[Federal Register Volume 73, Number 156 (Tuesday, August 12, 2008)]
[Notices]
[Pages 46936-46955]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-18577]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58324; File Nos. SR-BSE-2008-02; SR-BSE-2008-23; SR-
BSE-2008-25; SR-BSECC-2008-01]


Self-Regulatory Organizations; Boston Stock Exchange, 
Incorporated; Boston Stock Exchange Clearing Corporation; Order 
Approving Proposed Rule Change, as Modified by Amendment No. 1, 
Amending the Certificate of Incorporation of Boston Stock Exchange, 
Incorporated; Notice of Filing of Amendment No. 1 to a Proposed Rule 
Change Relating to the Acquisition of the Boston Stock Exchange, 
Incorporated by The NASDAQ OMX Group, Inc., and Order Granting 
Accelerated Approval of the Proposed Rule Change, as Modified by 
Amendment No. 1; Notice of Filing of Amendment No. 1 to a Proposed Rule 
Change Relating to a Proposal To Transfer Boston Stock Exchange, 
Incorporated's Ownership Interest in Boston Options Exchange Group, LLC 
and Order Granting Accelerated Approval of the Proposed Rule Change, as 
Modified by Amendment No. 1; Notice of Filing of Amendment No. 1 to a 
Proposed Rule Change by the Boston Stock Exchange Clearing Corporation 
Relating to Amendment of Its Articles of Organization and By-Laws in 
Connection With the Planned Acquisition by The NASDAQ OMX Group, Inc., 
and Order Granting Accelerated Approval of the Proposed Rule Change, as 
Modified by Amendment No. 1

August 7, 2008.

I. Introduction

    On April 21, 2008, the Boston Stock Exchange, Inc. (``BSE'') filed 
with the Securities and Exchange Commission (``Commission'' or ``SEC'') 
a proposed rule change, pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder \2\ to: 
(1) Amend and restate the BSE Certificate in its entirety to reflect 
the planned acquisition of BSE by The NASDAQ OMX Group, Inc. (``NASDAQ 
OMX''), the parent corporation of The NASDAQ Stock Market LLC 
(``Nasdaq''); (2) replace the BSE Constitution in its entirety with 
proposed new BSE By-Laws; (3) adopt a written operating agreement for 
its subsidiary, Boston Options Exchange Regulation, LLC (``BOXR''), and 
amend the BOXR By-Laws; (4) obtain approval for a change of control of 
BSX Group, LLC (``BSX''), which would operate, upon Commission approval 
of certain proposed rule changes, BSE's equities trading facility, and 
make related amendments to the Operating Agreement of BSX; (5) adopt 
two rules; and (6) obtain Commission approval for the affiliation 
between BSE and certain broker-dealer subsidiaries of NASDAQ OMX 
(collectively, the ``BSE Governance Proposal''). The BSE Governance 
Proposal was published for comment in the Federal Register on May 8, 
2008.\3\ The Commission received no comments on the BSE Governance 
Proposal. On July 28, 2008, BSE filed Amendment No. 1 to the BSE 
Governance Proposal.\4\ This order provides notice of and requests 
comment on Amendment No. 1 to the BSE Governance Proposal and approves 
the BSE Governance Proposal, as modified by Amendment No. 1, on an 
accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 57757 (May 1, 2008), 
73 FR 26159 (SR-BSE-2008-23) (``BSE Governance Proposal Notice'').
    \4\ In Amendment No. 1 to the BSE Governance Proposal, BSE filed 
NASDAQ OMX's Certificate and By-Laws, as proposed to be amended in 
connection with the acquisition of BSE by NASDAQ OMX, and proposed 
to make a non-substantive correction in the purpose section of the 
original filing. See infra note 104 and accompanying text.
---------------------------------------------------------------------------

    On April 23, 2008, BSE filed with the Commission a proposed rule 
change (``BOX Transfer Proposal'') to transfer its ownership interest 
in the Boston Options Exchange Group, LLC (``BOX''), the operator of 
BSE's Boston Options Exchange facility (``BOX Market''), to MX U.S. 2, 
Inc. (``MX US''), a wholly-owned U.S. subsidiary of the Montr[eacute]al 
Exchange Inc. (``MX''), and to amend the BOX LLC Agreement. The BOX 
Transfer Proposal was published for comment in the Federal Register on 
May 8, 2008.\5\ The Commission received no comments on the BOX Transfer 
Proposal. On July 28, 2008, BSE filed Amendment No. 1 to the BOX 
Transfer Proposal.\6\ This order provides notice of and requests 
comment on Amendment No. 1 to the BOX Transfer Proposal and approves 
the BOX Transfer Proposal, as modified by Amendment No. 1, on an 
accelerated basis.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 57762 (May 1, 2008), 
73 FR 26170 (SR-BSE-2008-25) (``BOX Transfer Proposal Notice'').
    \6\ In Amendment No. 1 to the BOX Transfer Proposal, BSE 
proposes to clarify Section 8.4(g) of the BOX LLC Agreement.
---------------------------------------------------------------------------

    On April 23, 2008, BSE filed with the Commission a proposed rule 
change (``BSE Interim Certificate Proposal'') to amend the BSE 
Certificate to permit BSE to make distributions to BSE membership 
owners in connection with the transfer of its ownership interest in

[[Page 46937]]

BOX. The BSE Interim Certificate Proposal was published for comment in 
the Federal Register on May 7, 2008.\7\ The Commission received no 
comment letters regarding the BSE Interim Certificate Proposal. On July 
28, 2008, BSE filed Amendment No. 1 to the BSE Interim Certificate 
Proposal.\8\ This order approves the BSE Interim Certificate Proposal 
as modified by Amendment No. 1.
---------------------------------------------------------------------------

    \7\ See Securities Exchange Act Release No. 57760 (May 1, 2008), 
73 FR 25809 (SR-BSE-2008-02) (``BSE Interim Certificate Proposal 
Notice'').
    \8\ In Amendment No. 1 to the BSE Interim Certificate Proposal, 
BSE proposes to correct typographical errors in the proposed 
amendments to the current BSE Certificate. Because Amendment No. 1 
is technical in nature, the Commission is not publishing it for 
comment.
---------------------------------------------------------------------------

    On April 24, 2008, the Boston Stock Exchange Clearing Corporation 
(``BSECC'') filed with the Commission a proposed rule change (``BSECC 
Governance Proposal''). The BSECC Governance Proposal was published for 
comment in the Federal Register on May 13, 2008.\9\ The Commission 
received no comments on the BSECC Governance Proposal. On July 28, 
2008, BSECC filed Amendment No. 1 to the BSECC Governance Proposal.\10\ 
This order provides notice of and requests comment on Amendment No. 1 
to the BSECC Governance Proposal and approves the BSECC Governance 
Proposal, as modified by Amendment No. 1, on an accelerated basis.
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release No. 57782 (May 6, 2008), 
73 FR 27583 (SR-BSECC-2008-01) (``BSECC Governance Proposal 
Notice'').
    \10\ In Amendment No. 1 to the BSECC Governance Proposal, BSECC 
filed NASDAQ OMX's Certificate and NASDAQ OMX's By-Laws, as proposed 
to be amended in connection with the acquisition of BSE by NASDAQ 
OMX. See infra note 258 and accompanying text.
---------------------------------------------------------------------------

II. Discussion and Commission Findings

    After careful review, the Commission finds that the BSE Interim 
Certificate Proposal, the BSE Governance Proposal, and the BOX 
Ownership Transfer Proposal are consistent with the requirements of the 
Act and the rules and regulations thereunder applicable to a national 
securities exchange.\11\ Specifically, the Commission finds that these 
proposed rule changes are consistent with Section 6(b)(5) of the 
Act,\12\ which requires, among other things, that the rules of a 
national securities exchange be designed to prevent fraudulent and 
manipulative acts and practices; to promote just and equitable 
principles of trade; to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, and processing 
information with respect to, and facilitating transactions in 
securities; to remove impediments to and perfect the mechanism of a 
free and open market and a national market system; and, in general, to 
protect investors and the public interest. The Commission also finds 
that these proposed rule changes are consistent with Section 6(b)(1) of 
the Act,\13\ which requires, among other things, that a national 
securities exchange be so organized and have the capacity to carry out 
the purposes of the Act, and to comply and enforce compliance by its 
members and persons associated with its members, with the provisions of 
the Act, the rules and regulations thereunder, and the rules of the 
exchange; Section 6(b)(3) of the Act,\14\ which requires, in part, that 
the rules of an exchange assure a fair representation of its members in 
the selection of its directors and administration of its affairs; and 
Section 6(b)(7) of the Act,\15\ which requires, in part, that the rules 
of an exchange provide a fair procedure for disciplining members.
---------------------------------------------------------------------------

    \11\ In approving these proposed rule changes, the Commission 
has considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
    \12\ 15 U.S.C. 78f(b)(5).
    \13\ 15 U.S.C. 78f(b)(1).
    \14\ 15 U.S.C. 78f(b)(3).
    \15\ 15 U.S.C. 78f(b)(7).
---------------------------------------------------------------------------

    The Commission also finds that the BSECC Governance Proposal is 
consistent with Section 17A(b)(3)(C) of the Act,\16\ which requires, in 
part, that the rules of a registered clearing agency assure the fair 
representation of its shareholders (or members) and participants in the 
selection of its board of directors and administration of its affairs.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78q-1(b)(3)(C).
---------------------------------------------------------------------------

    The discussion below does not review every detail of each of the 
proposed rule changes, but focuses on the most significant rules and 
policy issues considered by the Commission in reviewing the proposals.
    NASDAQ OMX, the parent corporation of Nasdaq, and BSE have entered 
into an agreement pursuant to which NASDAQ OMX would acquire all of the 
outstanding membership interests in BSE (``BSE Acquisition'').\17\ 
Following the BSE Acquisition, BSE would be a wholly-owned subsidiary 
of NASDAQ OMX. The BSE Acquisition would have the effect of: (1) 
converting BSE, a registered national securities exchange, from a 
Delaware, non-stock corporation into a Delaware stock corporation; and 
(2) demutualizing BSE by separating equity ownership in BSE from 
trading privileges on BSE. BSE members would receive cash as 
consideration for their ownership interests in BSE and would not retain 
any ownership interest in BSE or its affiliates. NASDAQ OMX plans that 
BSE would operate as a separate self-regulatory organization (``SRO'') 
with rules, memberships, and listings that are separate and distinct 
from those of Nasdaq.\18\
---------------------------------------------------------------------------

    \17\ See BSE Governance Proposal Notice, supra note 3, 73 FR 
26159.
    \18\ See Securities Exchange Act Release No. 57761 (May 1, 
2008), 73 FR 26182, at 26183 (SR-NASDAQ-2008-035) (``NASDAQ OMX By-
Laws Proposal Notice'').
---------------------------------------------------------------------------

    BSE has four affiliates: BSX, BOX, BOXR, and BSECC. BSE owns 53.21 
percent of BSX, which operated the Boston Equities Exchange (``BeX'') 
until BeX ceased operations in September 2007.\19\ The remaining 46.79 
percent of BSX is owned by Citigroup Financial Strategies Inc., Credit 
Suisse First Boston Next Fund Inc., LB 1 Group, Inc., Fidelity Global 
Brokerage Group, Inc., and Merrill Lynch L.P. Holdings Inc. Following 
the BSE Acquisition, NASDAQ OMX indirectly would own, through its 
ownership of BSE, the 53.21 percent of BSX that BSE would continue to 
own. In addition, NASDAQ OMX would acquire the 46.79 percent interest 
in BSX that is not presently owned by BSE. Consequently, BSX would 
become a wholly-owned subsidiary of NASDAQ OMX.\20\
---------------------------------------------------------------------------

    \19\ See infra note 222.
    \20\ See BSE Governance Proposal Notice, supra note 3, 73 FR at 
26159. See also infra notes 222-244 and accompanying text.
---------------------------------------------------------------------------

    NASDAQ OMX would not acquire BSE's interest in BOX, the transfer of 
which to a third party is a condition to the closing of the BSE 
Acquisition.\21\ BSE proposes to transfer its 21.87 percent ownership 
interest in BOX to MX US, a wholly-owned subsidiary of MX.\22\ BSE 
intends to distribute the proceeds from the BOX transfer to its member 
owners by redeeming a portion of each BSE member ownership for a pro 
rata share of the net proceeds.\23\ Although BSE no longer would hold 
an ownership interest in BOX, as discussed in greater detail below,\24\ 
the BOX Market would remain a facility of BSE and, therefore, BSE would 
continue to have self-regulatory obligations with respect to the BOX 
Market.\25\
---------------------------------------------------------------------------

    \21\ See BSE Interim Certificate Proposal Notice, supra note 7, 
73 FR at 25810.
    \22\ See BOX Transfer Proposal Notice, supra note 5, 73 FR at 
26170.
    \23\ See BSE Interim Certificate Proposal Notice, supra note 7, 
73 FR at 25810.
    \24\ See infra notes 124-136 and accompanying text.
    \25\ 15 U.S.C. 78c(a)(2). See also BOX Transfer Proposal Notice, 
supra note 5, 73 FR at 26171.
---------------------------------------------------------------------------

    Finally, BOXR and BSECC are wholly-owned subsidiaries of BSE and,

[[Page 46938]]

therefore, following the BSE Acquisition would become wholly-owned, 
indirect subsidiaries of NASDAQ OMX.\26\
---------------------------------------------------------------------------

    \26\ See BSECC Governance Proposal Notice, supra note 9, 73 FR 
at 27583.
---------------------------------------------------------------------------

    Following the BSE Acquisition, Nasdaq OMX would own five SROs: 
Nasdaq, BSE, BSECC, Philadelphia Stock Exchange, Inc. (``Phlx'') and 
Stock Clearing Corporation of Philadelphia (``SCCP'').\27\ As discussed 
below, the Commission believes that the ownership of BSE and BSECC by 
the same public holding company that owns Nasdaq, Phlx, and SCCP would 
not impose any burden on competition not necessary or appropriate in 
furtherance of the Act's purposes.\28\ The Commission previously has 
approved proposals in which a holding company owns multiple SROs.\29\ 
However, the BSE Acquisition is the first instance in which the 
Commission is approving the ownership by one holding company of three 
exchanges and two clearing agencies.\30\ The Commission's experience to 
date with the issues raised by the ownership by a holding company of 
one or more SROs has not presented any concerns that have not been 
addressed, for example, by Commission-approved measures at the holding 
company level that are designed to protect the independence of each 
SRO.\31\
---------------------------------------------------------------------------

    \27\ See Securities Exchange Act Release No. 57703 (April 23, 
2008), 73 FR 23293 (April 29, 2008) (SR-Phlx-2008-31) (notice of 
proposed rule change related to NASDAQ OMX's acquisition of Phlx 
(``Phlx Acquisition'')). See also Securities Exchange Act Release 
No. 57818 (May 14, 2008), 73 FR 29171 (May 20, 2008) (SR-SCCP-2008-
01) (notice of proposed rule change to amend and restate the 
Articles of Incorporation of the Stock Clearing Corporation of 
Philadelphia (``SCCP'') in connection with the Phlx Acquisition). 
See also Securities Exchange Act Release Nos. 58179 (July 17, 2008), 
73 FR 42874 (July 23, 2008) (order approving SR-Phlx-2008-31) and 
58180 (July 17, 2008), 73 FR 42890 (July 23, 2008) (order approving 
SR-SCCP-2008-01).
    \28\ 15 U.S.C. 78f(b)(8) and 15 U.S.C. 78q-1(b)(3)(I).
    \29\ See, e.g., Securities Exchange Act Release Nos. 53382 
(February 27, 2006), 71 FR 11251 (March 6, 2006) (SR-NYSE-2005-77) 
(approving proposed rule change relating to the combination of the 
New York Stock Exchange, Inc. and Archipelago Holdings, Inc.); 
58179, supra note 27.
    \30\ The Depository Trust and Clearing Corporation (``DTCC'') is 
a holding company that at one point owned five registered clearing 
agencies: The National Securities Clearing Corporation (``NSCC''), 
the Depository Trust Company (``DTC''), the Government Securities 
Clearing Corporation (``GSCC''), the MBS Clearing Corporation 
(``MBSCC''), and the Emerging Markets Clearing Corporation 
(``EMCC''). See Securities Exchange Act Release Nos. 41786 (August 
24, 1999), 64 FR 47882 (September 1, 1999) (SR-DTC-99-17); 41800 
(August 27, 1999), 64 FR 48694 (September 7, 1999) (SR-NSCC-99-10); 
44987 (October 25, 2001), 66 FR 55218 (November 1, 2001) (SR-EMCC-
2001-03); 44988 (October 25, 2001), 66 FR 55222 (November 1, 2001) 
(SR-MBSCC-2001-01); and 44989 (October 25, 2001), 66 FR 55220 
(November 1, 2001) (SR-GSCC-2001-11). These clearing agencies 
provided clearance and settlement services for different instruments 
or provided different clearance and settlement services for the same 
instruments. The GSCC and the MBSCC have since merged to form the 
Fixed Income Clearing Corporation (``FICC''). See Securities 
Exchange Act Release No. 47015 (December 17, 2002), 67 FR 78531 
(December 24, 2002) (SR-GSCC-2002-09 and SR-MBSCC-2002-01). The EMCC 
no longer operates as a clearing agency.
    \31\ See infra notes 38-47, 258-261 and accompanying text for a 
discussion of proposals by BSE and BSECC to adopt NASDAQ OMX's By-
Laws as part of their rules. See also Securities Exchange Act 
Release No. 58183 (July 17, 2008), 73 FR 42850 (July 23, 2008) 
(order approving SR-NASDAQ-2008-035) (``NASDAQ OMX By-Laws Approval 
Order'').
---------------------------------------------------------------------------

    The Commission believes that the current market for cash equity 
trading venues is highly competitive. Existing exchanges face 
significant competition from other exchanges and from non-exchange 
entities such as alternative trading systems that trade the same or 
similar financial instruments.\32\ New entrants to the market do not 
face significant barriers to entry. In this regard, the Chicago Board 
Options Exchange, Incorporated and the International Securities 
Exchange, LLC a few years ago commenced trading of cash equity 
securities.\33\ In addition, other entities have recently applied for 
exchange registration, which provides evidence that they have 
determined there are benefits in starting a new exchange to compete in 
the marketplace.\34\ In addition, since BeX ceased operating in 
September 2007, BSE has zero market share in cash equity trading, and 
prior to September 2007, BSE had a very small market share. Therefore, 
the BSE Acquisition would not change the number of active exchanges or 
the distribution of market share across exchanges. Accordingly, the 
Commission finds that the BSE's proposed rule changes are consistent 
with Section 6(b)(8), which requires that the rules of an exchange not 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \32\ See, e.g., Securities Exchange Act Release No. 58092 (July 
3, 2008), 73 FR 40144 (July 11, 2008), in which the Commission 
recognized that ``[n]ational securities exchanges registered under 
Section 6(a) of the Exchange Act face increased competitive 
pressures from entities that trade the same or similar financial 
instruments * * *.''
    \33\ See Securities Exchange Act Release Nos. 55389 (March 2, 
2007), 72 FR 10575 (March 8, 2007) (order approving the 
establishment of CBOE Stock Exchange, LLC); 55392 (March 2, 2007), 
72 FR 10572 (March 8, 2007) (order approving trading rules for non-
option securities trading on CBOE Stock Exchange, LLC); 54528 
(September 28, 2006), 71 FR 58650 (October 4, 2006) (order approving 
rules governing ISE's electronic trading system for equities).
    \34\ See Securities Exchange Act Release No. 57322 (February 13, 
2008), 73 FR 9370 (February 20, 2008) (File No. 10-182) (notice of 
application and Amendment No. 1 thereto by BATS Exchange, Inc. for 
registration as a national securities exchange).
---------------------------------------------------------------------------

    With regard to NASDAQ OMX's ownership of two registered clearing 
agencies following the BSE Acquisition, the Commission does not believe 
the acquisition of BSECC and SCCP by NASDAQ OMX would reduce 
competition with respect to the clearance and settlement of securities 
transactions. The Commission notes that NSCC currently provides 
clearance and settlement services and a central counterparty guarantee 
for virtually all trades on the New York Stock Exchange LLC, Nasdaq, 
the American Stock Exchange LLC and for all regional exchanges, 
electronic communications networks and alternative trading systems in 
the U.S.\35\ In September 2007, BSECC ceased processing trades and 
currently provides only limited account maintenance services to its 
participants. SCCP continues to forward trades to NSCC for clearance 
and settlement.\36\ The Commission will continue to evaluate the 
competitive environment should the operations of either BSECC or SCCP 
expand, taking into account the maintenance of fair competition among 
brokers and dealers, clearing agencies, and transfer agents.\37\ For 
these reasons, the Commission finds that the BSECC's proposed rule 
change is consistent with Section 17A(b)(3)(I), which requires that the 
rules of a clearing agency not impose any burden on competition not 
necessary or appropriate in furtherance of the purpose of the Act.
---------------------------------------------------------------------------

    \35\ See Annual Report for the Depository Trust and Clearing 
Corporation for 2007, page 14. NSCC is a subsidiary of the DTCC, as 
are the FICC and the DTC.
    \36\ In recent years, both BSECC and SCCP have forwarded all 
trades to NSCC for clearance and settlement.
    \37\ See 15 U.S.C. 78q-1(a)(2)(A).
---------------------------------------------------------------------------

    Finally, the Commission will continue to monitor holding companies' 
ownership of multiple SROs for compliance with the Act, the rules and 
regulations thereunder, as well as the SRO's own rules.

