30082 Federal Register / Vol. 75, No. 103 / Friday, May 28, 2010 / Notices 

13 15 U.S.C. 78s(b)(3)(A). 

14 17 CFR 240.19b–4(f)(6). When filing a proposed 

rule change pursuant to Rule 19b–4(f)(6) under the 

Act, an Exchange is required to give the 

Commission written notice of its intent to file the 

proposed rule change, along with a brief description 

and text of the proposed rule change, at least five 

business days prior to the date of filing of the 

proposed rule change, or such shorter time as 

designated by the Commission. The Exchange has 

met this requirement. 

15For the purposes only of waiving the operative 

date of this proposal, the Commission has 

considered the proposed rule’s impact on 

efficiency, competition, and capital formation. See 

15 U.S.C. 78c(f). 

16 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3The term ‘‘Restructuring Transaction’’ is defined 

in proposed CBOE Rule 1.1(hhh) as ‘‘the 

restructuring of the Exchange from a non-stock 

corporation to a stock corporation and whollyowned subsidiary of CBOE Holdings, Inc.’’ 

capture fees on a real-time basis and 

also receive information on whether the 

orders were electronically or nonelectronically delivered. This 

information will provide members more 

transparency on the fees assessed on 

transactions. The clearing trade updates 

are and will continue to be available to 

all members. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others 

No written comments were either 

solicited or received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the foregoing proposed rule 

change does not: (1) Significantly affect 

the protection of investors or the public 

interest; (2) impose any significant 

burden on competition; and (3) become 

operative for 30 days from the date on 

which it was filed, or such shorter time 

as the Commission may designate if 

consistent with the protection of 

investors and the public interest, it has 

become effective pursuant to Section 

19(b)(3)(A) of the Act 13 and Rule 19b– 

4(f)(6) thereunder.14

Phlx has requested that the 

Commission waive the 30-day operative 

delay. The Commission hereby grants 

that request.15 The Commission believes 

that waiving the 30-day operative delay 

is consistent with the protection of 

investors and the public interest. The 

Commission notes that the Exchange 

proposes to allow members to test the 

CTI immediately, and to migrate to the 

CTI upon successful testing. The 

Exchange proposes to retire the RMP in 

September 2010. Waiving the operative 

delay will thus allow the Exchange to 

provide members an increased period of 

time to test and migrate to the CTI 

before the retirement of the RMP in 

September 2010. 

At any time within 60 days of the 

filing of such proposed rule change, the 

Commission may summarily abrogate 

such rule change if it appears to the 

Commission that such action is 

necessary or appropriate in the public 

interest, for the protection of investors, 

or otherwise in the furtherance of the 

purposes of the Act. 

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–Phlx–2010–67 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

Station Place, 100 F Street, NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–Phlx–2010–67. 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 Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street, NE., 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of such filing 

also will be available for inspection and 

copying at the principal office of the 

Exchange. All comments received will 

be posted without change; the 

Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

publicly available. All submissions 

should refer to File Number SR–Phlx– 

2010–67 and should be submitted on or 

before June 18, 2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.16

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–12873 Filed 5–27–10; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–62158; File No. SR–CBOE– 

2008–88] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Notice of Filing of 

Amendment No. 1 and Order Granting 

Accelerated Approval of Proposed 

Rule Change as Modified by 

Amendment No. 1 Relating to the 

Demutualization of Chicago Board 

Options Exchange, Incorporated 

May 24, 2010. 

I. Introduction 

On August 21, 2008, pursuant to 

Section 19(b)(1) of the Securities 

Exchange Act of 1934 (‘‘Act’’),1 and Rule 

19b–4 thereunder,2 the Chicago Board 

Options Exchange, Incorporated 

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

Securities and Exchange Commission 

(‘‘Commission’’) a proposed rule change 

in connection with its plan to 

demutualize and restructure from a 

Delaware non-stock corporation to a 

Delaware stock corporation that would 

be a wholly-owned subsidiary of CBOE 

Holdings, Inc. (‘‘CBOE Holdings’’), a 

holding company organized as a 

Delaware stock corporation (the 

‘‘Restructuring Transaction’’).3 To 

accommodate the Restructuring 

Transaction, CBOE proposed a 

Certificate of Incorporation and Bylaws 

for the newly formed CBOE Holdings, a 

new Certificate of Incorporation for 

CBOE, and to replace CBOE’s existing 

Constitution with new Bylaws. Finally, 

CBOE proposed amendments to its rules 

to address, among other things, trading 


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4See Securities Exchange Act Release No. 58425 

(August 26, 2008), 73 FR 51652 (‘‘Notice’’). 

5The substance of the proposed rule change and 

its filing with the Commission were approved by 

the Board of Directors of the Exchange prior to 

filing. At that time, the Exchange had not yet 

obtained approval from its members for the changes 

set forth in the proposal. On May 21, 2010, the 

Exchange obtained the requisite approval from its 

members. Amendment No. 1, among other things, 

reflects the membership’s approval of this proposed 

rule change. See infra notes and text following note 

172 for a discussion of Amendment No. 1 in greater 

detail. 

6 In approving the proposed rule change, the 

Commission has considered its impact on 

efficiency, competition, and capital formation. See 

15 U.S.C. 78c(f). 

7 15 U.S.C. 78f. 

8 In Amendment No. 1, CBOE revised the 

proposed CBOE Holdings’ Certificate of 

Incorporation to include the term ‘‘Regulated 

Securities Exchange Subsidiary’’ in the places that 

had referenced CBOE. A ‘‘Regulated Securities 

Exchange Subsidiary’’ is defined as ‘‘any national 

securities exchange, controlled, directly or 

indirectly, by CBOE Holdings, including, but not 

limited to CBOE.’’ This change in terminology 

addresses CBOE’s other national securities 

exchange C2 Options Exchange, Incorporated and 

would accommodate ownership of more than one 

national securities exchange by CBOE Holdings. See 

Amendment No. 1 at 4. See also Securities 

Exchange Act Release No. 61152 (December 10, 

2009), 74 FR 66699 (December 16, 2009) (order 

approving application of C2 Options Exchange, 

Incorporated). 

9These subsidiaries are: CBOE Futures Exchange, 

LLC, which operates an electronic futures exchange; 

Chicago Options Exchange Building Corporation, 

which owns the building in which CBOE operates; 

CBOE, LLC, which holds a 24.01% interest in 

OneChicago, LLC, a security futures exchange; 

CBOE II, LLC, which has no assets or activities; 

DerivaTech Corporation, which owns certain 

educational software; Market Data Express, LLC, 

which distributes various types of market data; and 

The Options Exchange, Incorporated, which 

currently has no assets or activities. 

10The remaining 50% interest in CBSX currently 

is owned by five registered broker-dealers. 

11See infra note 51 and accompanying text 

(discussing CBOE’s role in considering amendments 

to CBOE Holdings’ corporate documents). 

12See infra note 118 and accompanying text 

(describing Trading Permits). 

13See Amendment No. 1 at 3. In the event of a 

future public offering by CBOE Holdings, each 

outstanding share of Class A common stock would 

be converted to one-half of one share of Class A– 

1 common stock and one-half share of one share of 

Class A–2 common stock, each of which would be 

subject to certain transfer restrictions. Specifically, 

Class A–1 common stock resulting from a 

conversion at the time of a pubic offering would be 

subject to a 180-day transfer restriction following 

the offering and Class A–2 common stock would be 

subject to a 360-day transfer restriction. Upon 

expiration of the restrictions, Class A–1 and Class 

A–2 common stock would convert to unrestricted 

common stock of CBOE Holdings. See id. Similarly, 

the Class B common stock of CBOE Holdings that 

will be issued in the Restructuring Transaction in 

connection with the settlement of the litigation 

relating to the exercise right would also be issued 

in a single class designated as Class B common 

stock. To ensure compliance with the transfer 

restrictions, Class A, Class A–1, Class A–2 and 

Class B common stock may only be recorded on the 

books and records of CBOE Holdings in the name 

of the owner of the shares. See id. CBOE Holdings 

would have the ability to issue preferred stock and 

unrestricted common stock including in connection 

with a public offering of shares of stock to investors 

who were not members of CBOE prior to the 

Restructuring Transaction and who would not be 

Trading Permit holders following the Restructuring 

Transaction. According to the Exchange, CBOE 

Holdings has no current intention to issue any 

shares of its preferred stock. See id. 

14See proposed Article Seventh(b) of the CBOE 

Holdings Certificate of Incorporation and proposed 

Article 3.2 of the CBOE Holdings Bylaws. 

15See Amendment No. 1 at 5–6 (concerning the 

size of the initial CBOE Holdings Board). CBOE 

currently has a 23-person Board with one vacancy 

that the CBOE Board does not intend to fill prior 

to the consummation of the Restructuring 

Transaction. 

16See ‘‘Nominating and Governance Committee,’’ 

infra Section II.B.2. (describing composition of 

Nomination and Governance Committee). 

access to the Exchange after the 

Restructuring Transaction. The 

proposed rule change was published for 

comment in the Federal Register on 

September 4, 2008.4 The Commission 

received no comments on the proposal. 

On May 21, 2010, the Exchange filed 

Amendment No. 1 to the proposal.5 This 

order provides notice of filing of 

Amendment No. 1 and grants 

accelerated approval to the proposed 

rule change, as modified by Amendment 

No. 1. 

II. Discussion and Commission 

Findings 

After careful review of the proposal, 

the Commission finds that the proposed 

rule change, as amended, is consistent 

with the requirements of the Act and the 

rules and regulations thereunder 

applicable to a national securities 

exchange.6 In particular, as discussed in 

more detail below, the Commission 

finds that the proposed rule change is 

consistent with Section 6(b) of the Act.7

A. The Restructuring Transaction 

(1) Overview of the Proposed Corporate 

Structure 

CBOE proposes to restructure from a 

Delaware non-stock corporation owned 

by its members to a Delaware stock 

corporation that would be a whollyowned subsidiary of CBOE Holdings, a 

holding company organized as a 

Delaware stock corporation. As a result 

of the Restructuring Transaction, CBOE 

Holdings would become the sole 

stockholder of CBOE.8 In addition, 

CBOE would transfer to CBOE Holdings 

all of the shares or interests CBOE 

currently owns in its subsidiaries, other 

than CBOE Stock Exchange, LLC, 

(‘‘CBSX’’), thereby making them whollyowned subsidiaries of CBOE Holdings.9

CBSX, which is an equity trading 

facility of CBOE, would remain a facility 

of CBOE in which CBOE would 

continue to hold a 50% interest.10 CBOE 

would continue to be a self-regulatory 

organization (‘‘SRO’’) and to operate its 

exchange business and facilities. 

CBOE has proposed a new Certificate 

of Incorporation and Bylaws that are 

similar to the CBOE’s current Certificate 

of Incorporation and Constitution, 

except that they reflect CBOE’s 

proposed new structure. CBOE also has 

proposed to adopt a Certificate of 

Incorporation and Bylaws for CBOE 

Holdings that would address, among 

other things, the operation of the 

Exchange as an SRO in a holding 

company structure.11 Finally, CBOE has 

proposed amendments to certain rules 

of the Exchange to reflect, among other 

things, the use of Trading Permits12 to 

access the Exchange and its facilities. 

(2) Conversion of Memberships 

After the Restructuring Transaction, 

the owners of membership interests in 

CBOE would become stockholders of 

CBOE Holdings through the conversion 

of their memberships into shares of 

common stock of CBOE Holdings. Each 

transferable CBOE membership existing 

on the date of the Restructuring 

Transaction would be converted into a 

certain number of shares of Class A 

common stock of CBOE Holdings.13 The 

Class A common stock of CBOE 

Holdings would represent an equity 

ownership interest in CBOE Holdings, 

but would not provide its holders with 

physical or electronic access to CBOE 

and its trading facilities. In addition, 

Class B common stock of CBOE 

Holdings would be issued in the 

Restructuring Transaction in connection 

with the settlement of the litigation 

relating to the exercise right. 

B. CBOE Holdings 

After the Restructuring Transaction, 

CBOE Holdings would become the 

parent company and sole shareholder of 

CBOE. The proposed Certificate of 

Incorporation and Bylaws of CBOE 

Holdings would govern the activities of 

CBOE Holdings. 

(1) Governing Structure 

CBOE Holdings Board of Directors. 

The CBOE Holdings Board of Directors 

(‘‘CBOE Holdings Board’’) would be 

composed of between 11 and 23 

directors. Except with respect to the 

initial CBOE Holdings Board, the exact 

number would be established by the 

CBOE Holdings Board.14 The initial 

CBOE Holdings Board would be 

composed of the 22 directors of CBOE 

immediately prior to the Restructuring 

Transaction.15

Except with respect to the initial 

CBOE Holdings Board, the Nominating 

and Governance Committee 16 would 


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17See proposed Article 2.11 of the CBOE 

Holdings Bylaws. Pursuant to proposed Article 

2.11, the CBOE Holdings Board or a committee 

thereof each year would nominate candidates for 

the directors standing for election at the CBOE 

Holdings annual meeting of shareholders. See also 

Amendment No. 1 at 6–7 (discussing director 

nominees). In addition, subject to certain 

conditions, stockholders also have the right under 

this provision to nominate persons for the CBOE 

Holdings Board. 

