not waive the 

Concentration Limitation if the person 

or any of its Related Persons seeking to 

exceed the Concentration Limitation is 

subject to any applicable statutory 

disqualification or is a member or 

member organization of the Exchange.56

Moreover, the LLC Agreement 

provides that, if any person, alone or 

together with any Related Person, 

acquires a direct or indirect ownership 

of 25% or more of the total voting power 

of a Member (such person, a 

‘‘Controlling Person,’’ and such interest 

a ‘‘Controlling Interest’’ 57), and the 

Member, alone or together with any 

Related Person, holds an Interest in the 

Company equal to or greater than 20%, 

then such Controlling Person must 

become a party to the LLC Agreement 

and abide by its terms.58 The LLC 

Agreement also provides that the 

Exchange must file with the 

Commission, pursuant to Section 19(b) 

of the Act, any amendment to the LLC 

Agreement caused by the addition of a 

Controlling Person.59 The non-economic 

rights and privileges, including all 

voting rights, of the Member in which 

such Controlling Interest is acquired 

would be suspended until the proposed 

rule change has become effective under 

the Act or until the Controlling Person 

ceased to have a Controlling Interest in 

such Member.60

A proposed rule change submitted in 

any of the circumstances noted above 

would afford the Commission an 

opportunity to ensure that a change to 

the LLC Agreement or a change in the 

ownership of the Company would be 

consistent with the Act, including 

whether the Commission and NYSE 

would retain sufficient regulatory 

jurisdiction over the proposed indirect 

controlling party. The Commission 

understands that the LLC Agreement 

would apply to any ultimate parent of 

the Company, no matter how many 

levels of ownership are involved, 

provided that a Controlling Interest 

exists between each link of the 

ownership chain. 

Finally, the LLC Agreement requires 

the Company to provide the 

Commission with written notice ten 

days prior to the closing date of any 

acquisition of an Interest by a person 

that results in a Member’s percentage 

ownership interest in the Company, 

alone or together with any Related 

Person of such Member, meeting or 

crossing the 5%, 10%, or 15% 

thresholds.61 This notice requirement is 

analogous to a requirement in Form 1,62

the application and amendments to the 

application for registration as a national 

securities exchange. Exhibit K of Form 

1 requires any exchange that is a 

corporation or partnership to list any 

persons that have an ownership interest 

of 5% or more in the exchange.63

Additionally, Rule 6a–2(a)(2) under the 

Act 64 requires an exchange to update its 

Form 1 within ten days after any action 

that renders inaccurate the information 

previously filed in Exhibit K. 

Exhibit K imposes no obligation on an 

exchange to report parties whose 

ownership interest in the exchange is 

less than 5%. Likewise, the Commission 

does not believe that a change to the 

LLC Agreement that reflects the taking 

of less than a 5% interest in a facility 

of a national securities exchange (or an 

increase that does not cross any of the 

additional thresholds) is a ‘‘rule of the 

exchange’’ that must be filed pursuant 

to Section 19(b) of the Act. 

D. Ownership Interest of BIDS 

Under this proposal, BIDS would hold 

a 50% Interest in the Company, the 

operator of NYBX. The Commission has 

previously expressed concern regarding 

the potential for unfair competition and 

conflicts of interest where a member of 

an exchange owns more than 20% of 


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5018 Federal Register / Vol. 74, No. 17 / Wednesday, January 28, 2009 / Notices 

65See, e.g., BeX Order, BOX Order, CBSX Order, 

and ISE Stock Order, supra note 17. 

66The aggregate average daily trading volume in 

NYBX would be calculated based upon the trading 

volume of NYBX itself combined with trading 

volume in the NYSE Display Book that originated 

in NYBX, if any. 

67See Section 9.9 of the LLC Agreement. 

68NYSE Rule 2B states that the term ‘‘affiliate’’ 

would have the meaning specified in Rule 12b–2 

under the Act, 17 CFR 240.12b–2. 

69As a result of this ownership interest, NYSE 

Market is a limited partner in BIDS. The Exchange 

has stated that it and its affiliates do not have any 

voting or other control arrangements with any of the 

other limited partners or general partner of BIDS. 

See Notice, supra note 3, 73 FR at 71068. 

70See Notice, supra note 3, 73 FR at 71062. 

71Specifically, the Company is an affiliate of the 

Exchange and BIDS is an affiliate of the Company. 

72See Notice, supra note 3, 73 FR at 71068– 

71069. 

73 17 CFR 240.17d–2. 

