Federal Register / Vol. 73, No. 90 / Thursday, May 8, 2008 / Notices 26159 

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

2 17 CFR 240.19b–4. 

3 In a separate filing (SR–BSE–2008–27), the 

Exchange is proposing to amend the BOX LLC 

Operating Agreement and to adopt resolutions 

establishing an independent committee of the 

Exchange’s Board of Governors (to be redesignated 

as the Board of Directors) that will review BOX rule 

changes and certain other BOX-related regulatory 

matters. In addition, the Exchange has submitted a 

filing to amend the Exchange’s Certificate to allow 

for the distribution of the net proceeds from the 

Exchange’s intended sale of its equity interests in 

BOX (SR–BSE–2008–02). 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–57757; File No. SR–BSE–

2008–23] 

Self-Regulatory Organizations; Boston 

Stock Exchange, Incorporated; Notice 

of Filing of Proposed Rule Change 

Relating to the Acquisition of the 

Boston Stock Exchange, Incorporated 

by The NASDAQ OMX Group, Inc. 

May 1, 2008. 

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 April 21, 

2008, the Boston Stock Exchange, 

Incorporated (‘‘Exchange’’ or ‘‘BSE’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been substantially 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: (i) To amend 

and restate its Certificate of 

Incorporation and its Constitution in 

their entirety to reflect the planned 

acquisition of the Exchange by The 

NASDAQ OMX Group, Inc. (‘‘NASDAQ 

OMX’’); (ii) to redesignate its 

Constitution as the By-Laws of the 

Exchange (‘‘By-Laws’’); (iii) to amend 

the governance framework of Boston 

Options Exchange Regulation, LLC 

(‘‘BOXR’’) by adopting a written 

operating agreement and amending the 

BOXR by-laws (‘‘BOXR By-Laws’’); (iv) 

to obtain approval for a change of 

control of BSX Group, LLC (‘‘BSX’’) and 

make related amendments to the Third 

Amended and Restated Operating 

Agreement of BSX; (v) to adopt two 

related rules; and (vi) to obtain 

Commission approval for affiliation 

between the Exchange and certain 

broker-dealer subsidiaries of NASDAQ 

OMX. The text of the proposed rule 

change is available on the Exchange’s 

Web site (http://www.bostonstock.com), 

at the Exchange, and at the 

Commission’s Public Reference Room. 

The text of Exhibit 5 of the proposed 

rule change is also available on the 

Commission’s Web site (http:// 

www.sec.gov/rules/sro.shtml). 

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 Merger 

On October 2, 2007, the Exchange 

announced that it had entered into an 

agreement with The Nasdaq Stock 

Market, Inc. (now NASDAQ OMX) 

pursuant to which NASDAQ OMX will 

acquire all of the outstanding 

membership interests in the Exchange 

and the Exchange will be merged with 

and into Yellow Merger Corporation, a 

Delaware corporation and wholly 

owned subsidiary of NASDAQ OMX, 

with the Exchange surviving the merger 

(‘‘Merger’’). As a result of the Merger, 

the Exchange will become a Delaware 

stock corporation, with 100% of its 

outstanding stock owned by NASDAQ 

OMX. Exchange Members will receive 

cash as consideration for their 

ownership interests, and therefore will 

not retain ownership interests in the 

Exchange or its affiliates. NASDAQ 

OMX will then operate the Exchange as 

a wholly owned subsidiary, with rules, 

membership rosters, and listings that are 

separate and distinct from the rules, 

membership rosters, and listings of The 

NASDAQ Stock Market LLC (‘‘Nasdaq 

Exchange’’). The Exchange will propose 

substantial amendments to its rules in a 

separate filing. 

To reflect its changed status from an 

independent membership corporation to 

a wholly owned stock corporation, the 

Exchange proposes to amend and restate 

its Certificate of Incorporation and its 

Constitution in their entirety. The 

amended Constitution will be 

redesignated as the By-Laws of the 

Exchange. In addition, the Exchange 

proposes to adopt two new rules to 

reflect its status as a subsidiary of 

NASDAQ OMX, which is a public 

company. 

The Exchange also proposes to amend 

the governance framework of BOXR by 

adopting a written operating agreement 

(the Amended and Restated Limited 

Liability Company Agreement of Boston 

Options Exchange Regulation, LLC 

(‘‘BOXR LLC Agreement’’)) and 

amending the BOXR By-Laws. BOXR is 

a wholly owned subsidiary of the 

Exchange that regulates the Boston 

Options Exchange (‘‘BOX’’), an 

electronic options market operated as a 

facility of the Exchange by Boston 

Options Exchange Group LLC (‘‘BOX 

LLC’’). BOX LLC was established in 

2002 as a joint venture among the 

Exchange, Bourse de Montre ́al (‘‘MX’’), 

and several other investors. The 

Exchange has agreed to sell its equity 

interest in BOX LLC to MX, but the 

Exchange will continue to regulate BOX 

through BOXR for a period of time 

following the Merger. BOXR’s 

operations are governed by a Plan of 

Delegation of Functions and Authority 

by the Exchange to BOXR and by its bylaws, both of which are rules of the 

Exchange approved by the Commission. 

The BOXR LLC Agreement, and the 

BOXR By-Law amendments reflect 

changes that will be made to the 

governance and management of BOXR 

as it remains the designated entity that 

will regulate the BOX market until 

alternative arrangements acceptable to 

the Commission are made. The 

amendments to the BOXR By-Laws also 

make technical amendments to conform 

to the changes proposed to the Exchange 

Constitution.3

Finally, under Section 8.1 of the 

Third Amended and Restated Operating 

Agreement of BSX dated March 13, 2007 

(‘‘BSX Operating Agreement’’), the 

Exchange must obtain Commission 

approval for certain transfers of 

ownership interests in BSX. In 

connection with the Merger, NASDAQ 

OMX will acquire direct interests in 

BSX, which, together with the 

Exchange’s interests, will result in BSX 

becoming a wholly owned subsidiary of 

NASDAQ OMX. Specifically, following 

the Merger, the Exchange will continue 

to own ‘‘Units’’ of ownership interest in 

BSX equivalent to 53.21% of the 

outstanding Units, while NASDAQ 

OMX will own the remaining 46.79%. 

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26160 Federal Register / Vol. 73, No. 90 / Thursday, May 8, 2008 / Notices 

4 In a separate filing (SR–NASDAQ–2008–035), 

NASDAQ OMX is proposing to amend its by-laws 

to reflect the proposed acquisition of the Exchange. 

The proposed amendments include, among other 

protections, a stipulation that for so long as 

NASDAQ OMX shall control the Exchange, the 

board of directors, officers, employees and agents of 

NASDAQ OMX shall give due regard to the 

preservation of the independence of the selfregulatory function of the Exchange and to its 

obligations to investors and the general public and 

shall not take any actions which would interfere 

with the effectuation of any decisions by the board 

of directors of the Exchange relating to its 

regulatory functions (including disciplinary 

matters) or the market structure which it regulates 

or which would interfere with the ability of the 

Exchange to carry out its responsibilities under the 

Act. 

5All such changes must be filed with the 

Commission under Section 19(b) of the Act, 15 

U.S.C. 78s(b), and become effective thereunder 

before being implemented. 

6Specifically, Article I of the By-Laws defines an 

Industry Director as a person who: (i) Is or has 

served in the prior 3 years as an officer, director, 

or employee of a broker or dealer, excluding an 

outside director or a director not engaged in the 

day-to-day management of a broker or dealer; (ii) is 

an officer, director (excluding an outside director), 

or employee of an entity that owns more than 10% 

of the equity of a broker or dealer, and the broker 

or dealer accounts for more than 5% of the gross 

revenues received by the consolidated entity; (iii) 

owns more than 5% of the equity securities of any 

broker or dealer, whose investments in brokers or 

dealers exceed 10% of his or her net worth, or 

whose ownership interest otherwise permits him or 

her to be engaged in the day-to-day management of 

a broker or dealer; (iv) provides professional 

services to brokers or dealers, and such services 

constitute 20% or more of the professional revenues 

received by the Director or 20% or more of the gross 

revenues received by the Director’s firm or 

partnership; (v) provides professional services to a 

director, officer, or employee of a broker, dealer, or 

corporation that owns 50% or more of the voting 

stock of a broker or dealer, and such services relate 

to the director’s, officer’s, or employee’s 

professional capacity and constitute 20% or more 

of the professional revenues received by the 

Accordingly, the filing seeks approval 

for this transfer. The filing also proposes 

amendments to the BSX Operating 

Agreement to reflect BSX’s acquisition. 

Exchange Certificate of Incorporation 

Article First and Second of the 

amended and restated Certificate (as 

proposed to be amended and restated, 

the ‘‘Restated Certificate’’) state the 

name and registered agent of the 

Exchange. Although NASDAQ OMX 

may propose to change the name of the 

Exchange in the future, at closing, the 

name of the Exchange will remain 

‘‘Boston Stock Exchange, Incorporated.’’

Article Third of the Restated 

Certificate provides that the Exchange 

may engage in any lawful act or activity 

for which corporations may be 

organized under the General 

Corporation Law of the State of 

Delaware and any and all activities 

necessary or incidental to the foregoing. 

Without limiting these general powers, 

Article Third also specifically provides 

that the Exchange’s activities shall 

include actions that support its 

regulatory responsibilities under the 

Act.4

Article Fourth of the Restated 

Certificate provides that the Exchange is 

authorized to issue 1,000 shares of 

common stock, par value $0.01, all of 

which shall be held by NASDAQ OMX. 

The Restated Certificate further provides 

that NASDAQ OMX may not transfer or 

assign any shares of stock of the 

Exchange, in whole or in part, to any 

entity, unless such transfer or 

assignment shall be filed with and 

approved by the Commission under 

Section 19 of the Act and the rules 

promulgated thereunder. 

Article Fifth pertains to the governing 

board of the Exchange, which is being 

designated as a Board of Directors 

(‘‘Board’’), rather than a Board of 

Governors. The total number of 

Directors constituting the entire Board 

will be fixed from time to time by the 

stockholders (i.e., NASDAQ OMX), and 

will be elected by the stockholders to 

hold office until their respective 

successors have been duly elected and 

qualified, subject, however, to prior 

death, resignation, retirement, 

disqualification, or removal from office. 

