[Federal Register Volume 82, Number 171 (Wednesday, September 6, 2017)]
[Notices]
[Pages 42181-42194]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-18791]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81497; File No. SR-BatsBZX-2017-55]


Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change, as Modified by Amendment No. 1, To 
Harmonize the Corporate Governance Framework With That of Chicago Board 
Options Exchange, Incorporated and C2 Options Exchange Incorporated

August 30, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on August 23, 2017, Bats BZX Exchange, Inc. (``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. On August 25, 
2017, the Exchange filed Amendment No. 1 to the proposed rule change. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change, as modified by Amendment No. 1, 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 filed a proposal to amend and restate its certificate 
of incorporation and bylaws, as well as amend its Rules.
    The text of the proposed rule change is available at the Exchange's 
Web site at www.bats.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 
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
    BZX submits this rule filing to the Securities and Exchange 
Commission (the ``Commission'') in connection with a corporate 
transaction (the ``Transaction'') involving, among other things, the 
recent acquisition of BZX, along with Bats BYX Exchange, Inc. (``Bats 
BYX''), Bats EDGX Exchange, Inc. (``Bats EDGX''), and Bats EDGA 
Exchange, Inc. (``Bats EDGA'' and, together with Bats BZX, Bats BYX, 
and Bats EDGX, the ``Bats Exchanges'') by CBOE Holdings, Inc. (``CBOE 
Holdings''). CBOE Holdings is also the parent of Chicago Board Options 
Exchange, Incorporated (``CBOE'') and C2 Options Exchange, Incorporated 
(``C2''). This filing proposes to amend and restate the bylaws (and 
amend the rules, accordingly) and the certificate of incorporation of 
the Exchange based on the bylaws and certificates of incorporation of 
CBOE and C2.
    Specifically, the Exchange proposes to replace the certificate of 
incorporation of Bats BZX Exchange, Inc., (the ``current Certificate'') 
in its entirety with the Amended and Restated Certificate of 
Incorporation of Bats BZX Exchange, Inc. (the ``proposed 
Certificate''). Additionally, the Exchange proposes to replace the 
Fifth Amended and Restated Bylaws of Bats BZX Exchange, Inc. (the 
``current Bylaws'') in its entirety with the Sixth Amended and Restated 
Bylaws of Bats BZX Exchange, Inc. (the ``proposed Bylaws''). The 
Exchange believes that it is important for each of CBOE Holdings' six 
U.S. securities exchanges to have a consistent, uniform approach to 
corporate governance. Therefore, to simplify and unify the governance 
and corporate practices of these six exchanges, the Exchange proposes 
to revise the current Certificate and current Bylaws to conform them to 
the certificates of incorporation and bylaws of the CBOE and C2 
exchanges (i.e., the Third Amended and Restated Certificate of 
Incorporation of Chicago Board Options Exchange, Incorporated and the 
Fourth Amended and Restated Certificate of C2 Options Exchange, 
Incorporated (collectively referred to herein as the ``CBOE 
Certificate'') and the Eighth Amended and Restated Bylaws of Chicago 
Board Options Exchange, Incorporated and the Eighth Amended and 
Restated Bylaws of C2

[[Page 42182]]