74NYSE also stated that BIDS is subject to 

independent oversight by FINRA, its Designated 

Examining Authority, for compliance with financial 

responsibility requirements. See Notice, supra note 

3, 73 FR at 71068. 

75Specifically, NYSE Regulation ‘‘will collect and 

maintain the following information of which NYSE 

Regulation staff becomes aware—namely, all alerts, 

complaints, investigations and enforcement actions 

where BIDS (in its capacity as an NYSE member) 

is identified as a participant that has potentially 

violated NYSE or applicable SEC rules—in an easily 

accessible manner so as to facilitate any review 

conducted by the SEC’s Office of Compliance 

Inspections and Examination.’’ Notice, supra note 

3, 73 FR at 71068. 

76See proposed NYSE Rule 2B, commentary.01. 

77See id. See also supra notes 22 and 23 and 

accompanying text. 

78See supra notes 53 to 56 and accompanying 

text for a discussion of the Concentration 

Limitation. 

that exchange or a facility thereof.65

Although it is common for a member to 

have an ownership interest in an 

exchange or a facility of an exchange, 

such member’s interest could become so 

large as to raise questions whether the 

exchange can fairly and objectively 

exercise its self-regulatory 

responsibilities with respect to that 

member. A member that has a 

controlling interest in the exchange or a 

facility might attempt to direct the 

exchange to refrain from diligently 

surveilling the member’s conduct or 

from punishing any improper conduct. 

The Commission believes that BIDS’s 

Interest is consistent with the Act 

because the LLC Agreement is 

reasonably designed to address these 

concerns. The LLC Agreement provides 

that if, during at least four of the 

preceding six calendar months, the 

average daily trading volume in NYBX 

exceeds 10% of the aggregate average 

daily trading volume of NYSE 66 and a 

Member (other than NYSE), either alone 

or together with its Related Persons, 

owns Interests exceeding the 

Concentration Limitation, then, within 

180 days: (1) an independent third-party 

SRO engaged by the Company must 

begin to conduct market surveillance of 

the Member with respect to such 

Member’s trading activity in both NYBX 

and the Exchange; or (2) the Member 

must reduce its Interest in the Company 

such that it does not exceed the 

Concentration Limitation.67 The 

Commission believes that, if NYBX 

accounts for a material percentage of the 

Exchange’s volume, there is a risk that 

the Exchange’s business interests could 

undermine its ability to vigorously 

regulate BIDS. The LLC Agreement 

provides for two reasonable ways of 

addressing that risk: (1) require an 

independent SRO to conduct market 

surveillance of BIDS if NYBX accounts 

for a material percentage of the 

Exchange’s volume; or (2) reduce the 

business conflict faced by NYSE by 

requiring BIDS to lower its Interest in 

the Company to below 20%. The 

Commission further believes that 180 

days is a reasonable period in which to 

implement one of these two actions. 

E. NYSE Rule 2B 

NYSE Rule 2B provides, in relevant 

part, that: ‘‘[w]ithout prior SEC 

approval, the Exchange or any entity 

with which it is affiliated shall not, 

directly or indirectly, acquire or 

maintain an ownership interest in a 

member organization. In addition, a 

member organization shall not be or 

become an affiliate of the Exchange, or 

an affiliate of any affiliate of the 

Exchange.’’68 The Exchange, through its 

wholly owned subsidiary NYSE Market, 

Inc. (‘‘NYSE Market’’), a Delaware 

corporation, currently owns 8.75% of 

the aggregate limited partnership 

interests in BIDS,69 which will become 

a member of NYSE in connection with 

the establishment of NYBX.70 In 

addition, BIDS is an affiliate of an 

affiliate of the Exchange because BIDS 

and NYSE will each hold a 50% Interest 

in the Company.71 Thus, both NYSE 

Market’s ownership interest in BIDS and 

BIDS’s affiliation with the Company 

would violate NYSE rules, absent 

Commission approval under Section 

19(b) of the Act. 

As part of its proposal, NYSE has 

requested that the Commission approve 

these two exceptions to Rule 2B, subject 

to the following limitations and 

conditions:72

1. NYSE and the Financial Industry 

Regulatory Authority (‘‘FINRA’’) have 

entered into an agreement pursuant to 

Rule 17d–2 under the Act,73 under 

which FINRA is allocated regulatory 

responsibilities to review BIDS’s 

compliance with certain NYSE rules.74

2. NYSE Regulation will monitor 

BIDS for compliance with NYSE’s 

trading rules and will collect and 

maintain certain related information.75

3. NYSE Regulation has agreed with 

NYSE that NYSE Regulation will 

provide a report to NYSE’s CRO, on a 

quarterly basis, that: (i) quantifies all 

alerts (of which NYSE Regulation is 

aware) that identify BIDS as a 

participant that has potentially violated 

NYSE or Commission rules, and (ii) 

quantifies the number of all 

investigations that identify BIDS as a 

participant that has potentially violated 

NYSE or Commission rules. 