A. BSE

1. Relationship Between NASDAQ OMX and BSE; Jurisdiction Over NASDAQ 
OMX
    After the BSE Acquisition, BSE would become a subsidiary of NASDAQ 
OMX. Although NASDAQ OMX is not itself an SRO, its activities with 
respect to the operation of BSE must be consistent with, and must not 
interfere with, the self-regulatory obligations of BSE. NASDAQ OMX's 
By-Laws make applicable to all of NASDAQ OMX's SRO subsidiaries, 
including BSE (after

[[Page 46939]]

the BSE Acquisition), certain provisions of NASDAQ OMX's Certificate 
and NASDAQ OMX's By-Laws that are designed to maintain the independence 
of each of its SRO subsidiaries' self-regulatory function, enable each 
SRO subsidiary to operate in a manner that complies with the federal 
securities laws, and facilitate the ability of each SRO subsidiary and 
the Commission to fulfill their regulatory and oversight obligations 
under the Act.\38\
---------------------------------------------------------------------------

    \38\ Provisions of NASDAQ OMX's Certificate and By-Laws are 
rules of BSE and BSECC because they are stated policies, practices, 
or interpretations of BSE and BSECC, pursuant to Section 19(b) of 
the Act and Rule 19b-4 thereunder. Accordingly, BSE and BSECC filed 
them with the Commission. See Amendment No. 1 to the BSE Governance 
Proposal, supra note 4, and Amendment No. 1 to the BSECC Governance 
Proposal, supra note 10 and infra note 258 and accompanying text.
---------------------------------------------------------------------------

    The By-Laws of NASDAQ OMX specify that NASDAQ OMX and its officers, 
directors, employees, and agents irrevocably submit to the jurisdiction 
of the United States federal courts, the Commission, and each self-
regulatory subsidiary of NASDAQ OMX for the purposes of any suit, 
action or proceeding pursuant to the United States federal securities 
laws, and the rules and regulations thereunder, arising out of, or 
relating to, the activities of any self-regulatory subsidiary.\39\ 
Further, NASDAQ OMX agreed to provide the Commission with access to its 
books and records.\40\ NASDAQ OMX also agreed to keep confidential non-
public information relating to the self-regulatory function of BSE and 
not to use such information for any non-regulatory purpose.\41\ In 
addition, the NASDAQ OMX Board, as well as its officers, employees, and 
agents are required to give due regard to the preservation of the 
independence of BSE's self-regulatory function.\42\ Similarly, the 
NASDAQ OMX Board, when evaluating any issue, would be required to take 
into account the potential impact on the integrity, continuity, and 
stability of its SRO subsidiaries.\43\ Finally, the NASDAQ OMX By-Laws 
require that any changes to the NASDAQ OMX Certificate and By-Laws be 
submitted to the Board of Directors of each of its SRO subsidiaries, 
including BSE, and, if such amendment is required to be filed with the 
Commission pursuant to Section 19(b) of the Act, such change shall not 
be effective until filed with, or filed with and approved by, the 
Commission.
---------------------------------------------------------------------------

    \39\ See proposed Section 12.3, NASDAQ OMX By-Laws.
    \40\ See proposed Section 12.1(c), NASDAQ OMX By-Laws. To the 
extent that they relate to the activities of BSE, all books, 
records, premises, officers, directors, and employees of NASDAQ OMX 
would be deemed to be those of the BSE. See id.
    \41\ See proposed Section 12.1(b), NASDAQ OMX By-Laws. This 
requirement to keep confidential non-public information relating to 
the self-regulatory function is designed to prevent attempts to 
limit the Commission's ability to access and examine such 
information or limit the ability of directors, officers, or 
employees of NASDAQ OMX from disclosing such information to the 
Commission. See id. Other holding companies with SRO subsidiaries 
have undertaken similar commitments. See, e.g., Securities Exchange 
Act Release No. 56955 (December 13, 2007), 72 FR 71979, at 71983 
(December 19, 2007) (SR-ISE-2007-101) (order approving the 
acquisition of International Securities Exchange, LLC's parent, 
International Securities Exchange Holdings, Inc., by Eurex Frankfurt 
AG).
    \42\ See Section 12.1(a), NASDAQ OMX By-Laws.
    \43\ See proposed Section 12.7, NASDAQ OMX By-Laws.
---------------------------------------------------------------------------

    The Commission believes that the NASDAQ OMX By-Laws, as amended to 
accommodate the BSE Acquisition, are designed to facilitate the BSE's 
ability to fulfill its self-regulatory obligations and are, therefore, 
consistent with the Act. In particular, the Commission believes these 
changes are consistent with Section 6(b)(1) of the Act,\44\ which 
requires, among other things, that a national securities exchange be so 
organized and have the capacity to carry out the purposes of the Act, 
and to comply and enforce compliance by its members and persons 
associated with its members with the provisions of the Act, the rules 
and regulations thereunder, and the rules of the exchange.
---------------------------------------------------------------------------

    \44\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------

    Under Section 20(a) of the Act,\45\ any person with a controlling 
interest in NASDAQ OMX would be jointly and severally liable with and 
to the same extent that NASDAQ OMX 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 
\46\ 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 \47\ 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.
---------------------------------------------------------------------------

    \45\ 15 U.S.C. 78t(a).
    \46\ 15 U.S.C. 78t(e).
    \47\ 15 U.S.C. 78u-3.
---------------------------------------------------------------------------

2. BSE Certificate
    In the BSE Governance Proposal, BSE proposes to amend and restate 
the BSE Certificate in its entirety. The restated BSE Certificate would 
provide for the issuance of 1,000 shares of common stock (``BSE Common 
Stock''), all of which would be held by NASDAQ OMX.\48\ The restated 
BSE Certificate would further provide that NASDAQ OMX may not transfer 
or assign any shares of BSE Common Stock, in whole or in part, to any 
entity, unless such transfer or assignment is filed with and approved 
by the Commission under Section 19 of the Act and the rules promulgated 
thereunder.\49\ In addition, the restated BSE Certificate would contain 
provisions relating to the BSE board of directors (``BSE Board'') 
including that the total number of directors (``BSE Directors'') 
constituting the BSE Board would be fixed from time to time by NASDAQ 
OMX, as the sole stockholder, and would be elected by NASDAQ OMX to 
hold office until their respective successors have been duly elected 
and qualified.\50\ Of particular importance are the BSE Board 
composition requirements in the BSE By-Laws relating to independence 
and fair representation of members.\51\ Finally, the restated BSE 
Certificate would specifically provide that BSE's business would 
include actions that support its regulatory responsibilities under the 
Act.\52\
---------------------------------------------------------------------------

    \48\ See Article Fourth, restated BSE Certificate.
    \49\ Id.
    \50\ See Article Fifth, restated BSE Certificate.
    \51\ See infra notes 53-84 and accompanying text.
    \52\ See Article Third, restated BSE Certificate.
---------------------------------------------------------------------------

    The Commission finds that the BSE Certificate, as proposed to be 
amended and restated, is consistent with the Act, and, in particular, 
with Sections 6(b)(1) and 6(b)(3) of the Act. The Commission believes 
that the restated BSE Certificate is designed to allow BSE to exercise 
those powers necessary to carry out the purposes of the Act and ensure 
compliance by its members with the Act and BSE rules. The Commission 
further believes that the restriction on the transfer or assignment of 
any shares of BSE Common Stock without Commission approval would 
minimize the potential that a person could improperly interfere with or 
restrict the ability of the Commission, BSE, or BOXR to carry out their 
regulatory responsibilities under the Act.
3. Proposed New BSE By-Laws
    In the BSE Governance Proposal, the BSE proposes to replace its 
Constitution with new BSE By-Laws. The new BSE By-Laws reflect NASDAQ 
OMX's expectation that BSE would be operated with governance, 
regulatory, and market structures similar to those of Nasdaq.

[[Page 46940]]

Key provisions of these new BSE By-Laws are discussed below.
    The property, business, and affairs of BSE would be managed under 
the direction of the BSE Board.\53\ The exact number of BSE Directors 
would be determined by NASDAQ OMX, as the sole stockholder, but in no 
event would the BSE Board have fewer than ten directors.\54\
---------------------------------------------------------------------------

    \53\ See Article IV, BSE By-Laws.
    \54\ See Section 4.2, BSE By-Laws. In addition, no decrease in 
the number of BSE Directors would shorten the term of any incumbent 
BSE Director. See Article Fifth, restated BSE Certificate.
---------------------------------------------------------------------------

    Moreover, the number of Non-Industry Directors,\55\ including at 
least three Public Directors \56\ and at least one BSE Director 
representative of issuers and investors,\57\ would have to equal or 
exceed the sum of the number of Industry Directors \58\ and Member 
Representative Directors.\59\ Further, at least 20% of the BSE 
Directors would have to be Member Representative Directors and, as is 
currently the case, one Industry Director would have to be selected as 
a representative of a firm or organization that is registered with BSE 
for the purposes of participating in options trading on the BOX Market 
(``BOX Participant Director'').\60\ A BSE Director could not be subject 
to a statutory disqualification.\61\ The new BSE By-Laws also permit up 
to two officers of BSE, who would otherwise be considered Industry 
Directors, to be designated as Staff Directors,\62\ and thereby be 
excluded from the definition of Industry Director.\63\
---------------------------------------------------------------------------

    \55\ ``Non-Industry Director'' is a BSE Director (excluding 
Staff Directors) who is: (i) A Public Director; (ii) an officer or 
employee of an issuer of securities listed on BSE; or (iii) any 
other individual who would not be an Industry Director. See Article 
I(bb), BSE By-Laws.
    \56\ ``Public Director'' is a BSE Director who has no material 
business relationship with a broker or a dealer, BSE or its 
affiliates, or FINRA. See Article I(gg), BSE By-Laws.
    \57\ See Section 4.3(a), BSE By-Laws. The BSE Director 
representative of issuers and investors would be nominated by the 
Nominating and Governance Committee and elected by NASDAQ OMX as the 
sole stockholder. See Sections 4.4(a) and 4.14(b), BSE By-Laws.
    \58\ ``Industry Director'' is a person who: (i) Is or has served 
in the prior three years as an officer, director, or employee of a 
broker or dealer, excluding an outside director or a director not 
engaged in the day-to-day management of a broker or dealer; (ii) is 
an officer, director (excluding an outside director), or employee of 
an entity that owns more than 10% of the equity of a broker or 
dealer, and the broker or dealer accounts for more than 5% of the 
gross revenues received by the consolidated entity; (iii) owns more 
than 5% of the equity securities of any broker or dealer, whose 
investments in brokers or dealers exceed 10% of his or her net 
worth, or whose ownership interest otherwise permits him or her to 
be engaged in the day-to-day management of a broker or dealer; (iv) 
provides professional services to brokers or dealers, and such 
services constitute 20% or more of the professional revenues 
received by the Industry Director or 20% or more of the gross 
revenues received by the Industry Director's firm or partnership; 
(v) provides professional services to a director, officer, or 
employee of a broker, dealer, or corporation that owns 50% or more 
of the voting stock of a broker or dealer, and such services relate 
to the director's, officer's, or employee's professional capacity 
and constitute 20% or more of the professional revenues received by 
the Industry Director or 20% or more of the gross revenues received 
by the Industry Director's firm or partnership; or (vi) has a 
consulting or employment relationship with or provides professional 
services to BSE or any affiliate thereof or to FINRA or has had any 
such relationship or provided any such services at any time within 
the prior three years. See Article I(t), BSE By-Laws.
    \59\ See Section 4.3(a), BSE By-Laws. ``Member Representative 
Director'' is a BSE Director who has been elected by NASDAQ OMX as 
the sole stockholder after having been nominated by the Member 
Nominating Committee or voted upon by BSE members pursuant to the 
BSE By-Laws (or elected by the stockholders without such nomination 
or voting in the case of the initial Member Representative Directors 
elected pursuant to Section 4.3(b) of the BSE By-Laws). See Article 
I(x), BSE By-Laws.
    \60\ See Section 4.4, BSE By-Laws, and Section 14, BOXR By-Laws.
    \61\ See Section 4.3(a), BSE By-Laws.
    \62\ ``Staff Director'' is a BSE Director, selected at the sole 
discretion of the BSE Board, who is an officer of BSE. See Article 
I(g), BSE By-Laws.
    \63\ The exclusion of Staff Directors from the definition of 
Industry Director is consistent with provisions previously approved 
by the Commission. See Securities Exchange Act Release No. 53128 
(January 13, 2006), 71 FR 3550 (January 23, 2006) (order approving 
application of Nasdaq for registration as a national securities 
exchange) (``Nasdaq Exchange Approval Order''). See also Securities 
Exchange Act Release No. 44280 (May 8, 2001), 66 FR 26892 (May 15, 
2001) (order approving amendment to the National Association of 
Securities Dealers (``NASD'') By-Laws to allow for the treatment of 
Staff Governors as ``neutral'' for purposes of Industry/Non-Industry 
balancing on the NASD Board of Governors).
---------------------------------------------------------------------------

    The initial BSE Board would be selected by NASDAQ OMX, as the sole 
stockholder, immediately following the BSE Acquisition. NASDAQ OMX 
would hold a special meeting (or sign a consent in lieu thereof) for 
the purpose of electing the BSE Board. The initial BSE Board would 
satisfy the compositional requirements in the BSE By-Laws.\64\ 
Specifically, the initial BSE Board would consist of at least three 
Public Directors, one or two Staff Directors, at least two Member 
Representative Directors,\65\ an Industry Director representing BOX 
Participants,\66\ at least one Non-Industry Director representative of 
issuers and investors, and such additional Industry and Non-Industry 
Directors as NASDAQ OMX, as the sole stockholder, deems appropriate, 
consistent with the compositional requirements of the BSE By-Laws.\67\ 
As soon as practicable after election of the initial BSE Board, BSE 
would hold its annual meeting for the purpose of electing directors in 
accordance with the procedures set forth in the BSE By-Laws.\68\ For 
subsequent boards, BSE Directors, other than the Member Representative 
Directors and the BOX Participant Director,\69\ would be nominated by a 
Nominating Committee appointed by the BSE Board \70\ and then elected 
by NASDAQ OMX as sole stockholder.\71\
---------------------------------------------------------------------------

    \64\ See Section 4.3(b), BSE By-Laws.
    \65\ The initial Member Representative Directors would be 
officers, directors, or employees of BSE members. See BSE Governance 
Proposal Notice, supra note 3, at 73 FR 26162.
    \66\ ``BOX Participant'' is a firm or organization that is 
registered with BOX for purposes of participating in options trading 
on the BOX Market as an order flow provider or market maker. See 
Section 1.1, 6th BOX LLC Agreement. See also BOX Rules, Chapter II.
    \67\ See Section 4.3(b), BSE By-Laws. See also BSE Governance 
Proposal Notice, supra note 3, 73 FR at 26162.
    \68\ Id. Specifically, in accordance with Section 14.4(b) of the 
BSE By-Laws, the initial BSE Board selected by NASDAQ OMX would 
appoint a Nominating Committee and Member Nominating Committee, and 
such committees would nominate candidates for election pursuant to 
the procedures set forth in Section 4.4 of the BSE By-Laws, which 
process is described below. Telephone conversation between John 
Yetter, Vice President and Deputy General Counsel, Nasdaq, and Nancy 
Burke-Sanow, Assistant Director, and Jennifer Dodd, Special Counsel, 
Division of Trading and Markets, Commission, on June 11, 2008. In 
Amendment No. 1 to the BSE Governance Proposal, BSE states that the 
initial BSE Board will populate the Committees of the BSE Board and 
BSE's standing committees in accordance with the compositional 
requirements of Sections 4.13 and 4.14 of the BSE By-Laws. See 
Amendment No. 1 to the BSE Governance Proposal, supra note 4. The 
Commission notes that this would include the initial Nominating 
Committee and Member Nominating Committee. See Section 4.14(b), BSE 
By-Laws.
    \69\ See infra notes 207-216 and accompanying text for a 
description of the nomination and election process for the BOX 
Participant Director who would serve on the BSE Board.
    \70\ See Section 4.14(b), BSE By-Laws.
    \71\ See Section 4.4(a), BSE By-Laws.
---------------------------------------------------------------------------

    The BSE Board also would appoint a Member Nominating Committee 
composed of no fewer than three and no more than six members.\72\ All 
members of the Member Nominating Committee would be associated persons 
of a current BSE member. The BSE Board would appoint such individuals 
after appropriate consultation with representatives of BSE members. The 
Member Nominating Committee would nominate candidates for the Member 
Representative Director positions to be filled. The candidates 
nominated by the Member Nominating Committee would be included on a 
formal list of candidates (``List of Candidates'').
---------------------------------------------------------------------------