18See proposed Article 2.8 of the CBOE Holdings 

Bylaws. The Commission notes that there are no 

provisions in the proposed CBOE Holdings 

corporate documents providing for anything other 

than one vote for each share of voting stock held. 

19See Amendment No. 1 at 6. See proposed 

Article 3.3 of the CBOE Holdings Bylaws. See also 

Sections 303A.01 and 303A.02 of the NYSE’s Listed 

Company Manual and Nasdaq Stock Market Rule 

5605. 

20See Amendment No. 1 at 6 (changing term 

duration from two years, as initially proposed, to 

one year). 

21See proposed Article 3.6 of the CBOE Holdings 

Bylaws. The proposed CBOE Holdings Bylaws 

would not restrict the Chief Executive Officer of 

CBOE Holdings from serving in this role. See 

proposed Article 5.1 of the CBOE Holdings Bylaws. 

22See proposed Article 3.7 of the CBOE Holdings 

Bylaws. 

23See proposed Article 4.1 of the CBOE Holdings 

Bylaws. The CBOE Holdings Board would designate 

the members of these other committees and may 

designate a Chairman and a Vice-Chairman of each 

committee. 

24See proposed Article 4.2 of the CBOE Holdings 

Bylaws. 

25See proposed Articles 4.2, 4.3 and 4.4 of the 

CBOE Holdings Bylaws. 

26See Article 4.5 of the CBOE Holdings Bylaws. 

See also Amendment No. 1 at 6–7 (decreasing the 

size of the committee from seven to five). With the 

exception of the initial committee, all committee 

members would be recommended by the 

Nominating and Governance Committee for 

approval by the CBOE Holdings Board. See 

proposed Article 4.5 of the CBOE Holdings Bylaws. 

The initial Nominating and Governance Committee 

after the Restructuring Transaction would be 

selected by the CBOE Board or a committee thereof, 

consistent with the committee’s composition 

requirements. 

27See proposed Article 5.1 of the CBOE Holdings 

Bylaws. 

28See proposed Articles 5.1 and 5.2 of the CBOE 

Holdings Bylaws. 

29See proposed Articles 5.3, 5.4, 5.5, 5.6 and 5.7 

of the CBOE Holdings Bylaws. 

30See Section 6(b)(1) of the Act, 15 U.S.C. 

78f(b)(1). 

31The term ‘‘Related Person’’ is defined in 

proposed Article Fifth(a)(ix) of the CBOE Holdings 

Certificate of Incorporation and includes, among 

other things, persons associated with a Trading 

Permit Holder. 

32The Commission notes that CBOE has received 

a legal opinion that the proposed ownership and 

voting limitations, as well as the provisions 

providing for the redemption of shares held by a 

person (either alone or together with its Related 

Persons) in excess of the ownership limitation, are 

valid under Delaware law. See Letter from Richards, 

Layton & Finger to CBOE Holdings, Inc. dated 

August 15, 2008. 

33See proposed Article Sixth(b) of the CBOE 

Holdings Certificate of Incorporation. 

34See proposed Article Sixth(b) of the CBOE 

Holdings Certificate of Incorporation. CBOE 

Holdings would redeem such stock at a price equal 

nominate candidates for the CBOE 

Holdings Board.17 Each holder of CBOE 

Holdings voting stock would be entitled 

to one vote for each share of voting 

stock held, except as otherwise 

provided by the General Corporation 

Law of the State of Delaware or the 

Certificate of Incorporation or Bylaws of 

CBOE Holdings.18

The CBOE Holdings Board would be 

subject to a heightened independence 

requirement, with at least two-thirds of 

the directors satisfying the 

independence requirements adopted by 

the CBOE Holdings Board, as may be 

amended from time to time, which shall 

satisfy the independence requirements 

in the listing standards of the New York 

Stock Exchange (‘‘NYSE’’) or The Nasdaq 

Stock Market.19 CBOE Holdings 

directors would serve one-year terms.20

The CBOE Holdings Board would 

appoint one of its directors to serve as 

Chairman,21 and may also appoint an 

independent director to serve as Lead 

Director, who would perform such 

duties and possess such powers as the 

CBOE Holdings Board may from time to 

time prescribe.22

Committees of CBOE Holdings. CBOE 

Holdings would have an Executive 

Committee, an Audit Committee, a 

Compensation Committee, a Nominating 

and Governance Committee, and such 

other committees that the CBOE 

Holdings Board establishes.23 The 

members of each committee would be 

selected by the CBOE Holdings Board. 

The Executive Committee would have 

all the powers and authority of the 

CBOE Holdings Board in the 

management of the business and affairs 

of CBOE Holdings, except it would not 

have the power or authority of the CBOE 

Holdings Board in reference to, among 

other things, amending the CBOE 

Holdings Certificate of Incorporation, 

adopting an agreement of merger or 

consolidation, approving the sale, lease 

or exchange of all or substantially all of 

the CBOE Holdings’ property and assets, 

or approving the dissolution of CBOE 

Holdings or a revocation of a 

dissolution.24 The Executive Committee 

would include the Chairman of the 

Board (who would serve as the 

Chairman of the Executive Committee), 

the Chief Executive Officer (if a 

director), the Lead Director, if any, and 

such directors as the CBOE Holdings 

Board deems appropriate, provided that 

Executive Committee must at all times 

have a majority of independent 

directors. 

The Nominating and Governance 

Committee would recommend members 

of CBOE Holdings’ Executive, Audit, 

and Compensation Committees for 

approval by the CBOE Holdings 

Board.25 The Nominating and 

Governance Committee would consist of 

at least five directors, all of whom 

would be Independent Directors.26

Officers of CBOE Holdings. CBOE 

Holdings would have a Chief Executive 

Officer, a Chief Financial Officer, a 

President, one or more Vice-Presidents 

(as determined by the CBOE Holdings 

Board), a Secretary, a Treasurer, and 

such other officers as the CBOE 

Holdings Board may determine, 

including an Assistant Secretary or 

Assistant Treasurer.27 The Chief 

Executive Officer would have general 

charge and supervision of the business 

of CBOE Holdings.28 Other officers 

would have the duties or powers or both 

set out in the CBOE Holdings Bylaws, as 

well as such other duties or powers or 

both as the CBOE Holdings Board or the 

Chief Executive Officer may from time 

to time prescribe.29

The Commission finds that the 

proposed provisions relating to the 

CBOE Holding Board are consistent 

with the Act, particularly Section 

6(b)(1), which requires an exchange to 

be so organized and have the capacity 

to carry out the purposes of the Act.30

In particular, these provisions will assist 

the Exchange in fulfilling its selfregulatory obligations and in 

administering and complying with the 

requirements of the Act. 

(2) Ownership and Voting Restrictions 

The proposed Certificate of 

Incorporation of CBOE Holdings places 

certain ownership and voting limits on 

the holders of CBOE Holdings stock and 

their Related Persons.31 These 

restrictions are intended to address the 

possibility that a person holding a 

controlling interest in an entity that 

owns an SRO could use that interest to 

affect the SRO’s regulatory 

responsibilities.32

Ownership Limitation. No person 

(either alone or together with its Related 

Persons) may beneficially own more 

than 10% of the total outstanding shares 

of CBOE Holdings stock. In the event of 

a public offering of common stock, the 

permissible ownership percentage 

threshold would increase from 10% to 

20%.33 If a person, either alone or 

together with its Related Persons, 

exceeds these thresholds, such person 

and its Related Persons would be 

obligated to sell promptly, and CBOE 

Holdings would be obligated to redeem 

promptly, the number of shares of stock 

necessary so that such person, together 

with its Related Persons, would fall 

below the applicable threshold.34


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to the par value of such shares of stock and to the 

extent that funds are legally available for such 

redemption. If shares of CBOE Holdings stock 

beneficially owned by any Person or its Related 

Persons are held of record by any other Person, this 

provision would be enforced against such record 

owner by requiring the redemption of shares of 

CBOE Holdings stock held by such record owner in 

a manner that would accomplish the ownership 

limitation applicable to such Person and its Related 

Persons. See id. 

35See proposed Article Sixth(a) of the CBOE 

Holdings Certificate of Incorporation. The voting 

limitation does not apply to a solicitation of a 

revocable proxy by any CBOE Holdings stockholder 

on behalf of CBOE Holdings or by directors or 

officers of CBOE Holdings on behalf of CBOE 

Holdings or to a solicitation of a revocable proxy 

by a stockholder in accordance with Regulation 14A 

under the Act. 17 CFR 240.14A. This exception, 

however, would not apply to a solicitation by a 

stockholder pursuant to Rule 14a-2(b)(2) under the 

Act, which permits a solicitation made otherwise 

than on behalf of CBOE Holdings where the total 

number of persons solicited is not more than 10. 

36See proposed Article Sixth(a) of the CBOE 

Holdings Certificate of Incorporation. If and to the 

extent that shares of CBOE Holdings stock 

beneficially owned by any person or its Related 

Persons are held of record by any other person, this 

provision would be enforced against such record 

owner by limiting the votes entitled to be cast by 

such record owner in a manner that would 

accomplish the voting limitation applicable to such 

person and its Related Persons. 

37See proposed Articles Sixth(a) and (b) of the 

CBOE Holdings Certificate of Incorporation. Any 

such resolution must be filed with the Commission 

under Section 19 of the Act prior to becoming 

effective. 

38 15 U.S.C. 78c(a)(39). 

39A ‘‘Trading Permit Holder’’ is defined in 

Section 1.1(f) of the Bylaws of the Exchange as: Any 

individual, corporation, partnership, limited 

liability company or other entity authorized by the 

Rules that holds a Trading Permit. If a Trading 

Permit Holder is an individual, the Trading Permit 

Holder may also be referred to an ‘‘individual 

Trading Permit Holder.’’ If a Trading Permit Holder 

is not an individual, the Trading Permit Holder may 

also be referred to as a ‘‘TPH organization.’’ A 

Trading Permit Holder is a ‘‘member’’ solely for 

purposes of the Act; however, one’s status as a 

Trading Permit Holder does not confer on that 

Person any ownership interest in the Exchange. 

40See proposed Article Sixth(d) of the CBOE 

Holdings Certificate of Incorporation. 

41See 15 U.S.C. 78s. 

42With the proposed demutualization of CBOE, 

all registered national securities exchanges will 

have converted to or been founded as non-mutually 

held entities. 43See Securities Exchange Act Release Nos. 

58375 (August 18, 2008), 73 FR 49498 (August 21, 

2008) (File No. 10–182) (order approving 

application of BATS Exchange, Inc. for registration 

as an SRO); 53382 (February 27, 2006), 71 FR 11251 

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

approving merger of New York Stock Exchange, Inc. 

and Archipelago, and demutualization of New York 

Stock Exchange, Inc.; 53128 (January 13, 2006), 71 

FR 3550 (January 23, 2006) (File No. 10–131); 51149 

(February 8, 2005), 70 FR 7531 (February 14, 2005) 

(SR–CHX–2004–26); 49718 (May 17, 2004), 69 FR 

29611 (May 24, 2004) (SR–PCX–2004–08); 49098 

(January 16, 2004), 69 FR 3974 (January 27, 2004) 

(SR–Phlx-2003–73); and 49067 (January 13, 2004), 

69 FR 2761 (January 20, 2004) (SR–BSE–2003–19). 

Voting Limitation. No person (either 

alone or together with its Related 

Persons) would be entitled to vote or 

cause the voting of shares of stock 

beneficially owned by that person or 

those Related Persons to the extent that 

those shares would represent in the 

aggregate more than 10% of the total 

number of votes entitled to be cast on 

any matter. Further, no person (either 

alone or together with its Related 

Persons) would be entitled to vote more 

than 10% of the total number of votes 

entitled to be cast on any matter by 

virtue of agreements entered into by that 

person or those Related Persons with 

other persons not to vote shares of 

outstanding stock. In the event a public 

offering of common stock, these 

permissible voting percentage 

thresholds would increase from 10% to 

20%.35 Any attempted votes in the 

excess of such thresholds would be 

disregarded.36

Waiver of Ownership or Voting 

Limitations. The CBOE Holdings Board 

may waive the ownership and voting 

limits and may impose conditions or 

restrictions by means of a resolution 

expressly permitting ownership or 

voting rights in excess of such limits, 

subject to a determination of the Board 

that: 37

• The acquisition would not impair 

the ability of CBOE to discharge its 

responsibilities under the Act and the 

rules and regulations thereunder and is 

otherwise in the best interests of CBOE 

Holdings and its stockholders and 

CBOE; 

• The acquisition would not impair 

the Commission’s ability to enforce the 

Act; 

• Neither the person obtaining the 

waiver nor any of its Related Persons is 

subject to any statutory disqualification 

(as defined in Section 3(a)(39) of the 

Act); 38 and 

• For so long as CBOE Holdings 

directly or indirectly controls CBOE, 

neither the person obtaining the waiver 

nor any of its Related Persons is a 

Trading Permit Holder.39

The CBOE Holdings Board would 

have the right to require any person and 

its Related Persons that the Board 

reasonably believes to be subject to the 

voting or ownership restrictions 

summarized above to provide to CBOE 

Holdings complete information on all 

shares of CBOE Holdings stock that such 

stockholder beneficially owns, as well 

as any other information relating to the 

applicability to such stockholder of the 

voting and ownership requirements 

outlined above as may reasonably be 

requested.40

In addition, any changes to the CBOE 

Holdings Certificate of Incorporation, 

including any change in the provision 

that identifies CBOE Holdings as the 

sole owner of CBOE, must be filed with 

and approved by the Commission 

pursuant to Section 19 of the Act before 

it could become effective.41 Further, 

pursuant to the Exchange’s proposed 

Certificate of Incorporation, CBOE 

Holdings may not sell, transfer, or 

assign, in whole or in part, its 

ownership interest in CBOE. Any such 

purported action would trigger an 

amendment both to CBOE Holdings’ and 

CBOE’s governing documents, which in 

turn would be subject to consideration 

by the Commission pursuant to the rule 

filing procedure under Section 19 of the 

Act. 

