[Federal Register Volume 80, Number 1 (Friday, January 2, 2015)]
[Notices]
[Pages 85-91]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-30703]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73944; File No. SR-NSX-2014-017]


Self-Regulatory Organizations; National Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change in Connection With a Proposed 
Transaction in Which National Stock Exchange Holdings, Inc. Will 
Acquire Ownership of the Exchange From the CBOE Stock Exchange, LLC

December 24, 2014.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Exchange Act'' or the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ 
notice is hereby given that, on December 16, 2014, National Stock 
Exchange, Inc. (``NSX[supreg]'' or the ``Exchange'') filed with the 
Securities and Exchange Commission (``SEC'' or the ``Commission'') the 
proposed rule change, as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comment on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange has filed proposed rule changes in connection with a 
proposed transaction (the ``Transaction'') whereby National Stock 
Exchange Holdings, Inc. (``NSX Holdings''), a corporation organized 
under the laws of the State of Delaware,\3\ will purchase all of the 
outstanding shares of NSX from the CBOE Stock Exchange, LLC (``CBSX''). 
Pursuant to the Transaction, the Exchange will become a wholly-owned 
subsidiary of NSX Holdings. In addition, the Exchange is proposing 
that, in connection with the Transaction, the Commission approve 
certain amendments in the organizational documents of NSX.
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    \3\ NSX Holdings was incorporated in the State of Delaware on 
August 19, 2014.
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    To effectuate the transaction, the Exchange seeks to obtain the 
Commission's approval of: The proposed Second Amended and Restated 
Certificate of Incorporation of NSX Holdings; \4\ the proposed By-laws 
of NSX Holdings; proposed amendments to the Exchange's current Amended 
and Restated Certificate of Incorporation; \5\ and Exchange's Second 
Amended By-laws.
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    \4\ The original Certificate of Incorporation for NSX Holdings 
was amended on October 2, 2014 to amend the total number of shares 
of common stock that NSX Holdings was authorized to issue from 
10,000 shares to 100,000 shares with a par value of $0.01.
    \5\ The original Certificate of Incorporation for NSX was filed 
with the Delaware Secretary of State on December 12, 2005 and was 
restated on June 29, 2006. It was subsequently restated and amended 
in December 2011 in connection with the acquisition of the Exchange 
by CBSX.
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.nsx.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements

[[Page 86]]

concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant parts of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Proposed Transaction
    Since December 2011, NSX has been wholly owned by CBSX.\6\ CBSX is 
the record and beneficial owner of 100 shares of NSX, par value $.01 
per share, which represents all of the issued and outstanding shares of 
capital stock of NSX. Pursuant to the terms of a Stock Purchase 
Agreement dated September 8, 2014 (the ``SPA'') by and among CBSX, NSX 
Holdings and NSX, NSX Holdings has agreed to acquire all of the 
outstanding capital stock of NSX upon the closing of the Transaction 
(the ``Closing'') in return for cash consideration paid to CBSX.\7\ The 
SPA provides that the Closing will occur only after all required 
regulatory approvals have been obtained and all other conditions 
precedent to Closing have been satisfied or waived.\8\ Following the 
completion of the Transaction, NSX will remain a Delaware for-profit 
stock corporation, with authority to issue 1,000 shares of common 
stock. At all times, all of the outstanding stock of NSX shall be owned 
by NSX Holdings.
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    \6\ The acquisition of NSX by CBSX was approved by the 
Commission in December 2011. See Exchange Act Release No. 66071 
(December 29, 2011), 77 FR 521 (January 5, 2012) (SR-NSX-2011-14 and 
SR-CBOE-2011-107).
    \7\ CBSX is partially owned by the Chicago Board Options 
Exchange, Incorporated (``CBOE'') and operated as a facility of 
CBOE. Pursuant to a rule amendment filed with the Commission, CBSX 
ceased trading operations as of the close of business on April 30, 
2014. See Exchange Act Release No. 71880 (April 4, 2014), 79 FR 
19950 (April 10, 2014) (SR-CBOE-2014-036).
    \8\ Conditions precedent to Closing are formal requirements set 
forth in the SPA that must be satisfied or waived on or prior to the 
Closing date. These conditions include the completion of all 
required filings with or notices to, and all approvals, 
authorizations and actions by, the SEC, the Financial Industry 
Regulatory Authority, the Secretary of State of the State of 
Delaware and other applicable governmental entities and regulatory 
bodies necessary to effect the completion of the Transaction; 
compliance by each party with specified representations, warranties 
and covenants, and receipt of necessary approvals by each party.
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    NSX will remain registered as a national securities exchange under 
Section 6 of the Act \9\ and a self-regulatory organization (``SRO'') 
as defined in Section 3(a)(26) of the Act.\10\ The Exchange plans to 
reopen its marketplace for the trading of equity securities as soon as 
practicable after the Closing and plans to operate the Exchange 
pursuant to the rules of the Exchange currently in effect and using the 
Exchange's existing trading system; however, the re-opening of the 
Exchange marketplace is subject to additional rule changes filed with 
the Commission and such rule changes being approved or becoming 
effective.\11\ NSX's Rules, all of which remain in full force and 
effect as of the date of the instant rule filing, will continue to 
govern the activities of NSX up to and after the Closing, and NSX will 
continue to discharge its SRO responsibilities pursuant to NSX's 
registration under Section 6 of the Act.\12\ NSX Holdings represents 
that, assuming consummation of the Transaction, it will at all times 
ensure that the Exchange has access to financial resources sufficient 
for it to discharge its SRO responsibilities after the date of Closing.
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    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78c(a)(26).
    \11\ Pursuant to a rule filing with the Commission, the Exchange 
ceased trading operations as of the close of business on May 30, 
2014. See Exchange Act Release No. 72107 (May 6, 2014), 79 FR 27017 
(May 12, 2014) (SR-NSX-2014-14). NSX Rules continue to remain in 
full force and effect through and after May 30, 2014. The rule 
filing stated that the Exchange shall file a proposed rule change 
pursuant to Rule 19b-4 of the Exchange Act prior to any resumption 
of trading on the Exchange pursuant to Chapter XI (Trading Rules) of 
the NSX Rules.
    \12\ Id. The Exchange will also continue to adhere to the 
Undertakings in the Commission's 2005 Order Instituting 
Administrative and Cease-and-Desist Proceedings Pursuant to Sections 
19(h) and 21C of the Securities Exchange Act of 1934, Making 
Findings, and Imposing Sanctions, including those Undertakings 
related to a Regulatory Oversight Committee and the separation of 
the regulatory functions from the commercial interests of NSX. See 
Securities Exchange Act Release No. 51714 (May 19, 2005).
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    Currently, NSX has one affiliated entity, NSX Securities LLC (``NSX 
Securities''). Pursuant to Exchange Rule 2.11(a), NSX Securities 
provides the outbound routing of orders from the Exchange to other 
trading centers. NSX Securities operates as a facility (as defined in 
Section 3(a)(2) of the Exchange Act) \13\ of NSX. An SRO unaffiliated 
with the Exchange carries out oversight and enforcement 
responsibilities as the designated examining authority designated by 
the Commission pursuant to Section 17d-1 of the Act \14\ with the 
responsibility for examining NSX Securities for compliance with the 
applicable financial responsibility rules. As provided in Exchange Rule 
2.11(a)(3), an ETP Holder's use of NSX Securities to route orders to 
another trading center will be optional; any ETP Holder that does not 
want to use NSX Securities may use other routers to route orders to 
other trading centers.
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    \13\ 15 U.S.C. 78c(a)(2).
    \14\ 15 U.S.C. 78q(d)(1).
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    Further as provided in Exchange Rule 2.11(b), the books, records, 
premises, officers, agents, directors and employees of NSX Securities 
as a facility of the Exchange are deemed to be those of the Exchange 
for purposes of, and oversight pursuant to the Exchange Act, and the 
books and records of NSX securities as a facility of the Exchange are 
at all times subject to inspection and copying by the Exchange and by 
the Commission.
    The Exchange states that, upon the Closing of the Transaction, all 
of the provisions of Rule 2.11 governing the operation of NSX 
Securities will remain in full force and effect, and the sole change 
impacting NSX Securities will be the change of ownership of the 
Exchange as the NSX Securities' sole affiliate. The Exchange, on behalf 
of NSX Securities, will provide notice to, and obtain any required 
consents from, FINRA for the NSX change of ownership.
    NSX has submitted to the Commission for its approval (i) a proposed 
Second Amended and Restated Certificate of Incorporation for NSX 
Holdings (the ``NSX Holdings A&R Certificate''); (ii) proposed By-laws 
of NSX Holdings (the ``NSX Holdings By-laws''); (iii) the proposed 
Second Amended and Restated Certificate of Incorporation of NSX (the 
``NSX A&R Certificate''); and (iv) the proposed Third Amended and 
Restated NSX By-laws (the ``NSX A&R By-laws''), which are proposed to 
be adopted or amended as described below.
The NSX Holdings A&R Certificate and NSX Holdings By-Laws
    The instant filing seeks Commission approval for the NSX Holdings 
A&R Certificate and for the NSX Holdings By-laws. The key provisions of 
these organizational documents impacting the governance of NSX Holdings 
and its status as the holding company of NSX are described below.
    First, as proposed, the total number of shares which the NSX 
Holdings is authorized to issue is 100,000 shares of common stock with 
a par value of $0.01. The NSX Holdings A&R Certificate carries forward 
the authorized share amount contained in the October 2, 2014, amendment 
to the Certificate of

[[Page 87]]