Options Exchange, Incorporated (collectively referred to herein as the 
``CBOE Bylaws''). The proposed Certificate and proposed Bylaws reflect 
the expectation that the Exchange will be operated with governance 
structures similar to those of CBOE and C2. Accordingly, the Exchange 
proposes to adopt corporate documents that set forth a substantially 
similar corporate governance framework and related processes as those 
contained in the CBOE Certificate and CBOE Bylaws. The Exchange 
believes the proposed changes to the current Certificate and current 
Bylaws are consistent with the requirements of the Securities Exchange 
Act of 1934, as amended (the ``Act'').
(a) Changes to the Certificate
    In connection with the Transaction, the Exchange proposes to amend 
and restate the current Certificate to conform to the certificates of 
incorporation of CBOE and C2. The proposed Certificate is set forth in 
Exhibit 5B. Specifically, the Exchange proposes to make the following 
substantive amendments to the current Certificate.
    <bullet> Adopt an introductory section.
    <bullet> Amend Article Third to provide further details as to the 
nature of the business of the Exchange. Specifically, the proposed 
Certificate will further specify that the nature of the Exchange is (i) 
to conduct and carry on the function of an ``exchange'' within the 
meaning of that term in the Act and (ii) to provide a securities market 
place with high standards of honor and integrity among its Exchange 
Members and other persons holding rights to access the Exchange's 
facilities and to promote and maintain just and equitable principles of 
trade and business.
    <bullet> Article Fourth of the proposed Certificate specifies that 
Bats Global Markets Holdings, Inc. will be the sole owner of the Common 
Stock and that any sale, transfer or assignment by Bats Global Markets 
Holdings, Inc. of any shares of Common Stock will be subject to prior 
approval by the SEC pursuant to a rule filing. The Exchange notes that 
Article IV, Section 7 of the current Bylaws similarly precludes the 
stockholder from transferring or assigning, in whole or in part, its 
ownership interest(s) in the Exchange.
    <bullet> Article Fifth of the current Certificate regarding the 
name and address of the sole incorporator is being deleted as it is now 
outdated.
    <bullet> Article Fifth of the proposed Certificate is the same as 
Article Fifth of the CBOE Certificate. Specifically, Article Fifth, 
subparagraph (a) provides that the governing body of the Exchange shall 
be its Board. Article Fifth, subparagraph (b) provides that the Board 
shall consist of not less than five (5) Directors and subparagraph (c) 
includes language regarding the nomination of directors, which 
information is substantially similar as is provided in the CBOE Bylaws 
and the proposed Bylaws.\3\ Article Fifth, subparagraph (d) of the 
proposed Certificate provides that in discharging his or her 
responsibilities as a member of the Board, each Director shall take 
into consideration the effect that his or her actions would have on the 
ability of the Exchange to carry out the Exchange's responsibilities 
under the Act and on the ability of the Exchange: To engage in conduct 
that fosters and does not interfere with the Exchange's ability to 
prevent fraudulent and manipulative acts and practices; to promote just 
and equitable principles of trade; to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities; to remove impediments to and perfect the mechanisms of a 
free and open market and a national market system; and, in general, to 
protect investors and the public interest. In discharging his or her 
responsibilities as a member of the Board or as an officer or employee 
of the Exchange, each such Director, officer or employee shall comply 
with the federal securities laws and the rules and regulations 
thereunder and shall cooperate with the Commission, and the Exchange 
pursuant to its regulatory authority. The Exchange notes that similar 
language is included in the current Bylaws.\4\
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    \3\ See Article III of the CBOE Bylaws and proposed Bylaws.
    \4\ See Article III, Section 1(d) and Section 1(e) of the 
current Bylaws.
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    <bullet> Article Sixth of the proposed Certificate governs the 
indemnification of Directors of the Board. The Exchange notes that its 
indemnification provision is currently contained in Article VIII of the 
current Bylaws. In order to conform governance documents across all 
CBOE Holdings' exchanges and conform indemnification practices, the 
Exchange is eliminating its indemnification in the bylaws and adopting 
the same indemnification language that is currently contained in 
Article Sixth of the CBOE Certificate.
    <bullet> Article Seventh of the proposed Certificate is the same as 
Article Seventh of the CBOE Certificate and provides that the Exchange 
reserves the right to amend, change or repeal any provision of the 
certificate. It also provides that before any amendment or repeal of 
any provision of the certificate shall be effective, the changes must 
be submitted to the Board, and if such amendment or repeal must be 
filed with or filed with and approved by the Commission, it won't be 
effective until filed with or filed with and approved by the 
Commission.
    <bullet> Article Eighth of the proposed Certificate is the same as 
Article Eighth of the CBOE Certificate. Proposed Article Eighth 
provides that a Director of the Exchange shall not be liable to the 
Exchange or its stockholders for monetary damages for breach of 
fiduciary duty as a Director, except to the extent such exemption from 
liability or limitation is not permitted under Delaware Corporate law.
    <bullet> Article Ninth of the proposed Certificate is the same as 
Article Ninth of the CBOE Certificate. Specifically it provides that 
unless and except to the extent that the Exchange's bylaws require, 
election of Directors of the Exchange need not be by written ballot.
    <bullet> Article Tenth of the proposed Certificate is the same as 
Article Tenth of the CBOE Certificate and provides that in furtherance 
and not in limitation of the powers conferred by the laws of the State 
of Delaware, the Board is expressly authorized to make, alter and 
repeal the Exchange's bylaws, which is already provided for in both the 
current Bylaws and proposed Bylaws.\5\
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    \5\ See Article IX, Section 1 of the current Bylaws and Article 
IX, Section 9.1 of the proposed Bylaws.
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    <bullet> Article Eleventh of the proposed Certificate is the same 
as Article Eleventh of the CBOE Certificate and is similar to Article 
XI, Section 3 of the current Bylaws. Particularly, Article Eleventh 
provides that confidential information pertaining to the self-
regulatory 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 the Exchange shall: 
(i) Not be made available to any persons other than to those officers, 
directors, employees and agents of the Exchange that have a reasonable 
need to know the contents thereof; (ii) be retained in confidence by 
the Exchange and the officers, directors, employees and agents of the 
Exchange; and (iii) not be used for any commercial purposes. 
Additionally, Article Eleventh of the proposed Certificate further 
provides that nothing in Article Eleventh shall be interpreted as to 
limit or impede the rights of the Commission to access and examine such 
confidential information pursuant to the federal securities laws and 
the rules and regulations thereunder, or to limit or

