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21 Id. 

22 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. 55172 

(January 25, 2007), 72 FR 4745. 

4Pursuant to Section 3(a)(2) of the Act, 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.’’ 15 U.S.C. 78c(a)(2). The 

Commission notes that although the Operating 

Agreement refers to CBSX LLC as a facility of 

CBOE, the scope of the CBSX facility is not limited 

to CBSX LLC. 

5 15 U.S.C. 78c(a)(2). 

6CBOE represents that it has adequate funds to 

discharge all regulatory functions related to the 

facility. CBOE further represents that CBSX LLC 

will not be entitled to any revenue generated in 

connection with penalties, fines, and regulatory fees 

that may be assessed by CBOE against CBOE 

members in connection with trading on CBSX. 

Rather, all regulatory fines, penalties and fees 

assessed against and paid by CBOE members to 

CBOE in connection with trading on CBSX will 

remain with CBOE. 

7The Commission approved the Exchange’s 

proposed rule change relating to the CBSX permit 

program. See Securities Exchange Act Release No. 

55326 (February 21, 2007), 72 FR 8816 (February 

27, 2007). The Commission also approved the 

Exchange’s proposed rule change to establish the 

equity trading rules for CBSX. See Securities 

Exchange Act Release No. 34–55392 (March 2, 

2007). 

8 ‘‘Owner’’ means a limited liability company 

‘‘member’’ as that term is defined in § 18–101(11) 

of the Delaware Limited Liability Company Act 

(‘‘DLLCA’’), and shall include each Voting Owner 

and each Management Owner, but only so long as 

such person is shown on CBSX’s books and records 

as the owner of at least one (1) Share (or fraction 

of one (1) Share). ‘‘Owner’’ shall include a 

‘‘Substituted Owner’’ as defined in Section 6.5(a) of 

the Operating Agreement, but only upon 

compliance with all of the requirements of Sections 

6.4 and 6.5 of the Operating Agreement. For 

purposes of clarity, no person shall become an 

‘‘Owner’’ as to any Shares, if the acquisition of 

those Shares will require a change of ownership 

notice to the Commission, or will constitute a 

proposed rule change subject to the requirements of 

the rule filing process of Section 19 of the Act, until 

all of the requirements of such notice or rule filing 

process have been accomplished and, if necessary, 

approved by the Commission. See Section 2.1(16) 

of the Operating Agreement. 

9 ‘‘Voting Shares’’ means those Shares entitled to 

vote on matters submitted to the Owners, which 

Voting Shares are held by the Voting Owners. See 

Section 2.1(27) of the Operating Agreement. 

10As noted in Section 3.2 of the Operating 

Agreement, it is the intention of the Owners that no 

other members of CBSX LLC (other than Affiliates 

of CBOE) be owners of Series A Voting Shares, and 

that no additional Series A Voting Shares be 

authorized, created or issued for such purpose; 

provided however, that this provision is not 

intended to limit or restrict any rights of CBOE to 

transfer any of its Series A Voting Shares with the 

prior approval of the Commission as provided for 

in Article VI, including Section 6.14 of the 

Operating Agreement, or any other provision 

thereof, or any rights to be acquired by a transferee 

of those Shares as provided therein. 

11 ‘‘Non-Voting Restricted Share’’ means a Share 

held by a Management Owner containing the voting 

limitations and other restrictions described in the 

Operating Agreement. See Section 2.1(15) of the 

Operating Agreement. 

provisions of 5 U.S.C. 552, will be 

available for inspection and copying in 

the Commission’s Public Reference 

Room. 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; 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–CBOE–2006–112 and 

should be submitted on or before March 

29, 2007. 

V. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,21 that the 

proposed rule change (File No. SR–

CBOE–2006–112), as modified by 

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

approved on an accelerated basis. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.22

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–4124 Filed 3–7–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55389; File No. SR–CBOE–

2006–110] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Order Granting Approval 

of Proposed Rule Change as Modified 

by Amendment No. 1 Thereto and 

Notice of Filing and Order Granting 

Accelerated Approval to Amendment 

Nos. 2 and 3 Relating to the 

Establishment of CBOE Stock 

Exchange, LLC 

March 2, 2007. 