The Commission believes that these 

provisions are consistent with the Act. 

These requirements are designed to 

minimize the potential that a person 

could improperly interfere with or 

restrict the ability of the Commission or 

the Exchange to effectively carry out 

their regulatory oversight under the Act. 

Members that trade on an exchange 

traditionally have had ownership 

interests in the exchange, particularly at 

mutually-held entities like CBOE.42

However, as the Commission has noted 

in the past, a member’s interest in an 

exchange or an entity that controls an 

exchange could become so large as to 

cast doubt on whether the exchange can 

fairly and objectively exercise its selfregulatory responsibilities with respect 

to that member.43 A member that is a 

controlling shareholder of an exchange, 

or an entity that controls an exchange, 

might be tempted to exercise that 

controlling influence by directing the 

exchange to refrain from, or the 

exchange may hesitate to, diligently 

monitor and surveil the member’s 

conduct or diligently enforce its rules 

and the Federal securities laws with 

respect to conduct by the member that 

violates such provisions. The proposed 

ownership and voting limitations for 

persons with an equity interest in CBOE 

Holdings are designed to limit a 

person’s ability to obtain and exercise 

such a controlling influence. 

(3) Self-Regulatory Function and 

Oversight of CBOE 

Although CBOE Holdings will not 

itself carry out regulatory functions, its 

activities with respect to the operation 

of CBOE must be consistent with, and 

not interfere with, the Exchange’s selfregulatory obligations. The proposed 

CBOE Holdings Certificate of 

Incorporation contains various 

provisions designed to protect the 

independence of the self-regulatory 

function of CBOE, enable the Exchange 

to operate in a manner that complies 

with the Federal securities laws, 


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44See proposed Article Sixteenth(d) of the CBOE 

Holdings Certificate of Incorporation. 

45See proposed Article Sixteenth(c) of the CBOE 

Holdings Certificate of Incorporation. 

46See proposed Article Fourteenth of the CBOE 

Holdings Certificate of Incorporation. 

47The books and records of CBOE Holdings 

relating to the exchange business of CBOE would 

be subject at all times to inspection and copying by 

the Commission and CBOE. See id. In addition, the 

CBOE Holdings Bylaws provide that the books of 

CBOE Holdings must be kept within the United 

States. See proposed Section 1.3 of the CBOE 

Holdings Bylaws. 

48Notwithstanding this restriction, nothing in the 

CBOE Holdings Certificate of Incorporation would 

be interpreted so as to limit or impede the rights 

of the Commission or CBOE to access and examine 

such confidential information or to limit or impede 

the ability of any officers, directors, employees or 

agents of CBOE Holdings to disclose such 

confidential information to the Commission or 

CBOE. See proposed Article Fifteenth of the CBOE 

Holdings Certificate of Incorporation. 

49See proposed Article Sixteenth(b) of the CBOE 

Holdings Certificate of Incorporation. 

50See id. 

51See proposed Article Eleventh of the CBOE 

Holdings Certificate of Incorporation and proposed 

Article 10.2 of the CBOE Holdings Bylaws. 

52 15 U.S.C. 78t(a). 

53 15 U.S.C. 78t(e). 

54 15 U.S.C. 78u–3. 

55Any sale, transfer or assignment by CBOE 

Holdings of any shares of CBOE common stock 

would require an amendment to the proposed 

CBOE Certificate of Incorporation and consequently 

would be subject to prior approval by the 

Commission pursuant to the rule filing procedure 

under Section 19 of the Act (15 U.S.C. 78s). See 

proposed Article Fourth of the CBOE Certificate of 

Incorporation. 

56 15 U.S.C. 78f. 

including the objectives of Sections 6(b) 

and 19(g) of the Act, facilitate the ability 

of the Exchange and the Commission to 

fulfill their regulatory and oversight 

obligations under the Act. 

For example, the proposed CBOE 

Holdings Certificate of Incorporation 

contains a provision requiring each 

director of the CBOE Holdings Board to 

take into consideration the effect that 

CBOE Holdings’ actions would have on 

CBOE’s ability to carry out its 

responsibilities under the Act.44

Similarly, for so long as CBOE Holdings 

controls CBOE, each officer, director, 

and employee of CBOE Holdings must 

give due regard to the preservation of 

the independence of the self-regulatory 

function of CBOE and to its obligations 

under the Act and such persons are 

prohibited from taking any actions that 

they reasonably should have known 

would interfere with the effectuation of 

any decisions by the Board of Directors 

of CBOE (‘‘CBOE Board’’) relating to 

CBOE’s regulatory functions, including 

disciplinary matters, or would adversely 

affect CBOE’s ability to carry out its 

responsibilities under the Act.45

Further, the proposed CBOE Holdings 

Certificate of Incorporation provides 

that CBOE Holdings, its directors, 

officers, agents, and employees 

irrevocably submit to the jurisdiction of 

the U.S. Federal courts, the 

Commission, and CBOE and CBOE 

Holdings, its directors, officers, agents, 

and employees, would waive any claims 

or defenses that they are not personally 

subject to the jurisdiction of the 

Commission, as well as any defenses 

relating to inconvenient forum, 

improper venue, or jurisdiction.46

Further, so long as CBOE Holdings 

controls CBOE, the books, records, 

premises, officers, directors, and 

employees of CBOE Holdings would be 

deemed to be the books, records, 

premises, officers, directors, and 

employees of CBOE for purposes of and 

subject to oversight pursuant to the Act 

to the extent that they relate to CBOE.47

In addition, all confidential 

information pertaining to the selfregulatory function of CBOE (including 

but not limited to disciplinary matters, 

trading data, trading practices, and 

audit information) contained in the 

books and records of CBOE that comes 

into the possession of CBOE Holdings: 

(1) Could not be made available to any 

persons other than to those officers, 

directors, employees and agents of 

CBOE Holdings that have a reasonable 

need to know the contents thereof; (2) 

would be retained in confidence by 

CBOE Holdings and the officers, 

directors, employees and agents of 

CBOE Holdings; and (3) could not be 

used for any commercial purposes.48

The proposed CBOE Holdings 

Certificate of Incorporation also requires 

CBOE Holdings to take reasonable steps 

to cause its directors, officers, and 

employees, prior to accepting such 

position with CBOE Holdings, to 

consent in writing to the applicability to 

them of Article Fourteenth, Article 

Fifteenth, and Sections (c) and (d) of 

Article Sixteenth of the CBOE Holdings 

Certificate of Incorporation, as 

applicable, with respect to their 

activities related to CBOE.49 In addition, 

CBOE Holdings would take reasonable 

steps necessary to cause its agents, prior 

to accepting such a position with CBOE 

Holdings, to be subject to the same 

provisions, as applicable, with respect 

to their activities related to CBOE.50

In addition, for so long as CBOE 

Holdings controls CBOE, CBOE 

Holdings would be required to submit to 

the CBOE Board any proposed 

amendment to or repeal of any 

provision of the CBOE Holdings 

Certificate of Incorporation or CBOE 

Holdings Bylaws and to file such with 

the Commission before it may become 

effective.51

The Commission finds that the 

proposed governing documents for 

CBOE Holdings, discussed above, are 

designed to protect the independence of 

the self-regulatory function of CBOE and 

clarify the Commission’s and CBOE’s 

jurisdiction with respect to CBOE 

Holdings in a manner consistent with 

the Act. Accordingly, these provisions 

should help ensure CBOE Holdings’ 

attention to the self-regulatory 

obligations of CBOE and facilitate the 

ability of CBOE to effectively carry out 

its regulatory responsibilities under the 

Act. 

The Commission notes that under 

Section 20(a) of the Act,52 any person 

with a controlling interest in CBOE 

would be jointly and severally liable 

with and to the same extent that CBOE 

is liable under any provision of the Act, 

unless the controlling person acted in 

good faith and did not directly or 

indirectly induce the act or acts 

constituting the violation or cause of 

action. In addition, Section 20(e) of the 

Act,53 creates aiding and abetting 

liability for any person who knowingly 

provides substantial assistance to 

another person in violation of any 

provision of the Act or rule thereunder. 

Further, Section 21C of the Act 54

authorizes the Commission to enter a 

cease-and-desist order against any 

person who has been ‘‘a cause of’’ a 

violation of any provision of the Act 

through an act or omission that the 

person knew or should have known 

would contribute to the violation. These 

provisions are applicable to CBOE 

Holdings’ dealings with CBOE. 

C. CBOE 

Following the Restructuring 

Transaction, CBOE would become a 

Delaware for-profit stock corporation 

wholly-owned by CBOE Holdings. 

CBOE would issue a total of 1,000 

shares of common stock, all of which 

would be owned by CBOE Holdings.55

CBOE would continue to be registered 

as a national securities exchange under 

Section 6 of the Act and, accordingly, 

would continue to be an SRO 

responsible for enforcing compliance by 

its members (i.e., Trading Permit 

Holders) with the Federal securities 

laws and with CBOE Rules.56 Likewise, 

CBOE would continue as a participant 

and voting member in the following 

national market system plans: The 

Options Price Reporting Authority Plan, 

the Consolidated Tape Association, the 

Consolidated Quotation Plan, the 

Nasdaq Unlisted Trading Privileges 

Plan, the Options Order Protection and 

Locked/Crossed Market Plan, the 

Options Regulatory Surveillance 


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57These plans are joint industry plans entered 

into by SROs for the purpose of providing for, 

respectively, (i) last sale and quotation reporting in 

options and equities, (ii) intermarket options 

trading, (iii) the joint surveillance, investigation and 

detection of insider trading on the options 

exchanges, and (iv) the listing of standardized 

options. 

58See Amendment No. 1 at 7. See also proposed 

Article Fifth(b) of the CBOE Certificate of 

Incorporation and proposed Section 3.1 of the 

CBOE Bylaws. 

59See Amendment No. 1 at 7. 

60A ‘‘Non-Industry Director’’ would be defined as 

a person who is not an Industry Director. See 

proposed Section 3.1 of the CBOE Bylaws. 

61See Notice, supra 4, 73 FR at 51658, n.58. 

62See proposed Article Fifth(b) of the Amended 

and Restated Certificate of Incorporation and 

proposed Section 3.1 of the CBOE Bylaws. In 

comparison, the current CBOE Board has 23 

directors, consisting of eleven public directors, 

eleven directors from the industry, and the 

Chairman of the Board (who is the CEO of CBOE). 

See Notice, supra note 4, 73 FR at 51658 (discussing 

the composition of the current CBOE Board). 

63At all times, at least one Non-Industry Director 

would be a Non-Industry Director exclusive of the 

exceptions provided for in proposed Section 3.1 of 

the CBOE Bylaws and would have no material 

business relationship with a broker or dealer or the 

Exchange or any of its affiliates. See proposed 

Section 3.1 of the CBOE Bylaws. 

64See proposed Section 3.1 of the CBOE Bylaws. 

65See Amendment No. 1 at 9–10. 

66See proposed Section 3.6 of the CBOE Bylaws. 

See also proposed Section 5.1(a) of the CBOE 

Bylaws (concerning the ability of the CEO to serve 

as Chairman of the CBOE Board). 

67See proposed Section 3.7 of the CBOE Bylaws. 