[[Page 42183]]

impede the ability of any officers, directors, employees or agents of 
the Exchange to disclose such confidential information to the 
Commission.
(b) Substantive Changes to the Bylaws
    In connection with the Transaction, the Exchange also proposes to 
amend and restate the current Bylaws to conform to the Bylaws of CBOE 
and C2. The proposed Bylaws is set forth in Exhibit 5D. Specifically, 
the Exchange proposes to make the following substantive amendments to 
the current Bylaws:
Definitions
    The Exchange first notes that Section 1.1 of the proposed Bylaws, 
titled ``Definitions,'' contains key definitions of terms used in the 
proposed Bylaws, and are based on the defined terms used in Section 1.1 
of the CBOE Bylaws. The Exchange notes that certain differences in 
terminology in the proposed Bylaws and CBOE Bylaws will exist (e.g., 
use of the term ``Exchange Member'' instead of ``Trading Permit 
Holder''). The Exchange proposes to eliminate from the current Bylaws 
certain definitions that would be obsolete under the proposed Bylaws 
(e.g., references to ``Member Representative Directors'' and ``Member 
Nominating Committee'') and also proposes to move certain defined terms 
located in the current Bylaws to the BZX Rules (i.e., ``Industry 
member'' and ``Member Representative member'').\6\ Additionally, the 
Exchange proposes to define certain terms in the current Bylaws in 
places other than Section 1.1, so as to match the CBOE Bylaws (e.g., 
the definition of ``Industry Director'' is being relocated to Article 
III, Section 3.1 of the proposed Bylaws and the definition of ``Record 
Date'' is being relocated to Article II, Section 2.7 of the proposed 
Bylaws).\7\
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    \6\ See Proposed BZX Rules, Rule 8.6. The Exchange notes that 
the definition of a Member Representative member is being revised to 
eliminate the reference to a Stockholder Exchange Member. Currently, 
a Stockholder Exchange Member means an Exchange Member that also 
maintains, directly or indirectly, an ownership interest in the 
Company. The exchange notes that the sole stockholder of BZX is Bats 
Global Markets Holdings, Inc., which is a wholly owned subsidiary of 
CBOE Holdings and is not an Exchange member, and as such, the 
concept of a Stockholder Exchange Member need not be referenced.
    \7\ The Exchange notes a few differences between the definitions 
of Industry Director and Record Date in the current Bylaws and the 
proposed Bylaws. Specifically, the definition of ``Industry 
Director'' in Article I, subparagraph (o) of the current Bylaws 
contains references to specific percentages in order to determine 
whether a Director qualifies as an Industry Director, whereas the 
definition of ``Industry Director'' in Article III, Section 3.1, of 
the proposed Bylaws uses the term ``material portion'' in making 
those same determinations. The definition of ``Record Date'' in 
Article I, subparagraph (z) of the current Bylaws means a date at 
least thirty-five (35) days before the date of the annual meeting of 
stockholders, whereas Article II, Section 2.7 of the proposed Bylaws 
provides that the Record Date shall be at least 10 days before the 
date of the annual meeting of stockholders and not more than 60 days 
before the annual meeting.
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Office and Agent
    The Exchange notes that the information in Article II (Office and 
Agent) of the current Bylaws is not included in the proposed Bylaws. 
The Exchange notes that the language contained in Section 2 and 3 of 
Article II is already located in the current Certificate and will 
continue to be located in the proposed Certificate.\8\ The Exchange 
does not believe the information contained in Section 1 of Article II 
is necessary to include in the proposed Bylaws and notes that the CBOE 
Bylaws do not contain information relating to the principal business 
office.
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    \8\ See Article Second of the current and proposed Certificates.
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Nomination and Election Process
    Article III of the proposed Bylaws, titled ``Board of Directors'', 
mirrors the language in Article III of the CBOE Bylaws and contains key 
provisions regarding the processes for nominating and electing 
Representative Directors.
General Nomination and Election
    Under the Exchange's current director nomination and election 
process, the Nominating Committee (which is not a Board committee, but 
rather is composed of Exchange member representatives) \9\ nominates 
Directors for each Director position standing for election for that 
year. Additionally, for Member Representative Director positions,\10\ 
the Nominating Committee must nominate the Directors that have been 
approved and submitted by the Member Nominating Committee (which is 
also not a Board committee, but rather is composed of Member 
Representative members).\11\ Additionally, pursuant to Article III, 
Section 3(b) of the current Bylaws, the Exchange Directors are divided 
into three classes, designated as Class I, Class II and Class III. 
Directors other than the Chief Executive Officer of the Exchange 
(``CEO'') serve staggered three-year terms. The Exchange proposes to 
adopt a nomination and election process identical to CBOE and C2 as set 
forth in Article III of the proposed Bylaws. As such, the tiered class 
system will be eliminated, Directors will serve one-year terms ending 
on the annual meeting following the meeting at which Directors were 
elected or at such time as their successors are elected or appointed 
and the newly established Nominating and Governance Committee will be 
responsible for nominating each Director.\12\
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    \9\ See Current Bylaws, Article III, Section 4 (``Nomination and 
Election'') and Article VI, Section 2 (``Nominating Committee'').
    \10\ See Current Bylaws, Article I, (s), which defines a 
``Member Representative Director''. A Member Representative Director 
must be an officer, director, employee, or agent of an Exchange 
Member that is not a Stockholder Exchange Member.
    \11\ See Current Bylaws Article I, subparagraph (t) (``Member 
Representative member''). See also, Article III, Section 4 
(``Nomination and Election'') and Article VI, Section 3 (``Member 
Nominating Committee'') of the current Bylaws.
    \12\ See Article III, Section 3.1 and Article IV, Section 4.3 of 
the proposed Bylaws.
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Nomination and Election of Representative Directors
    Currently, pursuant to Article III, Section 4(b) of the current 
Bylaws, for Member Representative Directors, the Member Nominating 
Committee consults with the Nominating Committee, the Chairman of the 
Board and the CEO, and also solicits comments from Exchange Members for 
purposes of approving and submitting the names of candidates for 
election as a Member Representative Director. The initial nominees for 
Member Representative Directors must be reported to the Nominating 
Committee and Secretary no later than sixty (60) days prior to the 
annual or special stockholders' meeting, at which point the Secretary 
will promptly notify Exchange Members. Exchange Members may then 
identify other candidates by delivering to the Secretary, at least 
thirty-five (35) days before the annual or special stockholders' 
meeting, a written petition, identifying the alternative candidate and 
signed by Executive Representatives \13\ of 10% or more of Exchange 
Members. No Exchange Member, together with its affiliates, may account 
for more than fifty percent (50%) of the signatures endorsing a 
particular candidate. If no valid petitions from Exchange Members are 
received by the Record Date, the initial nominees approved and 
submitted by the Member Nominating Committee shall be nominated as 
Member Representative Directors by the Nominating Committee. If one or 
more valid petitions are received by the Record Date, the Secretary 
shall include