I. Introduction 

On December 26, 2006, the Chicago 

Board Options Exchange, Incorporated, 

(the ‘‘CBOE’’ or ‘‘Exchange’’) filed with 

the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

to Section 19(b)(1) of the Securities 

Exchange Act of 1934, as amended 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2 a 

proposed rule change relating to the 

establishment of the CBOE Stock 

Exchange (‘‘CBSX’’), which will be 

operated by CBOE Stock Exchange, LLC 

(‘‘CBSX LLC’’). On January 10, 2007, the 

CBOE filed Amendment No. 1 to the 

proposed rule change. The proposed 

rule change was published for comment 

in the Federal Register on February 1, 

2007.3 The Commission received no 

comments regarding the proposal. On 

March 1, 2007, the CBOE filed 

Amendment No. 2 to the proposed rule 

change. On March 2, 2007, the CBOE 

filed Amendment No. 3 to the proposed 

rule change. This order approves the 

proposed rule change, grants accelerated 

approval to Amendment Nos. 2 and 3, 

and solicits comments from interested 

persons on Amendment Nos. 2 and 3. 

II. Overview 

The Exchange proposes to establish 

CBSX as a facility,4 as that term is 

defined in Section 3(a)(2) of the Act,5 of 

CBOE. As the self-regulatory 

organization (‘‘SRO’’) for CBSX, CBOE 

will have regulatory responsibility for 

the activities of CBSX.6 CBSX will be a 

fully automated marketplace for the 

trading of securities other than options 

by CBOE members. CBSX will be 

operated by CBSX LLC, a Delaware 

limited liability company. In the instant 

proposed rule change, CBOE seeks the 

Commission’s approval of the proposed 

governance structure of CBSX LLC as 

reflected in the Operating Agreement of 

CBSX LLC. CBOE has submitted 

separate proposed rule changes to 

establish rules relating to listing, 

membership and trading on CBSX and 

to establish a permit program in 

connection with CBSX.7

As a limited liability company, 

ownership of CBSX LLC is represented 

by limited liability membership 

interests. The holders of such interests 

are referred to as ‘‘Owners.’’ 8 Initially, 

there are five Owners of CBSX LLC. 

CBOE is one of the Owners of CBSX 

LLC, and owns all ‘‘Series A’’ Voting 

Shares 9 of CBSX LLC, representing 50% 

of CBSX LLC.10 The other four Owners 

and their respective ownership interests 

are: VDM Chicago, LLC (20%); 

LaBranche & Co., Inc. (10%); IB 

Exchange Corp. (10%); and 

Susquehanna International Group, LLP. 

(10%). Each of these four Owners owns 

‘‘Series B’’ Voting Shares of CBSX LLC. 

Under Section 3.2 of the Operating 

Agreement, the CBSX LLC Board of 

Directors (‘‘Board of Directors’’ or 

‘‘Board’’) may authorize the issuance of 

‘‘Series C’’ Non-Voting Restricted 

Shares 11 from time to time to 

employees, consultants, or officers of 

CBSX LLC, or any other person, each of 


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12 ‘‘Management Owner’’ means a natural person 

who is identified on Exhibit A of the Operating 

Agreement (Exhibit 5C to the proposed rule change) 

as a Management Owner, who subsequently 

becomes a Management Owner pursuant to the 

provisions of Section 3.2(c) of the Operating 

Agreement, or who is a transferee or assignee of 

Non-Voting Restricted Shares (other than a Voting 

Owner). See Section 2.1(13) of the Operating 

Agreement. 

13 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). 

14 15 U.S.C. 78f(b)(1). 

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

16 15 U.S.C. 78f(b)(1). 