    \72\ See Section 4.14, BSE By-Laws.
---------------------------------------------------------------------------

    BSE members may nominate additional candidates for inclusion on the 
List of Candidates by submitting, within the prescribed timeframe that 
is based on the preceding year's voting date (``Voting Date''),\73\ a 
timely written

[[Page 46941]]

petition executed by the authorized representatives of 10% or more of 
all BSE members. If there is only one candidate for each Member 
Representative Director seat by the date on which a BSE member may no 
longer submit a timely nomination, the Member Representative Directors 
would be elected by NASDAQ OMX directly from the List of Candidates 
nominated by the Member Nominating Committee. If the number of 
candidates on the List of Candidates exceeds the number of Member 
Representative Director positions to be filled, there would be a 
Contested Vote,\74\ in which case each BSE member would have the right 
to cast one vote for each Member Representative Director position to be 
filled.\75\ The persons on the List of Candidates who receive the most 
votes would be submitted to NASDAQ OMX for election,\76\ and NASDAQ OMX 
would elect those candidates.\77\
---------------------------------------------------------------------------

    \73\ The Voting Date is a date selected by the BSE Board for BSE 
members to vote with respect to Member Representative Directors in 
the event there is more than one candidate for a Member 
Representative Director position (``Contested Vote''). As described 
below, the BSE Board would select a Voting Date each year. However, 
a vote would be conducted on the Voting Date only in the event of 
Contested Vote. See BSE Governance Proposal Notice, supra note 3, 73 
FR at 26161, n.11.
    In Amendment No. 1 to the BSE Governance Proposal, BSE states 
that: ``In order to make the intent of this definition clearer, 
immediately following the closing of the [BSE Acquisition], [BSE] 
will propose to the newly constituted Board of the Exchange an 
amendment to the definition to read as follows: `` `Voting Date' 
means the date selected by the Board on an annual basis, on which 
[BSE members] may vote with respect to Member Representative 
Directors in the event of a Contested Vote.'' Following approval by 
the [BSE] Board, [BSE] will immediately file the amendment as a 
proposed rule change for approval by the Commission. This clarifying 
change could not be included in this filing because Article XX of 
[BSE's] current Constitution, which is being replaced by the 
proposed [BSE] By-Laws, provides that [BSE's] members must approve 
amendments to the [BSE] Constitution. The [BSE] members voted, on 
December 4, 2007, to approve the [BSE] By-Laws as submitted in this 
filing and it would have been impracticable and unduly expensive to 
seek a second member vote for approval of this clarifying change. 
Following adoption of the new By-Laws, the [BSE] Board will have 
authority to approve By-Law amendments.'' See Amendment No. 1 to the 
BSE Governance Proposal, supra note 4.
    Also, in the case of the first annual meeting held pursuant to 
the new BSE By-Laws, a nomination for the Member Representative 
Director positions would be considered timely if delivered not 
earlier than the close of business on the later of the 120th day 
prior to the first Voting Date and not later than the close of 
business on the 90th day prior to the first Voting Date, or the 10th 
day following the day on which public announcement of such Voting 
Date is first made. See BSE Governance Proposal Notice, supra note 
3, 73 FR at 26161, n.12. See also Section 4.4(d), BSE By-Laws.
    \74\ See Section 1(k), BSE By-Laws.
    \75\ In Amendment No. 1 to the BSE Governance Proposal, BSE 
states that: ``In order to limit the influence that a single 
affiliated group of members might exercise over [BSE], immediately 
following the closing of the [BSE Acquisition], [BSE] will propose 
to the newly constituted [BSE Board] an amendment to stipulate that 
no [BSE member], either alone or together with its affiliates, may 
account for more than 20% of the votes cast for a candidate, and any 
votes cast by such [BSE member], either alone or together with its 
affiliates, in excess of such 20% limitation shall be disregarded. 
Following approval by the [BSE] Board, [BSE] will immediately file 
the amendment as a proposed rule change for approval by the 
Commission. This clarifying change could not be included in this 
filing because Article XX of [BSE's] current Constitution, which is 
being replaced by the proposed [BSE] By-Laws, provides that [BSE's] 
members must approve amendments to the Constitution. The members 
voted, on December 4, 2007, to approve the By-Laws as submitted in 
this filing and it would have been impracticable and unduly 
expensive to seek a second member vote for approval of this 
clarifying change. Following adoption of the new [BSE] By-Laws, the 
[BSE] Board will have authority to approve [BSE] By-Law 
amendments.'' See Amendment No. 1 to the BSE Governance Proposal, 
supra note 4.
    \76\ See Section 4.4(f), BSE By-Laws.
    \77\ See Section 4.4(b), BSE By-Laws.
---------------------------------------------------------------------------

    The Commission finds that the proposed changes regarding the 
composition of the BSE Board are consistent with the Act, including 
Section 6(b)(1) of the Act,\78\ which requires, among other things, 
that a national securities exchange be organized to carry out the 
purposes of the Act and comply with the requirements of the Act. The 
Commission previously has 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 representatives help to ensure that no single group of 
market participants has the ability to systematically 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 BSE Board to 
address issues in a non-discriminatory fashion and foster the integrity 
of BSE. The Commission also finds that the composition of the BSE Board 
satisfies Section 6(b)(3) of the Act,\80\ 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.
---------------------------------------------------------------------------

    \78\ 15 U.S.C. 78f(b)(1).
    \79\ See Regulation of Exchanges and Alternative Trading 
Systems, Securities Exchange Act Release No. 40760 (December 8, 
1998), 63 FR 70844 (December 22, 1998). See also Securities Exchange 
Act Release Nos. 53382, supra note 29, 71 FR at 11261 n.121 and 
accompanying text; 53128, supra note 63, 71 FR at 3553, n.54 and 
accompanying text; and 44442 (June 18, 2001), 66 FR 33733, n.13 and 
accompanying text, (June 25, 2001) (SR-PCX-01-03).
    \80\ 15 U.S.C. 78f(b)(3).
---------------------------------------------------------------------------

    The fair representation requirement in Section 6(b)(3) of the Act 
is intended to give members a voice in the selection of the exchange's 
directors and the administration of its affairs. The Commission finds 
that the requirement under BSE By-Laws that at least 20% of the BSE 
Directors represent members,\81\ and the process for selecting Member 
Representative Directors, are designed to ensure the fair 
representation of BSE members on the BSE Board. The Commission believes 
that the method for selecting Member Representative Directors on the 
BSE Board allows members to have a voice in BSE's use of its self-
regulatory authority.\82\ In particular, the Commission notes that the 
Member Nominating Committee is composed solely of persons associated 
with BSE members and is selected after consultation with 
representatives of BSE members. In addition, the BSE By-Laws include a 
process by which members can directly petition and vote for 
representation on the BSE Board. The Commission therefore finds that 
the process for selecting Member Representative Directors to the BSE 
Board is consistent with Section 6(b)(3) of the Act.\83\ The Commission 
also notes that these provisions are consistent with previous proposals 
approved by the Commission.\84\
---------------------------------------------------------------------------

    \81\ See Section 4.3(a), BSE By-Laws.
    \82\ In addition, the BSE By-Laws provide that one BSE Director 
would represent BOX Participants. See infra notes 207-216 and 
accompanying text for a description of the nomination and election 
process for the BOX Participant Director who would serve on the BSE 
Board.
    \83\ 15 U.S.C. 78f(b)(3).
    \84\ See, e.g., Securities Exchange Act Release Nos. 58179, 
supra note 27; 53128, supra note 63; and 49098 (January 16, 2004), 
69 FR 3974 (January 27, 2004) (order approving the demutualization 
of Phlx).
---------------------------------------------------------------------------

4. Committees
    The proposed new BSE By-Laws would include provisions governing the 
composition and authority of various BSE committees established by the 
BSE Board.\85\ The BSE By-Laws would establish several standing BSE 
Board committees that are composed solely of BSE Directors and would 
delineate their general duties and compositional requirements.\86\ 
These committees are the Executive Committee, the Finance Committee, 
the Management Compensation Committee, the Audit Committee, and the 
Regulatory Oversight Committee (``BSE ROC''). In addition to these 
committees, the BSE By-Laws provide for the appointment by the BSE 
Board of certain standing committees, not composed solely of BSE 
Directors, to administer various provisions of the rules that BSE 
expects to propose with respect to governance,

[[Page 46942]]

listing, equity trading, and member discipline.\87\ These committees 
include the Member Nominating Committee, the Nominating Committee, the 
BSE Listing and Hearings Review Council, the BSE Review Council, the 
Quality of Markets Committee, the Market Operations Review Committee, 
the Arbitration and Mediation Committee, and the Market Regulation 
Committee.
---------------------------------------------------------------------------

    \85\ See Sections 4.12-4.14, BSE By-Laws.
    \86\ See Section 4.13, BSE By-Laws.
    \87\ See Section 4.14 and Articles VI-VII, BSE By-Laws.
---------------------------------------------------------------------------

    As noted above, all members of the Member Nominating Committee must 
be associated persons of a BSE member. In addition, at least 20% of the 
members of the BSE Listing and Hearings Review Council, the BSE Review 
Council, the Quality of Markets Committee, and the Market Operations 
Review Committee must be composed of Member Representatives. Moreover, 
the Nominating Committee, the BSE Review Council, the Quality of 
Markets Committee, the Arbitration and Mediation Committee, and the 
Market Regulation Committee must be compositionally balanced between 
Industry members \88\ and Non-Industry members.\89\ These compositional 
requirements are designed to ensure that members are protected from 
unfair, unfettered actions by an exchange pursuant to its rules, and 
that, in general, an 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 BSE committees is consistent with the Section 6(b)(3) 
of the Act because it provides for the fair representation of BSE 
members in the administration of the affairs of BSE.\90\
---------------------------------------------------------------------------

    \88\ See Article I(u), BSE By-Laws.
    \89\ See Article I(cc), BSE By-Laws.
    \90\ See, e.g., Securities Exchange Act Release Nos. 58179, 
supra note 27; 53128, supra note 63; and 49098, supra note 84.
---------------------------------------------------------------------------

5. Regulatory Oversight Responsibilities and Regulatory Funds
    The BSE By-Laws would provide that the BSE Board, when evaluating 
any proposal, would, to the fullest extent permitted by applicable law, 
take into account: (i) the potential impact thereof on the integrity, 
continuity, and stability of BSE and the other operations of BSE, on 
the ability to prevent fraudulent and manipulative acts and practices 
and on investors and the public, and (ii) whether such would promote 
just and equitable principles of trade, foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to and facilitating transactions in 
securities, or assist in the removal of impediments to or perfection of 
the mechanisms for a free and open market and a national market 
system.\91\ Taken together, these provisions reinforce the notion that 
BSE, while wholly-owned by NASDAQ OMX, is not solely a commercial 
enterprise, but rather is an SRO registered pursuant to the Act and 
subject to the obligations imposed by the Act.
---------------------------------------------------------------------------

    \91\ See Section 4.9, BSE By-Laws.
---------------------------------------------------------------------------

    The BSE ROC would be composed of Public Directors, each of whom 
also would need to qualify as an independent director pursuant to 
Nasdaq Rule 4200.\92\ The BSE ROC would be responsible for monitoring 
the adequacy and effectiveness of BSE's regulatory program and 
assisting the BSE Board in reviewing BSE's regulatory plan and the 
overall effectiveness of BSE's regulatory functions.\93\ BSE also would 
have a Chief Regulatory Officer (``BSE CRO'') who would have general 
supervision of the BSE's regulatory operations, including 
responsibility for overseeing BSE's surveillance, examination, and 
enforcement functions and for administering any regulatory services 
agreements with another SRO to which BSE is a party.\94\ The BSE CRO 
would have to meet with the BSE ROC in executive session at regularly 
scheduled meetings of such committee and at any time upon request of 
the BSE CRO or any member of the BSE ROC. The BSE CRO could also serve 
as the General Counsel of BSE.\95\
---------------------------------------------------------------------------

    \92\ See Section 4.13(e), BSE By-Laws.
    \93\ Id.
    \94\ See Section 5.10, BSE By-Laws.
    \95\ Id. The Commission has previously approved a similar 
structure. See Nasdaq Exchange Approval Order, supra note 63, 71 FR 
at 3555, n.103 and accompanying text (order approving application of 
Nasdaq for registration as a national securities exchange, including 
the ability of the CRO to serve as General Counsel).
---------------------------------------------------------------------------

    In addition, the BSE By-Laws would contain a stipulation that 
dividends could not be paid to the stockholders using regulatory funds, 
which are fees, fines, or penalties derived from the regulatory 
operations of BSE.\96\ This restriction on the use of regulatory funds 
is intended to preclude BSE from using its authority to raise 
regulatory funds for the purpose of benefiting its shareholders, or for 
other non-regulatory purposes, such as executive compensation. 
Regulatory funds, however, would not be construed to include revenues 
derived from listing fees, market data revenues, transaction revenues, 
or any other aspect of the commercial operations of BSE, even if a 
portion of such revenues are used to pay costs associated with the 
regulatory operations of BSE.\97\
---------------------------------------------------------------------------

    \96\ See Section 9.8, BSE By-Laws. See also Section 1(ii), BSE 
By-Laws.
    \97\ The Commission further notes that the BSX Operating 
Agreement is being amended to adopt a restriction on distributions 
of regulatory funds comparable to the restriction proposed for 
inclusion in the BSE By-Laws. See proposed Section 9.2, BSX 
Operating Agreement.
---------------------------------------------------------------------------

    Section 6(b)(1) of the Act \98\ requires an exchange to be so 
organized and have the capacity to be able to carry out the purposes of 
the Act. The Commission believes that BSE's regulatory structure is 
designed to insulate its regulatory functions from its market and other 
commercial interests so that it can carry out its regulatory 
obligations and, therefore, BSE's proposal is consistent with the Act.
---------------------------------------------------------------------------

    \98\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------

6. Restrictions on Affiliation Between BSE and Its Members: Proposed 
BSE Chapter XXXIX
a. Limitations on BSE Members' Ownership of NASDAQ OMX
    In connection with the transaction, in the BSE Governance Proposal, 
BSE proposes to add a new Chapter XXXIX, Section 1 to the BSE Rules to 
prohibit BSE members and persons associated with BSE members from 
beneficially owning more than 20% of the then-outstanding voting 
securities of NASDAQ OMX. Members that trade on an exchange 
traditionally have had ownership interests in such exchange. As the 
Commission has noted in the past, however, a member's interest in an 
exchange could become so large as to cast doubt on whether the exchange 
can fairly and objectively exercise its self-regulatory 
responsibilities with respect to that member.\99\ A member that is a 
controlling shareholder of an exchange or an exchange's holding company 
might be tempted to exercise that controlling influence by pressuring 
or directing the exchange to refrain from, or the exchange otherwise 
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.
---------------------------------------------------------------------------

    \99\ See, e.g., Securities Exchange Act Release Nos. 57478 
(March 12, 2008), 73 FR 14521, 14523 (March 18, 2008) (SR-NASDAQ-
2007-004 and SR-NASDAQ-2007-080) (``NOM Approval Order''); 55389, 
supra note 33, 72 FR at 10578; 55293 (February 14, 2007), 72 FR 
8033, 8037 (February 22, 2007) (SR-NYSE-2006-120); 53382, supra note 
29, 71 FR at 11256; 51149 (February 8, 2005), 70 FR 7531, 7538 
(February 14, 2005) (SR-CHX-2004-26); 49718 (May 17, 2004), 69 FR 
29611, 29624 (May 24, 2004) (SR-PCX-2004-08); 49098, supra note 84, 
69 FR at 3986; 49067 (January 13, 2004), 69 FR 2761, 2767 (January 
20, 2004) (SR-BSE-2003-19) (``BOX LLC Agreement Order''); and Nasdaq 
Exchange Approval Order, supra note 63, 71 FR at 3552.
---------------------------------------------------------------------------

    In addition, the NASDAQ OMX Certificate imposes limits on direct 
and

[[Page 46943]]

indirect changes in control, which are designed to prevent any 
shareholder from exercising undue control over the operation of its SRO 
subsidiaries and to ensure that its SRO subsidiaries and the Commission 
are able to carry out their regulatory obligations under the Act. 
Specifically, no person who beneficially owns shares of common stock, 
preferred stock, or notes of NASDAQ OMX in excess of 5% of the 
securities generally entitled to vote may vote shares in excess of 
5%.\100\ This limitation would mitigate the potential for any NASDAQ 
OMX shareholder to exercise undue control over the operations of the 
BSE and facilitate BSE's and the Commission's ability to carry out 
their regulatory obligations under the Act.
---------------------------------------------------------------------------

    \100\ See Article Fourth.C., NASDAQ OMX Certificate.
---------------------------------------------------------------------------

    The NASDAQ OMX Board may approve exemptions from the 5% voting 
limitation for any person that is not a broker-dealer, an affiliate of 
a broker-dealer, or a person subject to a statutory disqualification 
under Section 3(a)(39) of the Act,\101\ provided that the NASDAQ OMX 
Board also determines that granting such exemption would be consistent 
with the self-regulatory obligations of Nasdaq.\102\ Further, any such 
exemption from the 5% voting limitation would not be effective until 
approved by the Commission pursuant to Section 19 of the Act.\103\ The 
BSE Governance Proposal reflects an amendment to the NASDAQ OMX By-Laws 
to require the NASDAQ OMX Board, prior to approving any exemption from 
the 5% voting limitation, to determine that granting such exemptions 
would also be consistent with BSE's self-regulatory obligations.\104 \
---------------------------------------------------------------------------

    \101\ 15 U.S.C. 78c(a)(39). See Article Fourth.C.6., NASDAQ OMX 
Certificate.
    \102\ Specifically, the NASDAQ OMX Board must determine that 
granting such exemption would (1) not reasonably be expected to 
diminish the quality of, or public confidence in, NASDAQ OMX or 
Nasdaq or the other operations of NASDAQ OMX and its subsidiaries, 
on the ability to prevent fraudulent and manipulative acts and 
practices on investors and the public, and (2) promote just and 
equitable principles of trade, foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to and facilitating transactions in 
securities or assist in the removal of impediments to or perfection 
of the mechanisms for a free and open market and a national market 
system. See Article Fourth.C.6, NASDAQ OMX Certificate.
    \103\ See Section 12.5, NASDAQ OMX By-Laws.
    \104\ See Amendment No. 1 to the BSE Governance Proposal, supra 
note 4. Specifically, the NASDAQ OMX Board must determine that 
granting such exemption would (1) not reasonably be expected to 
diminish the quality of, or public confidence in, NASDAQ OMX or its 
SRO Subsidiaries or the other operations of NASDAQ OMX and its 
subsidiaries, on the ability to prevent fraudulent and manipulative 
acts and practices on investors and the public, and (2) promote just 
and equitable principles of trade, foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to and facilitating transactions 
in securities or assist in the removal of impediments to or 
perfection of the mechanisms for a free and open market and a 
national market system. See proposed Section 12.5, NASDAQ OMX By-
Laws.
---------------------------------------------------------------------------