The Vice Chairman would: (i) Preside over the 

meetings of the CBOE Board in the event the 

Chairman of the Board is absent or unable to do so, 

(ii) serve as chair the Trading Advisory Committee, 

(iii) except as otherwise provided in the Rules or 

resolution of the CBOE Board, appoint, subject to 

the approval of the CBOE Board, the individuals to 

serve on all Trading Permit Holder committees 

established in the Rules or by resolution of the 

Board, and (iv) exercise such other powers and 

perform such other duties as are delegated to the 

Vice Chairman of the Board by the CBOE Board. 

68See proposed Section 3.8 of the CBOE Bylaws. 

The CBOE Board currently has a Lead Director, and 

as provided in proposed Section 3.8 of the CBOE 

Bylaws, CBOE has the ability to continue the 

practice after the Restructuring Transaction. 

69See id. In performing this function, the 

Nominating and Governance Committee would 

determine, subject to review by the Board, whether 

a director candidate satisfies the applicable 

qualifications for election as a director, and the 

decision of that committee shall, subject to review, 

if any, by the Board, be final. See proposed Section 

3.1 of the CBOE Bylaws. CBOE anticipates that the 

Nominating and Governance Committee would use 

director questionnaires in connection with 

determining the qualifications of director 

candidates. See Notice, supra note 4, 73 FR at 

51659, n.74. 

70See proposed Section 4.5 of the CBOE Bylaws. 

71The composition of the proposed new 

Nominating and Governance Committee differs 

from the composition of CBOE’s current 

Nominating Committee in that the current 

Nominating Committee consists of a majority of 

‘‘industry’’ members and is not tasked with 

responsibility for governance issues. In addition, 

the current Nominating Committee is not a 

committee of the current CBOE Board, but rather is 

a separate committee elected by the voting members 

of the Exchange. See Section 4.1 of the current 

CBOE Constitution. 

72See proposed Section 3.2 of the CBOE Bylaws. 

If 20% of the directors then serving on the CBOE 

Board is not a whole number, such number of 

Representative Directors would be rounded up to 

the next whole number. See proposed Section 3.2 

of the CBOE Bylaws. Industry Directors not selected 

by the Industry-Director Subcommittee would be 

selected by the Nominating and Governance 

Committee. See proposed Section 3.2 of the CBOE 

Bylaws. 

73See id. 

74See id. 

Authority Plan, and the Options Listing 

Procedures Plan.57

CBOE’s current Certificate of 

Incorporation, Constitution (which 

would be replaced by the proposed 

Bylaws), and selected rules are 

proposed to be amended to reflect, 

among other things, CBOE’s status as 

wholly-owned subsidiary of CBOE 

Holdings. 

(1) CBOE Board and Committees 

The business and affairs of CBOE 

would continue to be managed under 

the direction of the CBOE Board. The 

CBOE Board would be composed of 

between 11 and 23 directors as fixed by 

the CBOE Board from time to time.58

The initial CBOE Board would be 

composed of the 22 individuals who are 

the directors of CBOE immediately prior 

to the Restructuring Transaction.59

Thus, the CBOE Board following the 

Restructuring Transaction would be 

composed of CBOE’s Chief Executive 

Officer, twelve Non-Industry 60

Directors, and ten Industry 61

Directors.62

The number of Non-Industry Directors 

and Industry Directors may be increased 

from time to time by resolution of the 

CBOE Board, but the number of Industry 

Directors could not constitute less than 

30% of the CBOE Board and in no event 

would the number of Non-Industry 

Directors constitute less than a majority 

of the CBOE Board.63 In addition, at 

least 20% of the directors must be 

Industry Directors nominated (or 

otherwise selected through the petition 

process) by the Industry-Director 

Subcommittee (directors selected 

through this process are referred to as 

‘‘Representative Directors’’).64 Directors 

would serve for one-year terms ending 

on the annual meeting following the 

meeting at which such directors were 

elected.65

The CBOE Board would appoint one 

of its directors to serve as Chairman, 

which could be the Chief Executive 

Officer of CBOE.66 Each year following 

the annual election of the directors, the 

CBOE Board would select, from among 

the Industry Directors, a Vice Chairman 

of the CBOE Board to serve for a term 

of one year.67 The CBOE Board also may 

appoint one of the Non-Industry 

Directors to serve as Lead Director, who 

would perform such duties and possess 

such powers as the CBOE Board may 

from time to time prescribe.68

(2) Nomination and Election of Directors 

Qualified individuals would be 

nominated for election to the CBOE 

Board by CBOE’s Nominating and 

Governance Committee.69 The 

committee would consist of at least 

seven directors, with a majority being 

Non-Industry Directors,70 all of whom 

would be recommended by the thenserving Nominating and Governance 

Committee for approval by the Board. 

The initial Nominating and Governance 

Committee after the Restructuring 

Transaction would be selected by the 

CBOE Board or a committee thereof, 

consistent with the applicable proposed 

compositional requirements.71

Industry-Director Subcommittee. The 

Industry-Director Subcommittee of the 

Nominating and Governance 

Committee, composed of all of the 

Industry Directors then serving on the 

Nominating and Governance 

Committee, would be responsible for 

recommending a number of 

Representative Directors that equals 

20% of the total number of directors 

serving on the CBOE Board.72 The 

subcommittee would provide a 

mechanism for Trading Permits Holders 

to provide input with respect to 

nominees for the Representative 

Directors. The subcommittee would also 

issue a circular to Trading Permit 

Holders identifying the Representative 

Director nominees.73

The proposed Nominating and 

Governance Committee would be bound 

to accept and nominate the 

Representative Directors recommended 

by the Industry-Director Subcommittee, 

provided that the Representative 

Directors so nominated by the IndustryDirector Subcommittee are not opposed 

by a petition candidate. If such 

Representative Directors are opposed by 

a petition candidate, then the 

Nominating and Governance Committee 

would be bound to accept and nominate 

the Representative Directors who 

receive the most votes pursuant to a 

‘‘Run-off Election,’’ as described 

below.74

Petition Process. Trading Permit 

Holders may nominate alternative 

candidates for election to the 

Representative Director positions by 

submitting a petition signed by 

individuals representing not less than 

10% of the total outstanding Trading 

Permits at that time. If one or more valid 

petitions are received, a Run-off 

Election would be held. In any Run-off 


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75See proposed Section 3.1 of the CBOE Bylaws. 

In any Run-off Election, Trading Permits 

representing one-third of the total outstanding 

Trading Permits entitled to vote, when present in 

person or represented by proxy, would constitute a 

quorum for purposes of the Run-off Election. See id. 

76CBOE included the proposed Voting 

Agreement as Exhibit 5F to its proposed rule 

change. 

77 15 U.S.C. 78f(b)(3). 

78See, e.g., Securities Exchange Act Release Nos. 

58375 (August 18, 2008), 73 FR 49498 (August 21, 

2008) (File No. 10–182) (‘‘BATS Exchange 

Registration Order’’); 53128 (January 13, 2006), 71 

FR 3550 (January 23, 2006) (File No. 10–131) 

(‘‘Nasdaq Exchange Registration Order’’). 

79See, e.g., Regulation of Exchanges and 

Alternative Trading Systems, Securities Exchange 

Act Release No. 40760 (December 8, 1998), 63 FR 

70844 (December 22, 1998) (‘‘Regulation ATS 

Release’’). 

80See, e.g., BATS Exchange Registration Order 

and Nasdaq Exchange Registration Order, supra 

note 78, 73 FR at 49501 and 71 FR at 3553, 

respectively. 

81 15 U.S.C. 78f(b)(3). 

82See proposed Section 4.1(a) of the CBOE 

Bylaws. 

83See proposed Sections 4.2, 4.3 and 4.4 of the 

CBOE Bylaws. The selection and composition of the 

Nominating and Governance Committee is 

discussed above. 

84See proposed Section 4.3 of the CBOE Bylaws 

(Audit Committee) and Section 4.4 of the CBOE 

Bylaws (Compensation Committee). 

85See Amendment No. 1 at 11 (changing the 

number of directors required from four to three to 

allow for greater flexibility in the designation of the 

committee). 

86See proposed Section 4.6 of the CBOE Bylaws. 87CBOE noted that its current Executive 

Committee (as well as the proposed new Executive 

Committee) generally does not make a decision 

unless there is a need for a CBOE Board-level 

decision between CBOE Board meetings due to the 

time sensitivity of the matter. See Notice, supra 

note 4, 73 FR at 51660–61. In addition, in situations 

when the current Executive Committee does make 

a decision between CBOE Board meetings, CBOE 

noted that the CBOE Board is generally aware ahead 

of time of the potential that the Executive 

Committee may need to make the decision. See id. 

CBOE notes that the current CBOE Board is, and 

after the Restructuring Transaction would continue 

to be, fully informed of any decision made by the 

current (and new) Executive Committee at its next 

meeting and can always decide to review that 

decision and take different action. See id. 88See proposed Section 4.2 of the CBOE Bylaws. 

If the Vice Chairman is a Representative Director, 

the requirement to have at least one Representative 

Director on the new Executive Committee would be 

satisfied by the Vice Chairman’s participation on 

that committee. The Executive Committee would 

have all the powers and authority of the CBOE 

Board in the management of the business and affairs 

of CBOE, except it would not have the power and 

authority of the Board to, among others: (i) Approve 

or adopt or recommend to the stockholders any 

action or matter (other than the election or removal 

of directors) expressly required by Delaware law to 

be submitted to stockholders for approval, 

including without limitation, amending the 

proposed CBOE Certificate of Incorporation, 

adopting an agreement of merger or consolidation, 

approving a sale, lease or exchange of all or 

substantially all of CBOE’s property and assets, or 

approval of a dissolution of CBOE or revocation of 

a dissolution, or (ii) adopt, alter, amend or repeal 

any bylaw of CBOE. See proposed Section 4.2 of the 

CBOE Bylaws. 89See proposed Section 4.1(b) of the CBOE 

Bylaws. ‘‘Exchange committees’’ refers to 

committees that are not solely composed of 

directors from the CBOE Board. Except as may be 

otherwise provided in the CBOE Bylaws, the rules 

or the resolution of the CBOE Board establishing 

any such other committee, the Vice Chairman of the 

Board, with the approval of the CBOE Board, would 

appoint the members of such Exchange committees 

(other than the committees of the CBOE Board) and 

may designate, with the approval of the Board, a 

Chairman and a Vice-Chairman thereof. 

90See proposed Section 4.7 of the CBOE Bylaws. 

Election, each Trading Permit Holder 

would have one vote for each 

Representative Director position; 

provided, however, that no Trading 

Permit Holder, either alone or together 

with its affiliates, may account for more 

than 20% of the votes cast for a 

candidate. Any votes cast by a Trading 

Permit Holder, either alone or together 

with its affiliates, in excess of this 20% 

limitation would be disregarded.75

The winner(s) of the Run-off Election 

would be nominated as the 

Representative Director(s) by the 

Nominating and Governance Committee 

for that year. In addition, CBOE and 

CBOE Holdings have entered into a 

Voting Agreement pursuant to which 

CBOE Holdings has committed to vote 

in favor of the Representative Directors 

recommended by the Nominating and 

Governance Committee.76

The Commission believes that the 

requirements in the proposed CBOE 

Bylaws that 20% of the CBOE Board be 

Representative Directors and the means 

by which they are chosen by members 

provides for the fair representation of 

members in the selection of directors 

and the administration of the Exchange 

consistent with the requirements of 

Section 6(b)(3) of the Act.77 As the 

Commission has previously noted, this 

requirement helps to ensure that 

members have a voice in the use of the 

SRO’s self-regulatory authority, and that 

an exchange is administered in a way 

that is equitable to all those who trade 

on its market or through its facilities.78

The Commission has previously 

stated its belief that the inclusion of 

public, non-industry representatives on 

exchange oversight bodies is critical to 

an exchange’s ability to protect the 

public interest.79 Further, public nonindustry representatives help to ensure 

that no single group of market 

participants has the ability to 

disadvantage other market participants 

through the exchange governance 

process. The Commission believes that 

public directors can provide unique, 

unbiased perspectives, which should 

enhance the ability of the CBOE Board 

to address issues in a nondiscriminatory fashion and foster the 

integrity of the Exchange.80 The 

Commission also believes that the 

proposed CBOE Board satisfies the 

requirements in Section 6(b)(3) of the 

Act,81 which requires that one or more 

directors be representative of issuers 

and investors and not be associated with 

a member of the exchange, or with a 

broker or dealer. In particular, at least 

one Non-Industry Director would be a 

Non-Industry Director exclusive of any 

exceptions and would have no material 

business relationship with a broker or 

dealer or the Exchange or any of its 

affiliates. 