[[Page 42184]]

such additional nominees, along with the initial nominees nominated by 
the Member Nominating Committee, on a list of nominees (the ``List of 
Candidates'') that is sent to all Exchange Members, accompanied by a 
notice regarding the time and date of an election to be held at least 
twenty (20) days prior to the annual or special stockholders' meeting. 
Each Exchange Member has the right to cast one (1) vote for each 
available Member Representative Director nomination (the vote must be 
cast for a person on the List of Candidates and no Exchange Member, 
together with its affiliates, may account for more than twenty percent 
(20%) of the votes cast for a candidate). The persons on the List of 
Candidates who receive the most votes shall be selected as the nominees 
for the Member Representative Director positions.
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    \13\ The term ``Executive Representative'' as defined in the 
current Bylaws, Article I, means the person identified to the 
Company by an Exchange Member as the individual authorized to 
represent, vote, and act on behalf of the Exchange Member. An 
Executive Representative of an Exchange Member or a substitute shall 
be a member of senior management of the Exchange Member.
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    For purposes of harmonizing the governance structure and process 
across all of CBOE Holdings' U.S. securities exchanges, the Exchange 
proposes to eliminate the Nominating Committee and Member Nominating 
Committee and adopt a nomination and election process substantially 
similar to CBOE and C2 for Member Representative Directors (to be 
renamed ``Representative Directors'').\14\ The Exchange notes that 
unlike the current Bylaws, the proposed Bylaws will not require 
Representative Directors to be an officer, director, employee, or agent 
of an Exchange Member that is not a Stockholder Exchange Member, as 
neither CBOE nor C2 maintain such a requirement. The new process will 
provide that the ``Representative Director Nominating Body'' shall be 
responsible for nominating Representative Directors. The Representative 
Director Nominating Body (``Nominating Body'') is either (i) the 
Industry-Director Subcommittee of the Nominating and Governance 
Committee if there are at least two (2) Industry Directors on the 
Nominating and Governance Committee, or (ii) if the Nominating and 
Governance Committee has less than two (2) Industry Directors, then the 
Nominating Body shall mean the Exchange Member Subcommittee of the 
Advisory Board.\15\ The Nominating and Governance Committee shall be 
bound to accept and nominate the Representative Director nominees 
recommended by the Nominating Body or, in the event of a petition 
candidate, the Representative Director nominees who receive the most 
votes pursuant to a Run-off Election. Any person nominated by the 
Nominating Body and any petition candidate must satisfy the 
compositional requirements determined by the Board, pursuant to a 
resolution adopted by the Board, designating the number of 
Representative Directors that are Non-Industry Directors and Industry 
Directors (if any). Not earlier than December 1 and not later than 
January 15th (or the first business day thereafter if January 15th is 
not a business day), the Nominating Body shall issue a circular to 
Exchange Members identifying the Representative Director nominees. As 
is the case under the current Bylaws, Exchange Members may nominate 
alternative candidates for election to the Representative Director 
positions to be elected in a given year by submitting a petition signed 
by individuals representing not less than ten percent (10%) of the 
Exchange Members at that time. Petitions must be filed with the 
Secretary no later than 5:00 p.m. (Chicago time) on the 10th business 
day following the issuance of the circular to the Exchange Members 
identifying the Representative Director nominees (the ``Petition 
Deadline''). The names of all Representative Director nominees 
recommended by the Nominating Body and those selected pursuant to a 
valid and timely petition shall, immediately following their selection, 
be given to the Secretary who shall promptly issue a circular to all of 
the Exchange Members identifying all such Representative Director 
candidates.
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    \14\ Article III, Section 3.1. of the proposed Bylaws requires 
that at all times, at least 20% of Directors serving on the Board 
shall be Representative Directors, which is the same percentage 
required under the current Bylaws (see Article III, Section 2(b)(ii) 
of the current Bylaws). Article III, Section 3.2 of the proposed 
Bylaws further clarifies that if 20% of the Directors then serving 
on the Board is not a whole number, the number of required 
Representative Directors shall be rounded up to the next whole 
number.
    \15\ The Exchange notes that if there are less than two (2) 
Industry Directors on the Nominating and Governance Committee, it 
would institute an Advisory Board, if not already established.
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    If one or more valid petitions are received, the Secretary shall 
issue a circular to all of the Exchange Members identifying those 
individuals nominated for Representative Director by the Nominating 
Body and those individuals nominated for Representative Director 
through the petition process, as well as of the time and date of a run-
off election to determine which individuals will be nominated as 
Representative Director(s) by the Nominating and Governance Committee 
(the ``Run-off Election''). The Run-off Election will be held not more 
than forty-five (45) days after the Petition Deadline. In any Run-off 
Election, each Exchange Member shall have one (1) vote for each 
Representative Director position to be filled that year; provided, 
however, that no Exchange Member, either alone or together with its 
affiliates, may account for more than twenty percent (20%) of the votes 
cast for a candidate.\16\ The Secretary shall issue a circular to all 
of the Exchange Members setting forth the results of the Run-off 
Election. The number of individual Representative Director nominees 
equal to the number of Representative Director positions to be filled 
that year receiving the largest number of votes in the Run-off Election 
will be the persons approved by the Exchange Members to be nominated as 
the Representative Director(s) by the Nominating and Governance 
Committee for that year. The Exchange believes that, under the proposed 
Board structure, the Representative Directors serve the same function 
as the Member Representative Directors in that both directorships give 
Exchange members a voice in the Exchange's use of self-regulatory 
authority.
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    \16\ Article III, Section 3.2 of the CBOE Bylaws provides that 
in any Run-off Election, a holder of a Trading Permit shall have one 
vote with respect to each Trading Permit held by such Trading Permit 
Holder for each Representative Director position to be filled. The 
Exchange notes that because no ``Trading Permits'' or similar 
concept exist on the Exchange, it is deviating from this practice 
and providing instead that each Exchange Member shall have one (1) 
vote for each Representative Director position to be filled, which 
the Exchange does not believe is a significant change. The Exchange 
also notes that other Exchanges have similar practices. See e.g., 
Amended and Restated By-Laws of Miami International Securities 
Exchange, LLC, Article II, Section 2.4(f).
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Vacancies
    Article III, Section 6 of the current Bylaws provides that during a 
vacancy of any Director other than a Member Representative Director, 
the Nominating Committee shall nominate an individual Director and the 
stockholders of BZX shall elect the new Director.\17\ In the event of a 
vacancy of a Member Representative Director, the Member Nominating 
Committee shall either (i) recommend an individual to the stockholders 
to be elected to fill such vacancy or (ii) provide a list of 
recommended individuals to the stockholders from which the stockholders 
shall elect the individual to fill such vacancy. The current Bylaws 
provide that Directors elected to fill a vacancy are to hold office 
until the expiration of the remaining term.
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    \17\ The sole stockholder of BZX is Bats Global Markets 
Holdings, Inc., a wholly owned subsidiary of CBOE Holdings.
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    The Exchange proposes to adopt the same process to fill vacancies 
as CBOE

[[Page 42185]]