Incorporation for NSX Holdings.\15\ At present, NSX Holdings plans to 
issue 10,000 shares of common stock.
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    \15\ NSX Holdings A&R Certificate, Article Fourth.
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NSX Holdings Ownership and Voting
    Ownership of NSX Holdings as the new holding company of NSX will be 
divided among two categories of shareholders. The largest category is 
comprised of 12 individual investors who, in the aggregate, own 
approximately 64% of the outstanding shares of NSX Holdings.\16\ At 
Closing, one individual investor may own in the aggregate more than 40% 
of the outstanding shares of NSX Holdings. Four of these 12 individual 
investors in NSX Holdings, owning in the aggregate approximately 60% of 
the outstanding shares, are securities industry and technology 
professionals with extensive experience, including senior executive 
managerial experience, in areas including capital markets and 
investment management, exchange operations, electronic trading, and 
systems architecture and development.\17\ The Exchange anticipates that 
these four individuals will assume senior executive roles in the 
Exchange's management upon the completion of the Transaction.
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    \16\ Pursuant to Rule 6a-2 under the Act, the Exchange will, 
within 10 days after the Closing, amend its Form 1 (APPLICATION FOR, 
AND AMENDMENTS TO APPLICATION FOR, REGISTRATION AS A NATIONAL 
SECURITIES EXCHANGE OR EXEMPTION FROM REGISTRATION PURSUANT TO 
SECTION 5 OF THE EXCHANGE ACT) filed with the Commission. Exhibit K 
of Form 1, which is applicable only to ``. . . exchanges that have 
one or more owners, shareholders, or partners that are not also 
members of the exchange. . . .'', requires the Exchange to provide a 
list of each shareholder that directly owns 5% or more of a class of 
a voting security of the Exchange. As noted above, the Exchange 
proposes that 100% of the issued and outstanding shares of NSX will 
be directly owned by NSX Holdings.
    \17\ The remaining eight individual shareholders of NSX Holdings 
own shares in amounts ranging from approximately 0.063% to 1.269%. 
One or more of these individuals may become an employee of NSX upon 
the completion of the Transaction.
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    The second category of shareholders of NSX Holdings consists of two 
affiliated entities: Thor Investment Holdings LLC (``Thor'') \18\ and 
TIP-1 LLC (``TIP-1''),\19\ each a Delaware limited liability company. 
Thor will own approximately 16% of the outstanding equity of NSX 
Holdings, and TIP-1 will own approximately 20% of the outstanding 
equity of NSX Holdings. Thor will also have an ownership interest in 
TIP-1 and will act as its managing member. In turn, Thor's management 
will be vested exclusively in a managing member, Thor Managing Member 
LLC (``Thor MM''). Thor MM will have no ownership interest in either 
Thor or TIP-1. There are three individual members of Thor MM, all of 
whom are also members of Thor. Currently, nine individuals are members 
of Thor. It is anticipated that there will be six members of TIP-1, 
including Thor. Each such member thereby has an ownership interest in 
the respective entities' share of the outstanding equity of NSX 
Holdings.\20\
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    \18\ The Certificate of Formation for Thor was filed with the 
Secretary of State of Delaware on July 23, 2014.
    \19\ The Certificate of Formation for TIP-1 was filed with the 
Secretary of State of Delaware on July 23, 2014.
    \20\ Currently, approximately 15% of the ownership interest in 
Thor remains unassigned and may be distributed to other individuals 
at the discretion of the Managing Member. This approximate 15% 
unassigned interest represents less than 5% of the total outstanding 
shares of NSX Holdings.
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    The Exchange notes that there is no commonality or overlap between 
the 12 individual investors owning approximately 64% of the outstanding 
shares of NSX Holdings and the individual members of Thor and TIP-1 
which own the remaining approximately 36% of the outstanding equity of 
NSX Holdings. No individual has an ownership interest in both Thor and 
TIP-1. None of the individual members of Thor or TIP-1 will become an 
employee of NSX, and none of these individuals will have any role in 
the day-to-day management or operation of the Exchange.