However, the exact composition of the 

Board is also subject to the requirements 

of the By-Laws relating to independence 

and fair representation of members, 

which are described in detail below. 

Article Fifth also contains standard 

corporate provisions governing meetings 

of stockholders. Because NASDAQ 

OMX will be the sole stockholder, 

however, Article Seventh provides that 

any action required or permitted to be 

taken at an annual or special meeting of 

stockholders may be taken without a 

meeting, without prior notice and 

without a vote, if a consent in writing, 

setting forth the action so taken, is 

signed by the holders of outstanding 

stock having not less than the minimum 

number of votes that would be 

necessary to authorize or take such 

action at a meeting at which all shares 

entitled to vote thereon were present 

and voted. Thus, it is expected that most 

stockholder actions will be taken 

through written consent, rather than 

meetings. 

Finally, Article Fifth provides that 

vacancies or newly created 

directorships resulting from an increase 

in the authorized number of Directors 

are filled as provided in the By-Laws 

(described below); that no decrease in 

the number of Directors shortens the 

term of an incumbent Director; and that 

Directors may be removed by the 

holders of a majority of the shares at the 

time entitled to vote at an election of 

Directors. However, the stockholders’

removal authority is also limited by the 

By-Laws (as described below). 

Article Sixth limits the liability of 

Directors to the Exchange in the manner 

permitted under Delaware law; and 

Article Eighth provides that the Board 

(in addition to the stockholders) may 

adopt, amend or repeal By-Laws. Article 

Ninth reserves the right to amend, alter, 

change, or repeal any provisions 

contained in the Restated Certificate; 5

and Article Tenth provides that the 

Exchange has perpetual existence. 

By-Laws 

The By-Laws reflect NASDAQ OMX’s 

expectation that the Exchange will be 

operated with governance, regulatory, 

and market structures similar to those of 

the Nasdaq Exchange. Accordingly, the 

Exchange proposes to adopt By-Laws 

that are similar in all material respects 

to the By-Laws of the Nasdaq Exchange. 

The most significant differences result 

from the fact that the Nasdaq Exchange 

is a limited liability company whereas 

the Exchange will be organized as a 

stock corporation. 

Article I of the By-Laws contains key 

definitions used in the By-Laws. Article 

II provides for the registered office of 

the Exchange in Delaware and such 

other offices as it may establish. Article 

III contains standard corporate 

provisions governing meetings of 

stockholders, as well as a provision 

consistent with the Restated Certificate 

allowing stockholder action by written 

consent. 

Article IV contains key provisions 

regarding the powers, composition, and 

selection of the Board. The property, 

business, and affairs of the Exchange 

will be managed under the direction of 

the Board. The exact number of 

Directors will be determined by the 

stockholders of the Exchange (i.e., 

NASDAQ OMX), but shall in no event 

be less than ten Directors. No decrease 

in the number of Directors shall shorten 

the term of any incumbent Director. 

As is the case with the Nasdaq 

Exchange, the Board composition will 

be required to reflect a balance among 

‘‘Industry Directors,’’ ‘‘Member 

Representative Directors,’’ and ‘‘NonIndustry Directors,’’ including ‘‘Public 

Directors.’’ An Industry Director is a 

person with direct ties to the securities 

industry as a result of connections to a 

broker-dealer, the Exchange or its 

affiliates, the Financial Industry 

Regulatory Authority, Inc. (‘‘FINRA’’), 

or certain service providers to such 

entities.6 The By-Laws also permit up to 

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Federal Register / Vol. 73, No. 90 / Thursday, May 8, 2008 / Notices 26161 

Director or 20% or more of the gross revenues 

received by the Director’s firm or partnership; or 

(vi) has a consulting or employment relationship 

with or provides professional services to the 

Exchange or any affiliate thereof or to FINRA or has 

had any such relationship or provided any such 

services at any time within the prior 3 years. 7Article I defines a Member Representative 

Director as a Director who has been elected by the 

stockholders after having been nominated by the 

Member Nominating Committee or voted upon by 

Exchange Members pursuant to the By-Laws (or 

elected by the stockholders without such 

nomination or voting in the case of the initial 

Member Representative Directors elected pursuant 

to Section 4.3(b) of the By-Laws). 8Section 6(b)(3) of the Act, 15 U.S.C. 78f(b)(3), 

requires that one or more directors shall be 

representative of issuers and investors and not be 

associated with a member of the Exchange, broker, 

or dealer. 

9Section 6(b)(3) of the Act, 15 U.S.C. 78f(b)(3), 

requires that the rules of the Exchange assure a fair 

representation of its members in the selection of its 

directors and administration of its affairs. The 

Member Representative Directors and the BOX 

Participant Director satisfy this requirement 

because they are selected through processes that 

rely on nominations made by nominating 

committees composed of representatives of member 

firms, with an opportunity for nomination of 

alternate candidates by members. See Section 4.4 of 

the proposed By-Laws of the Exchange and Section 

14 of the BOXR By-Laws. 

10Section 3(a)(39) of the Act, 15 U.S.C. 78c(a)(39). 

11The By-Laws define Voting Date as ‘‘a date 

selected by the Board for Exchange Members to vote 

with respect to Member Representative Directors in 

the event of a Contested Vote.’’ As described below, 

the Board will select a Voting Date each year; 

however, a vote would be conducted on the Voting 

Date only in the event of a Contested Vote (i.e., if 

there is more than one candidate for a Board seat). 

In order to make the intent of this definition 

clearer, immediately following the closing of the 

Merger, the Exchange will propose to the newly 

constituted Board of the Exchange an amendment 

to the definition to read as follows: ‘‘ ‘Voting Date’

means the date selected by the Board on an annual 

basis, on which Exchange Members may vote with 

respect to Member Representative Directors in the 

event of a Contested Vote.’’ Following approval by 

the Board, the Exchange will file the amendment as 

a proposed rule change for approval by the 

Commission. 

12Because the voting procedures contemplated by 

the By-Laws are new, the alternate time frames 

would apply in the case of the first annual meeting 

held under the By-Laws. Therefore, a nomination 

would be considered timely if delivered not earlier 

than the close of business on the 120th day prior 

to the first Voting Date and not later than the close 

of business on the later of the 90th day prior to the 

first Voting Date, or the 10th day following the day 

on which public announcement of such Voting Date 

is first made. 

13The By-Laws define ‘‘Member Voting Record 

Date’’ as a date selected by the Board for the 

purpose of determining the Exchange Members 

entitled to vote for Member Representative 

Directors on a Voting Date in the event of a 

Contested Vote. 

two officers of the Exchange, who 

would otherwise be considered Industry 

Directors, to be designated as ‘‘Staff 

Directors’’ and thereby be excluded 

from the definition of Industry Director. 

With the exception of the initial 

Member Representative Directors, 

Member Representative Directors are 

nominated by a Member Nominating 

Committee composed of registered 

representatives of Exchange Members, 

or are voted upon by Exchange 

Members.7 A Member Representative 

Director may, but is not required to be, 

an officer, director, employee, or agent 

of an Exchange Member. The process for 

election of Member Representative 

Directors is described in greater detail 

below. A Non-Industry Director is a 

Director (excluding Staff Directors) who 

is: (i) A Public Director; (ii) an officer or 

employee of an issuer of securities listed 

on the Exchange; or (iii) any other 

individual who would not be an 

Industry Director. A Public Director is a 

Director who has no material business 

relationship with a broker or dealer, the 

Exchange or its affiliates, or FINRA. 

With the exception of the initial 

Directors, Directors other than the 

Member Representative Directors are 

nominated by a Nominating Committee 

appointed by the Board and are then 

elected by NASDAQ OMX as the sole 

stockholder. 

Section 4.3 of the By-Laws provides 

that the number of Non-Industry 

Directors, including at least three Public 

Directors and at least one Director 

representative of issuers and investors,8

must equal or exceed the sum of the 

number of Industry Directors and 

Member Representative Directors. At 

least 20% of the Directors must be 

Member Representative Directors. The 

By-Laws further stipulate that, as is 

currently the case, one Industry Director 

must be selected as a representative of 

a firm or organization that is registered 

with the Exchange for the purposes of 

participating in options trading on 

BOX.9 A Director may not be subject to 

a statutory disqualification.10

The process for selecting Member 

Representative Directors is described in 

Section 4.4 and Section 4.14. Section 

4.14 provides that the Board will 

appoint a Member Nominating 

Committee consisting of no fewer than 

three and no more than six members. 

All members of the Member Nominating 

Committee must be a current associated 

person of a current Exchange Member. 

The Board will appoint such 

individuals after appropriate 

consultation with representatives of 

Exchange Members. The Member 

Nominating Committee will then 

nominate a slate of candidates for 

Member Representative Director 

positions to be filled. Although the 

Member Nominating Committee would 

have authority to nominate a number of 

candidates in excess of the number of 

Board seats up for election, the Member 

Nominating Committee would likely 

nominate a number of candidates equal 

to the number of seats. The candidates 

nominated by the Member Nominating 

Committee will be stated on a formal 

‘‘List of Candidates.’’

An Exchange Member may nominate 

an additional candidate for inclusion on 

the List of Candidates by submitting a 

timely and duly executed written 

petition to the Secretary of the 

Exchange. To be timely, an Exchange 

Member’s notice must be delivered to 

the Secretary at the principal executive 

offices of the Exchange not later than 

the close of business on the 90th day 

nor earlier than the close of business on 

the 120th day prior to the first 

anniversary of the preceding year’s 

‘‘Voting Date’’ 11 (provided, however, 

that in the event that the Voting Date is 

more than 30 days before or more than 

70 days after such anniversary date, 

notice by the Exchange Member must be 

so delivered not earlier than the close of 

business on the 120th day prior to such 

Voting Date and not later than the close 

of business on the later of the 90th day 

prior to such Voting Date or the 10th 

day following the day on which public 

announcement of such Voting Date is 

first made by the Exchange).12 The 

Exchange Member’s notice must 

include: (i) As to the person whom the 

Exchange Member proposes for election 

as a Member Representative Director, all 

information relating to that person that 

is required to be disclosed in 

solicitations of proxies for election of 

Directors in an election contest, or is 

otherwise required, in each case 

pursuant to Regulation 14A under the 

Act and the rules thereunder (and such 

person’s written consent to be named in 

the List of Candidates and to serving as 

a Director if elected); (ii) a petition in 

support of the candidate duly executed 

by the authorized representatives of 

10% or more of all Exchange Members; 

and (iii) the name and address of the 

Exchange Member making the proposal. 