(3) Committees of CBOE 

In addition to the Nominating and 

Governance Committee discussed 

above, CBOE would have an Executive 

Committee, an Audit Committee, a 

Compensation Committee, a Regulatory 

Oversight Committee, and such other 

standing and special committees as may 

be approved by the CBOE Board. Except 

as may be otherwise provided in the 

CBOE Bylaws, the Board would have 

the authority to remove committee 

members.82

Director Committees. Director 

candidates for CBOE’s Executive, Audit, 

and Compensation Committees would 

be recommended by the Nominating 

and Governance Committee for approval 

by the CBOE Board.83 The Audit 

Committee and the Compensation 

Committee would each consist of at 

least three directors, all of whom would 

be Non-Industry Directors.84 The 

Regulatory Oversight Committee, which 

would be charged with overseeing the 

independence and integrity of the 

regulatory functions of the Exchange, 

would consist of at least three 

directors,85 all of whom would be NonIndustry Directors recommended by the 

Non-Industry Directors on the 

Nominating and Governance Committee 

for approval by the Board.86 The 

Executive Committee 87 would consist 

of the Chairman and Vice Chairman of 

the CBOE Board, the Chief Executive 

Officer (if a director), the Lead Director 

(if any), at least one Representative 

Director, and such other number of 

directors that the Board deems 

appropriate, provided that at all times 

the majority of the directors serving on 

the Executive Committee are NonIndustry Directors.88

Member Committees. In addition to 

these CBOE Board-level committees, 

CBOE would have certain Exchangelevel committees, including a Trading 

Advisory Committee and such other 

committees as may be provided from 

time to time.89 The proposed Trading 

Advisory Committee would advise the 

Office of the Chairman regarding 

matters of interest to Trading Permit 

Holders.90 The majority of the 


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91See CBOE Rule 2.1(a). See also infra II.D 

(discussing the BCC). 

92See Notice, supra note 4, 73 FR at 51663. 

93See proposed Section 3.5(a) of the CBOE 

Bylaws. 

94See proposed Section 3.5(b) of the CBOE 

Bylaws. Any individual recommended by the 

Industry-Director Subcommittee to fill the vacancy 

of a Representative Director position must qualify 

as an Industry Director. 

95See proposed Section 3.4(c) of the CBOE 

Bylaws. 

96See proposed Section 5.1(a) of the CBOE 

Bylaws. 

97See proposed Sections 5.3, 5.4, 5.5, 5.6, 5.7 and 

5.8 of the CBOE Bylaws. A few notable differences 

concerning CBOE’s officers following the 

Restructuring Transaction include the following: (1) 

The Chief Executive Officer may, but would not 

have to, be a director or the Chairman of the CBOE 

Board; (2) the CBOE Board, as opposed to the 

membership, would select the Vice Chairman; and 

(3) the position of Chief Financial Officer would be 

formally incorporated into the CBOE Bylaws. 

98See Section 8.1(b) of the current CBOE 

Constitution. 

99See Notice, supra note 4, 73 FR at 51662. 

100 15 U.S.C. 78f(b)(2). 

101 15 U.S.C. 78f. 

102 15 U.S.C. 78s(b). 

103 17 CFR 240.19b–4. 

104See proposed Article Fifth(d) of the CBOE 

Certificate of Incorporation. 

105See proposed Article Eleventh of the CBOE 

Certificate of Incorporation. 

106See Notice, supra note 4, 73 FR at 51662, and 

Amendment No. 1 at 14 (codifying this provision 

in proposed Rule 2.51). 

107See 15 U.S.C. 78f(b)(1). 

committee would be individuals 

involved in trading either directly or 

through their firms. The Vice Chairman 

would serve as the Chairman of the 

committee and would appoint, with the 

approval of the CBOE Board, the other 

members of the committee. The 

proposed Trading Advisory Committee 

would serve as the replacement for 

CBOE’s current Floor Directors 

Committee, which advises CBOE 

regarding trading and floor-related 

issues. 

In addition, CBOE would continue to 

maintain a Business Conduct Committee 

(‘‘BCC’’), which would remain involved 

with the hearing of disciplinary 

matters.91 CBOE is not proposing any 

material changes to the structure or 

function of the BCC.92

The Commission believes that the 

compositional requirements with 

respect to the committees discussed 

above are designed to ensure that 

members are protected from unfair, 

unfettered actions by the Exchange 

pursuant to its rules, and that, in 

general, the Exchange is administered in 

a way that is equitable to all those who 

trade on its market or through its 

facilities. The Commission believes that 

the proposed compositional balance of 

these CBOE committees is consistent 

with the Section 6(b)(3) of the Act, 

because it provides for the fair 

representation of Trading Permit 

Holders in the administration of the 

affairs of CBOE. 

(4) Filling of Vacancies and Removal for 

Cause 

Any vacancy in the CBOE Board 

could be filled by vote of a majority of 

the directors then in office or by a sole 

remaining director, provided such new 

director qualifies for the category in 

which the vacancy exists.93 In the event 

the CBOE Board needs to fill a vacancy 

in a Representative Director position, 

the Industry-Director Subcommittee of 

the Nominating and Governance 

Committee would either (i) recommend 

an individual to the CBOE Board to be 

elected to fill such vacancy or (ii) 

provide a list of recommended 

individuals to the CBOE Board from 

which the Board shall elect the 

individual to fill such vacancy.94 In 

addition, the proposed CBOE Bylaws 

provide that no Representative Director 

may be removed from office at any time 

except for cause.95

(5) Officers of CBOE 

CBOE would have a Chief Executive 

Officer, a Vice Chairman, a President, a 

Chief Financial Officer, one or more 

Vice-Presidents, a Secretary, a 

Treasurer, and such other officers as the 

CBOE Board may determine, including 

an Assistant Secretary and Assistant 

Treasurer.96 In general, the officers 

would have the duties and powers set 

forth in the CBOE Bylaws, as well as 

such other duties or powers or both as 

the CBOE Board or, as applicable, the 

Chief Executive Officer may from time 

to time prescribe.97

Contrary to the current CBOE 

Constitution,98 the proposed CBOE 

Bylaws would not restrict an officer 

from being a Trading Permit Holder or 

a person associated with a Trading 

Permit Holder or a broker or a dealer in 

securities or commodities or an 

associated person of such broker or 

dealer. The Exchange notes that there 

are other protections in place that limit 

the potential conflicts between the 

Exchange as an SRO and Trading Permit 

Holders, including, among other things, 

the existence of a Regulatory Oversight 

Committee as a committee of the Board 

that consists solely of Non-Industry 

Directors.99

The Commission finds that this 

proposed change consistent with the 

Act, including Section 6(b)(2) of the 

Act,100 which requires that a national 

securities exchange have rules that 

provide that any registered broker or 

dealer may become a member. The 

Commission finds that there are 

sufficient safeguards in place to limit 

potential conflicts of interest between 

the Exchange as an SRO and Trading 

Permit Holders. 

(6) Self-Regulatory Function and 

Oversight 

As noted above, following the 

Restructuring Transaction, CBOE would 

continue to be registered as a national 

securities exchange under Section 6 of 

the Act and thus would continue to be 

an SRO.101 As an SRO, CBOE is 

obligated to carry out its statutory 

responsibilities, including enforcing 

compliance by Trading Permit Holders 

with the provisions of the Federal 

securities laws and the rules of CBOE. 

In addition, CBOE would continue to be 

required to file with the Commission, 

pursuant to Section 19(b) of the Act 102

and Rule 19b–4 thereunder,103 any 

proposed changes to its rules and 

governing documents. 

The proposed CBOE Certificate of 

Incorporation contains various 

provisions designed to protect the selfregulatory functions of CBOE in light of 

the proposed new corporate structure. 

For example, each director would be 

required to take into consideration the 

effect that his or her actions would have 

on CBOE’s ability to carry out its 

responsibilities under the Act.104 The 

proposed CBOE Certificate of 

Incorporation also includes provisions 

designed to protect confidential 

information pertaining to the selfregulatory function of the Exchange.105

In addition, proposed CBOE Rule 2.51 

requires that any revenue CBOE receives 

from regulatory fees or penalties would 

only be applied to fund the legal, 

regulatory, and surveillance operations 

of the Exchange and would not be used 

to pay dividends to CBOE Holdings, 

except in the event of liquidation of 

CBOE, in which case CBOE Holdings 

would be entitled to the distribution of 

CBOE’s remaining assets.106

The Commission believes that the 

Exchange’s proposed provisions 

concerning the self-regulatory function 

of CBOE are consistent with the Act, 

particularly, with Section 6(b)(1), which 

requires an Exchange to be so organized 

and have the capacity to carry out the 

purposes of the Act.107 In particular, 

CBOE’s proposed governing documents 

are designed to assist the Exchange in 

fulfilling its self-regulatory obligations 

and in administering and complying 

with the requirements of the Act. 


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108As a result of this change, the Exchange is 

proposing to delete CBOE Rule 3.16, which 

addresses certain issues related to Article Fifth(b). 

109On January 15, 2008, the Commission 

approved an interpretation of Article Fifth(b) 

(‘‘Article Fifth(b) Interpretation’’) that addressed the 

impact of the acquisition of CBOT by Chicago 

Mercantile Exchange Holdings Inc. (‘‘CME/CBOT 

Transaction’’) on the eligibility of persons to become 

or remain members of CBOE (‘‘exerciser members’’) 

pursuant to Article Fifth(b) (the right provided 

under this provision is sometimes referred to as the 

‘‘exercise right’’). See Securities Exchange Act 

Release No. 57159 (January 15, 2008), 73 FR 3769 

(January 22, 2008) (order approving File No. SR– 

CBOE–2006–106). Under that interpretation, the 

consummation of the CME/CBOT Transaction 

resulted in no person any longer qualifying as a 

member of the CBOT within the meaning of Article 

Fifth(b) and therefore resulted in the elimination of 

any person’s eligibility to qualify thereafter to 

become or remain an exerciser member of the 

Exchange. 

110See Letter from Richards, Layton & Finger to 

Chicago Board Options Exchange, Incorporated 

dated August 20, 2008. 

111See 15 U.S.C. 78f(b)(1). 

112See Notice, supra note 4, 73 FR at 51661. 

113As CBOE previously noted, it has been the 

CBOE Board’s general practice to appoint a crosssection of directors to the CBOE Board committees 

that review appeals of disciplinary actions. See 

Notice, supra note 4, 73 FR at 51662. These 

committees usually consist of a floor or at-large 

director, an off-floor director, and a public director. 

See id. CBOE is not proposing to change this 

general practice and would expect that CBOE Board 

committees that review disciplinary decision 

appeals after the Restructuring Transaction would 

generally consist of an Industry Director who or 

whose firm is engaged in trading on the Exchange, 

an Industry Director whose firm is significantly 

engaged in conducting a securities business with 

public customers, and a Non-Industry Director. See 

id. 

114See proposed Section 10.1 of the CBOE 

Bylaws. 

115 15 U.S.C. 78f(b)(6). 

116 15 U.S.C. 78f(b)(7). 

117See Section 6(b)(1) of the Act, 15 U.S.C. 

78f(b)(1). 

118See proposed CBOE Rule 1.1(ggg) (defining 

Trading Permit). ‘‘Trading Permits’’ would be 

defined as licenses issued by the Exchange that 

grant the holders or the holders’ nominee the right 

to access the Exchange or one or more of its 

facilities for the purpose of effecting transactions in 

securities traded on the Exchange without the 

services of another person acting as broker, and 

(7) Paragraph (b) of Article Fifth of the 

CBOE Certificate of Incorporation 

While the content of the Exchange’s 

new Certificate of Incorporation and 

Bylaws would be similar to the content 

of the Exchange’s old Certificate of 

Incorporation and Constitution, the new 

Certificate of Incorporation would not 

include, among other things, paragraph 

(b) of Article Fifth of the current CBOE 

Certificate of Incorporation (‘‘Article 

Fifth(b)’’).108 Article Fifth(b) provides 

the right for full members of The Board 

of Trade of the City of Chicago, Inc. 

(‘‘CBOT’’) to become members of CBOE 

without having separately to purchase 

or lease a membership.109

Article Fifth(b) further provides that 

no amendment may be made to it 

without the prior approval of not less 

than 80% of both (i) the regular 

members of the Exchange admitted 

pursuant to Article Fifth(b) and (ii) the 

regular members of the Exchange 

admitted other than pursuant to Article 

Fifth(b), with each category voting as a 

separate class. CBOE has received a 

legal opinion from its Delaware counsel 

that under Delaware law, because the 

Restructuring Transaction is structured 

as a merger, this provision of Article 

Fifth(b) would not be triggered and the 

demutualization and related 

amendments to the Exchange’s 

governing documents could be effected 

through a simple majority vote of 

members.110

In approving this proposal, the 

Commission is relying on CBOE’s 

representation that its approach is 

appropriate under Delaware State law. 

The Commission is also relying on 

CBOE’s letter of counsel that concludes 

that the Restructuring Transaction 

constitutes a merger and thus does not 

require the 80% vote contemplated in 

Article Fifth(b). Without opining on the 

merits of any claims arising solely under 

State law, the Commission finds that 

CBOE has articulated a sufficient basis 

to support its proposed changes. 