    The Commission finds that the ownership restriction in proposed 
Chapter XXXIX, Section 1 of the BSE Rules, combined with the voting 
limitations in Article Fourth.C of Section 12.5 of the NASDAQ OMX 
Certificate and the NASDAQ OMX By-Laws, is consistent with the Act, 
including Sections 6(b)(1) and 6(b)(5) of the Act. These limitations 
should reduce the potential for a BSE member to improperly interfere 
with or restrict the ability of the Commission or BSE to effectively 
carry out their respective regulatory oversight responsibilities under 
the Act.
b. Limitations on Affiliation Between BSE and Its Members
    BSE also proposes to prohibit BSE or an entity with which it is 
affiliated from acquiring or maintaining an ownership interest in, or 
engaging in a business venture \105\ with, a BSE member or an affiliate 
of a BSE member in the absence of an effective filing with the 
Commission under Section 19(b) of the Act.\106\ Further, the proposed 
rule would prohibit a BSE member from becoming an affiliate \107\ of 
BSE or an affiliate of an entity affiliated with BSE in the absence of 
an effective filing under Section 19(b) of the Act.\108\ However, the 
proposed rule would exclude from this restriction two types of 
affiliations.
---------------------------------------------------------------------------

    \105\ Proposed BSE Rule, Chapter XXXIX, Section 2. BSE defines 
``business venture'' as an arrangement under which (1) BSE or an 
entity with which it is affiliated and (2) a BSE member or an 
affiliate of a BSE member, engage in joint activities with the 
expectation of shared profit and a risk of shared loss from common 
entrepreneurial efforts.
    \106\ Id. In connection with the Phlx Acquisition, Phlx 
proposed, and the Commission approved, a similar rule. See Phlx Rule 
985(b) and Securities Exchange Act Release No. 58179, supra note 27, 
73 FR at 42886-42887.
    \107\ Id. BSE defines ``affiliate'' as having the meaning 
specified in Rule 12b-2 under the Act, 17 CFR 240.12b-2, provided, 
however, that one entity would not be deemed to be an affiliate of 
another entity solely by reason of having a common director. Id.
    \108\ 15 U.S.C. 78s(b).
---------------------------------------------------------------------------

    First, a BSE member or an affiliate of a BSE member could acquire 
or hold an equity interest in NASDAQ OMX that is permitted pursuant to 
proposed BSE Rules \109\ (i.e., less than 20% of the outstanding voting 
securities) without the need for BSE to file such acquisition or 
holding under Section 19(b) of the Act.\110\ Second, BSE or an entity 
affiliated with BSE could acquire or maintain an ownership interest in, 
or engage in a business venture with, an affiliate of a BSE member 
without filing a proposed rule change relating to such affiliation 
under Section 19(b) of the Act, if there were information barriers 
between the BSE member and BSE and its facilities. These information 
barriers would have to prevent the member from having an 
``informational advantage'' concerning the operation of BSE or its 
facilities or ``knowledge in advance of other [BSE] members'' of any 
proposed changes to the operations of BSE or its trading systems. 
Further, BSE may only notify an affiliated member of any proposed 
changes to its operations or trading systems in the same manner as it 
notifies non-affiliated members. BSE and its affiliated member may not 
share employees, office space, or data bases.\111\ Finally, the BSE ROC 
must certify annually that BSE has taken all reasonable steps to 
implement and comply with the rule.\112\
---------------------------------------------------------------------------

    \109\ Proposed BSE Rule, Chapter XXXIX, Section 1.
    \110\ Id. As discussed above, the proposed BSE Rules would 
provide that ``[n]o member or person associated with a member shall 
be the beneficial owner of greater than twenty percent (20%) of the 
then-outstanding voting securities of [NASDAQ OMX].''
    \111\ Proposed BSE Rule, Chapter XXXIX, Section 2(b)(2)(A).
    \112\ Proposed BSE Rule, Chapter XXXIX, Section 2(b)(2)(B).
---------------------------------------------------------------------------

    Proposed BSE Rules Chapter XXXIX is consistent with rules of 
Nasdaq, which the Commission previously found consistent with the 
Act.\113\ The Commission similarly finds that proposed Chapter XXXIX to 
the BSE Rules is consistent with the requirements of Section 6(b)(5) of 
the Act,\114\ which requires that an exchange have rules designed, 
among other things, to promote just and equitable principles of trade, 
to remove impediments and to perfect the mechanism of a free and open 
market and a national market system, and in general, to protect 
investors and the public interest.\115\
---------------------------------------------------------------------------

    \113\ See Nasdaq Rules 2130 and 2140. See also Nasdaq Exchange 
Approval Order, supra note 63, 71 FR at 3552, n. 41 and accompanying 
text, and Securities Exchange Act Release No. 54170 (July 18, 2006), 
71 FR 42149 (July 25, 2006) (SR-NASDAQ-2006-006) (order approving 
Nasdaq's proposal to adopt Nasdaq Rule 2140, restricting 
affiliations between Nasdaq and its members). Also, in connection 
with the Phlx Acquisition, Phlx proposed, and the Commission 
approved, similar rules. See Phlx Rule 985(a) and (b) and Securities 
Exchange Act Release No. 58179, supra note 27, 73 FR at 42886-42887.
    \114\ 15 U.S.C. 78f(b)(5).
    \115\ Id.
---------------------------------------------------------------------------

    The Commission is concerned about the potential for unfair 
competition and

[[Page 46944]]

conflicts of interest between an exchange's self-regulatory obligations 
and its commercial interests that could exist if an exchange were to 
otherwise become affiliated with one of its members, as well as the 
potential for unfair competitive advantage that the affiliated member 
could have by virtue of informational or operational advantages, or the 
ability to receive preferential treatment.\116\ The Commission believes 
that the proposed additions to the BSE Rules are designed to mitigate 
these concerns by requiring that BSE file a proposed rule change in 
connection with proposed affiliations between BSE and its members, 
unless such affiliation is due to a member's interest in NASDAQ OMX 
that is permitted under proposed Chapter XXXIX, Section 1 of the BSE 
Rules or conforms to the specified information barrier requirements.
---------------------------------------------------------------------------

    \116\ See Securities Exchange Act Release No. 53382, supra note 
29. See also Securities Exchange Act Release No. 54170, supra note 
113.
---------------------------------------------------------------------------

    If BSE entered into an affiliation with a BSE member (or any other 
party) that resulted in a change to a BSE Rule or the need to establish 
new BSE Rules, as defined under the Act, then such affiliation would be 
subject to the rule filing requirements of Section 19(b) of the Act and 
Rule 19b-4 thereunder.
7. Exceptions to Limitations on Affiliation Between BSE and Its Members
    NASDAQ OMX currently owns two broker-dealers: (1) NASDAQ Execution 
Services, LLC (``NES''), and (2) NASDAQ Options Services, LLC 
(``NOS''). NES and NOS are members of BSE. Absent relief, after the 
closing of NASDAQ OMX's acquisition of BSE, NASDAQ OMX's ownership of 
NES and NOS would cause NES and NOS to violate the provision in 
proposed BSE Rules Chapter XXXIX, Section 2 prohibiting BSE members 
from being affiliated with BSE.
    BSE has proposed, in the BSE Governance Proposal, that NES and NOS 
be permitted to become affiliates of BSE, subject to certain conditions 
and limitations. First, BSE proposes that NES and NOS would only route 
orders to BSE that first attempt to access liquidity on Nasdaq.\117\ 
Second, NES and NOS would remain facilities of Nasdaq. Under Nasdaq 
Rules, NES operates as a facility \118\ of Nasdaq and routes orders to 
other market centers as directed by Nasdaq. Similarly, NOS is operated 
and regulated as a facility of Nasdaq with respect to its routing of 
System Securities (``NOS facility function''), and, consequently, the 
operation of NOS in this capacity would be subject to BSE oversight, as 
well as Commission oversight.\119\ Nasdaq is responsible for ensuring 
that NES and NOS are operated consistent with Section 6 of the Act and 
Nasdaq's Rules. In addition, Nasdaq must file with the Commission rule 
changes and fees relating to NES and NOS. Third, use of NES's and NOS's 
routing function by Nasdaq members would continue to be optional. 
Parties that do not desire to use NES may enter orders into Nasdaq as 
immediate-or-cancel orders or any other order-type available through 
Nasdaq that are ineligible for routing.\120\ Similarly, NOM 
participants are not required to use NOS to route orders, and a NOM 
participant may route its orders through any available router it 
selects.\121\ In addition, the Commission notes that NES and NOS are 
members of an SRO unaffiliated with Nasdaq, which serves as their 
designated examining authority under Rule 17d-1.\122\
---------------------------------------------------------------------------

    \117\ NES currently provides to Nasdaq members optional routing 
services to other market centers, including BSE, as set forth in 
Nasdaq's rules. See Nasdaq Rules 4751, 4755, and 4758. NES does not 
currently route to BSE because BSE currently does not trade equity 
securities. See infra note 222. NOS provides to Nasdaq members that 
are Nasdaq Options Market (``NOM'') participants routing services to 
other market centers. Pursuant to Nasdaq's rules, NOS: (1) routes 
orders in options currently trading on NOM, referred to as ``System 
Securities;'' and (2) routes orders in options that are not 
currently trading on NOM (``Non-System Securities''). See NOM Rules, 
Chapter VI Sections 1(b) and 11. See also NOM Approval Order, supra 
note 99. With respect to System Securities, NOM participants may 
designate orders to be routed to another market center when trading 
interest is not available on NOM or to execute only on NOM. See NOM 
Rules, Chapter VI, Section 11. See also NOM Approval Order, supra 
note 99, 73 FR at 14532-14533.
    \118\ See Nasdaq Rule 4758(b)(3). See also Securities Exchange 
Act Release No. 56708 (October 26, 2007), 72 FR 61925 (November 1, 
2007) (SR-NASDAQ-2007-078) (``NES Routing Release''). As a facility 
of Nasdaq, Nasdaq Rule 4758(b) acknowledges that Nasdaq is 
responsible for filing with the Commission rule changes related to 
the operation of, and fees for services provided by, NES and that 
NES is subject to exchange non-discrimination requirements.
    \119\ See NOM Rules, Chapter 11(e). See also NOM Approval Order, 
supra note 99, 73 FR at 14533.
    \120\ See Nasdaq Rule 4758(b)(7).
    \121\ See NOM Rules, Chapter VI, Section 11(a) (allowing 
Participants to designate orders as available for routing or not 
available for routing). See also NOM Approval Order, supra note 99, 
73 FR at 14533, n.91 and accompanying text.
    \122\ See Nasdaq Rule 4758(b)(4), and NOM Rules, Chapter 11(e). 
See also NES Routing Release, supra note 118; and NOM Approval 
Order, supra note 99, 73 FR at 14533, n.189 and accompanying text.
---------------------------------------------------------------------------

    In the past, the Commission has expressed concern that the 
affiliation of an exchange with one of its members raises potential 
conflicts of interest, and the potential for unfair competitive 
advantage.\123\ Although the Commission continues to be concerned about 
potential unfair competition and conflict of interest between an 
exchange's self-regulatory obligations and its commercial interest when 
the exchange is affiliated with one of its members, the Commission 
believes that it is appropriate and consistent with the Act to permit 
NES and NOS to become affiliates of BSE for the limited purpose of 
providing routing services for Nasdaq for orders that first attempt to 
access liquidity on Nasdaq's systems before routing to BSE, and in 
light of the protections afforded by the other conditions described 
above.
---------------------------------------------------------------------------

    \123\ See supra note 116 and accompanying text.
---------------------------------------------------------------------------

B. BOX

 1. BSE Transfer of BOX Interest
    The BOX Market is a facility of BSE.\124\ BOXR is BSE's wholly-
owned subsidiary,\125\ to which BSE has delegated, pursuant to a 
delegation plan (``Delegation Plan''),\126\ certain self-regulatory 
responsibilities related to the BOX Market (BSE together with BOXR with 
respect to the BOX Market, ``Regulatory Authority'').\127\
---------------------------------------------------------------------------

    \124\ See Securities Exchange Act Release Nos. 49066 (January 
13, 2004), 69 FR 2773 (January 20, 2004) (SR-BSE-2003-17); 49065 
(January 13, 2004), 69 FR 2768 (January 20, 2004) (SR-BSE-2003-04) 
(``BOXR Order''); 49068 (January 13, 2004), 69 FR 2775 (January 20, 
2004) (SR-BSE-2002-15); and BOX LLC Agreement Order, supra note 99. 
Section 3(a)(2) of the Act states that ``[t]he term `facility' when 
used with respect to an exchange includes its premises, tangible or 
intangible property whether on the premises or not, any right to the 
use of such premises or property or any service thereof for the 
purpose of effecting or reporting a transaction on an exchange 
(including, among other things, any system of communication to or 
from the exchange, by ticker or otherwise, maintained by or with the 
consent of the exchange), and any right of the exchange to the use 
of any property or service.'' 15 U.S.C. 78c(a)(2).
    \125\ See BOXR Order, supra note 124.
    \126\ See BSE Rules, Chapter XXXVI. See also BOXR Order, supra 
note 124.
    \127\ See Section 1.1, 6th BOX LLC Agreement.
---------------------------------------------------------------------------

    In the BOX Transfer Proposal, BSE proposes to transfer its 21.87% 
ownership interest in BOX to MX US. Following this transfer, BSE no 
longer would have any ownership interest in BOX and MX US would have a 
53.24% ownership interest.\128\ Because BSE would no longer have an 
ownership interest, it no longer would be admitted and named as a BOX 
Member.\129\ The proposed changes to the BOX LLC Agreement reflect this 
change. However,

[[Page 46945]]

pursuant to the revised BOX LLC Agreement, the BOX Market would remain 
a facility of BSE, and BSE would remain the SRO for the BOX 
Market.\130\ BSE, together with BOXR, would retain regulatory control 
over the BOX Market and BSE, as the SRO, would remain responsible for 
ensuring compliance with the federal securities laws and all applicable 
rules and regulations.\131\
---------------------------------------------------------------------------

    \128\ MX US currently has a 31.37% ownership interest in BOX. 
See Securities Exchange Act Release No. 57260 (February 1, 2008), 73 
FR 7617 (February 8, 2008) (SR-BSE-2008-06).
    \129\ ``BOX Member'' means a person admitted and named as a 
member on schedules to the 5th BOX LLC Agreement and any person 
admitted to BOX as an additional or substitute member of BOX, in 
such person's capacity as a member of BOX. See Section 1.1, 5th BOX 
LLC Agreement.
    \130\ See Section 3.2(a)(i), 6th BOX LLC Agreement (``BSE will 
provide SEC-approved SRO status for the BOX Market, the Regulatory 
Authority will provide the regulatory framework for the BOX Market 
and the Regulatory Authority, together with BOX, will have 
regulatory responsibility for the activities of the BOX Market.''). 
BSE also proposes that the SRO for the BOX Market may be changed by 
a vote of the BOX Board and the approval of the Commission. See 
Section 1.1, 6th BOX LLC Agreement.
    \131\ See infra notes 144-164 and notes 185-199 and accompanying 
text.
---------------------------------------------------------------------------

    Section 8.4(f) of the current BOX LLC Agreement requires that any 
transfer that results in the acquisition and holding by any person, 
alone or together with any affiliate of such person, of an aggregate 
percentage interest which meets or crosses the threshold of 20% or any 
successive 5% be subject to a rule filing pursuant to Section 
19(b)(1).\132\ Section 8.4(f) also requires that any transfer that 
reduces BSE's aggregate ownership interest in BOX below the 20% 
threshold be subject to a rule filing.\133\ BSE has filed the proposed 
transfer of its interest in BOX to MX US in accordance with these 
provisions of the BOX LLC Agreement.
---------------------------------------------------------------------------

    \132\ See Section 8.4(f), 5th BOX LLC Agreement.
    \133\ Id.
---------------------------------------------------------------------------

    The Commission believes that BSE's transfer of its 21.87% interest 
in BOX to MX US is consistent with the Act. MX US is currently a BOX 
Member and therefore is bound by all the provisions of the current BOX 
LLC Agreement \134\ and would similarly be bound by the provisions of 
the revised BOX LLC Agreement.\135\ Further, although BSE no longer 
would hold ownership interest in BOX, BSE would remain the SRO for the 
BOX Market. As the Commission has noted in the past, ``the Act does not 
require that an SRO have any ownership interest in the operator of one 
of its facilities.'' \136\ Moreover, BOX is obligated under the BOX LLC 
Agreement to continue to operate the BOX Market in a manner consistent 
with the regulatory and oversight responsibilities of BSE and with the 
Act and rules and regulations thereunder.\137\ As discussed below, BSE 
will have veto power over planned or proposed changes to BOX or the BOX 
Market, and if the Regulatory Authority, in its sole discretion, 
determines that a planned or proposed change to BOX or the BOX Market 
is not consistent with Regulatory Authority Rules or SEC Rules 
governing the BOX Market or BOX Participants, the Regulatory Authority 
could direct BOX to modify the proposal.\138\ Moreover, the books, 
premises, officers, directors, agents and employees of BOX are deemed 
to be the books, premises, officers, directors, agents and employees of 
BSE.\139\ In addition, the Commission has authority to inspect BOX's 
books and records because BOX is the operator of the BOX Market, a 
facility of an exchange. Accordingly, the Commission believes that the 
transfer of BSE's ownership interest in BOX would not impair BSE's or 
the Commission's ability to discharge their respective regulatory and 
oversight responsibilities, and is consistent with the Act.
---------------------------------------------------------------------------

    \134\ MX, a parent corporation of MX US, has agreed to abide by 
all of the provisions of the 5th BOX LLC Agreement, including those 
provisions requiring submission to the jurisdiction of the 
Commission. See Securities Exchange Act Release No. 57713 (April 25, 
2008), 73 FR 24327 (May 2, 2008) (SR-BSE-2008-28).
    \135\ These provisions of the BOX LLC Agreement provide that MX 
US would, among other things, comply with the federal securities 
laws and the rules and regulations thereunder; cooperate with the 
Commission and the Regulatory Authority pursuant to their regulatory 
authority and the provisions of the revised BOX LLC Agreement; and 
engage in conduct that fosters and does not interfere with BOX's 
ability to prevent fraudulent and manipulative acts and practices; 
promote just and equitable principles of trade; foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities; remove impediments to and perfect the 
mechanism of a free and open market and a national market system; 
and, in general protect investors and the public interest. See 
Section 5.3, 6th BOX LLC Agreement. See also BOX LLC Agreement 
Order, supra note 99, 69 FR at 2765.
    \136\ In the BOX LLC Agreement Order, the Commission approved 
the operating agreement governing the BOX Market. At the time of the 
BOX LLC Agreement Order, BSE did not hold the largest ownership 
interest in BOX, but the Commission noted that the Act does not 
require that an SRO have any ownership interest in the operator of 
its facility. See BOX LLC Agreement Order, supra note 99, 69 FR at 
2764. See also Securities Exchange Act Release No. 44983 (October 
25, 2001), 66 FR 55225 (November 1, 2001) (``ArcaEx Approval 
Order''). In the ArcaEx Approval Order, the Commission approved the 
establishment of Archipelago Exchange (``ArcaEx'') as a facility of 
the Pacific Exchange, Inc. (``PCX,'' n/k/a NYSE Arca, Inc.). ArcaEx 
was operated by the Archipelago Exchange, L.L.C. (``Arca L.L.C.''). 
At the time of the ArcaEx Approval Order, PCX's ownership interest 
in Arca L.L.C. consisted solely of a 10% interest in Archipelago 
Holdings, LLC, the parent company of Arca L.L.C. See also Securities 
Exchange Act Release Nos. 41210 (March 24, 1999), 64 FR 15857 (April 
1, 1999) (SR-Phlx-96-14) (order approving electronic system offering 
VWAP that was operated as a facility of Phlx, where Phlx had no 
ownership interest in the operation of the system) and 54538 
(September 29, 2006), 71 FR 59184 (October 6, 2006) (SR-Phlx-2006-
43) (order approving Phlx's New Equity Trading system and operation 
of optional outbound router as a facility of Phlx, where Phlx had no 
ownership interest in the third party operator).
    \137\ See infra notes 144-164 and notes 185-199 and accompanying 
text.
    \138\ See infra notes 147-164 and accompanying text.
    \139\ See infra note 187 and accompanying text.
---------------------------------------------------------------------------