    With respect to voting rights, Thor will have the power to exercise 
TIP-1's voting rights in NSX Holdings, such that Thor will have the 
ability to exercise an approximate 36% voting interest of NSX Holdings. 
The Exchange notes, however, that because of the voting limitations in 
the NSX Holdings A&R Certificate described below, Thor will not be able 
to exercise its voting interest in excess of the 20% voting limitation.
    The NSX Holdings A&R Certificate provides for limitations on the 
ownership and voting of shares of NSX Holdings. Subject to certain 
exceptions, no Person,\21\ either alone or with its Related 
Persons,\22\ shall be permitted at any time to own beneficially shares 
of stock of NSX Holdings representing in the aggregate more than 40% of 
the then outstanding votes entitled to be cast on any matter (the 
``Concentration Limitation'').\23\ As proposed, any Person (either 
alone or with their Related Persons) who is in excess of the 
Concentration Limitation as of the filing date of the NSX Holdings A&R 
Certificate will have an exemption, not to extend past May 19, 2015, 
from the Concentration Limitation. The Exchange believes that 
permitting an exemption for this period is a reasonable and measured 
approach that balances the capital contributions made by shareholders 
at the time of the acquisition of NSX by NSX Holdings with the post-
acquisition governance goal of reducing share ownership 
concentrations.\24\
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    \21\ The term ``Person'' as used in the NSX Holdings A&R 
Certificate means a natural person, partnership (general or 
limited), corporation, limited liability company, trust or 
unincorporated organization, or a governmental entity or political 
subdivision thereof. See NSX Holdings A&R Certificate, Article 
Fourth, Section B.
    \22\ The term ``Related Person'' means: (1) With respect to any 
Person, any executive officer (as such term is defined in Rule 3b-7 
under the Exchange Act) director, general partner, manager or 
managing member, as applicable, and all ``affiliates'' and 
``associates'' of such Person (as those terms are defined in Rule 
12b-2 under the Exchange Act), and other Person(s) whose beneficial 
ownership of shares of stock of the Corporation with the power to 
vote on any matter would be aggregated with such first Person's 
beneficial ownership of such stock or deemed to be beneficially 
owned by such first Person pursuant to Rules 13d-3 and 13d-5 under 
the Exchange Act; and (2) in the case of any Person constituting a 
member (as that term is defined in Section 3(a)(3)(A) of the 
Exchange Act) of NSX (defined in NSX Rule 1.5E(1) as a Holder of an 
Equity Trading Permit) for so long as NSX remains a registered 
national securities exchange, such Person and any broker or dealer 
with which such Person is associated; and any other Person(s) with 
which such Person has any agreement, arrangement or understanding 
(whether or not in writing) to act together for the purpose of 
acquiring, voting, holding or disposing of shares of the stock of 
NSX Holdings; and in the case of a Person that is a natural person, 
any relative or spouse of such Person, or any relative of such 
spouse, who has the same home as such Person or who is a director or 
officer of NSX Holdings or any of its parents or subsidiaries. Id.
    \23\ See NSX Holdings A&R Certificate, Article Fourth, Section 
C(i).
    \24\ The Exchange notes that, in connection with a prior 
restructuring of a national securities exchange, the Commission 
approved a period of time for the reduction of share ownership 
concentrations by certain individuals. See Exchange Act Release No. 
45803 (April 23, 2002), 67 FR 21306 (April 30, 2002) (SR-ISE-2002-
01).
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    The Concentration Limitation applies unless and until: (i) A Person 
(either alone or with its Related Persons) intending to acquire such 
ownership shall have delivered to the Board of Directors of NSX 
Holdings (the ``Holdings Board'') a notice in writing, not less than 45 
days (or such shorter period as the Holdings Board shall expressly 
consent to) prior to the acquisition of any shares that would cause 
such Person (either alone or with its Related Persons) to exceed the 
Concentration Limitation, of its intention to acquire such ownership; 
(ii) the Holdings Board shall have resolved to expressly permit such 
ownership; and (iii) such resolution shall have been filed with the 
Commission under Section 19(b) of the Exchange Act and