D. Disciplinary Matters and Trading and 

Disciplinary Rule Changes 

An exchange must be organized and 

have the capacity to carry out the 

purposes of the Act. Specifically, an 

exchange must be able to enforce 

compliance by its members and persons 

associated with its members with 

Federal securities laws and the rules of 

the exchange.111 CBOE’s current process 

for the hearing of disciplinary matters, 

and the rules governing that process, 

would remain substantively unchanged 

after the Restructuring Transaction. 

Under CBOE Rule 17.6(a), the hearing of 

a disciplinary matter currently is 

conducted by one or more members of 

the BCC. It has been the BCC’s general 

practice to use three-person BCC 

hearing panels that include both 

industry and public representation, and 

CBOE is not proposing to change this 

process following demutualization.112

Consistent with CBOE Rule 17.9, any 

decision of a BCC hearing panel that is 

not composed of at least a majority of 

the BCC is reviewed by the full BCC. 

In addition, the current process for 

the review of appeals of disciplinary 

actions, and the rules governing that 

process, would remain substantively 

unchanged. Under current Rule 

17.10(b), the CBOE Board is vested with 

the authority to review appeals of 

disciplinary actions. The CBOE Board 

may appoint a committee of the Board 

composed of at least 3 directors to 

review the appeal, but the decision of 

that committee must be ratified by the 

CBOE Board. Thus, after the 

Restructuring Transaction, Trading 

Permit Holders would have a say in the 

review of such appeals through their 

representation on the CBOE Board.113

The current process for the review of 

proposed trading and disciplinary rules 

also would remain unchanged. Since 

the CBOE Board would continue to be 

responsible for approving rule changes, 

including changes to trading and 

disciplinary rules,114 Trading Permit 

Holders would have a voice in the 

review of these rules through their 

representation on the CBOE Board. In 

addition, the proposed Trading 

Advisory Committee, which would 

replace the existing Floor Directors 

Committee, would assume that prior 

committee’s responsibility for the 

review of many of CBOE’s proposed rule 

changes (particularly trading rules) in 

an advisory capacity. Accordingly, the 

Trading Advisory Committee would 

provide a mechanism for Trading Permit 

Holders to provide input on trading 

rules. 

The Commission finds that the 

Exchange’s amended By-Laws and rules 

concerning its disciplinary and 

oversight programs are consistent with 

the Act, including the requirements of 

Sections 6(b)(6)115 of the Act, which 

requires the rules of an exchange to 

provide for the appropriate discipline of 

its members and persons associated 

with members for violations of the 

Federal securities laws and exchange 

rules, and Section 6(b)(7),116 which 

requires the rules of an exchange to 

provide a fair procedure for the 

disciplining of members and persons 

associated with members, in that they 

are designed to provide fair procedures 

for the disciplining of members and 

persons associated with members. The 

Commission further finds that the 

proposal is designed to provide the 

Exchange with the ability to comply, 

and with the authority to enforce 

compliance by its members and persons 

associated with its members, with the 

provisions of the Act, the rules and 

regulations thereunder, and the rules of 

Exchange.117

E. Trading Permits 

Prior to the Restructuring Transaction, 

Exchange memberships provided 

trading access to the Exchange. After the 

Restructuring Transaction, ‘‘Trading 

Permits’’ would provide trading access 

to the Exchange.118 A person or entity 


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otherwise to access the Exchange or its facilities for 

purposes of trading or reporting transactions or 

transmitting orders or quotations in securities 

traded on the Exchange, or to engage in other 

activities that, under CBOE rules, may only be 

engaged in by holders of Trading Permits, provided 

that the holder or the holder’s nominee, as 

applicable, satisfies any applicable qualification 

requirements to exercise those rights. 

119See proposed Section 1.1(f) of the CBOE 

Bylaws (defining Trading Permit Holder) and 

proposed CBOE Rule 1.1(gg) (defining Trading 

Permit Holder). A ‘‘Trading Permit Holder’’ could be 

an individual, corporation, partnership, limited 

liability company, or other entity authorized by the 

CBOE rules to hold a permit. 

120 15 U.S.C. 78c(a)(3)(A). As described in Section 

II.C.2 above (Nomination and Election of Directors), 

the selection process for Representative Directors 

for the CBOE Board addresses the fair 

representation requirement for members contained 

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

also supra note 39 (defining ‘‘Trading Permit 

Holder’’). 

121See proposed CBOE Rule 3.1(a)(iii). 

122This change will cause a significant number of 

the Exchange’s rules to be amended. The Exchange 

intends to submit a separate filing to change the 

term ‘‘member’’ to ‘‘Trading Permit Holder’’ in the 

remainder of its rules and forms, as well as to make 

certain other related conforming changes. 

123See proposed CBOE Rule 3.1(a)(iv). 

124See Notice, supra note 4, 73 FR at 51663. 

125See proposed CBOE Rule 3.1(a)(v). The 

Exchange would be required to file proposed rule 

changes under Section 19(b) of the Act, 15 U.S.C. 

78s(b), including, as applicable, Section 

19(b)(3)(A)(ii), 15 U.S.C. 78s(b)(3)(A)(ii), to establish 

or change the fees for the types of Trading Permits 

it determines to issue. 

126See proposed CBOE Rule 3.1(a)(vii). 

127See proposed CBOE Rule 3.1(a)(vi). The 

Exchange would only be permitted to limit or 

reduce the number of any type of Trading Permit 

in a manner that complies with Section 6(c)(4) of 

the Act (15 U.S.C. 78f(c)(4)). See proposed CBOE 

Rule 3.1(a)(vi). The Exchange would retain the 

authority to take any action (remedial or otherwise) 

under the Act, the Bylaws, and the Rules. For 

example, the Exchange would continue to have the 

authority to take disciplinary action against a 

person over which the Exchange has jurisdiction. 

See proposed CBOE Rule 3.1(a)(ix). 

As noted in a letter submitted by the Exchange 

to the Commission in connection with SR–CBOE– 

2006–106, CBOE has been unable to locate records 

that reflect with certainty the number of CBOE 

memberships on May 1, 1975. See Letter from 

Joanne Moffic-Silver, Executive Vice President, 

General Counsel and Corporate Secretary, CBOE, to 

Richard Holley III, Senior Special Counsel, Division 

of Market Regulation, Commission, dated November 

2, 2007 (http://www.sec.gov/comments/sr-cboe– 

2006-106/cboe2006106-161.pdf). The closest date to 

May 1, 1975 for which CBOE has been able to locate 

records that CBOE believes can be relied upon to 

establish this information is June 30, 1975. 

Specifically, CBOE has financial statements as of 

June 30, 1975, the end of its then fiscal year, which 

set forth this information as of that date. The 

number of CBOE memberships on June 30, 1975 

was 1,025. 

128 15 U.S.C. 78s(b). 

129 15 U.S.C. 78s(b). 

130See proposed CBOE Rule 3.1(a)(viii). Rule 3.1 

provides that notwithstanding Rule 3.1 and Rule 

3.1A (which addresses the issuance of Trading 

Permits to current members) nothing in those rules 

would eliminate or restrict the Exchange’s authority 

to delist any product or to take any action under 

the Act, the Bylaws and the Rules. See proposed 

CBOE Rule 3.1(a)(ix). 

131See proposed CBOE Rule 3.1(d)(ii). 

132See proposed CBOE Rule 3.1A(a). 

133See Securities Exchange Act Release No. 

58178 (July 17, 2008), 73 FR 42634 (July 22, 2008) 

(SR–CBOE–2008–40) (approving issuance of 50 

Interim Trading Permits ‘‘ITPs’’). Pursuant to Rule 

3.27, the Exchange was authorized to issue ITPs to 

address the demand for trading access to the 

Exchange to the extent that a shortage exists from 

time to time in the number of transferable Exchange 

memberships available for lease. 

134CBOE Rule 3.26, which currently provides for 

the issuance of CBSX trading permits, would be 

deleted as part of this rule filing because all Trading 

Permits after the Restructuring Transaction would 

be issued under proposed CBOE Rule 3.1. For the 

same reason, CBOE Rule 3.27, which currently 

provides for the issuance of Interim Trading 

Permits, also would be deleted. 

that holds a Trading Permit would be 

referred to as a ‘‘Trading Permit 

Holder.’’ 119 Trading Permit Holders 

would meet the definition of ‘‘member’’ 

in Section 3(a)(3)(A) of the Act.120 As 

members under the Act, Trading Permit 

Holders and their nominees would be 

subject to the regulatory jurisdiction of 

the Exchange, including the Exchange’s 

disciplinary jurisdiction under Chapter 

XVII of the CBOE Rules.121

A Trading Permit would not convey 

any ownership interest in the Exchange, 

would only be available through the 

Exchange, and would be subject to the 

terms and conditions set forth in 

proposed CBOE Rule 3.1. As a result of 

the Exchange’s proposed new structure 

in which ownership would be separated 

from trading access, the Exchange is 

planning to propose separately to 

replace the term ‘‘member’’ throughout 

its rules with the term ‘‘Trading Permit 

Holder.’’ 122

(1) Features of Trading Permits 

The Exchange would have the 

authority to issue different types of 

Trading Permits that allow holders 

thereof to trade one or more products 

authorized for trading on the Exchange 

and to act in one or more authorized 

trading functions. Trading Permits 

would be for set terms specified by the 

Exchange.123 The Exchange expects 

initially to offer Trading Permits for 

terms of one month, three months, and 

one year, and would announce in a 

circular the types of permits it has 

determined to offer.124 Trading Permits 

would be subject to such fees and 

charges as are established by the 

Exchange from time to time.125

The Exchange would have the 

authority to increase the number of any 

type of Trading Permit it has 

determined to issue.126 The Exchange 

also would have the authority to limit 

or reduce the number of any type of 

Trading Permit it has determined to 

issue,127 although the Exchange would 

be prohibited from eliminating or 

reducing the ability to trade one or more 

product(s) of a person currently trading 

such product(s) and would be 

prohibited from eliminating or reducing 

the ability to act in one or more trading 

function(s) of a person currently acting 

in such trading function(s), unless the 

Exchange is permitted to do so pursuant 

to a rule filing submitted to Commission 

under Section 19(b) of the Act.128 The 

Exchange would announce in a circular 

any limitation or reduction in the 

number of Trading Permits it seeks to 

impose. In addition, the Exchange 

would have the authority, pursuant to a 

rule filing submitted to the Commission 

under Section 19(b) of the Act,129 to 

establish objective standards that must 

be met to obtain or renew a Trading 

Permit.130

Trading Permits could not be leased 

or transferred to any person except that 

an organization holding a Trading 

Permit may change the designation of 

the nominee in respect of each Trading 

Permit it holds or a Trading Permit 

Holder may, with the prior written 

consent of the Exchange, transfer a 

Trading Permit to a Trading Permit 

Holder organization or to an 

organization approved to be a TPH 

organization which is an affiliate or 

which continues substantially the same 

business without regard to the form of 

the transaction used to achieve such 

continuation.131

(2) Issuance of Trading Permits 

In connection with the Restructuring 

Transaction, each current member of the 

Exchange that has the ability to trade 

would be eligible to receive a Trading 

Permit. Specifically, provided such 

person submits a post-Restructuring 

Transaction trading application to the 

Exchange,132 is in good standing as of 

the date of the Restructuring 

Transaction, complies with the 

application procedures established by 

the Exchange, and pays any applicable 

fees, the Exchange would issue to such 

person a Trading Permit in respect of: 

(A) Each membership not subject to an 

effective lease as of the date of the 

Restructuring Transaction that is owned 

by the applicant; (B) each membership 

that is leased as a lessee by the 

applicant as of the date of the 

Restructuring Transaction; (C) each 

trading permit issued by the Exchange 

prior to the Restructuring Transaction 

that is held by the applicant,133

provided that in the case of a CBSX 

trading permit, the Exchange would 

issue a Trading Permit in respect of the 

CBSX trading permit that only provides 

the right to effect transactions on the 

CBSX; 134 and (D) each Temporary 


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135A person who was eligible to receive Trading 

Permit(s) pursuant to any of these provisions but 

who failed to comply with the application or other 

requirements must submit an application for a new 

Trading Permit and must go through the approval 

process to hold a Trading Permit. See proposed 

CBOE Rule 3.1A(c). 

136This guarantee is subject to Rule 3.1(a)(iv), 

which provides that nothing in Rules 3.1 or 3.1A 

would eliminate or restrict the Exchange’s authority 

to delist any product or to take any action (remedial 

or otherwise) under the Act, the Bylaws, and the 

Rules, including without limitation the Exchange’s 

authority to take disciplinary or market 

performance actions against a person with respect 

to which the Exchange has jurisdiction under the 

Act, the Bylaws, and the Rules. See supra note 130. 