The Exchange may require any 

proposed candidate to furnish such 

other information as it may reasonably 

require to determine the eligibility of 

such person to serve as a Member 

Representative Director. 

After the Member Nominating 

Committee creates the List of 

Candidates, the Board will determine a 

Voting Date and a ‘‘Member Voting 

Record Date.’’ 13 Promptly after 

selection of the Voting Date, in a Notice 

to Exchange Members and in a 

prominent location on a publicly 

accessible Web site, the Exchange will 

announce the Voting Date and the List 

of Candidates, and describe the 

procedures for Exchange Members to 

propose candidates for election at the 

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26162 Federal Register / Vol. 73, No. 90 / Thursday, May 8, 2008 / Notices 

14 In order to limit the influence that a single 

affiliated group of members might exercise over the 

Exchange, immediately following the closing of the 

Merger, the Exchange will propose to the newly 

constituted Board of the Exchange an amendment 

to stipulate that no Member, either alone or together 

with its affiliates, may account for more than 20% 

of the votes cast for a candidate, and any votes cast 

by such Member, either alone or together with its 

affiliates, in excess of such 20% limitation shall be 

disregarded. Following approval by the Board, the 

Exchange will file the amendment as a proposed 

rule change for approval by the Commission. 

15 ‘‘BOX Participant’’ means a firm or 

organization that is registered with the Exchange for 

the purposes of participating in options trading in 

the BOX market. 

next annual meeting. If, by the date on 

which an Exchange Member may no 

longer submit a timely nomination, 

there is only one candidate for each 

Member Representative Director seat, 

the Member Representative Directors 

would be elected by the stockholders 

directly from the List of Candidates 

nominated by the Member Nominating 

Committee. If, however, there is more 

than one candidate for a seat (i.e., if 

there is a contested vote), a formal 

notice of the Voting Date and the List of 

Candidates will be sent by the Exchange 

at least 10 days but no more than 60 

days prior to the Voting Date to the 

Exchange Members who were Exchange 

Members on the Member Voting Record 

Date, by any means, including 

electronic transmission, as determined 

by the Board or a committee thereof. 

In the event of a Contested Vote, each 

Exchange Member will have the right to 

cast one vote for each Member 

Representative Director position to be 

filled; 14 provided, however, that any 

such vote must be cast for a person on 

the List of Candidates. The votes may 

not be cumulated. The votes shall be 

cast by written ballot, electronic 

transmission or any other means as set 

forth in a notice to the Exchange 

Members sent by the Exchange prior to 

the Voting Date. Only votes received 

prior to 11:59 p.m. Eastern Time on the 

Voting Date shall be counted. The 

persons on the List of Candidates who 

receive the most votes shall be 

submitted to the stockholders for 

election, and the stockholders shall 

elect that candidate. 

Notwithstanding the foregoing, the 

initial Board immediately following the 

Merger and the adoption of these ByLaws will be selected by NASDAQ OMX 

(as the sole stockholder) without use of 

the nomination or election processes 

required for subsequent elections. 

Specifically, the stockholders will hold 

a special meeting (or sign a consent in 

lieu thereof) for the purpose of electing 

the Board, which shall include 

individuals satisfying the classifications 

required by Section 4.3(a) of the ByLaws but which shall not have been 

nominated or voted upon in accordance 

with Section 4.4. The initial Member 

Representative Directors will be officers, 

directors or employees of Exchange 

Members. The initial Board will consist 

of at least three Public Directors, one or 

two Staff Directors, at least two Member 

Representative Directors, an Industry 

Director representing ‘‘BOX 

Participants,’’ 15 at least one NonIndustry Director representative of 

issuers and investors, and such 

additional Industry and Non-Industry 

Directors as NASDAQ OMX as the sole 

stockholder shall deem appropriate, 

consistent with the compositional 

requirements of the By-Laws. As soon as 

practicable thereafter, the Exchange 

shall hold its annual meeting for the 

purpose of electing Directors in 

accordance with the normal processes 

contemplated by the By-Laws. 

Section 4.5 of the By-Laws provides 

that Directors may be removed from 

office by the stockholders, with the 

vacancy thus created also filled by the 

stockholders, but that the stockholders 

may remove a Member Representative 

Director only for cause, which shall 

include, without limitation, the failure 

of such Director to be free of a statutory 

disqualification. In addition, a Director 

is disqualified and his or her term of 

office terminates immediately upon a 

determination by the Board, by a 

majority vote of the remaining Directors: 

(a) that the Director no longer satisfies 

the classification for which the Director 

was elected; and (b) that the Director’s 

continued service as such would violate 

the compositional requirements of the 

Board set forth in Section 4.3. Thus, for 

example, if a Public Director became 

employed by a broker-dealer and the 

Board thereby had an inadequate 

number of Public Directors, the Director 

would be disqualified and removed. If a 

Director is disqualified and removed, 

and the remaining term of office of such 

Director at the time of termination is not 

more than 6 months, a replacement for 

the Director is not required until the 

next annual meeting. 

Section 4.7 of the By-Laws provides 

that if any Director position other than 

a Member Representative Director 

position becomes vacant, the 

Nominating Committee will nominate, 

and the Board will appoint by majority 

vote, a person satisfying the 

classification (Industry, Non-Industry, 

or Public Director) for the directorship 

to fill the vacancy. Whenever a Member 

Representative Director position 

becomes vacant, the Member 

Nomination Committee will nominate, 

and the Board will appoint by majority 

vote, a person to fill the vacancy, except 

that if the remaining term of office for 

the vacant Member Representative 

Director position is less than 6 months, 

no replacement is required. 

Sections 4.8, 4.9, and 4.10 contain 

standard provisions for a Delaware 

corporation governing the quorum and 

voting requirements of the Board, the 

appropriateness of reliance by Directors 

upon the records, officers, and agents of 

the Exchange, and the rules governing 

conduct of meetings of the Board. 

Section 4.9 also recognizes the 

Exchange’s status as a self-regulatory 

organization by providing that the 

Board, when evaluating any proposal, 

shall, to the fullest extent permitted by 

applicable law, take into account: (i) 

The potential impact thereof on the 

integrity, continuity and stability of the 

Exchange and the other operations of 

the Exchange, on the ability to prevent 

fraudulent and manipulative acts and 

practices and on investors and the 

public, and (ii) whether such would 

promote just and equitable principles of 

trade, foster cooperation and 

coordination with persons engaged in 

regulating, clearing, settling, processing 

information with respect to and 

facilitating transactions in securities, or 

assist in the removal of impediments to 

or perfection of the mechanisms for a 

free and open market and a national 

market system. 

Section 4.12 provides that the Board 

may delegate to one or more committees 

that consist solely of one or more 

Directors the power and authority to act 

on behalf of the Board in the 

management of the business and affairs 

of the Exchange. However, no 

committee may have the power or 

authority of the Board in reference to: 

(i) Approving or adopting, or 

recommending to the stockholders, any 

action or matter (other than the election 

of Directors) expressly required by 

Delaware law to be submitted to 

stockholders for approval; or (ii) 

adopting, amending, or repealing any 

By-Law of the Exchange. The section 

also contains standard provisions for a 

Delaware corporation pertaining to the 

conduct and populating of Board 

committees. 

Section 4.13 establishes several 

standing Board committees and 

delineates their general duties and 

compositional requirements: 

• The Executive Committee may 

exercise all the powers and authority of 

the Board in the management of the 

business and affairs of the Exchange 

between meetings of the Board (subject 

to the limits described above). The 

number of Non-Industry Directors on 

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16As noted above in footnote 8, the BOX 

Participant Director, together with the Member 

Representative Directors, allow the Exchange to 

fulfill the requirement of Section 6(b)(3) of the Act, 

15 U.S.C. 78f(b)(3) that the rules of the Exchange 

assure a fair representation of its members in the 

selection of its directors and administration of its 

affairs. Article II, Section 4 of the Exchange’s 

Constitution currently requires that the Exchange’s 

Board of Governors select and appoint as governor 

a candidate put forth by the BOXR Nominating 

Committee for the position on the Board of 

Governors reserved for a representative of BOX 

Participants. It is the intent of the Exchange that a 

person nominated by the BOXR Nominating 

Committee for this position will, consistent with 

the current requirement in the Exchange’s 

Constitution, continue to be automatically 

nominated and elected through the Exchange’s 

Board selection process, unless such nominee is not 

eligible for service under Section 4.3 of the By-Laws 

(i.e., because the nominee is subject to a statutory 

disqualification). The Exchange believes that this 

intent is reflected in the text of the Restated 

Certificate and By-Laws as approved by the 

Exchange’s members, but could be reflected with 

greater clarity through further limited amendments 

to the text of the By-Laws. Accordingly, 

immediately following the closing of the Merger, 

the Exchange will propose to the newly constituted 

Board of the Exchange an amendment to the ByLaws to make it clear that the person nominated by 

the BOXR Nominating Committee shall also be 

nominated by the Exchange Nominating Committee 

and elected by the stockholders, unless such 

nominee is not eligible for service under Section 

4.3; and the Exchange shall file the amendment as 

a proposed rule change for approval by the 

Commission. 

the Executive Committee must equal or 

exceed the number of Industry Directors 

on the Executive Committee. The 

percentage of Public Directors on the 

Executive Committee must be at least as 

great as the percentage of Public 

Directors on the whole Board, and the 

percentage of Member Representative 

Directors on the Executive Committee 

must be at least as great as the 

percentage of Member Representative 

Directors on the whole Board. 

• The Finance Committee shall 

advise the Board with respect to the 

oversight of the financial operations and 

conditions of the Exchange, including 

recommendations for the Exchange’s 

annual operating and capital budgets 

and proposed changes to the rates and 

fees charged by the Exchange. 

• The Management Compensation 

Committee shall consider and 

recommend compensation policies, 

programs, and practices for employees 

of the Exchange. A majority of 

Management Compensation Committee 

members shall be Non-Industry 

Directors. The Chief Executive Officer of 

the Exchange shall be an ex-officio, nonvoting member of the Management 

Compensation Committee. 