[[Page 88]]

shall have become effective thereunder.\25\
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    \25\ See NSX Holdings A&R Certificate, Article Fourth, Section 
C(i)(a).
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    Article Fourth, Section C(i)(b) of the NSX Holdings A&R Certificate 
provides for additional safeguards that must be satisfied before the 
Holdings Board may adopt a resolution permitting share ownership in 
excess of the Concentration Limitation. Specifically, the provision 
states that, subject to its fiduciary obligations pursuant to the 
Delaware General Corporation Law, the Holdings Board shall not adopt 
any resolution permitting a Person to exceed the Concentration 
Limitation unless the Holdings Board first determines that such 
acquisition of beneficial ownership by such Person, either alone or 
with its Related Persons (i) will not impair any of NSX Holdings' or 
NSX's ability to discharge its responsibilities under the Exchange Act 
and the rules and regulations thereunder and is otherwise in the best 
interests of NSX Holdings and its stockholders; (ii) such acquisition 
of beneficial ownership by such Person, either alone or with its 
Related Persons, will not impair the Commission's ability to enforce 
the Exchange Act; and (iii) neither such Person nor any of its Related 
Persons is subject to any statutory disqualification as defined in 
Section 3(a)(39) of the Exchange Act.\26\
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    \26\ 15 U.S.C. 78c(a)(39).
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    The NSX Holdings A&R Certificate further provides that, in making 
such determinations, the Holdings Board may impose such conditions and 
restrictions on a Person and its Related Persons owning any shares of 
stock of NSX Holdings entitled to vote on any matter as it may in its 
sole discretion deem necessary, appropriate or desirable in furtherance 
of the objectives of the Exchange Act and the governance of NSX 
Holdings.\27\ Moreover, in the event that a Person, either alone or 
with its Related Persons, at any time owns beneficially shares of stock 
of NSX Holdings in excess of the Concentration Limitation without 
having first satisfied the requirement of providing timely written 
notice to the Holdings Board, and the Holdings Board expressly 
resolving to permit such ownership and filing the resolution with the 
Commission pursuant to Section 19(b) of the Exchange Act, NSX Holdings 
shall call from such Person and its Related Persons that number of 
shares of stock of NSX Holdings entitled to vote on any matter that 
exceeds the Concentration Limitation at a price equal to the par value 
of such shares of stock.\28\
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    \27\ See NSX Holdings A&R Certificate, Article Fourth, Section 
C(i)(b).
    \28\ See NSX Holdings A&R Certificate, Article Fourth, Section 
C(i)(c).
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    The NSX Holdings A&R Certificate further provides for limitations 
on ownership of shares by ETP Holders of NSX.\29\ For so long as NSX 
remains a registered national securities exchange under Section 6 of 
the Exchange Act, no ETP Holder, either alone or with its Related 
Persons, shall be permitted at any time to own beneficially shares of 
stock of NSX Holdings representing in the aggregate more than 20% of 
the then outstanding votes of NSX Holdings stock entitled to be cast on 
any matter.\30\ If any ETP Holder, either alone or with its Related 
Persons, at any time owns beneficially shares of stock in excess of 
such 20% limitation, NSX Holdings shall call from such ETP Holder and 
its Related Persons that number of shares of stock of NSX Holdings 
entitled to vote on any matter that exceeds such 20% limitation a price 
equal to the par value of such shares of stock.\31\
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    \29\ NSX Rule 1.5E.(1) defines the term ``ETP'' as an Equity 
Trading Permit issued by the Exchange for effecting approved 
securities transactions on the Exchange's trading facilities. An ETP 
may be issued to a sole proprietor, partnership, corporation, 
limited liability company or other organization which is a 
registered broker dealer pursuant to Section 15 of the Exchange Act 
and which has been approved by the Exchange.
    \30\ See NSX Holdings A&R Certificate, Article Fourth, Section 
C(ii).
    \31\ Id.
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    With respect to voting limitations, Article Fourth, Section B(i) of 
the NSX Holdings A&R Certificate provides that, notwithstanding any 
other provisions of that document, no Person, either alone or with its 
Related Persons, as of any record date for the determination of 
stockholders entitled to vote on any matter, shall be entitled to vote 
or cause the voting of shares of stock of NSX Holdings, in person or by 
proxy or through any voting agreement or other arrangement, to the 
extent such shares represent in the aggregate more than 20% of the then 
outstanding votes entitled to be cast on such matter (the ``Voting 
Limitation''). If votes have been cast, in person or by proxy or 
through any voting agreement or other arrangement, by any Person, 
either alone or with its Related Persons, in excess of the Voting 
Limitation, NSX Holdings shall disregard such votes cast in excess of 
the Voting Limitation.\32\ The Voting Limitation shall apply unless and 
until a Person (and its related persons) owning any shares of stock of 
NSX Holdings entitled to vote on such matter shall have delivered to 
the Holdings Board a notice in writing, not less than 45 days (or such 
shorter period as the Holdings Board shall expressly consent to) prior 
to any vote, of its intention to cast more than 20% of the votes 
entitled to be cast on such matter or to enter into an agreement, plan 
or other arrangement that would violate the Nonvoting Agreement 
Prohibition, as applicable; the Holdings Board shall have resolved to 
expressly permit such exercise or the entering into of such agreement, 
plan or other arrangement, as applicable, and such resolution shall 
have been filed with the Commission under Section 19(b) Exchange Act 
and shall have become effective thereunder.\33\
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    \32\ The NSX Holdings A&R Certificate, Article Fourth, Section 
B(i) prohibits ``Nonvoting Agreements'' by or among Persons and 
their Related Persons that would result in shares of stock that 
would be subject to such agreement not being voted on any matter, or 
the withholding of any proxy relating those shares, where the effect 
of such an agreement would be to enable any Person, either alone or 
with its Related Persons, to vote or cause the voting of shares of 
representing in the aggregate more than 20% of the then outstanding 
votes entitled to be cast (the ``Nonvoting Agreement Prohibition''). 
Any share owner seeking a waiver of the Nonvoting Agreement 
Prohibition so as to be able to enter into such an agreement would 
also be required to obtain express permission of the Holdings Board 
through a duly authorized written resolution that is filed with and 
approved by the Commission under Section 19(b) of the Exchange Act.
    \33\ See NSX Holdings A&R Certificate, Article Fourth, Section 
B(ii).
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Regulatory Jurisdiction; Regulatory Obligations of NSX Holdings, Its 
Officers and Directors
    The NSX Holdings A&R Certificate and the NSX Holdings By-laws 
contain explicit provisions governing the operation of NSX Holdings 
with respect to regulatory jurisdiction and the regulatory obligations 
of the company and its directors, officers and employees.
    Article VI of the NSX Holdings By-laws, entitled ``SRO Functions of 
NSX,'' governs the conduct of NSX Holdings as the holding company for 
NSX with respect to NSX's status and obligations as a registered 
national securities exchange and an SRO.\34\ Among the key provisions 
are requirements that, for so long as NSX Holdings shall, directly or 
indirectly, control NSX, the directors, officers, employees and agents 
of NSX Holdings shall:
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    \34\ The NSX Holdings A&R Certificate, Articles Twelfth through 
Sixteenth contains substantially the same provisions with respect to 
NSX Holdings' obligations as the controlling entity for the Exchange 
as an SRO.
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    <bullet> Give due regard to the preservation of the independence of 
NSX's SRO function and its obligations to investors and the general 
public and shall not take actions which would interfere with the 
effectuation of decisions by the NSX