4. NYSE has proposed an amendment 

to Rule 2B (in this filing) that will 

require NYSE and BIDS to establish and 

maintain procedures and internal 

controls reasonably designed to ensure 

that BIDS and its affiliates do not have 

access to non-public information 

relating to the Exchange, obtained as a 

result of its affiliation with NYSE, until 

such information is available generally 

to similarly situated members of 

NYSE.76 Under the proposed rule, BIDS 

and its affiliates may have access to 

non-public information relating to the 

parties’ obligations under the LLC 

Agreement, and such non-public 

information shall be kept confidential in 

accordance with Section 14.1 of the LLC 

Agreement.77

5. Section 9.9 of the LLC Agreement 

provides that if, during at least four of 

the preceding six calendar months, the 

average daily trading volume in NYBX 

exceeds 10% of the aggregate daily 

trading volume of NYSE, then, within 

180 days, either an independent thirdparty SRO engaged by the Company 

must begin to conduct surveillance of 

BIDS with respect to BIDS’s trading 

activity in both NYBX and NYSE, or 

BIDS must reduce its interest in the 

Company such that it does not exceed 

the Concentration Limitation.78

6. NYSE Market currently owns less 

than a 9% equity interest in BIDS and 

does not have any veto or other special 

voting rights with respect to the 

management or operation of BIDS. 

NYSE, or any of its affiliates, may not 

directly or indirectly increase such 

equity interest without prior 

Commission approval. 

7. The proposed exception from NYSE 

Rule 2B to permit NYSE’s ownership 

interest in BIDS and BIDS’s affiliation 

with the Company (which is an affiliate 

of NYSE) would be for a pilot period of 

12 months. 

The Commission finds that the 

proposed exception from NYSE Rule 2B 

to permit NYSE’s ownership interest in 

BIDS and BIDS’s affiliation with the 

Company is consistent with the Act. In 


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Federal Register / Vol. 74, No. 17 / Wednesday, January 28, 2009 / Notices 5019 

79 15 U.S.C. 78f(b)(5). 

80See, e.g., Securities Exchange Act Release Nos. 

54170 (July 18, 2006), 71 FR 42149 (July 25, 2006) 

(SR–NASDAQ–2006–006) (order approving 

Nasdaq’s proposal to adopt Nasdaq Rule 2140, 

restricting affiliations between Nasdaq and its 

members); 53382 (February 27, 2006), 71 FR 11251 

(March 6, 2006) (SR–NYSE–2005–77) (order 

approving combination of NYSE and Archipelago 

Holdings, Inc.); and 58673 (September 29, 2008), 73 

FR 57707 (October 3, 2008) (SR–Amex–2008–62) 

(order approving acquisition of the American Stock 

Exchange by NYSE Euronext). 

81 15 U.S.C. 78s(b)(2). 

82 17 CFR 200.30–3(a)(12). 

particular, the Commission finds that 

the proposal is consistent with Section 

6(b)(5) of the Act,79 which requires, 

among other things, that the rules of an 

exchange be designed to prevent 

fraudulent and manipulative acts and 

practices; to promote just and equitable 

principles of trade; to foster cooperation 

and coordination with persons engaged 

in regulating, clearing, settling, 

processing information with respect to, 

and facilitating transactions in 

securities; to remove impediments to 

and perfect the mechanism of a free and 

open market and a national market 

system; and, in general, to protect 

investors and the public interest; and 

are not designed to permit unfair 

discrimination between customers, 

issuers, brokers, or dealers. 

In the past, the Commission has 

expressed concern that the affiliation of 

an exchange with one of its members 

raises potential conflicts of interest and 

the potential for unfair competitive 

advantage.80 NYSE Market’s ownership 

interest in BIDS and the joint ownership 

of the Company by NYSE and BIDS 

raise similar concerns. The Commission 

continues to be concerned about 

potential unfair competition and 

conflicts of interest between an 

exchange’s self-regulatory obligations 

and its commercial interest when the 

exchange holds an ownership interest in 

a member or is affiliated with one of its 

members. 

Nevertheless, in view of the 

conditions described above, the 

Commission believes that it is 

consistent with the Act to permit the 

proposed exceptions to NYSE Rule 2B. 