and C2. Specifically, Article III, Section 3.5 of the proposed Bylaws, 
which is substantially similar to Article III, Section 3.5 of the CBOE 
Bylaws, will provide that a vacancy on the Board may be filled by a 
vote of majority of the Directors then in office, or by the sole 
remaining Director, so long as the elected Director qualifies for the 
position. Additionally, for vacancies of Representative Directors, the 
Nominating Body will recommend an individual to be elected, or provide 
a list of recommended individuals, and the position shall be filled by 
the vote of a majority of the Directors then in office. Under the 
proposed Bylaws, Directors elected to fill a vacancy will serve until 
the next annual meeting of stockholders.
Removals and Resignation
    Article III, Section 7 of the current Bylaws provides that any 
Director may be removed with or without cause by a majority vote of 
stockholders and may be removed by the Board, provided however, that 
any Member Representative Director may only be removed for cause, which 
includes such Director being subject to a Statutory Disqualification. 
Additionally, a Director shall be immediately removed upon a 
determination by the Board, by a majority vote of remaining Directors 
that (a) the Director no longer satisfies the classification for which 
the Director was elected and (b) the Director's continued service would 
violate the compositional requirements of the Board. Article III, 
Section 7 of the current Bylaws also provides that any Director may 
resign at any time upon notice of resignation to the Chairman of the 
Board, the President or Secretary. Resignation shall take effect at the 
time specified, or if no time is specified, upon receipt of the notice.
    Under Article III, Section 3.4 of the proposed Bylaws, which is the 
same as Article III, Section 3.4, of the CBOE Bylaws, a Director who 
fails to maintain the applicable Industry or Non-Industry 
qualifications required under the proposed Bylaws, of which the Board 
shall be the sole judge, will cease being a Director. The Exchange 
notes that while the current Bylaws do not address the requalification 
of a Director, Section 3.4 of the proposed Bylaws permits a Director 
that fails to maintain the applicable qualifications to requalify 
within the later of forty-five (45) days from the date when the Board 
determines the Director is unqualified or until the next regular Board 
meeting following the date when the Board makes such determination. The 
Director shall be deemed not to hold office (i.e., the Director's seat 
is considered vacant) following the date when the Board determines the 
Director is unqualified. Further, the Board shall be the sole judge of 
whether the Director has requalified. If a Director is determined to 
have requalified, the Board, in its sole discretion, may fill an 
existing vacancy in the Board or may increase the size of the Board, as 
necessary, to appoint such Director to the Board; provided, however, 
that the Board shall be under no obligation to return such Director to 
the Board. Similar to the current Bylaws, Section 3.4 of the proposed 
Bylaws provides that Representative Directors may only be removed for 
cause. In addition to specifying that cause includes being subject to a 
Statutory Disqualification, the proposed Bylaws further lists 
additional examples of cause in Section 3.4 (e.g., breach of a 
Representative Director's duty of loyalty to the Exchange or its 
stockholders and transactions from which a Representative Director 
derived an improper personal benefit). Lastly, the Exchange notes that 
under the proposed Bylaws, resignation must be written and must be 
given to either the Chairman of the Board or the Secretary.
Board Composition
    Pursuant to Article III, Section 2 of the current Bylaws, the Board 
must consist of four (4) or more Directors, and consist at all times of 
one (1) Director who is the CEO and a sufficient number of Industry, 
Non-Industry and Member Representative Directors to ensure that the 
number of Non-Industry Directors, including at least on Independent 
Director, shall equal or exceed the sum of Industry and Member 
Representative Directors. Additionally, the number of Member 
Representative Directors must be at least twenty (20) percent of the 
Board. The Exchange proposes to replace the Board composition and 
structure with that of CBOE and C2. As is the case with CBOE and C2, 
pursuant to Article III, Section 3.1, of the proposed Bylaws, the Board 
must consist of at least five (5) directors (which is the minimum 
number of Directors required for the Nominating and Governance 
Committee), instead of 4 as required by the current Bylaws. 
Additionally, the following would apply to the new Board structure:
    <bullet> The number of Non-Industry Directors, Industry Directors 
and the number of Representative Directors that are Non-Industry 
Directors and Industry Directors (if any) will be determined by the 
Board pursuant to resolution adopted by the Board.\18\
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    \18\ See Proposed Bylaws and CBOE Bylaws, Article III, Section 
3.1.
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    <bullet> The proposed Bylaws provide that the number of Non-
Industry Directors cannot be less than the number of Industry 
Directors, whereas the current Bylaws, as noted above, provide that the 
number of Non-Industry Directors, including at least on Independent 
Director, shall equal or exceed the sum of Industry and Member 
Representative Directors.\19\ Unlike the current Bylaws, the proposed 
Bylaws provide that the CEO is excluded from the calculation of 
Industry Directors, as is the practice under CBOE Bylaws.\20\ 
Additionally, the Exchange notes that the CBOE Bylaws do not contain 
the term or concept of ``Independent Directors'' and in order to 
conform the proposed Bylaws to the CBOE Bylaws, the proposed Bylaws 
also do not reference ``Independent Directors'' with respect to 
composition.
---------------------------------------------------------------------------

    \19\ See Current Bylaws, Article III, Section 2.
    \20\ Id.
---------------------------------------------------------------------------

    <bullet> The Board or the Nominating and Governance Committee will 
make all materiality determinations regarding who qualifies as an 
Industry Director and Non-Industry Director.\21\
---------------------------------------------------------------------------

    \21\ Id.
---------------------------------------------------------------------------

    <bullet> Unlike the current Bylaws which provide that the CEO shall 
be the Chairman of the Board,\22\ the proposed Bylaws, provide that the 
Chairman will be appointed by the Board and further provides that the 
Board may designate an Acting Chairman in the event the Chairman is 
absent or fails to act.\23\
---------------------------------------------------------------------------

    \22\ See Current Bylaws, Article III, Section 5.
    \23\ See Proposed Bylaws and CBOE Bylaws, Article III, Sections 
3.6 and 3.8.
---------------------------------------------------------------------------

    <bullet> Unlike the current Bylaws which provide that a Lead 
Director must be designated by the Board among the Board's Independent 
Directors,\24\ the proposed Bylaws provide that the Board may, but does 
not have to, appoint a Lead Director, who if appointed, must be a Non-
Industry Director, which is the same practice under CBOE's Bylaws.\25\
---------------------------------------------------------------------------