[[Page 89]]

Board relating to NSX's regulatory function (including disciplinary 
matters) or which would interfere with the Exchange's ability to carry 
out its responsibilities under the Exchange Act; \35\
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    \35\ See NSX Holdings By-laws, Article VI, Section 6.1, ``Non-
Interference.''
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    <bullet> to the fullest extent permitted by applicable law, 
maintain the confidentiality of all information that comes into their 
possession pertaining to the SRO function of the Exchange (including 
but not limited to disciplinary matters, trading data, trading 
practices and audit information) contained in the books and records of 
NSX; \36\ and
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    \36\ See NSX Holdings By-laws, Article VI, Section 6.2, 
``Confidentiality of Information.''
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    <bullet> maintain its books and records within the United States 
and subject at all times to inspection and copying by the SEC and by 
NSX to the extent related to the administration and operation of 
NSX.\37\
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    \37\ See NSX Holdings By-laws, Article VI, Sections 6.4 and 6.5, 
``Books and Records.''
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    For so long as NSX remains a registered national securities 
exchange, the books, records, premises, officers, directors, employees 
and agents of NSX Holdings shall be deemed to be the books, records, 
premises, officers, directors, employees and agents of NSX for purposes 
of and subject to oversight pursuant to the Exchange Act.\38\ NSX 
Holdings and its officers, directors, employees and agents by virtue of 
their acceptance of such positions, shall be deemed to irrevocably 
submit to the jurisdiction of the United States federal courts, the 
Commission and NSX for the purposes of any suit, action or proceeding 
pursuant to the United States federal securities laws, and the rules or 
regulations thereunder, arising out of, or relating to, the activities 
of NSX, and by virtue of their acceptance of any such position, shall 
be deemed to waive, and agree not to assert by way of motion, as a 
defense or otherwise in any such suit, action or proceeding, any claims 
that it or they are not personally subject to the jurisdiction of the 
United States federal courts, the Commission or the Exchange, that the 
suit, action or proceeding is an inconvenient forum or that the venue 
of the suit, action or proceeding is improper, or that the subject 
matter of that suit, action or proceeding may not be enforced in or by 
such courts or agency. NSX Holdings and its officers, directors, 
employees and agents also agree that they will maintain an agent in the 
United States for the service of process of a claim arising out of, or 
relating to, the activities of the Exchange.\39\ NSX Holdings is 
required to comply with the federal securities laws, rules and 
regulations and to cooperate with the SEC and with NSX pursuant to and 
to the extent of their respective regulatory authority.\40\ The 
officers, directors, employees and agents of NSX Holdings, by virtue of 
their acceptance of such position, shall be deemed to agree to comply 
with the federal securities laws and the rules and regulations 
thereunder and to cooperate with the SEC and the Exchange in respect of 
the SEC's oversight responsibilities regarding NSX and the self-
regulatory functions and responsibilities of NSX. NSX Holdings will 
take reasonable steps necessary to cause its officers, directors, 
employees and agents to so cooperate.\41\
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    \38\ See NSX Holdings A&R Certificate, Article Fourteenth.
    \39\ See NSX Holdings A&R Certificate, Article Twelfth; NSX 
Holdings By-laws, Article VI, Section 6. Additionally, as noted, no 
individual who is subject to any statutory disqualification as 
defined in Section 3(a)(39) of the Exchange Act may serve as a 
director or officer of NSX Holdings.
    \40\ See NSX Holdings A&R Certificate, Article Fifteenth; NSX 
Holdings By-laws, Article VI, Section 6.6.
    \41\ See NSX Holdings A&R Certificate, Articles Twelfth and 
Fifteenth; NSX Holdings By-laws, Article VI, Section 6.6.
---------------------------------------------------------------------------

    Further, NSX Holdings shall take reasonable steps necessary to 
cause its officers, directors, employees and agents, prior to accepting 
a position as an officer, director, employee or agent, as applicable, 
of NSX Holdings, to consent in writing to the applicability to them of 
the provisions of Article VI of the NSX Holdings By-laws, as 
applicable, with respect to their activities related to the 
Exchange.\42\
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    \42\ See NSX Holdings By-laws, Article VI, Section 6.8, 
``Consent To Application.''
---------------------------------------------------------------------------