• The Audit Committee shall consist 

of four or five Directors, none of whom 

shall be officers or employees of the 

Exchange. A majority of the Audit 

Committee members shall be NonIndustry Directors. The Audit 

Committee shall include two Public 

Directors. A Public Director shall serve 

as Chair of the Committee. The Audit 

Committee shall: (A) Provide oversight 

over the Exchange’s financial reporting 

process and the financial information 

that is provided to the stockholders and 

others; (B) provide oversight over the 

systems of internal controls established 

by management and the Board and the 

Exchange’s legal and compliance 

process; (C) select, evaluate and, where 

appropriate, replace the Exchange’s 

independent auditors (or nominate the 

independent auditors to be proposed for 

ratification by the stockholders); and (D) 

direct and oversee all the activities of 

the Exchange’s internal audit function, 

including but not limited to 

management’s responsiveness to 

internal audit recommendations. The 

Audit Committee shall have exclusive 

authority to: (A) Hire or terminate the 

head of the Exchange’s Internal Audit 

Department; (B) determine the 

compensation of the head of the Internal 

Audit Department; and (C) determine 

the budget for the Internal Audit 

Department. The Internal Audit 

Department and its head shall report 

directly to the Audit Committee. The 

Audit Committee may, in its discretion, 

direct that the Internal Audit 

Department also report to senior 

management of the Exchange on matters 

the Audit Committee deems appropriate 

and may request that senior 

management of the Exchange perform 

such operational oversight as necessary 

and proper, consistent with preservation 

of the independence of the internal 

audit function. The Internal Audit 

Department and its head may also be 

employees of one or more affiliates of 

the Exchange (i.e., NASDAQ OMX), and 

may serve in a similar capacity with 

respect to such affiliate(s). 

• The Regulatory Oversight 

Committee shall: (i) Oversee the 

adequacy and effectiveness of the 

Exchange’s regulatory and selfregulatory organization responsibilities; 

(ii) assess the Exchange’s regulatory 

performance; and (iii) assist the Board 

and other committees of the Board in 

reviewing the regulatory plan and the 

overall effectiveness of the Exchange’s 

regulatory functions. In furtherance of 

its functions, the Regulatory Oversight 

Committee shall: (A) Review the 

Exchange’s regulatory budget and 

specifically inquire into the adequacy of 

resources available in the budget for 

regulatory activities; (B) meet regularly 

with the Exchange’s Chief Regulatory 

Officer in executive session; and (C) be 

informed about the compensation and 

promotion or termination of the Chief 

Regulatory Officer and the reasons 

therefore. The Regulatory Oversight 

Committee shall consist of three 

members, each of whom shall be a 

Public Director and an ‘‘independent 

director’’ as defined in Rule 4200 of the 

Rules of the Nasdaq Stock Market. 

Section 4.14 and Articles VI and VII 

govern the appointment by the Board of 

certain standing committees, not 

composed of Directors, to be appointed 

to administer various provisions of the 

rules that the Exchange expects to 

propose with respect to governance, 

listing, equity trading, and member 

discipline: 

• The Member Nominating 

Committee will nominate candidates for 

each Member Representative Director 

position on the Board, and will also 

nominate candidates for appointment by 

the Board for positions on certain 

standing committees with positions 

reserved for Member Representatives. 

The Member Nominating Committee 

shall consist of no fewer than three and 

no more than six members. All members 

of the Member Nominating Committee 

shall be a current associated person of 

a current Exchange Member. The Board 

will appoint such individuals after 

appropriate consultation with 

representatives of Exchange Members. 

• The Nominating Committee will 

nominate candidates for all other vacant 

or new Director positions on the Board, 

and candidates for all other vacant or 

new positions on certain standing 

committees. In nominating an Industry 

Director who is representative of BOX 

Participants, the Nominating Committee 

shall adopt the recommendation of the 

Nominating Committee of the 

Exchange’s subsidiary, BOXR, and the 

stockholders of the Exchange (i.e., 

NASDAQ OMX) shall elect the 

candidate.16 The Nominating 

Committee shall consist of no fewer 

than six and no more than nine 

members. The number of Non-Industry 

members on the Nominating Committee 

must equal or exceed the number of 

Industry members on the Nominating 

Committee. If the Nominating 

Committee consists of six members, at 

least two shall be Public members. If the 

Nominating Committee consists of 

seven or more members, at least three 

shall be Public members. No officer or 

employee of the Exchange shall serve as 

a member of the Nominating Committee 

in any voting or non-voting capacity. No 

more than three of the Nominating 

Committee members and no more than 

two of the Industry members shall be 

current Directors. A Nominating 

Committee member may not 

simultaneously serve on the Nominating 

Committee and the Board, unless such 

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17As provided in the current rules relating to 

BOX, certain disciplinary matters pertaining to BOX 

Participants may be subject to review by the BOXR 

Board of Directors and the Exchange Board. The 

Exchange Review Council is not expected to have 

a role in BOX matters. 

18 ‘‘The Board shall appoint an Arbitration and 

Mediation Committee, or shall cause the 

Corporation to enter into an agreement with a selfregulatory organization that provides regulatory 

services pursuant to which such self-regulatory 

organization shall appoint an Arbitration and 

Mediation Committee on the Corporation’s behalf.’’

Section 4.14(e) of the Restated Certificate. 

member is in his or her final year of 

service on the Board, and following that 

year, that member may not stand for 

election to the Board until such time as 

he or she is no longer a member of the 

Nominating Committee. 

• The composition and duties of the 

Exchange Listing and Hearings Review 

Council are described in Articles VI. 

Under the rules to be proposed with 

respect to listings on the Exchange, the 

Exchange Listing and Hearing Review 

Council will review appeals from 

decisions to deny issuers listings on the 

Exchange, and will also consider and 

make recommendations to the Board on 

policy and rule changes relating to 

issuer listings. The Exchange Listing 

and Hearing Review Council will 

consist of no fewer than eight and no 

more than eighteen members, of which 

not more than 50% may be engaged in 

market-making activity or employed by 

an Exchange Member whose revenues 

from market-making activity exceed 

10% of its total revenues. The Exchange 

Listing and Hearing Review Council 

will include at least five Non-Industry 

members (including at least two Public 

members), and a number of Member 

Representative members that is equal to 

at least 20% of the total number of 

members of the Exchange Listing and 

Hearing Review Council. A quorum of 

the Exchange Listing and Hearing 

Review Council will consist of a 

majority of its members, including one 

Non-Industry member and one Member 

Representative member. 

• The composition and duties of the 

Exchange Review Council are described 

in Article VII. Under the disciplinary 

and membership rules to be proposed 

for the Exchange, the Exchange Review 

Council may be authorized to act with 

respect to an appeal or review of a 

disciplinary proceeding, a statutory 

disqualification proceeding, or a 

membership proceeding; a review of an 

offer of settlement, a letter of 

acceptance, waiver, and consent, and a 

minor rule violation plan letter; the 

exercise of exemptive authority; and 

such other proceedings or actions as 

may be authorized by the Exchange 

Rules.17 The Exchange Review Council 

also may consider and make 

recommendations to the Board on 

policy and rule changes relating to 

business and sales practices of Exchange 

Members and associated persons and 

enforcement policies, including policies 

with respect to fines and other 

sanctions. The Exchange Review 

Council shall consist of no fewer than 

eight and no more than twelve 

members. The Exchange Review 

Council shall include a number of 

Member Representative members that is 

equal to at least 20% of the total number 

of members of the Exchange Review 

Council. The number of Non-Industry 

members, including at least three Public 

members, shall equal or exceed the sum 

of the number of Industry members and 

Member Representative members. A 

quorum of the Exchange Review 

Council will consist of a majority of its 

members, including not less than 50% 

of its Non-Industry members and one 

Member Representative member. 

• The Quality of Markets Committee 

will: (A) Provide advice and guidance to 

the Board on issues relating to the 

fairness, integrity, efficiency, and 

competitiveness of the information, 

order handling, and execution 

mechanisms of the Exchange from the 

perspective of investors, both individual 

and institutional, retail firms, market 

making firms, companies listed on the 

Exchange, and other market 

participants; and (B) advise the Board 

with respect to national market system 

plans and linkages between the facilities 

of the Exchange and other markets. The 

Quality of Markets Committee shall 

include broad representation of 

participants in the Exchange, including 

investors, market makers, integrated 

retail firms, and order entry firms. The 

Quality of Markets Committee shall 

include a number of Member 

Representatives that is equal to at least 

20% of the total number of members of 

the Quality of Markets Committee. The 

number of Non-Industry members of the 

Quality of Markets Committee shall 

equal or exceed the sum of the number 

of Industry members and Member 

Representative members. A quorum of 

the Quality of Markets Committee will 

consist of a majority of its members, and 

at least 50% of its Non-Industry 

members must either be present or must 

waive attendance after receiving an 

agenda of the meeting. 

• The Market Operations Review 

Committee will administer certain rules 

planned for the Exchange, notably 

appeals from decisions to cancel or 

modify clearly erroneous trades on the 

Exchange. The Market Operation 

Review Committee must include a 

number of Member Representatives that 

is equal to at least 20% of the total 

number of members of the Market 

Operations Review Committee. No more 

than 50% of the members of the Market 

Operations Review Committee shall be 

engaged in market making activity or 

employed by an Exchange Member firm 

whose revenues from market making 

activity exceed 10% of its total 

revenues. 

• The Arbitration and Mediation 

Committee will: (i) Advise the Board on 

the development and maintenance of an 

equitable and efficient system of dispute 

resolution that will equally serve the 

needs of public investors and Exchange 

Members; (ii) shall monitor rules and 

procedures governing the conduct of 

dispute resolution; and (iii) shall have 

such other powers and authority as are 

necessary to effectuate the purposes of 

the Exchange Rules. The Arbitration and 

Mediation Committee must consist of no 

fewer than three and no more than ten 

members, and shall have at least 50% 

Non-Industry members. As is the case 

with the Nasdaq Exchange, the 

Arbitration Committee may be 

populated with members of FINRA’s 

Arbitration and Mediation Committee, 

assuming the Exchange receives 

regulatory services from FINRA.18 A 

quorum of the Arbitration and 

Mediation Committee will consist of a 

majority of its members, and at least 

50% of its Non-Industry members must 

either be present or must waive 

attendance after receiving an agenda of 

the meeting. 