17See Securities Exchange Act Release No. 54399 

(September 1, 2006), 71 FR 53728 (September 12, 

2006) (order approving the ISE Stock Exchange, 

LLC as a facility of the International Securities 

Exchange, Inc.); Securities Exchange Act Release 

No. 54364 (August 25, 2006), 71 FR 52185 (order 

approving the Boston Equities Exchange as a facility 

of the Boston Stock Exchange, Inc.); and Securities 

Exchange Act Release No. 49065 (January 13, 2004), 

69 FR 2768 (January 20, 2004) (order approving the 

Boston Options Exchange as a facility of the Boston 

Stock Exchange, Inc.). 

18As the SRO, CBOE will have regulatory 

responsibility for the facility. 

19 ‘‘Super Majority of the Owners’’ means, subject 

to the provisions of Section 1.8 of the Operating 

Agreement as to Regulatory Requirements, the 

affirmative vote of both (i) all of the Owners of the 

Series A Voting Shares at the time, and (ii) any two 

(2) of the Initial Owners of Series B Voting Shares 

who then retain ownership of Series B Voting 

whom would become a Management 

Owner 12 of CBSX LLC. 

As provided in Section 8.9 of the 

Operating Agreement, the outstanding 

Series A Voting Shares will, in the 

aggregate (and without being deemed to 

be a voting trust), be entitled to a 

number of votes equal to 50% of the 

total number of Voting Shares 

outstanding, on each matter submitted 

to a vote of the Owners. Each 

outstanding Series B Voting Share will 

be entitled to one vote on each matter 

submitted to a vote of the Owners. The 

Series C Non-Voting Restricted Shares 

will not be entitled to vote on any 

matter submitted to a vote of the 

Owners. 

III. Discussion 

After careful review, 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.13 In particular, the 

Commission finds that the proposed 

rule change is consistent with Section 

6(b)(1) of the Act,14 which requires a 

national securities exchange to be so 

organized and have the capacity 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 

or 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,15 which 

requires 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, 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 unfairly 

discriminate between customers, 

issuers, brokers, or dealers. 

A. CBSX as a Facility of the Exchange 

The Commission believes that the 

proposed rule change is consistent with 

Section 6(b)(1) of the Act 16 in that upon 

establishing CBSX as a facility of the 

Exchange and entering into the 

relationship with CBSX LLC described 

above, CBOE will remain so organized, 

and have the capacity to be able, to 

carry out the purposes of the Act. The 

Commission notes that it previously 

approved similar structures with respect 

to the operation of exchange facilities.17

The Commission believes that CBSX 

LLC can be approved as the operator of 

the CBSX facility since CBOE will be 

the SRO for the CBSX facility, and 

CBSX LLC will conduct the facility’s 

business operations in a manner 

consistent with the regulatory and 

oversight responsibilities of CBOE.18

Although CBSX LLC itself will not 

carry out any regulatory functions, all 

its activities must be consistent with the 

Act. Under Section 5.7 of the Operating 

Agreement, each CBSX LLC Owner 

agrees to comply with the federal 

securities laws and rules and 

regulations thereunder; to cooperate 

with the Commission and CBOE 

pursuant to their regulatory authority 

and the provisions of the Operating 

Agreement; and to engage in conduct 

that fosters and does not interfere with 

CBSX LLC’s and CBOE’s ability to 

prevent fraudulent and manipulative 

acts and practices; promote just and 

equitable principles of trade; foster 

cooperation and coordination with 

persons engaged in regulating, clearing, 

settling, processing information with 

respect to, and facilitating transactions 

in securities; remove impediments to 

and perfect the mechanism of a free and 

open market and a national market 

system; and, in general, protect 

investors and the public interest. In 

addition, under Section 9.16 each 

Director agrees to comply with the 

federal securities laws and the rules and 

regulations thereunder, and to cooperate 

with the Commission and CBOE 

pursuant to the respective regulatory 

authority of the Commission and CBOE. 