    The Exchange submits that the NSX Holdings A&R Certificate and NSX 
Holdings By-laws establish an organizational framework that assures 
that the Commission and NSX will have regulatory jurisdiction and 
authority over NSX Holdings and its directors, officers, employees and 
agents, and will preserve the independence and effectiveness of the 
Exchange in discharging its self-regulatory responsibilities pursuant 
to the Exchange Act. The provisions of those documents do not impair 
the ability of NSX to carry out its functions and responsibilities as a 
national securities exchange under the Act and the rules and 
regulations promulgated thereunder, or the ability of the Commission to 
enforce the Act and the rules and regulations promulgated thereunder. 
NSX will continue to enforce the Exchange Act, the Commission's rules 
thereunder, and the Exchange's own rules, in the same manner as prior 
to the Transaction. The Commission will continue to have plenary 
regulatory authority over NSX, as is currently the case.
Proposed Changes to NSX Organizational Documents in Connection With the 
Transaction
    The completion of the Transaction and the resulting change in 
ownership from CBSX to NSX Holdings will require certain amendments in 
the NSX A&R Certificate and the NSX A&R By-laws. Under the Exchange's 
proposed amendments in the NSX A&R Certificate, the provision that the 
Exchange shall at all times be wholly owned by CBSX will be removed and 
replaced by a provision requiring that the Exchange at all times be 
wholly owned by NSX Holdings.\43\
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    \43\ See Paragraph Fourth of the NSX A&R Certificate, which 
states that: ``[t]he total number of shares of stock which the 
[Exchange] shall have authority to issue is one thousand (1,000) 
shares of common stock having a par value of $.01 per share. At all 
times, all of the outstanding stock . . . shall be owned by National 
Stock Exchange Holdings, Inc. . . .''
---------------------------------------------------------------------------

    Under the proposed changes in the NSX A&R By-laws, because of the 
transfer of ownership of the Exchange from CBSX to NSX Holdings, 
references in the NSX A&R By-laws specific to CBSX are to be replaced, 
where applicable, with references to NSX Holdings. Specifically, 
Article III, Section 3.2(c) of the By-laws will be amended to eliminate 
any requirements relating to CBSX and will provide that no two or more 
directors of NSX may be partners, officers or directors of the same 
person \44\ or be affiliated with the same person, unless such 
affiliation is with a national securities exchange or NSX Holdings. In 
addition, the Exchange proposes to amend Section 10.1 in the NSX A&R 
By-laws (Management of the Exchange) to delete Paragraph (b), which 
requires that for so long as CBSX controls NSX, NSX shall promptly 
inform the CBSX board of directors, in writing, in the event that NSX 
has, or experiences, a deficiency related to its ability to carry out 
its obligations as a national securities exchange under the Act, 
including if NSX does not have or is not appropriately allocating such 
financial, technological, technical and personnel resources as may be 
necessary or appropriate for NSX to meet its obligations under the Act. 
Upon the

[[Page 90]]

completion of the Transaction, such requirements will no longer apply 
because CBSX will no longer ``control'' NSX and will, in fact, have no 
ownership interest in NSX.
---------------------------------------------------------------------------

    \44\ Article I, Section 1.1 of the NSX A&R By-laws provides that 
``[t]he term `person' shall mean a natural person, partnership, 
corporation, limited liability company, entity, government, or 
political subdivision, agency or instrumentality of a government.''
---------------------------------------------------------------------------

    Section 10.2 of the NSX A&R By-laws replaces references to CBSX 
with references to NSX Holdings. The provision would provide that no 
members of the Holdings Board who are not also members of the NSX 
Board, or any officers, staff, counsel or advisors of NSX Holdings who 
are not also officers, staff, counsel or advisors of NSX (or any 
committees of NSX), shall be allowed to participate in any meetings of 
the NSX Board or any NSX committee pertaining to the self-regulatory 
function of NSX, including disciplinary matters. These amendments are 
intended to prevent any undue influence or any perception of undue 
influence over the Exchange's self-regulatory functions by NSX 
Holdings.
    Finally, the Exchange is proposing in the NSX A&R By-laws certain 
clarifying amendments, and other non-substantive conforming amendments, 
that are consistent with the changes described above. Specifically, in 
Article I, the Exchange proposes to add a definition of ``ETP Holder 
Representative'' to mean a representative of any Exchange or NSX Board 
committee who is an officer, director, employee or agent of an ETP 
Holder. The term ``ETP Holder representative'' was used in Section 5.7 
but was not previously defined. The introduction of this defined term 
will add additional clarity and transparency to the NSX A&R By-laws. 
The formatting of the defined terms in Article I have been made uniform 
throughout.
NSX Board of Directors
    The NSX A&R By-laws provide that the NSX Board shall consist of no 
fewer than seven or more than 25 directors.\45\ The NSX Board's 
composition at all times shall include the Chief Executive Officer of 
the Exchange, at least 50% Non-Industry Directors (at least one of whom 
shall be an Independent Director) and such number of ETP Holder 
Directors as is necessary to comprise at least 20% of the NSX 
Board.\46\ The steps undertaken to transition membership in the NSX 
Board from the current directors to the post-Closing directors will 
conform to the requirements set forth in the NSX A&R By-laws. Vacancies 
in NSX Board Committees will be filled in accordance with Article V, 
Section 5.2, of the NSX A&R By-laws.
---------------------------------------------------------------------------

    \45\ See NSX A&R By-laws, Article III, Section 3.2(a). This 
provision will remain unchanged.
    \46\ See NSX A&R By-laws, Article III, Section 3.2(b).
---------------------------------------------------------------------------