• The Market Regulation Committee 

will: (i) Advise the Board on regulatory 

proposals and industry initiatives 

relating to quotations, execution, trade 

reporting, and trading practices; (ii) 

advise the Board in its administration of 

programs and systems for the 

surveillance and enforcement of rules 

governing Exchange Member’s conduct 

and trading activities in the Exchange; 

(iii) provide a pool of attorney panelists 

for hearing panels under the Exchange 

Rules; (iv) participate in the training of 

hearing panelists on issues relating to 

quotations, executions, trade reporting, 

and trading practices; and (v) review 

and recommend to the Exchange Review 

Council changes to the Exchange’s 

guidelines for sanctions to be imposed 

on members for violations of Exchange 

Rules. The Market Regulation 

Committee shall not have any 

involvement in deciding whether or not 

to institute disciplinary proceedings. 

The Market Regulation Committee shall 

have at least 50% Non-Industry 

members. As is the case with the 

Nasdaq Exchange, the Market 

Regulation Committee may be 

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19The Board shall appoint a Market Regulation 

Committee, or shall cause the Corporation to enter 

into an agreement with a self-regulatory 

organization that provides regulatory services 

pursuant to which such self-regulatory organization 

shall appoint a Market Regulation Committee on the 

Corporation’s behalf. 

20The designation by the By-Laws of the Chair of 

the Board as an officer of the Corporation within the 

meaning of the By-Laws reflects standard corporate 

practice for a Delaware corporation and would not 

cause an independent Director chosen who is 

selected as the Chair to cease to be an independent 

Director. 

21All such changes must be filed with the 

Commission under Section 19(b) of the Act, 15 

U.S.C. 78s(b), and become effective thereunder 

before being implemented. 

22The Certificate of Formation was filed on 

March 25, 2002. 23See Securities Exchange Act Release No. 49065 

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

(SR–BSE–2003–04). 

populated with members of FINRA’s 

Market Regulation Committee, assuming 

the Exchange receives regulatory 

services from FINRA.19 A quorum of the 

Market Regulation Committee will 

consist of a majority of its members, and 

at least 50% of its Non-Industry 

members must either be present or must 

waive attendance after receiving an 

agenda of the meeting. 

Sections 4.15, 4.16, and 4.17 contain 

standard provisions for a Delaware 

corporation requiring: (i) Recusal by 

Directors and committee members 

subject to conflicts of interest; (ii) 

providing for the enforceability of 

contracts in which a Director has an 

interest if appropriately approved or 

ratified by disinterested Directors or by 

stockholders, or if fair to the Exchange; 

(iii) allowing for compensation of Board 

members; and (iv) allowing for Board 

action by unanimous written consent. 

Article V governs the appointment by 

the Board of the Exchange’s officers, 

agents, and employees, and specifically 

provides for the appointment of a Chair 

of the Board,20 a Chief Executive 

Officer, a President, Vice Presidents, a 

Chief Regulatory Officer, a Secretary, an 

Assistant Secretary, a Treasurer, and an 

Assistant Treasurer. 

The Chief Regulatory Officer shall 

have general supervision of the 

regulatory operations of the Exchange, 

including responsibility for overseeing 

the Exchange’s surveillance, 

examination, and enforcement functions 

and for administering any regulatory 

services agreements with another selfregulatory organization to which the 

Exchange is a party. The Chief 

Regulatory Officer shall meet with the 

Regulatory Oversight Committee of the 

Exchange in executive session at 

regularly scheduled meetings of such 

committee, and at any time upon 

request of the Chief Regulatory Officer 

or any member of the Regulatory 

Oversight Committee. The Chief 

Regulatory Officer may also serve as the 

General Counsel of the Exchange. 

Article VIII provides for 

indemnification by the Exchange of 

Directors, officers, employees and 

agents in a manner consistent with that 

of most Delaware stock corporations, 

and allows for the purchase of director 

and officer liability insurance. Article IX 

contains standard corporate provisions 

relating to the Exchange’s capital stock, 

including provisions relating to stock 

certificates, the Exchange’s stock ledger, 

and transfers of stock. However, like the 

Restated Certificate, the By-Laws also 

contain a stipulation that all shares of 

Common Stock are held by NASDAQ 

OMX, which may not transfer or assign 

any shares of stock of the Exchange, in 

whole or in part, to any entity, unless 

such transfer or assignment shall be 

filed with and approved by the 

Commission under Section 19 of the Act 

and the rules promulgated thereunder. 

The Article also contains a stipulation 

that dividends may not be paid to the 

stockholders (i.e., to NASDAQ OMX) 

using ‘‘Regulatory Funds,’’ which are 

defined as fees, fines, or penalties 

derived from the regulatory operations 

of the Exchange. The definition further 

provides, however, that the term shall 

not be construed to include revenues 

derived from listing fees, market data 

revenues, transaction revenues, or any 

other aspect of the commercial 

operations of the Exchange, even if a 

portion of such revenues are used to pay 

costs associated with the regulatory 

operations of the Exchange. 

Article X contains miscellaneous 

standard corporate provisions relating to 

the corporate seal, the fiscal year of the 

Exchange, waiver of notice of meetings, 

and the Exchange’s contracting 

authority. Article XI authorizes 

amendments to the By-Laws by either 

the stockholders or the vote of a 

majority of the whole Board,21 as well 

as the adoption of emergency by-laws by 

the Board. Article XII contains specific 

authorization for the Board to adopt 

rules needed to effect the Exchange’s 

obligations as a self-regulatory 

organization, to establish disciplinary 

procedures and impose sanctions on 

members, to establish standards for 

membership, and to impose dues, fees, 

assessments, and other charges. Finally, 

Section 12.5 authorizes the Board, or 

such person or persons as may be 

designated by the Board, in the event of 

an emergency or extraordinary market 

conditions, to take any action regarding: 

(a) The trading in or operation of the 

Exchange or any other organized 

securities markets that may be operated 

by the Exchange, the operation of any 

automated system owned or operated by 

the Exchange, and the participation in 

any such system or any or all persons 

or the trading therein of any or all 

securities; and (b) the operation of any 

or all offices or systems of Exchange 

Members, if, in the opinion of the Board 

or the person or persons hereby 

designated, such action is necessary or 

appropriate for the protection of 

investors or the public interest or for the 

orderly operation of the marketplace or 

the system. 

BOXR LLC Agreement 

Upon the creation of BOXR, the 

Exchange filed a Certificate of 

Formation with the State of Delaware.22

The purpose of the creation of BOXR 

was specifically for supporting the 

operation, regulation, and surveillance 

of the BOX facility. In connection with 

that, the Exchange drafted and filed 

with the Commission the BOXR ByLaws, which filing was approved on 

January 13, 2004,23 and incorporated 

into the BOX Rules. However, no 

written LLC operating agreement was 

created for the entity. Accordingly, 

since the time of formation, BOXR has 

operated under an unwritten operating 

agreement, with its written By-Laws 

standing in place for, and reflecting, the 

intention of the agreement of BOXR. 

The Exchange therefore proposes to 

adopt the BOXR LLC Agreement, which 

includes all standard provisions 

typically found in a State of Delaware 

Limited Liability Company operating 

agreement. These provisions include a 

statement, found in Section 22 of the 

agreement, that the BOXR LLC 

Agreement may not be deemed to 

provide rights to any persons other than 

those named specifically in the 

agreement. The provision stipulates, 

however, that such rights include the 

rights of BOX Participants in the 

selection of directors of BOXR in the 

manner currently provided by the BOXR 

By-Laws. In addition, Section 20 of the 

BOXR LLC Agreement will provide that 

a transfer or assignment of the 

Exchange’s limited liability company 

interests in BOXR must be filed with 

and approved by the Commission under 

Section 19 of the Act. The BOXR LLC 

Agreement also expands the recognized 

officers of BOXR to include its Chief 

Legal Officer and includes Schedules 

that list the directors and officers of 

BOXR as of April 15, 2008. 

BOXR By-Laws 

The BOXR By-Laws are being 

amended for consistency with other 

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24Prior to resuming trading of equities securities, 

the Exchange will propose new rules that will 

include a comparable restriction on review of 

disciplinary decisions affecting an affiliated 

member trading equities through the Exchange. 

changes being made in the governance 

of the Exchange. Specifically, the 

proposed changes: (i) Replace references 

to the Constitution of the Exchange with 

references to the By-Laws and 

references to the Board of Governors 

with references to the Board of 

Directors; (ii) add appropriate references 

to the BOXR LLC Agreement; (iii) 

amend the definition of ‘‘Public 

Director’’ to exclude persons having a 

material business relationship with 

affiliates of the Exchange, BOX, or 

BOXR; and (iv) make several clarifying 

and corrective edits. In addition, 

Section 14 is being amended to state 

that the BOX Participant nominee 

selected by BOX Participants for service 

on the Exchange Board is recommended 

for service on such Board, but is not 

directly elected, to reflect the fact that 

BOX Participants are not stockholders of 

the Exchange. Section 14 is also 

amended to provide that a disciplinary 

decision of a BOXR Hearing Committee 

or panel with respect to any BOX 

Participant that is an affiliate of 

NASDAQ OMX within the meaning of 

proposed Chapter XXXIX, Section 2 of 

the rules of the Exchange (as described 

below) may not be appealed to or 

reviewed by the BOXR Board of 

Directors or the Exchange Board of 

Directors, but rather shall constitute 

final disciplinary action of the Exchange 

for purposes of Commission Rule 19d–

1(c)(1) and may be appealed to the 

Commission. Together with the new 

rules described below, the limitation is 

intended to guard against any 

possibility that the Exchange may 

exercise, or forebear to exercise, 

regulatory authority with respect to an 

affiliated member in a manner that is 

influenced by commercial 

considerations.24 Finally, the Exchange 

is proposing to replace the 

indemnification provisions of Section 

24 with a cross-reference to updated 

indemnification provisions being 

adopted in the BOXR LLC Agreement. 