In addition, each Director will take into 

consideration whether any actions taken 

or proposed to be taken as a Director for 

or on behalf of CBSX LLC, or any failure 

or refusal to act (including a failure to 

be present to constitute a quorum, or to 

reasonably provide an affirmative vote 

or consent) would constitute 

interference with CBOE’s regulatory 

functions and responsibilities in 

violation of the Operating Agreement or 

the Act. These provisions reinforce the 

notion that CBSX, as a facility of an 

exchange, is not solely a commercial 

enterprise; it is an integral part of an 

SRO registered pursuant to the Act and, 

as such, is subject to obligations 

imposed by the Act. 

These obligations endure as long as 

CBSX is a facility of the Exchange, 

regardless of the size of CBOE’s 

ownership interest in CBSX LLC, the 

operator of the facility. The Exchange 

currently owns 50% interest in the 

operator of the facility and if, in the 

future, it wishes to reduce its interest in 

CBSX LLC to below 20%, pursuant to 

Section 6.12(d) of the Operating 

Agreement the Exchange would be 

required to file a proposed rule change 

with the Commission under Section 

19(b) of the Act. The Commission 

believes that this is a reasonable 

measure to alert the Commission to a 

significant reduction of CBOE’s interest 

in CBSX LLC. Such a reduction in 

ownership could warrant additional 

review of the Operating Agreement to 

ensure that CBOE’s responsibilities as 

the SRO of the CBSX facility are not 

compromised. 

The Operating Agreement includes 

additional provisions that make special 

accommodations for CBOE as the SRO 

of the CBSX facility. Section 1.8 of the 

Operating Agreement sets forth CBOE’s 

authority with respect to any action, 

transaction or aspect of an action or 

transaction that relates to CBOE’s 

regulatory responsibilities, by requiring 

CBOE’s affirmative vote before such 

action or transaction or aspect thereof 

can be authorized, undertaken or 

effective. For example, Section 9.15(a) 

provides that CBSX LLC may not take 

certain specific actions without the 

approval of a Super Majority of the 

Owners,19 and the additional approving 

vote of CBOE. 


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Shares. See Section 2.1(25) of the Operating 

Agreement. 

20 17 CFR 249.1 and 17 CFR 249.1a. 

21This 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. Exhibit K 

applies only to the exchange itself, not to entities 

that operate facilities of the exchange. 

22 17 CFR 240.6a–2(a)(2). 

23 15 U.S.C. 78s(h)(4). Section 19(h)(4) authorizes 

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 

Continued 

In addition, Section 9.2(b) of the 

Operating Agreement provides that, in 

light of its ownership of the Series A 

Voting Shares, CBOE is entitled to 

designate a number of Directors equal to 

the aggregate number of Directors 

designated by those Owners owning 

Series B Voting Shares. Section 9.2(d) 

also gives CBOE the right, as long as 

CBSX remains a facility of CBOE, to 

designate at least one Director regardless 

of whether it maintains any ownership 

interest in CBSX LLC. In addition, 

despite a statement of a general 

prohibition against Owners committing 

or acting on behalf of CBSX LLC 

contained in Section 5.6 of the 

Operating Agreement, Section 9.15(a) 

would permit CBOE to act on behalf of 

CBSX LLC in regulatory matters. 

Finally, CBOE has complete access to 

information through provisions such as 

Section 15.2 of the Operating 

Agreement, which allows CBOE, the 

other Owners, and their respective 

officers, directors, agents, and 

employees, to disclose confidential 

information to the Commission or 

CBOE. 

Because the Exchange has proposed to 

operate CBSX as its facility, CBOE’s 

obligations under the Act extend to its 

members’ activities on CBSX, as well as 

to the operation and administration of 

CBSX. The Commission believes that 

the provisions described above are 

consistent with the Act and enhance the 

ability of CBOE to carry out its selfregulatory responsibilities with respect 

to its CBSX facility. 

B. Changes in Control of CBSX LLC 

The Commission believes that the 

restrictions in the Operating Agreement 

on direct and indirect changes in 

control of CBSX LLC are sufficient so 

that CBOE would be able to carry out its 

self-regulatory responsibilities and that 

the Commission can fulfill its 

responsibilities under the Act. 