    \24\ See Current Bylaws, Article III, Section 5.
    \25\ See Proposed Bylaws and CBOE Bylaws, Article III, Section 
3.7.
---------------------------------------------------------------------------

    <bullet> The number of Representative Directors must be at least 
twenty (20) percent of the Board,\26\ which is the same requirement 
under the current Bylaws as noted above.
---------------------------------------------------------------------------

    \26\ See Proposed Bylaws and CBOE Bylaws, Article III, Section 
3.2.
---------------------------------------------------------------------------

Meetings
Annual Meeting of the Stockholders
    Article IV, Section 1 of the current Bylaws provides that the 
annual meeting of the stockholders shall be

[[Page 42186]]

held at such place and time as determined by the Board. The Exchange 
notes that Article II, Section 2.2 of the proposed Bylaws is being 
amended to conform to Article II, Section 2.2 of the CBOE Bylaws, which 
provides as a default that if required by applicable law, an annual 
meeting of stockholders shall be held on the third Tuesday in May of 
each year or such other date as may be fixed by the Board, at such time 
as may be designated by the Secretary prior to the giving of notice of 
the meeting. Section 2.2 of the proposed Bylaws also provides that in 
no event shall the annual meeting be held prior to the completion of 
the process for the nomination of Representative Directors. The 
proposed Bylaws also provide in Article II, Section 2.1 that in 
addition to the Board, the Chairman (or CEO if there is no Chairman) 
may designate the location of the annual meeting. The Exchange notes 
that it is not including the information contained in Article IV, 
Section 3 of the current Bylaws. Specifically, Section 3 provides that 
the Secretary of the Exchange (or designee), shall prepare at least ten 
(10) days before every meeting of stockholders, a complete list of 
stockholder entitled to vote at the meeting. The Exchange does not 
believe this provision is necessary given that BZX's sole stockholder 
is Bats Global Markets Holdings, Inc., a wholly owned subsidiary of 
CBOE Holdings (and also notes that neither CBOE nor C2 follow this 
practice).
Special Meetings of the Stockholders
    Article IV, Section 2 of the current Bylaws provides that special 
meetings of the stockholders may be called by the Chairman, the Board 
or the President, and shall be called by the Secretary at the request 
in writing of stockholders owning not less than a majority of the then 
issued and outstanding capital stock of the Exchange entitled to vote. 
In order to streamline the rules under which special meetings can be 
called, the Exchange proposes to adopt the same special meeting 
provision as Article II, Section 2.3 of the CBOE Bylaws. Particularly, 
under Article II, Section 2.3 of the proposed Bylaws, special meetings 
of stockholders may only be called by the Chairman or by a majority of 
the Board. The CBOE Bylaws do not include the ability of stockholders 
to request a special meeting. The Exchange does not believe this 
provision is necessary given that BZX's sole stockholder is Bats Global 
Markets Holdings, Inc., a wholly owned subsidiary of CBOE Holdings.
Quorum and Vote Required for Action at a Stockholder Meeting
    Article IV, Section 4 of the current Bylaws provides, among other 
things, that the holders of a majority of the capital stock issued and 
outstanding and entitled to vote, present in person or represented by 
proxy, shall constitute a quorum at all meetings of the stockholders. 
The provision also provides that if there is no quorum at any meeting 
of the stockholders, the stockholders, present in person or represented 
by proxy, shall have power to adjourn the meeting until a quorum is 
present or represented. Additionally, if an adjournment of a meeting of 
the stockholders is for more than thirty (30) days, or if after the 
adjournment a new record date is fixed for the adjourned meeting, a 