Change of Control of BSX 

BSX was formed in 2004 as a joint 

venture between the Exchange and 

several investors to operate an 

electronic trading facility (‘‘Boston 

Equities Exchange’’ or ‘‘BeX’’) for 

trading cash equities. BeX ended its 

operations in September 2007. In 

connection with the Merger, NASDAQ 

OMX is purchasing all of the 

outstanding limited liability company 

interests in BSX held by investors other 

than the Exchange. By virtue of this 

purchase, NASDAQ OMX will directly 

own 46.79% of these interests, and will 

indirectly, through the Exchange, own 

the remainder of the outstanding 

interests in BSX. Section 8.1 of the BSX 

Operating Agreement provides that the 

Exchange must obtain Commission 

approval for certain transfers of 

ownership interests in BSX. 

Accordingly, the Exchange, through this 

filing, seeks Commission approval for 

the transfer of ownership interests to 

NASDAQ OMX contemplated by the 

Merger. Following such transfer, the 

Exchange and NASDAQ OMX will be 

the sole members of BSX, and the 

admission of additional or substitute 

members would require approval by the 

Commission pursuant to a filing under 

Section 19 of the Act. In addition, the 

Exchange is also proposing amendments 

to the BSX Operating Agreement to 

reflect its status as a wholly owned 

subsidiary of NASDAQ OMX, and to 

remove references to BeX. Notably, the 

Exchange is proposing to make the 

following amendments: 

• Section 4.1 is amended to provide 

that a five-member Board of Directors 

will be selected by BSE. 

• Section 4.4 is amended to replace a 

provision requiring a super-majority of 

director votes in favor of BSX taking 

certain significant actions, such as entry 

into a new line of business or replacing 

BSE as BSX’s regulatory service 

provider, with more general authority of 

BSE to veto or mandate actions as 

dictated by regulatory requirements. 

• Article VII and Sections 8.2 and 8.3 

are amended to remove provisions that 

allow members to exercise rights of first 

refusal in the event that one member 

proposes to transfer its ownership 

interests in BSX to another member or 

BSX proposes to issue additional units 

of ownership. 

• Section 8.4(f) (redesignated as 

8.2(f)) is amended to clarify terms used 

to describe certain ownership interests 

in a Member of BSX. 

• Various amendments are being 

made to delete references to BeX. 

• Sections 8.5 and 8.6 (redesignated 

as Sections 8.3 and 8.4), which 

restricted ownership and voting of 

ownership interests in BSX above the 

20% level by a BeX participant or its 

affiliates, are being retained but 

amended. The amendments replace 

‘‘BeX Participant’’ with ‘‘BSE member’’

to apply more broadly to any person 

that is a member of the Exchange. 

However, the amendments also provide 

that the restrictions of these provisions 

shall not be construed to limit the 

ownership of membership interests by 

NASDAQ OMX or BSE. This proviso is 

necessary because, as discussed in 

greater detail below, the Nasdaq 

Exchange owns two broker-dealers, the 

ownership of which has been previously 

approved by the Commission. These 

broker-dealers are, and will continue to 

be, members of the Exchange. 

• Article 9, which governs 

distributions to Members, is being 

amended to adopt a restriction on 

distributions of Regulatory Funds 

comparable to the restriction proposed 

for inclusion in the Exchange’s ByLaws. 

• Article 13, which governs disputes 

among members via arbitration, is being 

deleted to reflect the BSX’s wholly 

owned status. 

• Section 16.2, which governs the 

confidentiality obligations of Members, 

is being amended: (i) To clarify that 

Members may use confidential 

information pursuant to the Act and the 

rules and regulations thereunder; (ii) to 

stipulate that directors, officers, and 

employees receiving confidential 

information must themselves be under 

confidentiality obligations; and (iii) to 

require Members to conduct their 

business activities so as to limit the 

applicability of legal disclosure 

obligations that may supersede the 

confidentiality requirements of the BSX 

Operating Agreement. 

• New Section 16.7 is being added to 

provide that to the fullest extent 

permitted by applicable law, all 

confidential information pertaining to 

the self-regulatory function of the 

Exchange or the Exchange’s equity 

business (including but not limited to 

disciplinary matters, trading data, 

trading practices and audit information) 

contained in the books and records of 

BSX shall: (a) Not be made available to 

any person (other than as provided in 

the proviso of this sentence) other than 

to those officers, directors, employees 

and agents of BSX who have a 

reasonable need to know the contents 

thereof; (b) be retained in confidence by 

BSX and its officers, directors, 

employees and agents; and (c) not be 

used for any commercial purposes; 

provided, that nothing in this sentence 

shall be interpreted so as to limit or 

impede the rights of the Commission or 

the Exchange to access and examine 

such confidential information pursuant 

to the federal securities laws and the 

rules and regulations thereunder, or to 

limit or impede the ability of any 

officers, directors, employees or agents 

of BSX to disclose such confidential 

information to the Commission or the 

Exchange. 

• Amending Section 18.6 to clarify 

that the jurisdiction of the U.S. federal 

courts, the Commission, and the 

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Federal Register / Vol. 73, No. 90 / Thursday, May 8, 2008 / Notices 26167 

25Rule 13d-3 under the Act, 17 CFR 240.13d–3, 

in turn provides that a beneficial owner of a 

security includes any person who, directly or 

indirectly, through any contract, arrangement, 

understanding, relationship, or otherwise has or 

shares voting power or investment power. 

26As used in the rule, the term ‘‘affiliate’’

includes natural persons, but the term ‘‘entity,’’

when used to describe an affiliate, excludes natural 

persons. 

27 17 CFR 240.12b–2. 

28For example, in the case of an acquisition of 

a non-member subsidiary of a member in a 

transaction that did not result in an ongoing 

affiliation with the member, the transaction would 

not be regulated by the rule. 

29 In some cases, such contracts may involve 

sharing of confidential information with a member 

in circumstances where a member acts as a 

fiduciary for BSE or one of its affiliates. The 

member would be required to take measures to 

prevent such information from being misused, and 

a failure to do so would constitute a violation of 

BSE rules, including, depending on the 

circumstances, Chapter II, Sections 14, 25, and 36, 

and Chapter XXXVII, Section 11. Amended rules to 

be proposed by BSE to govern equity trading in the 

future will maintain comparable prohibitions. 

Exchange over BSX, its Members, and 

the officers, directors, agents, and 

employees of the Company and its 

Members is exclusive (subject, however, 

to Delaware jurisdiction over matters 

relating to the organization or internal 

affairs of BSX), adding conforming 

references with respect to the 

provision’s waiver of claims as to lack 

of personal jurisdiction, and providing 

for the waiver of any foreign secrecy or 

blocking statutes or regulations to the 

fullest extent permitted by law. 

Prior to resuming trading of cash 

equities, the Exchange will file amended 

rules with the Commission that would 

replace the current BeX rules, as well as 

certain other rules of the Exchange. At 

this time, the Exchange expects to 

operate its cash equities market through 

the BSX entity. However, the Exchange 

will not resume cash equities trading 

until the new rule set is approved. If 

necessary to accurately reflect BSX’s 

operations and to impose any additional 

regulatory safeguards deemed necessary 

by the Exchange or the Commission, the 

new rule set will include further 

amendments to the BSX Operating 

Agreement. In addition, the Exchange 

will provide the Commission with the 

opportunity to review, and if necessary, 

approve, any agreements between BSX 

and the Exchange or any third party to 

support BSX’s operations of a facility of 

the Exchange, such as an amended BSE 

Facility Services Agreement. References 

to superseded agreements that formerly 

supported BeX, such as agreements with 

Lava Trading, Inc., and Atos Euronext 

S.A., are being deleted from the BSX 

Operating Agreement, as are other 

provisions that were applicable to BSX’s 

initial formation and operation. 

New Rules 

The Exchange proposes to adopt two 

new rules that will reflect its status as 

a wholly owned subsidiary of NASDAQ 

OMX upon the effectiveness of the 

Merger. The purpose of the rules is to 

guard against any possibility that the 

Exchange may exercise, or forebear to 

exercise, regulatory authority with 

respect to an affiliated member in a 

manner that is influenced by 

commercial considerations, to provide 

an opportunity for Commission review 

of certain proposed affiliations, and to 

ensure that certain affiliated members 

do not receive advantaged access to 

information in comparison with 

unaffiliated members. The Exchange 

believes that the proposed rules will 

provide added assurance of regulatory 

integrity without subjecting the 

Exchange and its affiliates to 

unwarranted restrictions on their 

commercial activities. 

First, Chapter XXXIX, Section 1 will 

limit ownership of NASDAQ OMX’s 

voting securities by members of the 

Exchange and their associated persons 

(i.e., their registered representatives). 

The rule is comparable to Rule 2130 of 

the Nasdaq Exchange, and provides that 

no member or associated person of a 

member shall be the beneficial owner of 

greater than 20% of the thenoutstanding voting securities of 

NASDAQ OMX. ‘‘Beneficial ownership’’

is defined with reference to NASDAQ 

OMX’s Certificate of Incorporation, 

which in turn provides that a person 

shall be deemed the ‘‘beneficial owner’’

of, shall be deemed to have ‘‘beneficial 

ownership’’ of, and shall be deemed to 

‘‘beneficially own’’ any securities: (i) 

Which such person or any of such 

person’s affiliates is deemed to 

beneficially own, directly or indirectly, 

within the meaning of Rule 13d–3 under 

the Act * * *; 25 (ii) subject to certain 

narrow exceptions described in the 

certificate of incorporation, which such 

person or any of such person’s affiliates 

has the right to acquire or to vote 

pursuant to any agreement, 

arrangement, or understanding; or (iii) 

subject to certain narrow exceptions 

described in the certificate of 

incorporation, which are beneficially 

owned, directly or indirectly, by any 

other person and with respect to which 

such person or any of such person’s 

affiliates has any agreement, 

arrangement or understanding for the 

purpose of acquiring, holding, voting or 

disposing of such securities. 

Second, Chapter XXXIX, Section 2 

regulates affiliation between the 

Exchange and its affiliates, on the one 

hand, and Exchange members, on the 

other hand, in a manner comparable to 

Rule 2140 of the Nasdaq Exchange. In 

general, the proposed rule provides that 

the Exchange must file a proposed rule 

change with the Commission before the 

Exchange or an entity with which it is 

affiliated acquires or maintains an 

ownership interest in, or engages in a 

business venture with, an Exchange 

member or an affiliate of an Exchange 

member.26 The rule defines ‘‘affiliate’’

with reference to Rule 12b–2 under the 

Act,27 which provides that if one person 

controls, is controlled by, or is under 

common control another person, the 

persons are affiliates. 