Exhibit A of the Operating Agreement 

lists all CBSX LLC Owners, the Series of 

shares owned, and the percentage 

ownership interest in CBSX LLC. A 

change to this exhibit (as well as any 

other provision of the Operating 

Agreement) would need to be filed with 

the Commission if so required under 

Section 19(b) of the Act and Rule 19b–

4 thereunder. In addition, Section 6.14 

of the Operating Agreement provides 

that any proposed transfer of CBSX LLC 

shares that would cause any person, 

alone or together with any Affiliate, to 

meet or cross the 20% ownership 

threshold or any subsequent 5% 

ownership interest level (e.g., 25%, 

30%, 35%, etc.) would require CBOE to 

file a proposed rule change with the 

Commission pursuant to Section 19(b) 

of the Act and be subject to approval by 

the Commission. Any proposed transfer 

of Series A Voting Shares would also 

require CBOE to file a proposed rule 

change under Section 19(b) of the Act 

and Rule 19b–4 thereunder. 

Furthermore, Section 6.13 of the 

Operating Agreement requires CBOE to 

inform the Commission in writing at 

least ten days prior to the closing date 

of any transaction that results in a 

person’s percentage ownership interest, 

alone or together with any Affiliate, in 

CBSX LLC that would result in such 

person meeting or crossing the 5%, 

10%, or 15% ownership thresholds. The 

Commission believes that this approach 

is consistent with the Act in that it is 

analogous to the ongoing reporting 

requirements of Form 1,20 the 

application for (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; 21 and 

Rule 6a–2(a)(2) under the Act 22 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%. Similarly, Section 6.13 of 

the Operating Agreement requires CBOE 

to notify the Commission of an interest 

in CBSX LLC only when that interest 

reaches 5% or more. The Commission 

does not believe that the identity of a 

party that has less than a 5% interest in 

a facility of a national securities 

exchange is a ‘‘rule of the exchange’’

that must be filed pursuant to Section 

19(b) of the Act and Rule 19b–4(b) 

thereunder. 

In addition, Section 15.16 of the 

Operating Agreement would require an 

indirect controlling party to become a 

party to the Operating Agreement upon 

establishing a controlling interest in any 

Owner who, alone or together with any 

Affiliate, holds a Percentage Interest in 

CBSX LLC equal to or greater than 20%. 

Any such amendment to the Operating 

Agreement would require a proposed 

rule change to be filed with the 

Commission pursuant to Section 19(b) 

of the Act. The proposed rule change 

would alert the Commission to the 

existence of a proposed indirect 

controlling party and present the 

Commission and CBOE with an 

opportunity to determine what 

additional measures, if any, might be 

necessary to provide sufficient 

regulatory jurisdiction over the 

proposed indirect controlling party. The 

Commission understands that Section 

15.16 of the Operating Agreement 

would apply to any ultimate parent of 

CBSX LLC, no matter how many levels 

of ownership are involved, provided 

that a controlling interest exists between 

each link of the ownership chain. 

In conclusion, the Commission 

believes that Sections 6.13, 6.14, and 

15.16 of the Operating Agreement, 

together with the requirements of 

Section 19(b) of the Act and Rule 19b–

4 thereunder, provide the Commission 

with sufficient authority over changes in 

control of CBSX LLC to enable the 

Commission to carry out its regulatory 

oversight responsibilities with respect to 

CBOE and the CBSX facility. 

C. Regulatory Jurisdiction Over CBSX 

LLC Owners 

The Commission believes that the 

terms of the Operating Agreement 

provide the Commission and CBOE with 

sufficient regulatory jurisdiction over 

the controlling parties and Owners to 

carry out their responsibilities under the 

Act. In Section 6.15(a), each Owner 

acknowledges that—to the extent that 

they are related to CBSX LLC 

activities—the books, records, premises, 

officers, directors, agents, and 

employees of the Owner are deemed to 

be the books, records, premises, officers, 

directors, agents, and employees of 

CBOE for the purpose of and subject to 

oversight pursuant to the Act. Moreover, 

in Section 6.15(b) of the Operating 

Agreement, each Owner acknowledges 

that the books, records, premises, 

officers, directors, agents, and 

employees of CBSX LLC are deemed to 

be the books, records, premises, officers, 

directors, agents, and employees of 

CBOE for the purpose of and subject to 

oversight pursuant to the Act. These 

provisions would enable the 

Commission to exercise its authority 

under Section 19(h)(4) 23 of the Act with 


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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. 