2. BSE Interim Certificate
    BSE plans to distribute the net proceeds from the transfer of its 
interest in BOX to BSE member owners.\140\ To effectuate this 
distribution, in the BSE Interim Certificate Proposal, BSE proposes to 
amend the BSE Certificate to remove a provision that prevents BSE from 
making distributions and to add a provision that would allow BSE to 
redeem a portion of each membership in exchange for a pro rata share of 
the net proceeds from its transfer of BSE's interest in BOX.\141\
---------------------------------------------------------------------------

    \140\ All BSE members, including lessors but not lessees, and 
excluding electronic access members, would be entitled to receive 
their pro rata share of equity interest in BOX based on the 
outstanding number of such BSE memberships.
    \141\ See Article Fourth, Interim Certificate. The Interim 
Certificate also would delete obsolete text regarding BSE 
incorporators.
---------------------------------------------------------------------------

    The BSE Certificate as proposed to be amended as just described is 
referred to as the Interim Certificate and would be effective 
immediately prior to the transfer of BSE's interest in BOX to MX 
US.\142\ Immediately thereafter, this Interim Certificate would be 
amended and restated in its entirety in connection with the BSE 
Acquisition.\143\
---------------------------------------------------------------------------

    \142\ See BSE Interim Certificate Proposal Notice, supra note 7, 
73 FR at 25810.
    \143\ See BSE Governance Proposal Notice, supra note 3, 73 FR 
26159.
---------------------------------------------------------------------------

    The Commission believes that the Interim Certificate is consistent 
with the Act. The sole purpose of the Interim Certificate is to enable 
BSE to distribute to BSE member owners the proceeds from the transfer 
of BSE's interest in BOX to MX US. The Interim Certificate would be in 
effect only until the BSE Certificate is amended and restated in its 
entirety, as discussed above, in connection with the BSE Acquisition. 
The Commission believes that allowing such a distribution would not 
have any adverse effect on the ability of BSE to fulfill its regulatory 
obligations in relation to the BOX Market, because funding for the 
regulation of the BOX Market would be established through a regulatory 
services agreement between BSE and BOX and not with the proceeds from 
the transfer of BSE's interest in BOX to MX US.
3. BOX LLC Agreement
    In conjunction with BSE's divestiture of BOX, BSE also proposes, in 
the BOX Transfer Proposal, to amend the BOX LLC Agreement to reflect 
BSE's

[[Page 46946]]

continuing role as the SRO of its facility, the BOX Market.
a. BSE as the SRO for the BOX Market
    The BOX LLC Agreement provides that as long as BSE maintains 8% or 
greater interest in BOX, BSE would have the right to designate and 
retain two directors on the BOX board of directors (``BOX 
Board'').\144\ BSE no longer would be entitled to maintain two 
directors on the BOX Board following its transfer of interest to MX US. 
BSE, therefore, proposes to amend the BOX LLC Agreement to provide that 
as long as the BOX Market remains a facility of BSE, BSE would have the 
right to designate and retain one non-voting director (``Regulatory 
Director'') on the BOX Board.\145\ The Regulatory Director would have 
the right to attend all meetings of the BOX Board and committees 
thereof and receive notice of meetings and copies of the meeting 
materials provided to other BOX directors.\146\
---------------------------------------------------------------------------

    \144\ See Section 4.1(b), 5th BOX LLC Agreement.
    \145\ See Section 4.1(a)(i), 6th BOX LLC Agreement. A Regulatory 
Director is a member of the senior management of the regulation 
staff of the Regulatory Authority, who is separated from the 
business operations of BSE via effective information barriers and is 
not an employee, officer, or director of NASDAQ OMX or its 
affiliates, other than BSE and BSE's subsidiaries. See Section 1.1, 
6th BOX LLC Agreement.
    \146\ See Section 4.2(d), 6th BOX LLC Agreement.
---------------------------------------------------------------------------

    Under the current BOX LLC Agreement, BSE holds veto power over 
certain ``Major Actions,'' which relate to both commercial and 
regulatory actions. After the transfer of its ownership interest to MX 
US, BSE, as the SRO for the facility, would continue to have a 
regulatory interest in the BOX Market. In connection with the sale of 
BSE's ownership interest, the BOX LLC Agreement is being amended to 
eliminate BSE's veto power over Major Actions of BOX, but BSE would 
continue to hold veto power over all regulatory actions.
    Specifically, BSE proposes to amend the BOX LLC Agreement to 
provide that BSE, with certain exceptions discussed below,\147\ would 
have veto power over planned or proposed changes to BOX or the BOX 
Market.\148\ These amendments to the BOX LLC Agreement would provide 
that the Regulatory Authority \149\ would receive notice of planned or 
proposed changes to BOX, or the BOX Market pursuant to request for 
change procedures established by the mutual agreement of the Regulatory 
Authority and BOX.\150\ Moreover, if BSE, in its sole discretion, 
determines that a Regulatory Deficiency exists, BSE may direct BOX to 
undertake such modifications as are necessary or appropriate to 
eliminate the Regulatory Deficiency.\151\ Prior to implementation, the 
Regulatory Authority would be required to affirmatively approve such 
planned or proposed changes.\152\ If the Regulatory Authority, in its 
sole discretion, determines that a proposed or planned change to BOX or 
the BOX Market is not consistent with Regulatory Authority Rules \153\ 
or SEC Rules \154\ governing the BOX Market or BOX Participants, or 
impedes the Regulatory Authority's ability to regulate the BOX Market 
or BOX Participants or to fulfill its obligations under the Act,\155\ 
the Regulatory Authority, again in its sole discretion, could direct 
BOX to modify the proposal such that it does not cause a Regulatory 
Deficiency.\156\ BOX would not implement the proposed change until such 
change, and any required modifications, are approved by the BOXR board 
of directors (``BOXR Board'').\157\ Further, in the event that the 
Regulatory Authority, in its sole discretion, determines that a 
Regulatory Deficiency could exist or would result from the change as 
planned, the Regulatory Authority could direct BOX to undertake such 
modifications to BOX or the BOX Market as are necessary or appropriate 
to eliminate or prevent the Regulatory Deficiency and allow the 
Regulatory Authority to perform and fulfill its regulatory 
responsibilities under the Act.\158\
---------------------------------------------------------------------------

    \147\ See infra note 159 and accompanying text.
    \148\ See Section 3.2, 6th BOX LLC Agreement.
    \149\ See supra text accompanying note 127.
    \150\ See Section 3.2(a)(ii), 6th BOX LLC Agreement.
    \151\ See Section 3.2(a)(iv), 6th BOX LLC Agreement.
    \152\ See Section 3.2(a)(ii), 6th BOX LLC Agreement. The 
Regulatory Authority would also receive notice of any planned or 
proposed change, pursuant to which the BOX Market would cease to be 
a facility of BSE. BOX would not be required, however, to obtain 
consent from the Regulatory Authority for any such planned or 
proposed change, provided that the Commission has approved such 
action. The BOX LLC Agreement does not affect BSE's obligations 
under Section 19 of the Act to file all proposed rule changes with 
the Commission. Accordingly, if any proposed change would be 
required to be filed as a proposed rule change under the Act, BOX 
could not implement such change until such change became effective 
under the Act.
    \153\ ``Regulatory Authority Rules'' means the rules of the 
Regulatory Authority, including the BOX Rules that constitute 
``rules of an exchange'' within the meaning of Section 3 of the Act 
and that pertain to the BOX Market. See Section 1.1, 6th BOX LLC 
Agreement.
    \154\ ``SEC Rules'' mean the Act and such statutes, rules, 
regulations, interpretations, releases, orders, determinations, 
reports, or statements as are administered, enforced, adopted or 
promulgated by the Commission. See Section 1.1, 6th BOX LLC 
Agreement.
    \155\ The operation of BOX or the BOX Market in such manner 
would be referred to as a ``Regulatory Deficiency.'' See Section 
1.1, 6th BOX LLC Agreement.
    \156\ See Section 3.2(a)(iii), 6th BOX LLC Agreement.
    \157\ Id.
    \158\ The cost of any such modifications must be paid by BOX. 
See Section 3.2(a)(iv), 6th BOX LLC Agreement.
---------------------------------------------------------------------------

    Notice would not be required to be provided to the Regulatory 
Authority if a proposed change were a ``Non-Market Matter.'' \159\ Any 
planned or proposed change to BOX that has a regulatory component would 
not fall within the definition of Non-Market Matters.\160\ The presence 
of a Regulatory Director \161\ on the BOX Board is designed to help 
ensure that no matter with a regulatory component is considered a Non-
Market Matter by BOX.
---------------------------------------------------------------------------

    \159\ Non-Market Matters include changes relating solely to one 
or more of the following: marketing, administrative matters, 
personnel matters, social or team-building events, meetings of BOX 
Members, communication with BOX Members, finance, location, and 
timing of BOX Board meetings, market research, real property, 
equipment, furnishings, personal property, intellectual property, 
insurance, contracts unrelated to the operation of the BOX Market, 
and de minimis items. See Section 3.2(a)(ii), 6th BOX LLC Agreement.
    \160\ See Section 3.2(a)(ii), 6th BOX LLC Agreement.
    \161\ See Section 4.1(a)(i), 6th BOX LLC Agreement.
---------------------------------------------------------------------------

    These proposed changes to the BOX LLC Agreement, which give the 
Regulatory Authority notice of changes and the authority to require 
modification prior to implementation if such changes would cause 
Regulatory Deficiencies, are designed to replace the current BOX LLC 
Agreement's provisions that state that, at all times when BSE is a BOX 
Member, Major Actions of BOX would not be effective unless BSE-
designated directors affirmatively vote for such Major Actions.\162\ 
Major Actions of BOX include, among others, merger or consolidation of 
BOX with any other entity or the sale by BOX of any material portion of 
its assets, entry by BOX into any line of business other than the 
business contemplated in the BOX LLC Agreement, and making any 
fundamental change in the market structure of BOX.\163\ Following BSE's 
divestiture of BOX, however, BSE would no longer have voting directors 
on the BOX Board. BSE, therefore, would be unable to affirmatively vote 
on Major Actions of BOX.
---------------------------------------------------------------------------

    \162\ See Section 4.4(b), 5th BOX LLC Agreement.
    \163\ Id.
---------------------------------------------------------------------------

    The Commission believes that these proposed changes are consistent 
with the Act. The revised BOX LLC Agreement reflects BSE's continuing 
status as the SRO for its facility, the BOX Market, by providing that 
the

[[Page 46947]]

Regulatory Authority would receive notice of any planned or proposed 
changes to BOX or the BOX Market, which would include a wider range of 
matters than those matters considered Major Actions. Further, BOX would 
not be able to implement a planned or proposed change if the Regulatory 
Authority, in its sole discretion, determines that such change could 
cause a Regulatory Deficiency. In addition, if the Regulatory Authority 
determines that a Regulatory Deficiency exists or is planned, it may 
direct BOX to undertake such modifications to BOX or the BOX Market as 
are necessary or appropriate to eliminate or prevent the Regulatory 
Deficiency. As noted above, the Commission has stated that the Act does 
not require that an SRO have any ownership interest in the operator of 
one of its facilities.\164\ Although BSE would not have an ownership 
interest in BOX, the Commission believes that the foregoing changes 
would not limit BSE's role as the SRO for the BOX Market. The 
Commission, therefore, finds that these proposed changes would allow 
BSE to carry out its regulatory and oversight responsibilities under 
the Act.
---------------------------------------------------------------------------

    \164\ See supra note 136 and accompanying text.
---------------------------------------------------------------------------

b. The BOX Committee
    In the BOX Transfer Proposal, BSE proposes to adopt resolutions 
(``Resolutions'') to establish a committee of the BSE Board, the BOX 
Committee.\165\ The proposed Resolutions are rules of an exchange 
because they are stated policies, practices, or interpretations (as 
defined in Rule 19b-4 under the Act) of BSE, and must therefore be 
filed with the Commission pursuant to Section 19(b) of the Act and Rule 
19b-4 thereunder. Accordingly, BSE filed the proposed Resolutions with 
the Commission.\166\
---------------------------------------------------------------------------

    \165\ See Section 4.1(f), 6th BOX LLC Agreement.
    \166\ See Exhibit 3B to the BOX Transfer Proposal Notice.
---------------------------------------------------------------------------

    Pursuant to the proposed Resolutions, the BSE Board would delegate 
to the BOX Committee all actions and decisions relating to BSE rules 
that govern the BOX Market, appeals from regulatory decisions of the 
BOXR Board, and, except to the extent otherwise delegated to the BSE 
ROC, regulation of the BOX Market.\167\ The proposed Resolutions also 
would provide that the BOX Committee include a director representing 
the BOX Participants and four other BSE Directors who do not have a 
material direct or indirect relationship with NASDAQ OMX, its 
affiliates (other than service as directors of BSE or BOXR), or any 
provider of BOX-related regulatory functions outsourced by BSE.\168\ 
Furthermore, the proposed Resolutions would provide that at least 50% 
of members of the BOX Committee must be Public Directors.\169\ The 
proposed Resolutions also would provide that any resolution or other 
action that would have the effect of dissolving the BOX Committee or 
altering, amending, removing, or abridging the Resolutions or the 
powers of the BOX Committee established thereby must be submitted to 
the BSE Board, and if the same must be filed with, or filed with and 
approved by, the Commission under Section 19 of the Act, then it would 
not be effective until filed with, or filed with and approved by, the 
Commission.\170\
---------------------------------------------------------------------------

    \167\ The BSE ROC would be responsible for monitoring the 
adequacy and effectiveness of BSE's regulatory program and assisting 
the BSE Board in reviewing BSE's regulatory plan and the overall 
effectiveness of BSE's regulatory function. Regulatory actions and 
decisions delegated to the BSE ROC are not subject to the power and 
authority of the BOX Committee. See supra note 93 and accompanying 
text.
    \168\ See proposed Resolutions. Material direct or indirect 
relationship include, without limitation, any of the following: 
being an affiliate; serving as a board member, employee, officer, 
consultant, advisor, or any provider of BOX-related regulatory 
functions outsourced by BSE; being a party to any contractual or 
other relationship pursuant to which more than $50,000 is paid; 
reporting to, controlling, being controlled by or holding an 
investment greater than 5% in any such person; and being a parent, 
child, sibling, spouse or in-law of such person. See Section 4.1(f), 
6th BOX LLC Agreement.
    \169\ See proposed Resolutions. See also infra note 207 and 
accompanying text.
    \170\ See proposed Resolutions.
---------------------------------------------------------------------------

    Section 6(b)(3) of the Act provides that the rules of an exchange 
must assure that its members are fairly represented in the selection of 
the exchange's directors and in the administration of its affairs.\171\ 
This requirement allows members to have a voice in an exchange's use of 
its self-regulatory authority. Moreover, the Section 6(b)(3) 
requirement helps to ensure that members are protected from unfair, 
unfettered actions by an exchange and that, in general, an exchange is 
administered in a way that is equitable to all those who trade on its 
market or through its facilities. Because under the proposed 
Resolutions, the BSE Board would delegate to the BOX Committee its 
actions and decisions over the BOX Market, other than matters delegated 
to the BSE ROC, the Commission believes that the composition of the BOX 
Committee must be consistent with the fair representation requirement 
under Section 6(b)(3) of the Act.\172\ In this regard, the proposed 
Resolutions would require that one director of the five BSE Directors 
on the BOX Committee represent BOX Participants. Because 20% of the BOX 
Committee would be composed of directors who represent BOX 
Participants, the Commission believes that the proposed BOX Committee 
composition satisfies the Section 6(b)(3) requirement. The Commission 
previously has found 20% representation to satisfy the Section 6(b)(3) 
requirement.\173\
---------------------------------------------------------------------------

    \171\ 15 U.S.C. 78f(b)(3).
    \172\ 15 U.S.C. 78f(b)(3).
    \173\ See, e.g., Securities Exchange Act Release Nos. 54494 
(September 25, 2006), 71 FR 58023 (October 2, 2006) (SR-CHX-2006-23) 
(order approving amendments to exchange by-laws and other governance 
changes) and 53382, supra note 29.
---------------------------------------------------------------------------

c. BSE and BOXR Boards
    The BOXR By-Laws require that at least 20% of the BOXR Board (but 
no fewer than two directors) be composed of directors representing BOX 
Participants.\174\ In addition, the BOXR By-Laws require that at least 
50% of the directors on the BOXR Board be public directors (``BOXR 
Public Directors'').\175\ In the BSE Governance Proposal, BSE proposes 
to revise this definition such that a BOXR Public Director could not 
also have any material business relationship with an affiliate of BSE, 
BOX, or BOXR.\176\ The Commission finds this proposed change to be 
consistent with the Act. This change would make BOXR's definition of 
Public Director substantially similar to the use of such term in BSE's 
By-Laws,\177\ which the Commission is approving as part of this Order, 
and in Nasdaq's By-Laws,\178\ which the Commission previously found 
consistent with the Act.\179\ 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.\180\ The Commission believes that public 
representatives help to ensure that no single group of market 
participants has the ability to systematically disadvantage other 
market participants through the exchange governance process. Further, 
the Commission believes that public directors can provide unique, 
unbiased perspectives, which should enhance the ability of BOXR to 
address issues in a

[[Page 46948]]

nondiscriminatory fashion and foster the integrity of BOXR.
---------------------------------------------------------------------------

    \174\ See Section 4, BOXR By-Laws.
    \175\ Currently, a BOXR Public Director is a director who has no 
material relationship with a broker or dealer, BSE, BOX, or BOXR. 
See Section 1(p), BOXR By-Laws.
    \176\ See proposed Section 1(q), BOXR By-Laws.
    \177\ See BSE By-Laws, Article I(gg) and supra notes 56 and 78-
80 and accompanying text.
    \178\ See Nasdaq By-Laws, Article I(y).
    \179\ See Nasdaq Exchange Approval Order, supra note 63, 71 FR 
at 3553, n.47.
    \180\ Id. at 3553. See also Securities Exchange Act Release No. 
40760, supra note 79.
---------------------------------------------------------------------------