The proposed rule would make it 

clear that in a case where the Exchange 

or an affiliate of the Exchange proposes 

an acquisition of, or a merger or 

business venture with an Exchange 

member, a Commission filing will be 

required. In order to make it clear that 

the obligation to avoid affiliations that 

have not been filed is imposed by the 

rule both on the Exchange and its 

members, moreover, the rule provides 

that an Exchange member shall not be 

or become an affiliate of the Exchange, 

or an affiliate of any entity affiliated 

with the Exchange, without a 

Commission filing. 

The term ‘‘business venture,’’ as used 

in the rule, is defined as an arrangement 

under which the Exchange or an entity 

with which it is affiliated, on the one 

hand, and an Exchange member or 

affiliate thereof, on the other hand, 

engage in joint activities with an 

expectation of shared profit and a risk 

of shared loss from common 

entrepreneurial efforts. Thus, the term 

does not include, and the proposed rule 

does not regulate, contracts with 

members or their affiliates to provide 

goods, products, or services for 

consideration, including, but not 

limited to, asset or stock purchase 

agreements that do not result in ongoing 

ties with a member or its affiliates,28

credit or debt facilities, licenses of 

intellectual property, contracts for 

investment banking, financial advisory, 

or consulting services,29 or the 

provision of transaction services or data 

to a broker-dealer member or products 

or services to a listed company that is 

or that owns a member broker-dealer. 

The rule limits possible expansive 

interpretations of the term ‘‘affiliate’’ by 

stipulating that one entity is not deemed 

to be an affiliate of another entity solely 

by virtue of having a common director. 

For example, if one of the member 

representative directors of the Exchange 

is also a director of an Exchange 

member, that member would not be 

deemed to be an affiliate of the 

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26168 Federal Register / Vol. 73, No. 90 / Thursday, May 8, 2008 / Notices 

30 15 U.S.C. 78s(b)(3)(A). 

31 17 CFR 240.19b–4(f). 

32 15 U.S.C. 78c. 

33BSE will not construe these limitations to bar 

an employee of an affiliated member from serving 

on a BSE advisory committee, since: (i) Such 

committee members will be required to sign 

confidentiality agreements with regard to 

information received through committee service, 

and (ii) the committee member employed by the 

affiliate would receive information provided 

through committee service at the same time as other 

committee members. 

34See Order Granting Application for a 

Temporary Conditional Exemption Pursuant To 

Section 36(a) of the Exchange Act by the National 

Association of Securities Dealers, Inc. Relating to 

the Acquisition of an ECN by The Nasdaq Stock 

Market, Inc., Securities Exchange Act Release No. 

50311 (September 3, 2004), 69 FR 54818 (September 

10, 2004); Order Approving a Proposed Rule 

Change To Establish Rules Governing the Operation 

of the INET System, Securities Exchange Act 

Release No. 52902 (December 7, 2005), 70 FR 73810 

(December 13, 2005) (SR–NASD–2005–128). 

35See Securities Exchange Act Release No. 56867 

(November 29, 2007), 72 FR 69263 (December 7, 

2007) (SR–NASDAQ–2007–065); Securities 

Exchange Act Release No. 56708 (October 26, 2007), 

72 FR 61925 (November 1, 2007) (SR–NASDAQ–

2007–078); Securities Exchange Act Release No. 

55335 (February 23, 2007), 72 FR 9369 (March 1, 

2007) (SR–NASDAQ–2007–005); Securities 

Exchange Act Release No. 54613 (October 17, 2006), 

71 FR 62325 (October 24, 2006) (SR–NASDAQ–

2006–043); Securities Exchange Act Release No. 

54271 (August 3, 2006), 71 FR 45876 (August 10, 

2006) (SR–NASDAQ–2006–027); and Securities 

Exchange Act Release No. 54155 (July 14, 2006), 71 

FR 41291 (July 20, 2006) (SR–NASDAQ–2006–001). 

Exchange solely because of the common 

director. In addition, the rule should not 

be construed to regulate in any manner 

the selection of directors or standing 

committee members of the Exchange, 

NASDAQ OMX, the Nasdaq Exchange, 

or their affiliates, provided such 

selections are conducted in accordance 

with applicable provisions of governing 

corporate documents. 

In circumstances where a Commission 

filing is required, the rule may, in 

appropriate cases, permit a filing to be 

submitted on an immediately effective 

basis under Section 19(b)(3)(A) of the 

Act 30 and Rule 19b–4(f) thereunder.31

For example, in cases where a proposed 

affiliation or business venture would 

not result in the establishment of a 

‘‘facility’’ of the Exchange within the 

meaning of Section 3 of the Act,32 a 

filing to establish rules to govern the 

operation of the affiliate or business 

venture would not be required or 

appropriate. Rather, in such 

circumstances, the Exchange would 

expect to engage in informal 

consultation with the Division of 

Trading and Markets and/or members of 

the Commission, and would then 

submit a filing to amend the rule itself, 

to establish that the affiliation or 

business venture could exist as an 

exception to the rule. Depending on the 

circumstances, such a filing might be 

submitted on an immediately effective 

basis. 

There are also several important 

exceptions to the general filing 

requirement of the rule. First, the rule 

would not require a filing for 

transactions that result in an Exchange 

member acquiring or holding an interest 

in NASDAQ OMX that is consistent 

with Chapter XXXIX, Section 1 

(discussed above). Second, no filing is 

required for the Exchange or an entity 

affiliated with the Exchange acquiring 

or maintaining an ownership interest in, 

or engaging in a business venture with, 

an affiliate of an Exchange member if 

there are information barriers between 

the member and the Exchange and its 

facilities, such that the member: (i) Will 

not be provided an informational 

advantage concerning the operation of 

the Exchange and its facilities, and will 

not be provided changes or 

improvements to the trading system that 

are not available to the industry 

generally or other Exchange members; 

(ii) will not have knowledge in advance 

of other members of proposed changes, 

modifications, or improvements to the 

operations or trading systems of the 

Exchange and its facilities, including 

advance knowledge of Exchange filings 

pursuant to Section 19(b) of the Act; (iii) 

will be notified of any proposed 

changes, modifications, or 

improvements to the operations or 

trading systems of the Exchange and its 

facilities in the same manner as other 

Exchange members are notified; and (iv) 

will not share employees, office space, 

or databases with the Exchange or its 

facilities, NASDAQ OMX, or any entity 

that is controlled by NASDAQ OMX.33

The Exchange’s Regulatory Oversight 

Committee must certify, on an annual 

basis, to the Director of the Division of 

Trading and Markets, that the Exchange 

has taken all reasonable steps to 

implement the foregoing requirements 

with respect to any affiliate to which 

they apply and is in compliance 

therewith. 

This exception is aimed at 

circumstances in which the Exchange or 

an affiliated entity acquires, or enters 

into a business venture with, an affiliate 

of an Exchange member, and the 

Exchange erects information barriers 

between the member and the Exchange 

and its facilities. Thus, the Exchange 

ensures that the member does not 

receive any advantage as a result of its 

affiliation. 

In connection with the adoption of 

this rule, it is also necessary for the 

Exchange to seek Commission approval 

under the rule for the affiliation that 

will result by virtue of the Merger 

between the Exchange and the two 

broker-dealer subsidiaries of the Nasdaq 

Exchange: Nasdaq Execution Services, 

LLC (‘‘NES’’) and NASDAQ Options 

Services, LLC (‘‘NOS’’). The acquisition 

of the entities that are now NES and 

NOS by The Nasdaq Stock Market, Inc. 

(now NASDAQ OMX) was approved by 

the Commission in 2004 and 2005.34

The rules under which NES currently 

routes orders to other market centers 

were approved by the Commission in 

2006 and subsequently amended on 

several occasions.35 Notably, Nasdaq 

Exchange Rule 4758(b) establishes the 

parameters for operation of NES as 

follows: (1) All routing of equities by the 

Nasdaq Exchange is performed by NES, 

which, in turn, routes orders to other 

market centers as directed by the 

Nasdaq Exchange; (2) NES will not 

engage in any business other than: (a) 

As a outbound router for the Nasdaq 

Exchange and (b) any other activities it 

may engage in as approved by the 

Commission; (3) NES will operate as a 

facility, as defined in Section 3(a)(2) of 

the Act, of the Nasdaq Exchange; (4) for 

purposes of Commission Rule 17d–1, 

the designated examining authority of 

NES will be a self-regulatory 

organization unaffiliated with the 

Nasdaq Exchange or any of its affiliates; 

(5) the Nasdaq Exchange shall be 

responsible for filing with the 

Commission rule changes related to the 

operation of, and fees for services 

provided by, NES, and NES shall be 

subject to exchange non-discrimination 

requirements; (6) the books, records, 

premises, officers, agents, directors and 

employees of NES, as a facility of the 

Nasdaq Exchange, shall be deemed to be 

the books, records, premises, officers, 

agents, directors and employees of the 

Nasdaq Exchange for purposes of, and 

subject to oversight pursuant to, the Act, 

and the books and records of NES, as a 

facility of the Nasdaq Exchange, shall be 

subject at all times to inspection and 

copying by the Commission; and (7) use 

of NES is optional. 

Currently, routing by NES on behalf of 

the Nasdaq Exchange takes two forms: 

(i) Orders that access any liquidity on 

the Nasdaq Exchange book that has a 

price equal to or superior to the prices 

available on other ‘‘automated market 

centers’’ and thereafter route to seek the 

best available price, and (ii) routing of 

‘‘directed orders’’ to automated market 

centers other than the Nasdaq Exchange 

on an ‘‘immediate-or-cancel’’ basis. 

Such directed orders may be designated 

as ‘‘intermarket sweep orders,’’ which 

may be executed by the receiving venue 

based on the representation of the 

market participant that it has routed to 

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36See Securities Exchange Act Release No. 57478 

(March 12, 2008), 73 FR 14521 (March 18, 2008) 

(SR–NASDAQ–2007–004 and –080) (‘‘NOM 

Approval Order’’). 

37Consistent with this restriction, Chapter VI, 

Section 11 currently states that NOM participants 

can designate orders as either available for routing 

or not available for routing. 