24 15 U.S.C. 78q(b)(1). 

25The Commission notes that CBOE and its 

officers, directors and employees are subject to the 

Commission’s jurisdiction because CBOE is an SRO 

and as such is subject to the Act and the rules and 

regulations thereunder. 

26 15 U.S.C. 78t(a). 

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

28 15 U.S.C. 78s(h)(1). 

29The Operating Agreement treats as belonging to 

a single person any shares held by affiliated parties 

of the person. See Sections 6.13, 6.14, and 15.16 of 

the Operating Agreement. 

30 15 U.S.C. 78s(b)(2). Pursuant to Section 19(b)(2) 

of the Act, the Commission may not approve any 

respect to the officers and directors of 

CBSX LLC and of all Owners, since all 

such officers and directors—to the 

extent that they are acting in matters 

related to CBSX LLC activities—would 

be deemed to be the officers and 

directors of CBOE itself. Furthermore, 

the records of any Owner—to the extent 

that they are related to CBSX LLC 

activities—are subject to the 

Commission’s examination authority 

under Section 17(b)(1) of the Act,24 as 

these records would be deemed to be 

the records of CBOE itself. 

In addition, under the terms of 

Section 6.15(c) of the Operating 

Agreement, CBSX LLC and each Owner 

(other than CBOE for so long as CBSX 

is a facility of CBOE) 25—and their 

respective officers and directors and 

their agents and employees whose 

principal place of business and 

residence is outside of the United 

States—must irrevocably submit to the 

jurisdiction of the U.S. federal courts, 

the Commission, and CBOE for the 

purposes of any suit, action, or 

proceeding pursuant to the U.S. federal 

securities laws and the rules or 

regulations thereunder, commenced and 

initiated by the Commission arising out 

of or relating to CBSX LLC activities. In 

addition, CBSX LLC and each Owner 

(other than CBOE for so long as CBSX 

LLC is a facility of CBOE)—and their 

respective officers and directors and 

their agents and employees whose 

principal place of business and 

residence is outside of the United 

States—must waive, and agree not to 

assert by way of motion, as a defense or 

otherwise in any such suit, action, or 

proceeding, any claim that it is not 

personally subject to the jurisdiction of 

the Commission; that the suit, action or 

proceeding is an inconvenient forum; 

that the venue of the suit, action, or 

proceeding is improper; or that the 

subject matter of the suit, action, or 

proceeding may not be enforced in or by 

such courts or agency. Moreover, 

pursuant to Section 6.15(d) of the 

Operating Agreement, the CBSX LLC 

and each Owner (other than CBOE for 

so long as CBSX LLC is a facility of 

CBOE) are required to take such action 

as is necessary to ensure that such 

Owner’s officers and directors and their 

agents and employees whose principal 

place of business and residence is 

outside the United States, consent to the 

application of these requirements with 

respect to their CBSX LLC-related 

activities. Finally, under Section 5.7 of 

the Operating Agreement, CBSX LLC 

and each Owner agree to cooperate with 

the Commission and CBOE pursuant to 

their respective regulatory authority. 

The Commission also notes that, even 

in the absence of these provisions of the 

Operating Agreement, Section 20(a) of 

the Act 26 provides that any person with 

a controlling interest in CBSX LLC 

would be jointly and severally liable 

with and to the same extent that CBSX 

LLC 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. 