    In addition, in the BOX Transfer Proposal, BSE proposes to change 
the BOX LLC Agreement to require BSE, for so long as the BOX Market 
remains a facility of BSE, to allow BOX to designate one non-voting 
participant to the BSE Board and to recommend at least 10%, but no 
fewer than one, of the BOXR directors to the BOXR Board.\181\ BSE also 
would be required to include on the BOXR Board at least two directors 
representing BOX Participants, but no fewer than 20% of all 
directors,\182\ and at least four directors who do not have a material 
direct or indirect relationship with NASDAQ OMX, its affiliates, or any 
provider of BOX-related regulatory functions outsourced by BSE, other 
than service as directors of BSE or BOXR.\183\ The proposed changes to 
the BOX LLC Agreement would further require that the directors on the 
BOXR Board, any committees thereof, or the BOX Committee, or the 
directors otherwise engaged in BOX-related meetings not have a material 
direct or indirect relationship with NASDAQ OMX or its affiliates or 
any provider of BOX-related regulatory functions outsourced by BSE, 
other than service as directors of BSE or BOXR.\184\ The Commission 
finds that, with respect to the composition of the BOXR Board, the 
proposed changes satisfy the requirements of Section 6(b)(3) of the Act 
because at least 20% of BOXR Board directors must represent BOX 
Participants. The Commission further finds that the prohibition on BOXR 
Board directors, committee members, and others from having a material 
direct or indirect relationship with NASDAQ OMX or its affiliates or 
any provider of BOX-related regulatory functions outsourced by BSE are 
designed to preserve the independence of the self-regulatory functions 
of BSE that have been delegated to BOXR, BSE's wholly-owned subsidiary, 
and to enable BSE, together with BOXR, to carry out its SRO functions.
---------------------------------------------------------------------------

    \181\ The non-voting participant would have the right to attend 
all meetings of the BOX Committee and all BOX-related deliberations 
of the BSE Board and committees thereof and receive equivalent 
notice and meeting materials as BSE directors. See Section 4.1(f), 
6th BOX LLC Agreement.
    \182\ See Section 4.1(f), 6th BOX LLC Agreement. See also infra 
note 208 and accompanying text.
    \183\ Id. See also supra note 168.
    \184\ Id. Moreover, all other persons permitted to attend 
meetings of the BOXR Board or any committees thereof or the BOX 
Committee or otherwise engaged in BOX-related meetings could not 
have a material direct or indirect relationship with NASDAQ OMX or 
its affiliates or any provider of BOX-related regulatory functions 
outsourced by BSE unless they are Permitted Recipients (as defined 
below), BOXR directors, officers, or employees, other parties making 
presentations to directors of the BSE Board engaged in BOX-related 
meetings, the BOXR Board, the BOX Committee or the BSE ROC if such 
parties' participation is only to the extent necessary to make such 
presentations, or consented to by BOX. See Section 4.1(f), 6th BOX 
LLC Agreement.
---------------------------------------------------------------------------

d. Oversight of BOX Market
    Although BOX does not carry out any regulatory functions, all of 
its activities must be consistent with the Act. The BOX Market is a 
facility of BSE and is not solely a commercial enterprise, and is 
subject to the Act.\185\ Accordingly, the current BOX LLC Agreement 
\186\ has provisions designed to enable BOX to operate in a manner that 
complies with the federal securities laws, including the objectives and 
requirements of the Act. Because BOX's obligations endure as long as 
the BOX Market is a facility of BSE, regardless of the BSE's transfer 
of its ownership interest in BOX to MX US, BSE does not propose to 
amend the aforementioned provisions, except as provided below.
---------------------------------------------------------------------------

    \185\ See BOX LLC Agreement Order, supra note 99, 69 FR at 2765.
    \186\ See Sections 4.2, 12.1, 15, 16.5, and 19.6, 5th BOX LLC 
Agreement.
---------------------------------------------------------------------------

    In accordance with BSE's obligations as the SRO for the BOX Market, 
the books, records, premises, officers, directors, agents, and 
employees of BOX are currently deemed to be the books, premises, 
officers, directors, agents, and employees of BSE for the purpose of, 
and subject to, oversight pursuant to the Act.\187\ Furthermore, the 
books and records of BOX are subject at all times to inspection and 
copying by BSE and the Commission.\188\ To this provision, BSE proposes 
to add in the BOX Transfer Proposal that inspection, copying, and 
review of the books and records of BOX by the Regulatory Authority at 
the premises of BOX, and access to any copied books and records removed 
from the premises of BOX or produced to the Regulatory Authority at its 
request, would in all cases be conducted by, or limited to, certain 
individuals (such individuals referred to as, ``Permitted Recipients'') 
\189\ and directors or employees of BOXR.\190\ BSE also proposes that 
the Regulatory Authority would inspect, copy, and review the books and 
records of BOX, and would use any information obtained thereby, only 
for purposes of fulfilling its regulatory obligations and for no other 
purpose.\191\ Further, BSE proposes to add language stating that 
although BOX would not be entitled to refuse the inspection, review, 
and/or copying its books and records by the Regulatory Authority, it 
would be entitled to damages in the event that such inspection, review, 
and/or copying was conducted for any purpose other than to fulfill the 
Regulatory Authority's regulatory responsibilities.\192\
---------------------------------------------------------------------------

    \187\ See Section 12.1, 5th BOX LLC Agreement.
    \188\ Id.
    \189\ See Section 12.1, 6th BOX LLC Agreement. Permitted 
Recipients are (i) the BSE CRO and those regulatory staff members 
responsible for regulatory technology and budget, counsel to BSE 
CRO, or staff of BSE's internal audit department, (ii) any member of 
the BSE Board serving on the BOX Committee or BSE ROC, (iii) NASDAQ 
OMX CRO and staff in the Office of General Counsel, (iv) any member 
of the NASDAQ OMX Board of Directors serving on the NASDAQ OMX ROC, 
and (v) any Professional Services provider. ``Professional 
Services'' means services performed by outside counsel, consultants, 
any provider of BOX-related regulatory functions outsourced by BSE, 
or subcontractors for the benefit of BOX or the BOX Market. See 
Section 1.1, 6th BOX LLC Agreement.
    \190\ See Section 12.1, 6th BOX LLC Agreement.
    \191\ Id.
    \192\ Id.
---------------------------------------------------------------------------

    The Commission finds that these provisions are consistent with the 
Act. The Commission notes that BSE proposes to delegate to BOXR, 
together with the BOX Committee, much of its regulatory 
responsibilities over the BOX Market. Therefore, although BSE proposes 
that access to books and records would be limited to Permitted 
Recipients and BOXR directors and employees, within BSE's proposed 
regulatory framework, this limitation would not exclude any individuals 
who may need access to BOX books and records. Moreover, the Commission 
has authority under the Act to inspect BOX's books and records because 
BOX is the operator of the BOX Market, a facility of an exchange. In 
addition, the Commission finds it consistent with the Act that BSE 
proposes to specify that inspection, copying, and review of books and 
records and the use of any information obtained thereby be for purposes 
of fulfilling BSE's regulatory obligations. The Commission notes that, 
because BOX would not be entitled to preclude BSE from inspecting, 
reviewing, or copying of its books and records, BOX could not rely on 
the books and records provisions of the revised BOX LLC Agreement to 
improperly hinder BSE from carrying out its regulatory and oversight 
responsibilities under the Act.\193\
---------------------------------------------------------------------------

    \193\ See Section 12.1, 6th BOX LLC Agreement. Instead, BSE 
proposes that BOX would be entitled to damages in the event any 
inspection, copying, or review of BOX books and records by the 
Regulatory Authority is, in whole or in part, used by the Regulatory 
Authority or any of its affiliates for any purpose other than to 
fulfill the Regulatory Authority's regulatory obligations. See 
Section 12.1, 6th BOX LLC Agreement.
---------------------------------------------------------------------------

    In the BOX Transfer Proposal, BSE also proposes to add certain 
other provisions to the BOX LLC Agreement. Specifically, BSE proposes 
to provide that all confidential information

[[Page 46949]]

pertaining to regulatory matters of BOX and the BOX Market (including, 
but not limited to, disciplinary matters, trading data, trading 
practices, and audit information) contained in the books and records of 
BOX would not be made available to any persons other than to those 
officers, directors, employees, and agents of BOX that have a 
reasonable need to know the contents thereof and that such confidential 
information be retained in confidence by BOX and the officers, 
directors, employees, and agents of BOX and not be used for any 
commercial purposes.\194\ BSE also proposes to add a provision in the 
BOX LLC Agreement requiring BOX to provide prompt notice to the 
Regulatory Authority and the Regulatory Director of any amendments, 
modifications, waivers, or supplements to the BOX LLC Agreement 
presented to the BOX Board for approval.\195\ Any proposed change to 
the BOX LLC Agreement would be submitted to the BOX Committee and if 
such change is required under Section 19 of the Act and rules 
thereunder to be filed with, or filed with and approved by, the 
Commission before such change may be effective, then such change would 
not be effective until filed with, or filed with and approved by, the 
Commission, as the case may be.\196\
---------------------------------------------------------------------------

    \194\ See Section 16.6, 6th BOX LLC Agreement. BSE also proposes 
that the provision would not be interpreted to limit or impede the 
rights of the Commission or the Regulatory Authority to access and 
examine such confidential information or to limit or impede the 
ability of any officers, directors, employees, or agents of BOX to 
disclose such confidential information to the Commission or the 
Regulatory Authority. Id.
    \195\ See Section 19.1, 6th BOX LLC Agreement.
    \196\ Id. BOX would not be required to obtain the approval of 
the Regulatory Authority for any amendment to the revised BOX LLC 
Agreement pursuant to which the BOX Market would cease to be a 
facility of BSE, provided that such amendment would be filed with, 
or filed with and approved by, the Commission, as the case may be, 
before such amendment may be effective.
---------------------------------------------------------------------------

    The current BOX LLC Agreement provides that each BOX Member and its 
officers, directors, agents, and employees must submit to the 
jurisdiction of the federal courts, the Commission, and BSE for the 
purposes of any suit, action, or proceeding pursuant to federal 
securities laws, rules, or regulations thereunder, arising out of, or 
relating to, BOX activities.\197\ BSE proposes to extend this provision 
such that BOX and its officers, directors, agents, and employees also 
would submit to the jurisdiction of the U.S. federal courts, the 
Commission, and the Regulatory Authority.\198\
---------------------------------------------------------------------------

    \197\ As a BOX Member, MX US would be subject to this provision.
    \198\ See Section 19.6(b), 6th BOX LLC Agreement.
---------------------------------------------------------------------------

    Finally, the current BOX LLC Agreement provides that BSE, as a 
party to the agreement, and BOX Members would take such action as is 
necessary to ensure that their officers, directors, and employees 
consent to the applicability of certain provisions in the BOX LLC 
Agreement, including the requirement to submit to the jurisdiction of 
the U.S. federal courts, the Commission, and BSE. BSE proposes to amend 
this provision such that BOX's officers, directors, and employees would 
also consent to the same provisions.\199\
---------------------------------------------------------------------------

    \199\ See Section 19.6(c), 6th BOX LLC Agreement. BSE proposes 
to expand the provisions to which individuals must consent. In 
addition, MX and the Regulatory Authority would take such action as 
is necessary to insure that with respect to their BOX related 
activities, MX's officers, directors and employees consent to the 
communication of their ``personal information'' as defined under 
Canada's Act Respecting the Protection of Personal Information in 
the Private Sector, R.S.Q.c.P-39.1 (``Private Sector Privacy Act''), 
by MX to the Commission and the Regulatory Authority and agree to 
waive the protection of such ``personal information'' that is 
provided by the Private Sector Privacy Act.
---------------------------------------------------------------------------

    The Commission believes that the revised provisions to the BOX LLC 
Agreement are intended to enhance BSE's ability to fulfill its self-
regulatory obligations and assist in administering and complying with 
the requirements of the Act. Therefore, the Commission finds that these 
provisions are consistent with the Act.

C. BOXR

    As noted above, after the BSE Acquisition, BOXR would continue to 
be wholly-owned by BSE and would become the indirect, wholly-owned 
subsidiary of NASDAQ OMX. BOXR is currently governed by a Delegation 
Plan,\200\ the BOXR By-Laws, and the applicable BSE Rules, including 
the BSE Constitution (to be replaced by the BSE By-Laws), and would 
continue to be so governed after the BSE Acquisition and the transfer 
of BSE's interest in BOX to MX US.
---------------------------------------------------------------------------

    \200\ See supra note 126 and accompanying text. See also BOXR 
Order, supra note 124. No changes to the Delegation Plan are 
proposed.
---------------------------------------------------------------------------

    In addition, BSE now proposes to adopt a written operating 
agreement for BOXR (``BOXR LLC Agreement'') in which BSE would be the 
sole member. BSE also proposes to amend the BOXR By-Laws to reflect the 
BSE Acquisition. As discussed above, BSE would continue to delegate 
certain self-regulatory responsibilities relating to the BOX Market to 
BOXR, although BSE would retain ultimate responsibility.\201\
---------------------------------------------------------------------------

    \201\ See supra notes 125-127 and accompanying text.
---------------------------------------------------------------------------

1. BOXR LLC Agreement; Changes in Control of BOXR
    BSE proposes to adopt the BOXR LLC Agreement.\202\ The BOXR LLC 
Agreement would include provisions that reflect BOXR's status as a 
wholly-owned subsidiary of an SRO and that are designed to preserve the 
independence of the self-regulatory functions of BSE that have been 
delegated to BOXR.\203\ Also, the BOXR LLC Agreement would preclude 
BOXR from making distributions to BSE using regulatory funds.\204\
---------------------------------------------------------------------------

    \202\ See BSE Governance Proposal Notice, supra note 3, 73 FR at 
26159.
    \203\ See Section 7, BOXR LLC Agreement.
    \204\ See Section 15, BOXR LLC Agreement. Pursuant to Schedule A 
of the proposed BOXR LLC Agreement, BOXR regulatory funds means 
fees, fines, or penalties derived from the regulatory operations of 
BOXR, but would not include revenues derived from listing fees, 
market data revenues, transaction revenues, or any other aspect of 
the commercial operations of BOXR, even if a portion of such 
revenues are used to pay costs associated with the regulatory 
operations of BOXR.
---------------------------------------------------------------------------

    In addition, BSE could not transfer or assign its ownership of 
BOXR, unless such transfer or assignment is filed with and approved by 
the Commission pursuant to Section 19 of the Act.\205\ Moreover, 
because BOX Participants are BSE members, they are subject to Chapter 
XXXIX of the BSE Rules, which requires that no member or person 
associated with a member may own more than 20% of the outstanding 
voting securities of NASDAQ OMX.\206\ Together, these ownership and 
voting restrictions are designed to minimize the potential that a 
person could improperly interfere with or attempt to restrict the 
ability of the Commission or BSE to effectively carry out their 
regulatory oversight responsibilities under the Act. The Commission 
believes that the proposed BOXR LLC Agreement is consistent with the 
Act.
---------------------------------------------------------------------------

    \205\ See Section 20, BOXR LLC Agreement.
    \206\ See supra note 99 and accompanying text.
---------------------------------------------------------------------------

2. Amendments to the BOXR By-Laws; BOXR Board; Fair Representation
    The BOXR Board would continue to be composed of at least 50% BOXR 
Public Directors \207\ and at least 20% (but no fewer than two 
directors) would continue to be officers or directors of a firm 
approved as a BOX Participant (``BOXR BOX Participant 
Directors'').\208\ The BOXR BOX Participant Directors would be selected 
pursuant to BOXR's current procedures for the nomination and election 
of BOXR BOX Participant Directors by BOX Participants, as would be the 
BOX Participant Director

[[Page 46950]]

candidate for the BSE Board.\209\ The successful candidates for BOXR 
Participant Director positions would be submitted to BSE, as the sole 
member of BOXR, for election.\210\ The successful candidate for the BOX 
Participant Director position on the BSE Board would be submitted to 
NASDAQ OMX, as the sole shareholder of BSE, for election.\211\ In 
connection with this process, BSE proposes, in the BSE Governance 
Proposal, that the BSE By-Laws include a provision that requires BSE's 
Nominating Committee to give due consideration to the recommendation of 
the BOXR Nominating Committee in nominating the BOX Participant 
Director to the BSE Board.\212\
---------------------------------------------------------------------------

    \207\ See supra notes 175-176 and accompanying text.
    \208\ See proposed Section 4, BOXR By-Laws.
    \209\ See current Section 14(e), BOXR By-Laws, and proposed 
Section 14(e), proposed BOXR By-Laws. See also BOXR Order, supra 
note 124, 69 FR 2768, at notes 21-26 and 52-57, and accompanying 
text, and discussion supra at note 60 accompanying text. The BOXR 
Nominating Committee would continue to be responsible for nominating 
the BOXR BOX Participant Director candidates for the two positions 
on the BOXR Board and the BOX Participant Director candidate for the 
one position on the BSE Board. See supra note 59 and accompanying 
text. In addition, BOX Participants would continue to be able to 
submit additional nominees for each of these positions and vote on 
and elect from the slate of nominees the candidates to be elected to 
those positions. See Section 14(e), BOXR By-Laws.
    \210\ See proposed Section 14(e)(iii), BOXR By-Laws.
    Pursuant to proposed Section 14(e)(iii)(E) of the BOXR By-Laws, 
the two nominees for the BOXR Participant Director positions 
receiving the highest number of votes would be declared elected 
thereto, and the one nominee for the BOX Participant Director 
position on the BSE Board would be recommended by the BOXR 
Nominating Committee for election thereto.
    Proposed Section 22 of the BOXR LLC Agreement, which otherwise 
generally provides that the provisions of the BOXR LLC Agreement 
would not be deemed to create any right in any person not a party to 
the BOXR LLC Agreement, would make clear that the limitations of 
Section 22 would not apply to BOX Participants to the extent 
provided in Section 14 of the BOXR By-Laws.
    \211\ Id.
    \212\ See proposed Section 4.14, BSE By-Laws.
---------------------------------------------------------------------------

    Although the BSE By-Laws require only due consideration of the 
recommendation made by the BSE Nominating Committee, BSE states in its 
proposed rule change that, in nominating the BOX Participant Director 
to the BSE Board, the BSE Nominating Committee would adopt the 
recommendation of the BOXR Nominating Committee, and NASDAQ OMX, as the 
sole stockholder of BSE, would elect such candidate.\213\ To reconcile 
the BSE By-Laws and this representation, BSE states that immediately 
following the closing of the BSE Acquisition, BSE would propose to the 
BSE Board an amendment to the BSE By-Laws to make it clear that the 
candidate nominated by the BOXR Nominating Committee to serve as the 
BOX Participant Director on the BSE Board would also be nominated by 
the BSE Nominating Committee and elected by NASDAQ OMX, unless such 
nominee is not otherwise eligible for service pursuant to BSE By-Laws 
Section 4.3.\214\ The Commission believes that the proposed petition 
process, coupled with the right to vote for their representatives, 
should help to ensure that BOX Participants have the opportunity to be 
involved in the selection of their representatives for the BOXR Board 
and the BSE Board. The Commission notes that this proposed process is 
consistent with the current process for electing BOX Participant 
Directors previously approved by the Commission.\215\
---------------------------------------------------------------------------