notice of the adjourned meeting shall be given to each stockholder of 
record entitled to vote at the meeting. Additionally, Article IV, 
Section 4 provides that when a quorum is present at any meeting, the 
vote of the holders of a majority of the capital stock having voting 
power present in person or represented by proxy shall decide any 
question brought before such meeting, unless the question is one upon 
which by express provision of statute or of the Certificate of 
Incorporation, a different vote is required, in which case such express 
provision shall govern and control the decision of such question.
    The Exchange proposes to adopt Article II, Sections 2.5 and 2.6 of 
the proposed Bylaws which are the same as Article II, Sections 2.5 and 
2.6 of the CBOE Bylaws and similar to Article IV, Section 4 of the 
current Bylaws. The Exchange notes that unlike the current Bylaws, 
Article II, Section 2.5 of the proposed Bylaws and CBOE Bylaws do not 
require notice of an adjourned meeting to be given to each stockholder 
of record entitled to vote at the meeting if an adjournment is for more 
than thirty (30) days, or if after the adjournment a new record date is 
fixed for the adjourned meeting. The Exchange does not believe this 
requirement is necessary given that BZX's sole stockholder is Bats 
Global Markets Holdings, Inc., a wholly owned subsidiary of CBOE 
Holdings. Additionally, in order to conform Article II, Section 2.6 of 
the proposed Bylaws to the CBOE Bylaws, the Exchange also proposes to 
explicitly provide that a plurality of votes properly cast shall elect 
the directors, notwithstanding the language in Article II, 2.6 that 
provides that when a quorum is present, a majority of the votes 
properly cast will decide any question brought before a meeting unless 
a different vote is required by express provision of statute or the 
Certificate of Incorporation.
Regular Meetings of the Board
    Article III, Sections 8 and 9 of the current Bylaws provide that, 
with or without notice, a resolution adopted by the Board determines 
the time and place of the regular meeting and that if no designation as 
to place is made, then the meeting will be held at the principal 
business office of the Exchange. Article III, Section 3.10 of the 
proposed Bylaws, which is the same as Article III, Section 3.10 of the 
CBOE Bylaws, provides that regular meetings shall be held at such time 
and place as is determined by the Chairman with notice provided to the 
full Board.
Special Meetings of the Board
    Article III, Section 10 of the current Bylaws provides that special 
meetings of the Board may be called on a minimum of two (2) days' 
notice to each Director by the Chairman or the President and shall be 
called by the Secretary upon written request of three (3) Directors. 
Article III, Section 3.11 of the proposed Bylaws, which is the same as 
Article III, Section 3.11 of the CBOE Bylaws, however, provides that 
special meetings of the Board may be called by the Chairman and shall 
be called by the Secretary upon written request of any four (4) 
directors. Additionally, under the proposed Bylaws, the Secretary shall 
give at least twenty-four (24) hours' notice of such meeting.
Board Quorum
    Article III, Section 12 of the current Bylaws provides that a 
majority of the number of Directors then in office shall constitute a 
quorum, whereas Article III, Section 3.9 of the proposed Bylaws, which 
is the same as Article III, Section 3.9 of the CBOE Bylaws, provides 
that two-thirds of the Directors then in office shall constitute a 
quorum. Increasing the quorum requirement from a majority to two-thirds 
will ensure that more Directors are present at meetings of the Board in 
order to transact business for the Exchange.
Committees of the Board
    The current bylaws provide for the following standing committees of 
the Board: A Compensation Committee, an Audit Committee, a Regulatory 
Oversight Committee, and an Appeals Committee, each to be comprised of 
at least three (3) members.\27\ The current