The Commission believes that, 

together, these provisions grant the 

Commission sufficient jurisdictional 

authority over CBSX LLC and its 

Owners. Moreover, CBOE 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.27 A failure 

on the part of CBOE to enforce its rules 

could result in suspension or revocation 

of registration under Section 19(h)(1) of 

the Act.28

D. Ownership and Voting Restrictions 

on CBSX LLC Owners 

Section 6.12(a) of the Operating 

Agreement prohibits a person (other 

than CBOE), either alone or together 

with its Affiliates, from directly or 

indirectly owning more than a 20% 

Percentage Interest in the Company 

(‘‘Concentration Limitation’’). Although 

Section 6.12(b) permits this limitation to 

be waived by the Board, as long as such 

waiver has been filed with and 

approved by the Commission, it 

precludes such a waiver if the person or 

its Affiliates is a CBOE member. 

Further, Section 8.10 of the Operating 

Agreement states that if an Owner of 

Voting Shares that is also a CBOE 

member owns more than 20% of the 

Outstanding Voting Shares (‘‘Excess 

Shares’’), alone or together with any 

Affiliate, such Owner shall have no 

voting rights with respect to the Excess 

Shares. 

In addition, proposed CBOE Rule 3.32 

sets forth ownership concentration 

limitations for CBOE members and 

permits the Exchange to take 

appropriate disciplinary action in the 

event a violation of the ownership 

concentration limitation is not cured 

within a specified time frame. Proposed 

Rule 3.32 also sets forth restrictions on 

affiliations between the Exchange and 

its members. 

The Commission believes that the 

ownership concentration and voting 

limitations contained in the Operating 

Agreement and the provisions of 

proposed CBOE Rule 3.32 are 

reasonable and consistent with the Act. 

It is common for members who trade on 

an exchange to have ownership interests 

in the exchange. However, a member’s 

interest could become so large as to cast 

doubt on whether the exchange can 

fairly and objectively exercise its selfregulatory responsibilities with respect 

to that member. A member that is also 

a controlling shareholder of an exchange 

might be tempted to exercise that 

controlling influence by directing the 

exchange to refrain from diligently 

surveilling the member’s conduct or 

from punishing any conduct that 

violates the rules of the exchange or the 

federal securities laws. An exchange 

also might be reluctant to surveil and 

enforce its rules zealously against a 

member that the exchange relies on as 

its largest source of capital. 

Finally, the Commission believes that 

the restriction on voting trust 

agreements in Section 8.8 of the 

Operating Agreement is reasonable and 

consistent with the Act. In the absence 

of such a provision, unaffiliated parties 

could act in concert and evade the 

Operating Agreement’s provisions 

regarding changes in control of CBSX 

LLC.29 A voting trust agreement would 

not necessarily be inconsistent with the 

Act, but any Owner wishing to establish 

a voting trust agreement first would 

need to have the Operating Agreement 

amended to enable a voting trust to be 

established. Any such amendment 

would require a proposed rule change 

under Section 19(b) of the Act, thus 

affording the Commission an 

opportunity to review the matter. 

E. Accelerated Approval of Amendment 

Nos. 2 and 3 

The Commission finds good cause for 

approving Amendment Nos. 2 and 3 to 

the proposed rule change prior to the 

thirtieth day after publishing notice of 

Amendment Nos. 2 and 3 in the Federal 

Register pursuant to Section 19(b)(2) of 

the Act.30


sroberts on PROD1PC70 with NOTICES
Federal Register / Vol. 72, No. 45 / Thursday, March 8, 2007 / Notices 10579 

proposed rule change, or amendment thereto, prior 

to the thirtieth day after the date of publication of 

the notice thereof, unless the Commission finds 

good cause for so doing. 

31 15 U.S.C. 78s(b)(2). 

32 15 U.S.C. 78s(b)(2). 

33 17 CFR 200.30–3(a)(12). 

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

2Securities Exchange Act Release No. 54927 

(December 13, 2006), 71 FR 76397. 

3Similar proposed rule changes have been filed 

by the Fixed Income Clearing Corporation [File No. 

SR–FICC–2006–05] and the National Securities 

Clearing Corporation [File No. SR–NSCC–2006–05]. 