    \213\ See BSE Governance Proposal Notice, supra note 3, 73 FR at 
26159, n.16, and accompanying text.
    \214\ In Amendment No. 1 to the BSE Governance Proposal, BSE 
states that, after such proposal to the BSE Board: ``[BSE] shall 
promptly file the amendment as a proposed rule change for approval 
by the Commission. This clarifying change could not be included in 
this filing because Article XX of [BSE's] current Constitution, 
which is being replaced by the proposed [BSE] By-Laws, provides that 
[BSE's] members must approve amendments to the [BSE] Constitution. 
The [BSE] members voted to approve the [BSE] By-Laws as submitted in 
this filing on December 4, 2007, prior to the submission of this 
filing to the Commission, and it would have been impracticable and 
unduly expensive to seek a second member vote for approval of this 
clarifying change. Following adoption of the new [BSE] By-Laws, the 
[BSE] Board will have authority to approve [BSE] By-Law 
amendments.'' See Amendment No. 1 to the BSE Governance Proposal, 
supra note 4.
    \215\ See BOXR Order, supra note 124, 69 FR at 2771.
---------------------------------------------------------------------------

    The Commission finds that the proposed changes are consistent with 
Sections 6(b)(3) of the Act,\216\ which requires BSE to assure a fair 
representation of its members in the selection of its directors and 
administration of its affairs because the proposal is designed to 
ensure that BOX Participants continue to participate in the selection 
of their representatives to the BOXR and BSE Boards.
---------------------------------------------------------------------------

    \216\ 15 U.S.C. 78f(b)(3).
---------------------------------------------------------------------------

3. Disciplining of Affiliated Members
    In the BSE Governance Proposal, BSE proposes to amend the BOXR By-
Laws to provide that neither the BSE Board nor the BOXR Board would 
consider appeals of disciplinary actions involving BOX Participants 
that are affiliates of NASDAQ OMX.\217\ Currently, any BOX Participant 
``adjudged guilty in any disciplinary proceeding'' by the BOXR Hearing 
Committee \218\ or any panel thereof may appeal such decision to the 
BOXR Board and subsequently to the BSE Board. Any initial decision that 
is rendered by the BOXR Hearing Committee regarding the affiliated BOX 
Participant would instead constitute final disciplinary action of BSE 
under Rule 19d-1(c)(1) under the Act.\219\ This proposed change is 
consistent with the process for appeals by affiliated members of Nasdaq 
under Nasdaq's rules, which previously was approved by the 
Commission.\220\
---------------------------------------------------------------------------

    \217\ See proposed Section 14(f)(i), BOXR By-laws.
    \218\ See BOXR By-Laws, Section 14(f).The ``BOXR Hearing 
Committee'' is appointed by the Chairman of the BOXR Board and must 
include one BOX Participant, but may not include members of the BOXR 
Board or BSE Board. The BOXR Hearing Committee has exclusive 
jurisdiction to conduct disciplinary proceedings brought by BOXR 
against any BOX Participant for violation of the Act, the rules and 
regulations thereunder, the BSE By-Laws, BOX Rules, the BOXR LLC 
Agreement or By-Laws, or the interpretations and stated policies of 
either the BSE or BOXR Boards. Id. The BOX Committee would hear 
appeals from regulatory decisions of the BOXR Board. See supra note 
167 and accompanying text.
    \219\ 17 CFR 240.19d-1(c)(1).
    \220\ See Securities Exchange Act Release No. 54170, supra note 
113, 71 FR at 42151.
---------------------------------------------------------------------------

    The Commission believes that this proposed change is consistent 
with the Act, including Section 6(b)(7) thereunder,\221\ which requires 
that the rules of an exchange must provide a fair procedure for 
disciplining members. Specifically, this proposal, which specifies that 
the BSE Board and the BOXR Board may not be involved in review of 
disciplinary actions involving affiliated BOX Participants, would 
mitigate a conflict of interest that could occur as a result of Nasdaq 
OMX's ownership of BSE.
---------------------------------------------------------------------------

    \221\ 15 U.S.C. 78f(b)(7).
---------------------------------------------------------------------------

D. BSX

1. NASDAQ OMX Ownership of BSX
    In addition to the BSE Acquisition, NASDAQ OMX would acquire all of 
the outstanding limited liability company interests in BSX held by 
investors other than BSE.\222\ As a result, NASDAQ OMX would own 46.79% 
of BSX directly and would own indirectly through BSE the remaining 
53.21% of BSX. Following the BSE Acquisition, BSE would remain the SRO 
and would provide the regulatory framework for BSX,\223\ and BSE 
expects to operate in the future a facility for the trading of cash 
equity securities through BSX. BSE would not resume trading of cash 
equity securities until it has filed a proposed rule change under 
Section 19(b) of the Act proposing amendments to BSE Rules,

[[Page 46951]]

and the Commission has approved the new BSE Rules.\224\
---------------------------------------------------------------------------

    \222\ BSX was formed in 2004 as a joint venture between BSE and 
several investors to operate an electronic trading facility, BeX, 
for the trading of cash equity securities. BeX ceased its operations 
in September 2007. See BSE Governance Proposal Notice, supra note 3, 
73 FR at 26166.
    \223\ See proposed Section 3.2, BSX Operating Agreement.
    \224\ See BSE Governance Proposal Notice, supra note 3, 73 FR at 
26167.
---------------------------------------------------------------------------

    The current BSX Operating Agreement requires that any transfer that 
results in the acquisition and holding by any person, alone or together 
with any affiliate of such person, of an aggregate percentage interest 
level that meets or crosses the threshold of 20% be subject to a rule 
filing pursuant to Section 19(b)(1) of the Act.\225\ In accordance with 
this requirement, BSE proposes in the BSE Governance Proposal that the 
Commission approve the transfer of ownership interests in BSX to NASDAQ 
OMX.
---------------------------------------------------------------------------

    \225\ See current Section 18.1, BSX Operating Agreement.
---------------------------------------------------------------------------

    The Commission notes that following the transfer of ownership 
interests in BSX to NASDAQ OMX, BSE and NASDAQ OMX would be the sole 
members of BSX. In accordance with proposed Section 18.1 of the BSX 
Operating Agreement, any amendment to the BSX Operating Agreement, 
including to permit the admission of additional or substitute members, 
would have to be submitted to the BSE Board for review, and, if any 
such amendment would be required under Section 19 of the Act and the 
rules promulgated thereunder, to be filed with, or filed with and 
approved by, the Commission before such amendment may be effective, 
then such amendment would not be effective until filed with, or filed 
with and approved by the Commission.\226\ As the operator of a facility 
of BSE, BSX must continue to be operated in a manner consistent with 
the regulatory and oversight responsibilities of BSE and with the Act 
and rules and regulations thereunder. The Commission believes that, 
because BSE would remain the SRO and would provide the regulatory 
framework for BSX, the transfer of ownership interests in BSX to NASDAQ 
OMX would not impair the continued ability of BSE or the Commission to 
discharge their respective regulatory and oversight responsibilities. 
The Commission therefore finds that the transfer of ownership interests 
in BSX to NASDAQ OMX is consistent with the Act.
---------------------------------------------------------------------------

    \226\ See proposed Section 8.2(e), BSX Operating Agreement.
---------------------------------------------------------------------------

2. BSX Operating Agreement
    In conjunction with the BSE Acquisition, BSE also proposes in the 
BSE Governance Proposal to amend the BSX Operating Agreement to reflect 
the sole ownership of BSX by BSE and NASDAQ OMX.
a. Transfer, Ownership and Voting Restrictions
    The amended BSX Operating Agreement would continue to state that 
BSX must provide the Commission with written notice ten days prior to 
the closing date of any acquisition that results in a BSX Member's 
percentage ownership interest in BSX, alone or with any affiliate, 
meeting or crossing the 5%, 10%, or 15% thresholds.\227\ In addition, 
the amended BSX Operating Agreement would continue to provide that any 
transfer of BSX units that results in the acquisition and holding by 
any person, alone or together with an affiliate, of an interest that 
meets or crosses the 20% threshold or any successive 5% threshold 
(i.e., 25%, 30%, etc.) would trigger the requirement to file an 
amendment to the BSX Operating Agreement with the Commission under 
Section 19(b) of the Act.\228\
---------------------------------------------------------------------------

    \227\ See proposed Section 8.2(d), BSX Operating Agreement.
    \228\ See supra note 225. In addition, the amended BSX Operating 
Agreement would provide that any transfer of BSX units that would 
reduce BSE's ownership in BSX below the 20% threshold would require 
a proposed rule change under Section 19(b) of the Act. Moreover, 
Commission approval would be required to permit any person, alone or 
together with any affiliate, to control 20% of the Total Votes. See 
current Section 8.4(e), BSX Operating Agreement, and proposed 
Section 8.2(e), BSX Operating Agreement. The Commission notes that 
proposed Section 18.1 of the BSX Operating Agreement requires the 
submission of any proposed amendment thereto to the BSE Board for 
review. If such amendment is required under Section 19 of the Act to 
be filed with, or filed with and approved by, the Commission, it 
could not take effect until filed with, or filed with and approved 
by the Commission.
---------------------------------------------------------------------------

    Further, the amended BSX Operating Agreement would continue to 
provide that any person that acquires a controlling interest (i.e., an 
interest of 25% or greater) in a BSX Member that holds 20% or more of 
BSX units would be required to become a party to the BSX Operating 
Agreement and abide by its terms.\229\ The addition of any such 
indirect controlling party would also require a filing with the 
Commission pursuant to Section 19(b) of the Act.\230\
---------------------------------------------------------------------------

    \229\ See proposed Section 8.2(f), BSX Operating Agreement.
    \230\ Id.
---------------------------------------------------------------------------

    In the BSE Governance Proposal, BSE proposes to amend the BSX 
Operating Agreement to remove provisions that allow BSX Members to 
exercise rights of first refusal in the event that one member proposes 
to transfer its ownership interests in BSX to another member or BSX 
proposes to issue additional units of ownership.\231\ Because BSX would 
be 100% owned, directly and indirectly, by NASDAQ OMX, this provision 
is no longer relevant. In addition, BSE proposes to expand those 
provisions of the BSX Operating Agreement that currently prohibit BSX 
Participants and their affiliates from owning or voting more than 20% 
of BSX to include all BSE members and their affiliates. To make the BSX 
Operating Agreement consistent with the exception from BSE Rules to 
permit NES and NOS to become affiliates of BSE,\232\ the proposed 
amendment to the BSX Operating Agreement would state that these 
ownership and voting restrictions do not limit NASDAQ OMX's or BSE's 
ownership interests in BSX.\233\
---------------------------------------------------------------------------

    \231\ See current Sections 8.2 and 8.3, BSX Operating Agreement.
    \232\ See supra notes 117-123 and accompanying text.
    \233\ See proposed Sections 8.3 and 8.4, BSX Operating 
Agreement.
---------------------------------------------------------------------------

    The Commission believes that the proposed changes to provisions in 
the BSX Operating Agreement on transfer, ownership, and voting 
restrictions would not affect the ability of BSE to carry out its self-
regulatory responsibilities or the ability of the Commission to fulfill 
its responsibilities under the Act. In particular, the proposal would 
not change the current percentage thresholds in the transfer, 
ownership, and voting provisions. The Commission finds that the 
proposed revisions to the BSX Operating Agreement discussed above are 
consistent with the Act.
b. BSE's Authority Over BSX
    Although NASDAQ OMX would own directly 46.79% of BSX, BSE would be 
entitled to designate all of the directors of the BSX board of 
directors (``BSX Board'').\234\ In addition, in the BSE Governance 
Proposal, BSE proposes to delete a provision in the BSX Operating 
Agreement that currently requires a super-majority of BSX directors' 
votes, including the affirmative votes of all directors designated by 
BSE, before BSX could take certain significant actions, such as 
entering into a new line of business or replacing BSE as BSX's 
regulatory service provider.\235\ Instead, BSE would have the authority 
to veto or mandate actions that relate to regulatory requirements.\236\ 
Specifically, the proposal sets forth that BSE's affirmative vote would 
be required with respect to any action, transaction, or aspect of an 
action or transaction that

[[Page 46952]]

BSE, in its sole discretion, determines is necessary or appropriate 
for, or interferes with, the performance or fulfillment of BSE's 
regulatory functions, its responsibilities under the Act or as 
specifically required by the Commission.\237\ In addition, BSE would 
have the sole and exclusive right to direct that any required, 
necessary, or appropriate act be undertaken without regard to the vote, 
act, or failure to vote or act by any other party in any capacity.\238\
---------------------------------------------------------------------------

    \234\ See proposed Section 4.1(b), BSX Operating Agreement. In 
addition, BSE proposes to reduce the number of BSX directors from 
six to five. See proposed Section 4.1(a), BSX Operating Agreement.
    \235\ See current Section 4.4, BSX Operating Agreement.
    \236\ See proposed Section 4.4, BSX Operating Agreement.
    \237\ Id.
    \238\ Id.
---------------------------------------------------------------------------

    Further, the amended BSX Operating Agreement would state that any 
amendment thereto must be submitted to the BSE Board for review and, if 
such amendment is required under Section 19(b) of the Act and the rules 
thereunder to be filed with, or filed with and approved by the 
Commission, then such amendment would not be effective until filed 
with, or filed with and approved by the Commission, as the case may 
be.\239\
---------------------------------------------------------------------------

    \239\ See proposed Section 18.1, BSX Operating Agreement.
---------------------------------------------------------------------------

    The Commission believes that these proposals are designed to 
preserve BSE's regulatory authority over BSX, and any proposed facility 
for the trading of cash equity securities that BSX may operate, and are 
consistent with the Act because they would grant BSE the ability to 
direct BSX to perform any required, necessary, or appropriate act and 
would allow BSE to veto or mandate actions that relate to regulatory 
requirements. The Commission notes that BSE could not operate a 
facility for the trading of cash equity securities until it has filed 
under Section 19(b) of the Act, and the Commission has approved, the 
new BSE Rules. In particular, the Commission believes these changes are 
consistent with Section 6(b)(1) of the Act,\240\ which requires, among 
other things, that the national securities exchange be so organized and 
have the capacity to carry out the purposes of the Act, and to comply 
and enforce compliance by its members and persons associated with its 
members, with the provisions of the Act, the rules and regulations 
thereunder, and the rules of the exchange.
---------------------------------------------------------------------------

    \240\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------

c. Confidentiality Provisions
    In the BSE Governance Proposal, BSE proposes to amend the BSX 
Operating Agreement to provide that all confidential information 
pertaining to the self-regulatory function of BSE or the business of 
BSE relating to the trading of cash equity securities (including 
disciplinary matters, trading data, trading practices and audit 
information) in the books and records of BSX would not be made 
available to any persons. The proposal would allow such information to 
be made available to officers, directors, employees and agents of BSX 
who have a reasonable need to know the contents thereof. However, such 
confidential information would be required to be retained in confidence 
by BSX and its officers, directors, employees and agents and not be 
used for any commercial purposes.\241\ The Commission believes that the 
revised confidentiality provisions would not impair BSE's self-
regulatory obligations with respect to BSX and finds that this 
provision is consistent with the Act.
---------------------------------------------------------------------------

    \241\ See proposed Section 16.7, BSX Operating Agreement. BSE 
also proposes that the provision would not be interpreted to limit 
or impede the ability of any officers, directors, employees or 
agents of the Company to disclose confidential information to the 
Commission or the BSE.
---------------------------------------------------------------------------

d. Jurisdiction
    The current BSX Operating Agreement provides that BSX and each BSX 
Member as well as the officers, directors, agents, and employees of BSX 
and each BSX Member must submit to the jurisdiction of the federal 
courts, the Commission, and BSE for the purposes of any suit, action, 
or proceeding pursuant to the U.S. federal securities laws or the rules 
or regulations thereunder, arising out of, or relating to BSX's 
activities.
    In the BSE Governance Proposal, BSE proposes to amend Section 
18.6(b) of the BSX Operating Agreement to: (1) clarify that the 
jurisdiction of the U.S. federal courts, the Commission, and BSE over 
BSX, its members, and their respective officers, directors, agents, and 
employees is exclusive; (2) require BSX and its members and their 
respective officers, directors, agents, and employees to agree not to 
assert lack of personal jurisdiction by the U.S. federal courts or BSE; 
\242\ and (3) include a provision regarding the waiver of the defense 
or application of any foreign secrecy or blocking statutes by BSX and 
its members and their respective officers, directors, agents, and 
employees, with respect to BSX's activities or their participation 
therein.
---------------------------------------------------------------------------

    \242\ Section 18.6(b) of the BSX Operating Agreement currently 
requires BSX and its members and their respective officers, 
directors, agents, and employees, to agree not to assert lack of 
personal jurisdiction by the Commission.
---------------------------------------------------------------------------

    The Commission believes that these changes, in conjunction with 
other provisions of the BSX Operating Agreement that would remain 
unchanged, would enhance BSE's ability to fulfill its self-regulatory 
obligations and assist in administering and complying with the 
requirements of the Act. Moreover, BSE is required to enforce 
compliance with these provisions because they are ``rules of the 
exchange'' within the meaning of Section 3(a)(27) of the Act.\243\ A 
failure on the part of BSE to enforce its rules could result in a 
Commission enforcement action pursuant to Section 19(h)(1) of the 
Act.\244\
---------------------------------------------------------------------------

    \243\ 15 U.S.C. 78c(a)(27).
    \244\ 15 U.S.C. 78s(h)(1).
---------------------------------------------------------------------------

E. BSECC

    As a result of the BSE Acquisition, BSECC, BSE's wholly-owned 
subsidiary and a registered clearing agency, would become a wholly-
owned indirect subsidiary of NASDAQ OMX. As noted above, BSECC ceased 
processing trades in 2007. In connection with the transaction, BSECC 
proposes, in the BSECC Governance Proposal, to amend its Articles of 
Organization (``BSECC Articles of Organization''). BSECC also proposes 
to update the BSECC Articles of Organization and By-Laws (``BSECC By-
Laws'') in certain other respects, including, according to BSE, to 
reflect modern corporate practice for Massachusetts corporations. In 
addition, BSECC has filed the NASDAQ OMX Certificate and By-Laws as 
proposed rules.\245\
---------------------------------------------------------------------------

    \245\ See supra note 10 and accompanying text.
---------------------------------------------------------------------------

    In connection with the BSE Acquisition, BSECC proposes to amend the 
BSECC Articles of Organization such that the total number of shares of 
each class of stock that BSECC would be authorized to issue is 150 
shares of common stock. This amendment would reflect a reduction in the 
total authorized share capital of BSECC from 1000 shares of common 
stock to the 150 shares of common stock currently held by BSE. Thus, 
following the amendment, all of the authorized shares of common stock 
of BSECC would be outstanding and would be owned by BSE.\246\
---------------------------------------------------------------------------