These conditions appear reasonably 

designed to mitigate concerns about 

potential conflicts of interest and unfair 

competitive advantage. FINRA will 

conduct member regulation of BIDS 

and—if trading volume from the facility 

grows sufficiently large and BIDS does 

not wish to reduce its ownership 

interest in the Company—might also be 

required to conduct market regulation of 

BIDS. Furthermore, NYSE’s CRO will be 

provided quarterly reports of any alerts 

or investigations relating to BIDS. These 

conditions appear reasonably designed 

to promote robust and independent 

regulation of BIDS. NYSE and BIDS also 

must establish and maintain procedures 

and internal controls that are reasonably 

designed to prevent BIDS and its 

affiliates from deriving any unfair 

informational advantage resulting from 

its affiliation with NYSE. Finally, NYSE 

has proposed that the exception from 

NYSE Rule 2B be on a pilot basis, which 

will provide NYSE and the Commission 

an opportunity to assess whether there 

might be any adverse consequences of 

the exception and whether a permanent 

exception is warranted. The 

Commission believes that, taken 

together, these conditions are 

reasonably designed to mitigate 

potential conflicts between the 

Exchange’s commercial interest in BIDS 

and its regulatory responsibilities with 

respect to BIDS. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,81 that the 

proposed rule change (SR–NYSE–2008– 

120) be, and it hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.82

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–1806 Filed 1–27–09; 8:45 am] 

BILLING CODE 8011–01–P 

DEPARTMENT OF STATE 

[Public Notice 6495] 

Designation of Benefits Under the 

Foreign Missions Act; Diplomatic and 

Consular Exemption From Tobacco 

Excise Taxes 

After due consideration of the 

benefits, privileges and immunities 

provided to missions of the United 

States under the Vienna Diplomatic and 

Consular Conventions and other 

governing treaties, and in order to 

facilitate relations between the United 

States and foreign governments, to 

improve or maintain the availability of 

tax exemption privileges for the United 

States, and by virtue of the authority 

vested in me under the Foreign 

Missions Act, 22 U.S.C. 4301 et seq., 

and Delegation of Authority No. 214, 

§ 14, dated September 20, 1994, I hereby 

designate as a benefit under the Act, to 

be granted to foreign diplomatic and 

consular missions and personnel in the 

United States on the basis of reciprocity 

and as otherwise determined by the 

Department, to include personnel of 

international organizations and 

missions to such organizations who are 

otherwise entitled to exemption from 

direct taxes, exemption from Federal 

and State or local excise taxes imposed 

with respect to tobacco products (as 

defined in 26 U.S.C. 5702) 

manufactured, packaged or sold in the 

United States. Procedures governing 

implementation of this benefit will be 

established by the Department of the 

Treasury. 

DATES: Effective Date: January 28, 2009. 

FOR FURTHER INFORMATION CONTACT: 

Technical Information: Cliff Seagroves, 

202–647–1395, seagrovescc@state.gov. 

Legal Information: Susan Benda, 202– 

647–0308, bendas@state.gov. 

Dated: January 14, 2009. 

Eric J. Boswell, 

Ambassador, Director of the Office of Foreign 

Missions and Assistant Secretary for 

Diplomatic Security, Department of State. 

[FR Doc. E9–1723 Filed 1–27–09; 8:45 am] 

BILLING CODE 4710–43–P 

DEPARTMENT OF STATE 

[Public Notice 6496] 

Notice of Intent to Prepare an 

Environmental Impact Statement and 

to Conduct Scoping Meetings and 

Notice of Floodplain and Wetland 

Involvement and to Initiate 

Consultation under Section 106 of the 

National Historic Preservation Act for 

the Proposed Transcanada Keystone 

Xl Pipeline 

Public Notice 

AGENCY: Department of State. 

ACTION: Notice. 

SUMMARY: TransCanada Keystone 

Pipeline, L.P. (Keystone) has applied to 

the United States Department of State 

for a Presidential Permit authorizing the 

construction, operation, and 

maintenance of facilities at the border of 

the United States for the importation of 

petroleum from a foreign country. 

Authorization is being requested in 

connection with Keystone’s proposed 

international pipeline project (the 

Keystone XL Project), which is designed 

to transport crude oil production from 

the Western Canadian Sedimentary 

Basin to existing markets in the Texas 

Gulf Coast area. The Department of State 

receives and considers applications for 

Presidential Permits for such energyrelated pipelines pursuant to authority 

delegated to it by the President under 

Executive Order 13337 of April 30, 2004 

(69 FR 25299), as amended. To issue a 

Permit, the Department of State must 


sroberts on PROD1PC70 with NOTICES