38 In this regard, it should be noted that both the 

New York Stock Exchange LLC and NYSE Arca, Inc. 

(‘‘NYSE Arca’’) use NYSE Arca’s broker-dealer 

subsidiary to perform routing. 

39 15 U.S.C. 78f. 

40 15 U.S.C. 78f(b)(1), (3) and (5). 

all superior protected quotations, or not 

so designated, in which case the orders 

will execute only if their execution 

would not result in a trade-through. 

NOS serves as the outbound router for 

the Nasdaq Options Market (‘‘NOM’’), 

which commenced operations on March 

31, 2008. Under NOM Rule Chapter VI, 

Section 11: (1) NOM will route orders in 

options via NOS, which serves as the 

sole ‘‘Routing Facility’’ of NOM; (2) the 

sole function of the Routing Facility will 

be to route orders in options listed and 

open for trading on NOM to away 

markets pursuant to NOM rules, solely 

on behalf of NOM; (3) NOS is a member 

of an unaffiliated self-regulatory 

organization which is the designated 

examining authority for the brokerdealer; (4) the Routing Facility is subject 

to regulation as a facility of the Nasdaq 

Exchange, including the requirement to 

file proposed rule changes under 

Section 19 of the Act; (5) NOM shall 

establish and maintain procedures and 

internal controls reasonably designed to 

adequately restrict the flow of 

confidential and proprietary 

information between the Nasdaq 

Exchange and its facilities (including 

the Routing Facility), and any other 

entity; and (6) the books, records, 

premises, officers, directors, agents, and 

employees of the Routing Facility, as a 

facility of the Nasdaq Exchange, shall be 

deemed to be the books, records, 

premises, officers, directors, agents, and 

employees of the Nasdaq Exchange for 

purposes of and subject to oversight 

pursuant to the Act, and the books and 

records of the Routing Facility, as a 

facility of the Exchange, shall be subject 

at all times to inspection and copying by 

the Nasdaq Exchange and the 

Commission.36

Unlike NES, NOS does not have a 

‘‘directed order’’ for options that are 

trading on NOM; rather, all routable 

orders for options that are trading on 

NOM check the NOM book prior to 

routing. However, NOS also routes 

orders in options that are not trading on 

NOM. When routing orders in options 

that are not listed and open for trading 

on NOM, NOS will not be regulated as 

a facility of the Nasdaq Exchange but 

rather as a broker-dealer regulated by its 

designated examining authority. 

However, as provided by Chapter IV, 

Section 5 of the NOM Rules, all orders 

routed by NOS under these 

circumstances will be routed to away 

markets that are at the best price, and 

solely on an immediate-or-cancel basis. 

Although not explicitly stated in 

Chapter VI, Section 11, NOS, like NES, 

will be subject to exchange nondiscrimination requirements, and the 

use of NOS will be optional.37 In 

addition, NOS will not engage in any 

business other than the activities 

approved by the Commission in the 

NOM Approval Order and such other 

activities as may be approved by the 

Commission at a later date. 

In order to further restrict the 

interaction between the Exchange and 

NES and NOS, the Nasdaq Exchange has 

agreed that it will, prior to the closing 

of the Merger, amend its rules to change 

the routing practices of NES and NOS. 

With respect to NES, directed orders 

will not be eligible for routing to 

Exchange facilities (including a planned 

Exchange facility for trading equities). 

With respect to NOS, when routing 

orders in options that are not listed and 

open for trading on NOM, NOS will not 

route to Exchange facilities (including 

BOX). Routing of orders that check the 

Nasdaq Exchange and NOM books prior 

to routing to the Exchange will 

continue. 

The Exchange notes that at a later 

date, an equity trading system operated 

by the Exchange may opt to use NES to 

route on behalf of the Exchange. 

Similarly, if the Exchange operates an 

options trading system other than BOX 

following a future termination of 

relations between the Exchange and 

BOX, the Exchange may opt to use NOS 

to perform routing.38 Such future uses of 

NES or NOS would be reflected in 

filings to establish the terms and 

conditions of such routing, but would 

not allow for routing of directed orders 

to the Nasdaq Exchange, NOM, or any 

other affiliated exchange or trading 

facility thereof. 

In light of the foregoing facts and 

circumstances, and in accordance with 

proposed Exchange Rule Chapter 

XXXIX, Section 2(a)(2), the Exchange 

proposes that NES and NOS be 

permitted to become affiliates of the 

Exchange subject to the following: 

• With respect to NES: NES remains 

a facility of the Nasdaq Exchange; use of 

NES’s routing function by Nasdaq 

Exchange members continues to be 

optional; and NES does not provide 

routing of directed orders to the 

Exchange or any trading facilities 

thereof, unless such orders first attempt 

to access any liquidity on the Nasdaq 

Exchange book. 

• With respect to NOS: NOS remains 

a facility of the Nasdaq Exchange; use of 

NOS’s Routing Facility function by 

Nasdaq Exchange members continues to 

be optional; and NOS does not provide 

routing of orders in options that are not 

listed and open for trading on NOM to 

the Exchange or any trading facilities 

thereof. 

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

the provisions of Section 6 of the Act,39

in general, and with Sections 6(b)(1), 

(b)(3) and (b)(5) of the Act,40 in 

particular, in that the proposal: enables 

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 and enforce compliance by 

Exchange Members and persons 

associated with Exchange Members with 

provisions of the Act, the rules and 

regulations thereunder, and the rules of 

the Exchange; is designed to assure a 

fair representation of Exchange 

Members in the selection of Directors; 

and is 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. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will result in 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments were neither 

solicited nor received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 35 days of the date of 

publication of this notice in the Federal 

Register or within such longer period (i) 

as the Commission may designate up to 

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26170 Federal Register / Vol. 73, No. 90 / Thursday, May 8, 2008 / Notices 

41 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3 15 U.S.C. 78c(a)(2). 

4MX US currently has a 31.37% ownership 

interest in BOX. The BSE notes that in SR–BSE–

2008–06, MX US’s ownership interest in BOX was 

rounded up to 31.4%. See Securities Exchange Act 

Release No. 57260 (February 1, 2008), 73 FR 7617 

(February 8, 2008) (SR–BSE–2008–06). 

5The ‘‘Regulatory Authority’’ is defined as the 

BSE as the non-equity, non-Member authority of 

BOX and, together with and pursuant to delegated 

authority from BSE, the Boston Options Exchange 

Regulation LLC (‘‘BOXR’’), as approved by the SEC. 

See Section 1.1, 6th BOX LLC Agreement. 

6Capitalized terms not otherwise defined herein 

shall have the meanings set forth in the 6th BOX 

LLC Agreement. 

7See Securities Exchange Act Release Nos. 49066 

(January 13, 2004), 69 FR 2773 (January 20, 2004) 

(SR–BSE–2003–17) (establishing a fee schedule for 

the proposed BOX Market); 49065 (January 13, 

2004), 69 FR 2768 (January 20, 2004) (SR–BSE–

2003–04) (creating BOXR to which the BSE would 

delegate its self-regulatory functions with respect to 

the BOX Market); 49068 (January 13, 2004), 69 FR 

2775 (January 20, 2004) (SR–BSE–2002–15) 

(approving trading rules for the BOX Market); and 

49067 (January 13, 2004), 69 FR 2761 (January 20, 

2004) (SR–BSE–2003–19) (approving certain 

regulatory provisions of the operating agreement of 

BOX). 

90 days of such date if it finds such 

longer period to be appropriate and 

publishes its reasons for so finding or 

(ii) as to which the self-regulatory 

organization consents, the Commission 

will: 

(A) By order approve 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 (http://www.sec.gov/ 

rules/sro.shtml); or 

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

Number SR–BSE–2008–23 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–BSE–2008–23. 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, 100 F Street, NE., Washington, 

DC 20549, on official business days 

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

Copies of the filing also will be available 

for inspection and copying at the 

principal office of the Exchange. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–BSE–2008–23 and should 

be submitted on or before May 29, 2008. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.41

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E8–10093 Filed 5–7–08; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–57762; File No. SR–BSE–

2008–25] 

Self-Regulatory Organizations; Boston 

Stock Exchange, Inc.; Notice of Filing 

of a Proposed Rule Change Relating to 

Proposal to Transfer Boston Stock 

Exchange, Inc.’s Ownership Interest in 

Boston Options Exchange Group, LLC 

May 1, 2008. 

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 April 23, 

2008, the Boston Stock Exchange, Inc. 

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

Securities and Exchange Commission 

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

rule change as described in Items I, II, 

and III below, which Items have been 

substantially prepared by the BSE. 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 transfer its 

21.87% ownership interest in the 

Boston Options Exchange Group, LLC 

(‘‘BOX’’), the operator of its Boston 

Options Exchange facility (‘‘BOX 

Market’’) 3 to MX US 2, Inc. (‘‘MX US’’), 

a wholly-owned U.S. subsidiary of the 

Montre ́al Exchange Inc. (‘‘MX’’), such 

that, following the transfer, the 

Exchange’s aggregate Percentage Interest 

will be 0% and MX US’s Percentage 

Interest will increase to 53.24%.4 The 

Exchange will remain the Regulatory 

Authority 5 for the BOX Market and is 

submitting the proposed rule change to 

the Commission to approve the transfer 

of interests to MX US and to amend the 

Fifth Amended and Restated Operating 

Agreement (the ‘‘5th BOX LLC 

Agreement’’) of BOX accordingly (such 

agreement, as amended, the ‘‘6th BOX 

LLC Agreement’’).6 The Exchange is 

requesting confidential treatment of the 

sections of the 6th BOX LLC Agreement, 

which contain confidential business 

information and do not relate to the 

control and governance of BOX. 

The text of the proposed rule change 

is available at the BSE, the 

Commission’s Public Reference Room, 

and http://www.bostonstock.com. The 

text of Exhibits 3A and 3B of the 

proposed rule change are also available 

on the Exchange’s Web site and on the 

Commission’s Web site (http:// 

www.sec.gov/rules/sro/bse.shtml). 

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 

BSE 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 BSE 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 the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

On January 13, 2004, the Commission 

approved four BSE proposals that 

together established the BOX Market as 

a facility of the Exchange.7 This 

mstockstill on PROD1PC66 with NOTICES