    \246\ See proposed BSECC Articles of Organization, Article III.
---------------------------------------------------------------------------

    BSECC also proposes to amend the BSECC Articles of Organization to 
provide that BSE may not transfer or assign any shares of stock of 
BSECC unless such transfer or assignment has been filed with and 
approved by the Commission under Section 19 of the Act.\247\ These 
proposed changes are designed to ensure that, absent Commission 
approval, BSECC would remain a wholly-owned subsidiary of BSE. Further, 
BSECC proposes to amend

[[Page 46953]]

the BSECC By-Laws to expressly state that the BSECC By-Laws may be 
amended only upon approval by the Commission and in accordance with the 
rules of BSECC.\248\
---------------------------------------------------------------------------

    \247\ See proposed BSECC Articles of Organization, Article V.
    \248\ See proposed BSECC By-Laws Article VI.7. BSECC Rule XII 
requires notice to clearing members of amendments to the BSECC By-
Laws.
---------------------------------------------------------------------------

    BSECC also proposes several other changes to the BSECC Articles of 
Organization and BSECC By-Laws, which BSECC states are primarily for 
the purpose of updating those documents in accordance with modern 
corporate practice for Massachusetts corporations.\249\ Specifically, 
BSECC proposes to adopt what it terms ``modern provisions'' stipulating 
the conditions under which BSECC may indemnify its officers and 
directors and the scope of that indemnification. Such provisions 
provide that directors of BSECC are not personally liable to it for 
breaches of fiduciary duty, except for breaches involving (1) A breach 
of the duty of loyalty, (2) acts or omissions not in good faith or that 
involve intentional misconduct or knowing violation of law, (3) 
distributions of assets that would render BSECC insolvent, or (4) any 
transaction from which the director derived an improper personal 
benefit.\250\ BSECC also proposes to amend the BSECC By-Laws to clarify 
the time periods allowed or required for notice to stockholders of 
meetings, the permissible duration of stockholder proxies, and the 
setting of a record date, which BSECC states are consistent with 
Massachusetts law.\251\ BSECC further proposes to remove a provision 
from its By-Laws allowing close of the transfer books of BSECC, which 
BSECC states is no longer consistent with Massachusetts law.\252\
---------------------------------------------------------------------------

    \249\ See BSECC Governance Proposal Notice, supra note 9, 73 FR 
at 27584.
    \250\ See proposed BSECC By-Laws Article VI.
    \251\ See proposed BSECC By-Laws Article I.4, Article I.6, and 
Article V.3.
    \252\ See BSECC By-Laws Article V.3. BSECC represents that this 
change would not limit the effectiveness of the change to the 
Articles of Organization requiring Commission approval of transfers 
of BSECC's stock. See BSECC Governance Proposal Notice, supra note 
9, 73 FR 27583, n.5.
---------------------------------------------------------------------------

    In addition, BSECC states that its proposed changes would allow 
stockholders, as well as directors, to fill vacancies on the BSECC 
Board of Directors (``BSECC Board'') in accordance with Massachusetts 
law \253\ and to clarify that directors of BSECC, if such directors 
also serve on the BSE Board, must tender resignations from the BSECC 
Board if they cease to be BSE Directors.\254\ The proposed changes also 
would clarify the requirements for action by the BSECC Board and the 
stockholders to be taken without a meeting.\255\
---------------------------------------------------------------------------

    \253\ See proposed BSECC By-Laws Article II.4.
    \254\ See proposed BSECC By-Laws Article II.7.
    \255\ BSECC also proposes changes to eliminate the offices of 
``clerk'' and ``vice-chairman'' from BSECC and to delete references 
to those offices from the By-Laws and to establish that the officers 
of BSECC are all appointed by and subject to removal by the BSECC 
Board. See proposed BSECC By-Laws Article III.1 and III.4.
---------------------------------------------------------------------------

    The Commission finds that the proposed changes to the BSECC 
Articles of Organization and BSECC By-Laws are consistent with the 
requirements of the Act and the rules and regulations thereunder and 
particularly with the requirements of Section 17A(b)(3)(C) of the 
Act.\256\ The Commission notes that the proposed rule change does not 
amend BSECC's rules or procedures with respect to the clearance and 
settlement of securities transactions or the safeguarding of securities 
and funds which are in BSECC's control or for which it is responsible. 
Section 17A(b)(3)(C) of the Act requires that a clearing agency's rules 
assure the fair representation of its shareholders (or members) and 
participants in the selection of its directors and administration of 
its affairs. BSECC would remain a wholly-owned subsidiary of BSE 
following the acquisition by NASDAQ OMX and the BSECC By-Laws relating 
to the selection, composition, powers, and duties of the BSECC Board, 
committees, and officers, except as discussed above, would remain 
unchanged. Accordingly, the Commission finds that BSECC's rules would 
continue to assure the fair representation of its shareholders and 
participants in the selection of BSECC's directors and the 
administration of BSECC's affairs as required by Section 17A(b)(3)(C).
---------------------------------------------------------------------------

    \256\ 15 U.S.C. 78q-1(b)(3)(C).
---------------------------------------------------------------------------

    Furthermore, as discussed above with respect to BSE, BSECC also has 
filed the Certificate and By-Laws of NASDAQ OMX as proposed rules.\257\ 
As noted above, although NASDAQ OMX is not itself an SRO, its 
activities with respect to the operation of BSECC must be consistent 
with, and must not interfere with, the self-regulatory obligations of 
BSECC. NASDAQ OMX's By-Laws would make applicable to all of NASDAQ 
OMX's SRO subsidiaries, including BSECC (after the BSE Acquisition), 
certain provisions of NASDAQ OMX's Certificate and NASDAQ OMX's By-Laws 
that are designed to maintain the independence of each of its SRO 
subsidiaries' self-regulatory functions, enable each SRO subsidiary to 
operate in a manner that complies with the federal securities laws, and 
facilitate the ability of each SRO subsidiary and the Commission to 
fulfill their regulatory and oversight obligations under the Act.\258\
---------------------------------------------------------------------------

    \257\ See supra note 38.
    \258\ See Amendment No. 1 to the BSECC Governance Proposal, 
supra note 10.
---------------------------------------------------------------------------

    Additionally, the Commission notes that the NASDAQ OMX By-Laws 
would provide that the NASDAQ OMX Board, as well as its officers, 
employees, and agents, may not take any action that would interfere 
with the decisions of the board of directors of any SRO subsidiary 
relating to its regulatory functions or the market structures or the 
clearing systems which it regulates or that would interfere with the 
ability of any SRO subsidiary to carry out its responsibilities under 
the Act.\259\ Also, the NASDAQ OMX By-Laws would specifically require 
the NASDAQ OMX Board to consider BSECC's regulatory obligations as a 
clearing agency when evaluating any issue,\260\ including granting any 
exemption from the NASDAQ OMX voting limitations discussed above.\261\ 
The Commission believes that the NASDAQ OMX By-Laws, as amended to 
accommodate the BSE Acquisition, are designed to facilitate BSECC's 
ability to fulfill its self-regulatory obligations and, accordingly, 
are consistent with Section 17A of the Act.
---------------------------------------------------------------------------

    \259\ See proposed Section 12.1(a), NASDAQ OMX By-Laws.
    \260\ The NASDAQ OMX Board would be required to consider, to the 
extent deemed relevant, when evaluating any issue, whether such 
would promote the prompt and accurate clearance and settlement of 
securities transactions (and to the extent applicable, derivative 
agreements, contracts and transactions), would assure the 
safeguarding of securities and funds in the custody or control of 
the SRO subsidiaries that are clearing agencies or securities and 
funds for which they are responsible, would foster cooperation and 
coordination with persons engaged in the clearance and settlement of 
securities transactions, and would remove impediments to and perfect 
the mechanism of a national system for the prompt and accurate 
clearance and settlement of securities transactions. See proposed 
Section 12.7, NASDAQ OMX By-Laws.
    \261\ Specifically, the NASDAQ OMX Board would be required to 
determine that granting any such exemption would promote the prompt 
and accurate clearance and settlement of securities transactions 
(and to the extent applicable, derivative agreements, contracts and 
transactions), would assure the safeguarding of securities and funds 
in the custody or control of the SRO subsidiaries that are clearing 
agencies or securities and funds for which they are responsible, 
would foster cooperation and coordination with persons engaged in 
the clearance and settlement of securities transactions, and would 
remove impediments to and perfect the mechanism of a national system 
for the prompt and accurate clearance and settlement of securities 
transactions. See proposed Section 12.5, NASDAQ OMX By-Laws; and 
Article Fourth.C.6, NASDAQ OMX Certificate. See also notes 100-104 
and accompanying text.

---------------------------------------------------------------------------

[[Page 46954]]

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning: (1) Amendment No. 1 to File No. SR-BSE-2008-23 
(the BSE Governance Proposal), including whether Amendment No. 1 is 
consistent with the Act; (2) Amendment No. 1 to File No. SR-BSECC-2008-
01 (the BSECC Governance Proposal), including whether Amendment No. 1 
is consistent with the Act; and (3) Amendment No. 1 to File No. SR-BSE-
2008-25 (the BOX Transfer Proposal), including whether Amendment No. 1 
is consistent with the Act. Comments may be submitted by any of the 
following methods:

Electronic Comments

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an e-mail to <a href="/cdn-cgi/l/email-protection#ef9d9a838ac28c8082828a819b9caf9c8a8cc1888099"><span class="__cf_email__" data-cfemail="245651484109474b4949414a5057645741470a434b52">[email protected]</span></a>. Please include 
File Number SR-BSE-2008-23, SR-BSECC-2008-01, or SR-BSE-2008-25 as 
applicable, on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to Amendment No. 1 to File No. SR-BSE-
2008-23, Amendment No. 1 to File No. SR-BSECC-2008-01, or Amendment No. 
1 to File No. SR-BSE-2008-25, as applicable. This file number should be 
included on the subject line if e-mail is used. To help the Commission 
process and review your comments more efficiently, please use only one 
method. The Commission will post all comments on the Commission's 
Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the 
submission, all subsequent amendments, all written statements with 
respect to the proposed rule change that are filed with the Commission, 
and all written communications relating to the proposed rule change 
between the Commission and any person, other than those that may be 
withheld from the public in accordance with the provisions of 5 U.S.C. 
552, will be available for inspection and copying in the Commission's 
Public Reference Room, 100 F Street, NE., Washington, DC 20549, on 
official business days between the hours of 10 a.m. and 3 p.m. Copies 
of such filing also will be available for inspection and copying at the 
principal office of BSE or BSECC, as applicable. All comments received 
will be posted without change; the Commission does not edit personal 
identifying information from submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to Amendment No. 1 to File No. SR-BSE-2008-23, Amendment 
No. 1 to File No. SR-BSECC-2008-01, or Amendment No. 1 to File No. SR-
BSE-2008-25, as applicable, and should be submitted on or before 
September 2, 2008.

IV. Accelerated Approval of the BSE Governance Proposal, as Modified by 
Amendment No. 1, the BSECC Governance Proposal, as Modified by 
Amendment No. 1, and the BOX Transfer Proposal, as Modified by 
Amendment No. 1

    The Commission finds good cause for approving: (1) The BSE 
Governance Proposal, as modified by Amendment No. 1, (2) the BSECC 
Governance Proposal, as modified by Amendment No. 1, and (3) the BOX 
Transfer Proposal, as modified by Amendment No. 1, prior to the 
thirtieth day after the date of publication of notice of filing of such 
amendments in the Federal Register.\262\
---------------------------------------------------------------------------

    \262\ 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 the notice thereof, unless the Commission finds good 
cause for so doing.
---------------------------------------------------------------------------

    In Amendment No. 1 to the BSE Governance Proposal and Amendment No. 
1 to the BSECC Governance Proposal, BSE and BSECC each propose to adopt 
as rules the NASDAQ OMX Certificate and NASDAQ OMX By-Laws. The NASDAQ 
OMX Certificate, as filed by BSE and BSECC, was previously approved by 
the Commission as rules of Nasdaq.\263\ The NASDAQ OMX By-Laws were 
similarly approved previously by the Commission.\264\ As filed by BSE 
and BSECC, the NASDAQ OMX By-Laws include certain new terminology to 
reflect the acquisition of BSE and BSECC by NASDAQ OMX. These changes 
were filed by Nasdaq as a proposed rule change, were published for 
comment, and were approved by the Commission.\265\ The changes were 
also filed by Phlx, and were approved by the Commission, in connection 
with the Phlx Acquisition.\266\ The Commission received no comments on 
the proposed changes to the NASDAQ OMX By-Laws in either instance.\267\
---------------------------------------------------------------------------

    \263\ See Nasdaq Exchange Approval Order, supra note 63, 73 FR 
at 3552-3553.
    \264\ See NASDAQ OMX By-Laws Proposal Notice, supra note 18, 73 
FR 26182, and NASDAQ OMX By-Laws Approval Order, supra note 31, 73 
FR 42850.
    \265\ Id.
    \266\ See Securities Exchange Act Release No. 58179, supra note 
27.
    \267\ In addition, Amendment No. 1 to the BSE Governance 
Proposal and Amendment No. 1 to the BSECC Governance Proposal 
incorporate a change to the Nasdaq OMX By-Laws to clarify the 
definition of Non-Industry Director with respect to issuer 
representation on the Nasdaq OMX Board of Directors that recently 
was approved by the Commission. See Securities Exchange Act Release 
No. 58201 (July 21, 2008), 73 FR 43812 (July 28, 2008) (SR-NASDAQ-
2008-043).
---------------------------------------------------------------------------

    As discussed more fully above in Sections II.A.1. and II.A.6., and 
in the NASDAQ OMX By-Law Proposal Notice, certain provisions of NASDAQ 
OMX's Certificate and By-Laws are designed to facilitate the ability of 
NASDAQ OMX's SRO subsidiaries, including BSE and BSECC, to maintain the 
independence of each of the SRO subsidiaries' self-regulatory function, 
enable each SRO subsidiary to operate in a manner that complies with 
the federal securities laws, and facilitate the ability of each SRO 
subsidiary and the Commission to fulfill their regulatory and oversight 
obligations under the Act.\268\ As stated above, the Commission finds 
that such provisions are consistent with the Act.\269\ Notably, the 
NASDAQ OMX Certificate and By-Laws are rules of Nasdaq that have been 
approved previously by the Commission, as noted above, and the changes 
to the NASDAQ OMX By-Laws were published for notice and comment, as 
noted above, and the Commission did not receive any comments thereon.
---------------------------------------------------------------------------

    \268\ See supra notes 38-47, 100-104 and accompanying text.
    \269\ See id.
---------------------------------------------------------------------------

    Additionally, in Amendment No. 1 to the BSE Governance Proposal, 
BSE proposes to amend Section 8.2(f) of the BSX Operating Agreement. 
Section 8.2(f) currently requires that any person who, alone or 
together with any affiliate of such person, has 25 percent or greater 
interest in a BSX Member who, alone or together with any affiliate of 
such BSX Member, holds 20 percent or greater interest in BSX become 
party to, and abide by all the provisions of, the BSX Operating 
Agreement. In Amendment No. 1, BSE proposes to clarify that for the 
Section 8.2(f) requirement to apply, a person, alone or together with 
any affiliate of such person, must have direct or indirect ownership of 
25 percent or more of the total voting power of all equity securities 
of a BSX Member, other than voting rights solely with respect to 
matters affecting the rights, preferences, or privileges of a 
particular class of equity securities. Notwithstanding the foregoing, 
BSE proposes to clarify that a person with zero percent direct or 
indirect interest in a BSX Member would not be required to

[[Page 46955]]

become party to the BSX Operating Agreement pursuant to the revised 
Section 8.2(f).
    The Commission finds these changes to the BSX Operating Agreement 
consistent with the Act. Section 8.2(f) of the BSX Operating Agreement 
is designed to minimize the potential that a person could improperly 
interfere with or restrict the ability of the Commission and BSE to 
effectively carry out their regulatory oversight responsibilities under 
the Act. The clarifications proposed by BSE do not hinder the intent of 
Section 8.2(f), because the Commission believes that a person without 
voting power in the equity securities of a BSX Member, or a person with 
no direct or indirect interest in a BSX Member, could not interfere 
with or restrict the Commission's or the BSE's ability to carry out its 
regulatory responsibilities.
    In Amendment No. 1 to the BOX Transfer Proposal, BSE proposes to 
amend Section 8.4(g) of the BOX LLC Agreement. Section 8.4(g) currently 
requires that any person who, alone or together with any affiliate of 
such person, has 25 percent or greater interest in a BOX Member who, 
alone or together with any affiliate of such BOX Member, holds 20 
percent or greater interest in BOX become party to, and abide by all 
the provisions of, the BOX LLC Agreement. In Amendment No. 1, BSE 
proposes to clarify that for the Section 8.4(g) requirement to apply, a 
person, alone or together with any affiliate of such person, must have 
direct or indirect ownership of 25 percent or more of the total voting 
power of all equity securities of a BOX Member, other than voting 
rights solely with respect to matters affecting the rights, 
preferences, or privileges of a particular class of equity securities. 
Notwithstanding the foregoing, BSE proposes to clarify that a person 
with zero percent direct or indirect interest in a BOX Member would not 
be required to become party to the BOX LLC Agreement pursuant to the 
revised Section 8.4(g).
    The Commission finds these changes to the BOX LLC Agreement 
consistent with the Act. Section 8.4(g) of the BOX LLC Agreement is 
designed to minimize the potential that a person could improperly 
interfere with or restrict the ability of the Commission and BSE to 
effectively carry out their regulatory oversight responsibilities under 
the Act. The clarifications proposed by BSE do not hinder the intent of 
Section 8.4(g) because the Commission believes that a person without 
voting power in the equity securities of a BOX Member, or a person with 
no direct or indirect interest in a BOX Member, could not interfere 
with or restrict the Commission's or the BSE's ability to carry out its 
regulatory responsibilities.
    For the reasons described above, the Commission finds good cause 
for approving each of the following on an accelerated basis, pursuant 
to Section 19(b)(2) of the Act: (1) The BSE Governance Proposal, as 
modified by Amendment No. 1; (2) the BSECC Governance Proposal, as 
modified by Amendment No. 1; and (3) the BOX transfer Proposal, as 
modified by Amendment No. 1.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\270\ that the BSE Interim Certificate Proposal (SR-BSE-2008-02), 
as modified by Amendment No. 1, be, and hereby is, approved; that the 
BSE Governance Proposal (SR-BSE-2008-23), as modified by Amendment 
No.1, be, and hereby is, approved on an accelerated basis; that the BOX 
Transfer Proposal (SR-BSE-2008-25), as modified by Amendment No. 1, be, 
and hereby is, approved on an accelerated basis; and that the BSECC 
Governance Proposal (SR-BSECC-2008-01), as modified by Amendment No.1 
be, and hereby is approved on an accelerated basis.
---------------------------------------------------------------------------

    \270\ 15 U.S.C. 78s(b)(2).

    By the Commission.
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-18577 Filed 8-11-08; 8:45 am]
BILLING CODE 8010-01-P


</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>