2. Statutory Basis
    Section 6(b)(5) of the Act requires that the rules of a national 
securities exchange be designed to, among other things, promote just 
and equitable principles of trade, 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.
    The Exchange submits that the proposed Transaction, and the 
organizational documents of NSX Holdings and of NSX, as proposed to be 
adopted or amended as the case may be to effectuate the Transaction, 
are consistent with Section 6(b) of the Act,\47\ in general and Section 
6(b)(5) in particular.\48\ The NSX Holdings A&R Certificate and the NSX 
Holdings By-laws establish an organizational structure for NSX 
Holdings, as the holding company for NSX, that will assure that the 
Commission and NSX are able to fully discharge their respective 
obligations to effectively regulate the equity securities markets and 
NSX marketplace. Specifically, among other key provisions, NSX Holdings 
and its directors, officers, employees and agents, are subject to the 
exclusive jurisdiction of the U.S. federal courts, the SEC, and NSX. 
NSX Holdings is obligated to comply with the federal securities laws 
and the rules and regulations thereunder, as are its directors, 
officers and employees. The books, records, premises, directors, 
employees and agents of NSX Holdings are deemed to be those of NSX for 
purposes of and subject to oversight pursuant to the Exchange Act.\49\ 
These provisions operate to assure that the Exchange's rules meet the 
statutory requirements of Section 6(b)(5) of the Act to promote just 
and equitable principles of trade and to protect investors and the 
public interest.
---------------------------------------------------------------------------

    \47\ 15 U.S.C. 78f.
    \48\ 15 U.S.C. 78f(b).
    \49\ See NSX Holdings A&R Certificate, Articles Twelfth through 
Sixteenth; NSX Holdings A&R By-laws, Article VI.
---------------------------------------------------------------------------

    Further, the Exchange submits that the instant rule proposal is 
designed to effectuate changes to the NSX's ownership necessary to 
consummate the Transaction and provide for an efficient transition into 
a new organizational structure and a resumption of trading on the 
Exchange's marketplace as soon as practicable after approval by the 
Commission of the Transaction and subject to additional rule changes 
filed with, or filed with and approved by, the Commission. To this 
extent, the Exchange submits that the rule changes are consistent with 
Section 6(b)(5) in that they are designed to remove impediments to and 
perfect the mechanism of a free and open market and national market 
system.
    The proposed amendments to NSX's organizational documents are 
intended to align the Exchange's governance and organizational 
structure with the proposed ownership by NSX Holdings. As a result of 
the discontinuation of CBSX's ownership of the Exchange, the provisions 
relating to CBSX will be removed and replaced, where applicable, with 
references to NSX Holdings. The Exchange believes that the proposed 
ownership and corporate structure will allow for greater efficiencies 
that will operate to enhance the national market system and the 
governance and operation of the Exchange as an SRO.
    The Exchange submits that the Transaction and the accompanying rule 
changes proposed in this rule filing are consistent with Section 
6(b)(5) in that they promote the protection of investors and the public 
interest. The Exchange submits that its proposal and the new ownership 
structure are consistent with the public interest in promoting 
efficient markets, reducing administrative burdens on exchanges, and 
providing flexibility where appropriate to the effective discharge of 
SRO responsibilities. The amendments are intended to provide market 
participants, investors and the public with a clear and transparent 
description of the proposed changes to the Exchange's ownership and 
governance structure as reflected in governing corporate documents.
    The Exchange believes that the consummation of the Transaction and 
the subsequent re-opening of the Exchange's marketplace for trading 
equity securities after all necessary rule changes have been filed 
with, or filed with and approved by, the Commission, will operate to 
enhance competition among the equity securities markets and provide new 
trading opportunities for market participants and the investing public.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The rule change is being 
proposed in connection with the Transaction that will, upon completion, 
change the ownership

[[Page 91]]

structure of the Exchange with the result that the ownership interest 
of CBSX will terminate and the Exchange will be a wholly-owned 
subsidiary of NSX Holdings. Upon completion of the Transaction, NSX 
will move expeditiously to obtain all necessary regulatory approvals 
and reopen trading on NSX. This will operate to enhance rather than 
burden competition by restoring the NSX as an operating national 
securities exchange to which investors may direct their order flow, 
thus providing a further competitive venue for the trading of equity 
securities and affording market participants and the investing public 
additional opportunities to execute orders. As such, the Exchange 
believes that there is no burden on competition that is not necessary 
or appropriate in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has not solicited or received written comments on the 
proposed rule change from market participants or others.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#047671686129676b6969616a7077447761672a636b72"><span class="__cf_email__" data-cfemail="7705021b125a14181a1a121903043704121459101801">[email protected]</span></a>. Please include 
File Number SR-NSX-2014-017 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 File Number SR-NSX-2014-017. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NSX-2014-017 and should be 
submitted on or before January 23, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\50\
---------------------------------------------------------------------------

    \50\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2014-30703 Filed 12-31-14; 8:45 am]
BILLING CODE 8011-01-P


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