In Amendment No. 2, CBOE: (i) 

Amended Section 1.7 to clarify the role 

of CBOE, as the SRO, for the activities 

of CBSX LLC; (ii) amended Section 5.7 

to add a reference to CBOE; (iii) 

amended Section 6.14 to clarify that any 

transfer of Series A Voting Shares would 

require a rule filing under Section 19 of 

the Exchange Act, subject to approval by 

the Commission; (iv) amended Section 

6.15 by, among other things, revising 

paragraphs (c) and (d) to indicate that 

those paragraphs are inapplicable in the 

case of CBOE and its respective officers, 

directors, agents and employees for so 

long as CBSX LLC is a facility of CBOE 

and to clarify the application of these 

paragraphs in the case of the agents and 

employees of CBSX LLC and its Owners 

whose principal place of business and 

residence is outside of the United 

States; and (v) amended various sections 

of the Operating Agreement to refer to 

CBOE rather than ‘‘Regulatory Services 

Provider.’’ Amendment No. 2 also 

updated Exhibit A–1 of the Operating 

Agreement. Amendment No. 3 amended 

Section 6.15(c) to clarify the U.S. agent 

for service of process. 

The Commission believes that 

Amendment Nos. 2 and 3 serve to 

clarify and enhance the proposal and 

that publication of its provisions would 

needlessly delay the implementation of 

the proposal. The Commission therefore 

finds good cause exists to accelerate 

approval of Amendment Nos. 2 and 3, 

pursuant to Section 19(b)(2) of the 

Act.31

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether Amendment Nos. 2 

and 3 are consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–CBOE–2006–110 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Nancy M. Morris, Secretary, 

Securities and Exchange Commission, 

Station Place, 100 F Street, NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–CBOE–2006–110. This file 

number should be included on the 

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. Copies of the filing also will be 

available for inspection and copying at 

the principal office of the Exchange. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to Amendment 

Nos. 2 and 3 of File Number SR–CBOE–

2006–110 and should be submitted on 

or before March 29, 2007. 

V. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,32 that the 

proposed rule change (SR–CBOE–2006–

110), as modified by Amendment No. 1, 

be, and it hereby is approved and 

Amendment Nos. 2 and 3 are approved 

on an accelerated basis. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.33

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–4125 Filed 3–7–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55365; File No. SR–DTC–

2006–07] 

Self-Regulatory Organizations; The 

Depository Trust Company; Order 

Granting Approval of a Proposed Rule 

Change Relating to the Wind-Down of 

a Participant 

February 27, 2007. 

I. Introduction 

On March 28, 2006, The Depository 

Trust Company (‘‘DTC’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) and on September 29, 

2006, amended proposed rule change 

SR–DTC–2006–07 pursuant to Section 

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

of 1934 (‘‘Act’’).1 Notice of the proposal 

was published in the Federal Register 

on December 20, 2006.2 No comment 

letters were received. For the reasons 

discussed below, the Commission is 

granting approval of the proposed rule 

change as modified by Amendment No. 

1. 

II. Description 

The proposed rule change would add 

a new Rule 32, Wind-Down of a 

Participant, to DTC’s Rules to address a 

situation where a participant notifies 

DTC that it intends to wind down its 

activities, and DTC determines in its 

discretion that it must take special 

action in order to protect itself and its 

participants.3

The proposed rule change would 

allow DTC to make a determination that 

a participant is a wind-down participant 

and would set forth the conditions DTC 

using its discretion may place on a 

wind-down participant and the actions 

DTC using its discretion may take with 

respect to a wind-down participant to 

protect itself and its participants. Such 

actions may include restricting or 

modifying the wind-down participant’s 

use of any or all of DTC’s services and 

requiring the wind-down participant to 

post increased participants fund 

deposits. DTC will retain all of its other 

rights set forth in its rules and 

participant agreements, including the 

right to cease to act for the wind-down 

participant. 

The rule is designed to ensure that 

DTC has the needed flexibility to 

appropriately manage the risks 


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