In addition, this guarantee is subject to the 

continuing satisfaction of any applicable 

qualification requirements, as well as to the 

Exchange’s ability discussed above to limit or 

reduce the number of any type of Trading Permit 

pursuant to a rule filing with the Commission. See 

proposed CBOE Rules 3.1A(a) and 3.1(a)(vi). 

137See proposed CBOE Rule 3.1(b)(iii). The 

Exchange also would have the authority to modify 

these processes or to establish any other objective 

process to issue Trading Permits pursuant to a rule 

filing submitted to the Commission under Section 

19(b) of the Act (15 U.S.C. 78s(b)). 

The Exchange in its discretion may maintain a 

waiting list to be used to issue Trading Permits 

pursuant to the order in time process. See proposed 

CBOE Rule 3.1(b)(ii). If the Exchange maintains a 

waiting list, Qualified Persons would be placed on 

that waiting list based on the order in time that such 

persons submitted applications, and such persons 

may at any time voluntarily withdraw from that 

waiting list. A person on the waiting list would be 

permitted to adjust the number of Trading Permits 

that such person would like to receive at any time 

prior to an announcement of an issuance of such 

Trading Permits. 

138See proposed CBOE Rule 8.1(b)(i) (defining 

Qualified Person). 

139See proposed CBOE Rule 3.1(b)(iii). 

140See id. 

141See proposed CBOE Rule 3.1(c)(iii). In 

renewing a Trading Permit, the Exchange would 

have the authority to issue one or more Trading 

Permits that represent the same or more trading 

right(s) as the expiring permit. See proposed CBOE 

Rule 3.1(c)(ii). To the extent the Exchange 

determines to issue one or more Trading Permits 

that represent the same or more trading right(s) as 

an expiring Trading Permit, the Exchange would 

provide all holders of that type of expiring Trading 

Permit with the new Trading Permit(s). 

142See proposed CBOE Rule 3.1(c)(i). 

143See proposed CBOE Rule 3.1(c)(ii). 

144 15 U.S.C. 78f(b)(2). 

145See, e.g., BATS Exchange Registration Order 

and Nasdaq Exchange Registration Order, supra, 

note 78, 73 FR at 59502 and 71 FR at 3555, 

respectively. 

146 15 U.S.C. 78f(c). 

147See proposed CBOE Rule 8.3. 

148See proposed CBOE Rule 8.3(e). 

149See proposed CBOE 3.1A(b). 

150 In general, under that process, the number of 

memberships owned or leased by a market-maker 

serves as the basis for determining the number/ 

types of options classes that the market-maker can 

trade. In this regard, each membership held by a 

market-maker has an appointment credit of 1.0, and 

each option listed on the Exchange has an assigned 

appointment cost. Under that process, for example, 

a market-maker with one membership could trade 

options on the Nasdaq 100 Index, which has an 

appointment cost of .50, and options on the CBOE 

Volatility Index, which also has an appointment 

cost of .50. See Notice, supra note 4, 73 FR at 

51665. 

151See proposed CBOE Rule 8.3(e). 

152For example, if a holder of a tier appointment 

does not notify the Exchange that the holder wants 

to terminate that tier appointment and does not file 

an application to replace that tier appointment, that 

tier appointment would be renewed along with its 

associated Trading Permit for the same term as the 

expiring term of that Trading Permit. 

153See proposed Rule 8.3 that provides that 

notwithstanding the rule, nothing therein would 

eliminate or restrict the Exchange’s authority to 

delist any product or to take any action under the 

Act, the Bylaws and the Rules. The application 

process and issuance of tier appointments as 

specified in Rule 8.3 would be in accordance with, 

and subject to the same terms and conditions as, the 

issuance process set forth for Trading Permits in 

Rule 3.1(b). Termination, change, renewal, and 

transfer of tier appointments would be in 

accordance with, and subject to the same terms and 

conditions as, the process set forth for Trading 

Permits in Rule 3.1(c) and (d). If it seeks to limit 

or reduce the number of a type of tier appointment, 

or establish other objective standards governing 

issuance and/or renewal of a particular type of tier 

appointment, the Exchange first would need to file 

with the Commission a proposed rule change under 

Section 19(b) of the Act, 15 U.S.C. 78s(b). 

154The Exchange would be required to file 

proposed rule changes under Section 19(b) of the 

Membership held pursuant to 

Interpretation and Policy .02 of CBOE 

Rule 3.19.135 Trading Permits also 

would be available, pursuant to an 

application process, to persons seeking 

trading access to the Exchange for the 

first time, as well as persons seeking to 

obtain additional Trading Permits. 

Persons who are issued Trading 

Permits as set forth above would have 

the ability pursuant to those Trading 

Permits to continue trading any product, 

and acting in any trading function, that 

those persons traded, or acted in, at the 

time of the Restructuring 

Transaction.136

The Exchange would have the ability 

to issue one or more types of Trading 

Permits through either a random lottery 

process or an order in time process.137

In connection with an issuance of such 

Trading Permits, a Qualified Person 138

and any affiliated Qualified Person 

would be eligible to receive no more 

than the greater of 10 such Trading 

Permits or 20% of the number of 

Trading Permits issued at any given 

time.139 This limit, however, would not 

apply in the event the number of 

permits to be issued exceeds the 

demand for such permits, in which case 

permits would be made available 

through the order in time process.140

The Exchange would automatically 

renew a Trading Permit for the same 

term as the expiring term,141 unless, 

with advance notice to the Exchange 

and in a form and manner prescribed by 

the Exchange, the holder seeks to 

terminate the permit 142 or seeks to 

change the type of Trading Permit 

held.143

The Commission finds that the 

proposed CBOE rules governing the 

nature and issuance of Trading Permits 

are consistent with the Act, including 

Section 6(b)(2) of the Act,144 which 

requires that a national securities 

exchange have rules that provide that 

any registered broker or dealer may 

become a member and any person may 

become associated with an exchange 

member.145 The Commission notes that 

pursuant to Section 6(c) of the Act,146

an exchange must deny membership to 

non-registered broker-dealers and 

registered broker-dealers that do not 

satisfy certain standards, such as 

financial responsibility or operational 

capacity. 

(3) Tier Appointments 

The Exchange has proposed a new 

type of appointment called a ‘‘tier 

appointment’’ for a market-maker 

seeking to trade one or more options 

classes.147 Tier appointments would be 

subject to an application process similar 

to the process applicable for Trading 

Permits (i.e., the random lottery or order 

in time processes).148 Notwithstanding 

this application requirement, in the 

event a current member of the Exchange 

at the time of the Restructuring 

Transaction is trading an options class 

with respect to which the Exchange is 

establishing a tier appointment, the 

Exchange in connection with the 

Restructuring Transaction would issue 

to that member such tier appointment, 

provided that the Exchange is notified 

of that member’s desire to hold such a 

tier appointment.149 Tier appointments 

would be in addition to the current 

appointment cost process set forth in 

CBOE Rule 8.3, which would remain 

unchanged.150

Market-makers would be required to 

designate a Trading Permit with which 

a tier appointment would be associated 

and could designate no more than one 

tier appointment per Trading Permit.151

Tier appointments would be for the 

same term as the Trading Permit with 

which the tier appointment is 

associated. Termination, change, 

renewal, and transfer of tier 

appointments would be subject to the 

same terms and conditions as the 

processes for Trading Permits.152 The 

Exchange would have the authority to 

establish, increase, limit, or reduce the 

number of a type of tier appointment 

and to establish objective standards for 

a market-maker to be issued, or to have 

renewed, a particular type of tier 

appointment.153 Tier appointments 

would be subject to such fees and 

charges as are established by the 

Exchange from time to time.154


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Act, 15 U.S.C. 78s(b), including, as applicable, 

Section 19(b)(3)(A)(ii), 15 U.S.C. 78s(b)(3)(A)(ii), to 

establish and change the fees for the types of 

Trading Permits it has determined to issue. 

155 15 U.S.C. 78f(b)(2). 

156For example, the Exchange proposed to delete 

the terms ‘‘Lessor’’ and ‘‘Lessee’’ (since these 

concepts would not exist after the Restructuring 

Transaction) and added proposed definitions of 

‘‘person,’’ ‘‘Trading Permit,’’ and ‘‘Trading Permit 

Holder.’’ See proposed CBOE Rules 1.1(ff) and (gg). 

A ‘‘person’’ would be defined as an individual, 

partnership (general or limited), joint stock 

company, corporation, limited liability company, 

trust or unincorporated organization, or any 

governmental entity or agency or political 

subdivision thereof. 

157See proposed CBOE Rule 1.1(iii) (defining 

TPH Department). 

158After the Restructuring Transaction, the 

President, with approval of the Board, would 

continue to have the authority to appoint members 

to the Business Conduct Committee. See proposed 

CBOE Rules 2.1(a). See also Notice, supra note 4, 

73 FR at 51666. 

159See proposed CBOE Rule 2.1(a). 

160See id. 

161See proposed CBOE Rule 2.1(b). 

162See proposed CBOE Rule 2.1(b). 

163See proposed CBOE Rules 2.1(d) and 2.1(e). 

164See proposed CBOE Rule 2.2. 

165For example, references to the term ‘‘dues’’ 

have been deleted in CBOE Rules 2.20, 2.22, and 

2.23 because this term generally refers to payments 

made by members in a membership organization. 

This change also has been made to other rules in 

Chapters I–III. See, e.g., CBOE Rule 1.1(jj). 

166For example, rules relating to the sale, 

transfer, and lease of memberships, and to the 

member death benefit would be deleted, because 

they would not be applicable to Trading Permits. 

See, e.g., CBOE Rules 3.12–3.15. CBOE Rules 3.24 

(regarding member death benefit) and 3.25 

(regarding transfer of memberships in trust) would 

also be deleted. In addition, CBOE Rule 3.1, which 

was designed to, among other things, ensure that 

memberships were used for trading on the 

Exchange, would be replaced with a new version 

as this requirement would not be necessary in the 

context of Trading Permits that, unlike 

memberships, are directly linked to having a 

trading function on the Exchange. Other conforming 

changes are being proposed to CBOE Rules 3.2 and 

3.3 (relating to the qualifications to be a member or 

member organization, and the application process 

to become a member; 3.5 (relating to the authority 

of the Exchange to deny or condition persons from 

becoming or being associated with Trading Permit 

Holders); 3.18 (regarding statutory disqualification); 

and Rule 3.10 (regarding status of Trading Permit 

Holders). 

167See CBOE Rule 3.8(a). References to 

registering a membership for a member organization 

would be deleted because that concept would have 

no application once Trading Permits are used to 

provide trading access to the Exchange. See 

proposed CBOE Rule 3.8. The Exchange also would 

make this change to other rules in Chapters I–III 

and to CBOE Rule 8.3. See Notice, supra note 4, 73 

FR at 51667, n.180. 

168Under the existing rule, a member 

organization that has multiple memberships in its 

name can designate the same individual to be the 

nominee for those memberships, except that for 

each membership used for trading in open outcry 

on the trading floor, the member organization must 

designate a different individual to be the nominee 

for each of those memberships. 

169See Notice, supra note 4, 73 FR at 51667. 

The Commission finds that the 

proposed CBOE rules governing tier 

appointments are consistent with the 

Act, including Section 6(b)(2) of the 

Act,155 which requires that a national 

securities exchange have rules that 

provide that any registered broker or 

dealer may become a member. In 

particular, the proposal would preserve 

the existing appointments of current 

CBOE market-makers, and any new or 

expanded tier appointments would be 

allocated in accordance with, and 

subject to the same terms and 

conditions as, the issuance process set 

forth for Trading Permits in Rule 3.1(b). 

To the extent the Exchange seeks to 

limit or reduce any type of tier 

appointment, the Commission notes that 

the Exchange would need to do so in an 

equitable and not unfairly 

discriminatory manner and file any 

such proposal with the Commission 

pursuant to Section 19 of the Act. 

F. Other Changes to the Rules 

(1) Chapter I of the Rules 

The Exchange has proposed amended 

definitions in Chapter I to reflect the use 

of Trading Permits.156 The Exchange 

also proposed a definition of its new 

‘‘TPH Department,’’ 157 which would 

serve as the successor to CBOE’s 

Membership Department and would 

continue the functions of that 

department, such as processing 

applications for Trading Permits. The 

Commission finds the proposed changes 

to Chapter I of CBOE’s rules to be 

consistent with the Act as they are 

necessary to update the terms used in 

the rules and would assist Trading 

Permit Holders and the public in 

understanding the application and 

scope of CBOE’s rules. 

(2) Chapter II of the Rules 

CBOE has proposed several clarifying 

amendments to CBOE Rule 2.1, 

including limiting its scope to Exchange 

committees (i.e., committees that are not 

solely composed of CBOE directors) and 

clarifying the manner of appointment to 

such committees to reflect the fact that 

the Vice Chairman of the Board, with 

the approval of the CBOE Board, would 

appoint the chairmen and members of 

committees (other than the BCC) 158

unless otherwise provided by the rules 

of CBOE or by the CBOE Board.159

CBOE has also proposed to streamline 

the process for filling vacancies on 

Exchange committees (other than the 

BCC) 160 and would provide that a 

majority would generally constitute a 

quorum for committee meetings.161 The 

proposed revision would also clarify 

that committees could take all types of 

actions, not only ‘‘informal’’ actions, 

pursuant to written consent.162

Further, CBOE has proposed to clarify 

certain aspects of the authority of the 

CBOE Board over committees, including 

a clarification that the CBOE Board may 

delegate powers and duties to the 

committees and that each Exchange 

committee is subject to the control and 

supervision of the CBOE Board.163

CBOE proposed to clarify that the CBOE 

Board has the authority to review, 

modify, suspend, or overrule any and all 

actions of any committee, officer, 

representative, or designee of the 

Exchange taken pursuant to the rules in 

accordance with any applicable review 

procedures specified in the rules.164

Finally, CBOE proposed conforming 

changes to the rules in Chapter II to 

reflect the use of the term Trading 

Permits.165

The Commission finds that the 

proposed changes to Chapter II of 

CBOE’s rules are consistent with the Act 

in that they clarify the operation of 

Exchange committees and the authority 

of the CBOE Board and also update the 

terms used in the rules to reflect the 

proposed Restructuring Transaction, 

therein clarifying the application and 

scope of CBOE’s rules. 

(3) Chapter III of the Rules 

CBOE has proposed conforming 

changes to certain rules in Chapter III to 

reflect the change from memberships to 

Trading Permits without changing the 

substance of these rules.166 In addition, 

the process for designating nominees for 

Trading Permits in CBOE Rule 3.8 

would be amended to require an 

organization to designate as its nominee 

an associated person who is an 

individual holder of a Trading 

Permit.167 Further, the Exchange 

proposes to streamline the process of 

designating nominees for organizations 

that have multiple Trading Permits in 

their name. As modified, CBOE Rule 

3.8(a)(ii) would allow organizations to 

designate the same individual to be the 

nominee for Trading Permits held in its 

name, including Trading Permits used 

for trading in open outcry on the trading 

floor.168

The Exchange also is deleting the 

requirement in CBOE Rule 3.7(g) that a 

member keep and maintain a current 

copy of the CBOE Constitution and rules 

in a readily accessible place and 

available for examination by customers. 

CBOE believes that, because it is 

required to maintain a copy of its 

governing documents and rules online, 

this requirement is no longer 

necessary.169 Finally, the Exchange is 

amending CBOE Rule 3.9 to, among 

other things, delete the requirement that 

the Exchange post notices of 

applications on the Exchange Bulletin 


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170The information would continue to be 

published in the electronic Exchange Bulletin. See 

CBOE Rule 3.9(e). The Exchange also would post 

notices of the effectiveness of Trading Permit 

Holder status or approval of a trading function in 

the Exchange Bulletin. See proposed CBOE Rule 

3.11. 

171 15 U.S.C. 78s. 

172 15 U.S.C. 78s(b)(2). Pursuant to Section 

19(b)(2) of the Act, the Commission may not 

approve any proposed rule change, or amendment 

thereto, prior to the thirtieth day after the date of 

publication of notice thereof, unless the 

Commission finds good cause for so doing. 173 15 U.S.C. 78s(b)(2). 

Board, as it believes that use of a 

physical bulletin board at the Exchange 

to notify persons is outdated in the era 

of electronic and remote trading.170

G. Request for Commission Approval 

Under Section 15.16 of the CBSX 

Operating Agreement 

Under the CBSX Operating 

Agreement, CBOE is defined as one of 

the ‘‘Owners’’ of CBSX. Section 15.16 of 

the CBSX Operating Agreement 

provides that, in the event that a person 

acquires a 25% or greater interest in an 

Owner that owns a 20% or greater 

interest in CBSX, that person must 

execute an amendment to the Operating 

Agreement in which that person agrees 

to be a party to the Operating Agreement 

and to abide by all of the provisions of 

the Operating Agreement. Section 15.16 

also provides that Commission approval 

under Section 19 of the Act is required 

in connection with such an amendment 

to the Operating Agreement.171 Because 

CBOE owns a 50% interest in CBSX, the 

establishment of CBOE Holdings as the 

sole shareholder of CBOE would trigger 

this Commission approval requirement. 

Consistent with this requirement in 

Section 15.16 of the CBSX Operating 

Agreement, CBOE has requested as part 

of this proposed rule change that the 

Commission provide such approval. 

The provision in the CBSX Operating 

Agreement requiring Commission 

approval of an amendment to the CBSX 

Operating Agreement to effectuate a 

change in control was designed to 

involve the Commission and CBOE in 

assessing the potential conflicts of 

control that could arise. In the case of 

the Restructuring Transaction, CBOE 

would become wholly-owned by CBOE 

Holdings. However, as discussed in 

detail above, CBOE Holdings would be 

subject to a number of conditions 

designed to protect the regulatory 

independence of CBOE in recognition of 

its status as an SRO. Accordingly, the 

Commission finds that the amendment 

to the CBSX Operating Agreement with 

respect to the change in control of CBOE 

in connection with the Restructuring 

Transaction is consistent with the Act. 

H. Accelerated Approval 

CBOE has asked the Commission to 

grant accelerated approval of the 

proposal, as modified by Amendment 

No. 1. As set forth below, the 

Commission finds good cause for 

approving the proposal, as modified by 

Amendment No. 1, prior to the thirtieth 

day after publishing notice of 

Amendment No. 1 in the Federal 

Register.172

In Amendment No. 1, CBOE proposed 

the following modifications to the 

proposed CBOE Holdings governing 

documents: (1) Issuance of a single class 

of common stock of CBOE Holdings, 

rather than different series of common 

stock as was originally proposed; (2) 

minor revisions to the transfer 

restrictions on common stock; (3) 

incorporation of the term ‘‘Regulated 

Securities Exchange Subsidiary,’’ rather 

than ‘‘CBOE,’’ to accommodate the 

potential future ownership of more than 

one national securities exchange by 

CBOE Holdings; (4) requiring that shares 

of stock issued in connection with the 

Restructuring Transaction be recorded 

on the books and records of CBOE 

Holdings only in the name of the owner 

of the shares to ensure compliance with 

the transfer restrictions; (5) changes to 

the size of the CBOE Holdings Board 

and term of its Directors; (6) defer for 

one year the date of the first annual 

meeting of CBOE Holdings stockholders, 

and thus the first election of postRestructuring Transaction directors; (7) 

changes to the content of the notice 

stockholders must submit in connection 

with director nominations or 

stockholder requests to bring matters 

before the annual stockholder meeting; 

(8) the ability to set separate record 

dates for stockholder notice of a 

stockholder meeting and for voting 

purposes; (9) specify that two-thirds of 

CBOE Holdings directors must satisfy 

the independence requirements 

contained in the listing standards of 

either NYSE or The Nasdaq Stock 

Market; (10) modify the ‘‘for cause’’ 

removal standard applicable to directors 

in light of the change to one-year terms 

for directors; (11) delete the requirement 

that at least one director on the CBOE 

Holdings Compensation Committee be 

the beneficial owner of CBOE Holdings 

stock; (12) changes to the size of the 

CBOE Holdings Nominating and 

Governance Committee; and (13) make 

certain technical, non-substantive 

wording changes. 

In addition, Amendment No. 1 

proposes the following changes to the 

proposed CBOE governing documents: 

(1) Changes to the size of the CBOE 

Board and term of its Directors; (2) defer 

for one year the date of the first annual 

meeting of CBOE stockholders, and thus 

the first election of post-Restructuring 

Transaction directors; (3) modify the 

‘‘for cause’’ removal standard applicable 

to directors in light of the change to oneyear terms for directors; (4) delete the 

requirement that at least one director on 

the CBOE Compensation Committee be 

the beneficial owner of CBOE Holdings 

stock; (5) change the requisite number of 

directors on the Regulatory Oversight 

Committee from four to three; (6) revise 

the provision dealing with the duties 

and powers of the CBOE Treasurer to 

make the provision the same as a similar 

provision set forth in the CBOE 

Holdings corporate documents; and (7) 

correct non-substantive typographical 

errors. 

Finally, Amendment No. 1 seeks to 

make the following changes to the 

proposed CBOE Rules: (1) Adopt a rule 

governing the permissible uses of 

regulatory revenues; and (2) make 

certain changes to reflect intervening 

proposed rule changes that have been 

submitted since CBOE filed its proposal. 

The Commission believes that the 

changes contained in Amendment No. 1 

are consistent with the Act. The 

Commission notes that the changes 

proposed in Amendment No. 1 are 

either not material or are otherwise 

responsive to the concerns of the 

Commission and do not raise any 

regulatory concerns. In addition, the 

Commission notes that the initial 

proposed rule change was published for 

comment with a comment period 

ending on September 25, 2008 and the 

Commission did not receive any 

comments on the proposal. Accordingly, 

the Commission finds that good cause 

exists for approving the proposed rule 

change, as amended, on an accelerated 

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

Act.173

III. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning Amendment No. 

1, including whether Amendment No. 1 

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–CBOE–2008–88 on the 

subject line. 


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174 15 U.S.C. 78s(b)(2). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 61895 

(April 13, 2010), 75 FR 20417. 

4 In approving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

formation. See 15 U.S.C. 78c(f). 

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

6 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–CBOE–2008–88. 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 Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street, NE., 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of such filing 

also will be available for inspection and 

copying at the principal office of the 

CBOE. All comments received will be 

posted without change; the Commission 

does not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–CBOE–2008–88 and should 

be submitted on or before June 18, 2010. 

IV. Conclusion 

For the foregoing reasons, the 

Commission finds that the proposed 

rule change, as amended, is consistent 

with the Act and the rules and 

regulations thereunder applicable to a 

national securities exchange. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,174 that the 

proposed rule change (SR–CBOE–2008– 

88), as modified by Amendment No. 1, 

be and hereby is approved on an 

accelerated basis. 

By the Commission. 

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2010–12936 Filed 5–27–10; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–62157; File No. SR– 

NYSEArca–2010–28] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Order Approving Proposed 

Rule Amending Its Schedule of Fees 

May 24, 2010. 

On April 12, 2010, NYSE Arca, Inc. 

(‘‘NYSE Arca’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’), pursuant to Section 

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

of 1934 (‘‘Act’’) 1 and Rule 19b–4 

thereunder,2 a proposed rule change to 

extend a pilot program capping 

transaction fees for strategy executions. 

Under this pilot program, strategy 

executions are capped at $750 per 

transaction, and $25,000 per month per 

initiating firm. This proposed rule 

change retroactively extended the 

duration of this pilot program from 

March 1, 2010 through April 1, 2010. 

The proposed rule change was 

published for comment in the Federal 

Register on April 19, 2010.3 The 

Commission received no comments 

regarding the proposal. 

The Commission has carefully 

reviewed the proposed rule change and 

finds that the proposed rule change is 

consistent with the requirements of the 

Act and the rules and regulations 

thereunder applicable to a national 

securities exchange 4 and, in particular, 

Section 6(b)(5) of the Act,5 which 

requires that an exchange have rules 

designed to prevent fraudulent and 

manipulative acts and practices, 

promote just and equitable principles of 

trade, foster cooperation and 

coordination with persons engaged in 

facilitating transactions in securities, 

and remove impediments to and perfect 

the mechanism of a free and open 

market and a national market system. 

Specifically, the proposed rule change 

allows the pilot program to continue 

without interruption from March 1, 

2010 through April 1, 2010. 

It is therefore ordered, pursuant to 

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

proposed rule change (SR–NYSEArca– 

2010–28) be, and it hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.6

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–12874 Filed 5–27–10; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–62152; File No. SR–ISE– 

2010–41] 

Self-Regulatory Organizations; 

International Securities Exchange, 

LLC; Notice of Filing and Immediate 

Effectiveness of Proposed Rule 

Change Relating to Professional 

Customer Fees 

May 21, 2010. 

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

Securities Exchange Act of 1934 (the 

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

notice is hereby given that on May 5, 

2010, the International Securities 

Exchange, LLC (the ‘‘Exchange’’ or the 

‘‘ISE’’) filed with the Securities and 

Exchange Commission the proposed 

rule change, as described in Items I, II, 

and III below, which items have been 

prepared by the self-regulatory 

organization. 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 ISE is proposing to amend its 

Schedule of Fees. The text of the 

proposed rule change is available on the 

Exchange’s Web site (http:// 

www.ise.com), at the principal office of 

the Exchange, and at the Commission’s 

Public Reference Room. 

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 

self-regulatory organization 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 self-regulatory organization has 

prepared summaries, set forth in 

sections A, B and C below, of the most 

significant aspects of such statements. 


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