[[Page 42187]]

Bylaws also provide that the Exchange may establish an Executive 
Committee and a Finance Committee.\28\ The Exchange proposes to modify 
the committees of the Board to eliminate the Audit Committee, Appeals 
Committee, and Compensation Committee, as well as eliminate the 
provision relating to a Finance Committee. Additionally, the Exchange 
proposes to require a mandatory Executive Committee and Nominating and 
Governance Committee, as well as make several amendments to the 
Regulatory Oversight Committee provision. The Exchange notes that CBOE 
and C2 have eliminated their Audit and Compensation Committees and do 
not maintain an Appeals Committee at the Board level. As previously 
noted, CBOE and C2 do maintain a Board-level Nominating and Governance 
Committee, which performs the functions of BZX's current Nominating and 
Member Nominating Committees, which the Exchange proposes to eliminate.
---------------------------------------------------------------------------

    \27\ See Current Bylaws, Article V, Section 1 and Section 2(a).
    \28\ See Current Bylaws, Article V, Sections 6(e) and (f), 
respectively.
---------------------------------------------------------------------------

Elimination of Compensation Committee
    The Exchange seeks to eliminate the Compensation Committee because 
it believes that the Compensation Committee's functions are duplicative 
of the functions of the Compensation Committee of its parent company, 
CBOE Holdings. Specifically, under its committee charter, the CBOE 
Holdings Compensation Committee has authority to assist the CBOE 
Holdings Board of Directors in carrying out its overall 
responsibilities relating to executive compensation and also, among 
other things, (i) recommending the compensation of the CBOE Holdings' 
CEO and certain other executive officers and (ii) approving and 
administering all cash and equity-based incentive compensation plans of 
CBOE Holdings that affect employees of the CBOE Holdings and its 
subsidiaries. Similarly, under its committee charter, the BZX 
Compensation Committee has authority to fix the compensation of BZX's 
CEO and to consider and recommend compensation policies, programs, and 
practices to the BZX CEO in connection with the BZX CEO's fixing of the 
salaries of other officers and agents of the Exchange.\29\ As such, 
other than to the extent that the BZX Compensation Committee recommends 
the compensation of executive officers whose compensation is not 
already determined by the CBOE Holdings Compensation Committee, its 
activities are duplicative of the activities of the CBOE Holdings 
Compensation Committee. Indeed, the Exchange notes that currently the 
BZX Compensation Committee only fixes the compensation amount of the 
BZX CEO. The Exchange notes that currently the Exchange's CEO is the 
CEO (i.e., an executive officer) of CBOE Holdings, and as such, the 
CBOE Holdings Compensation Committee already performs this function. To 
the extent that compensation need be determined for any BZX officer who 
is not also a CBOE Holdings officer in the future, the Board or senior 
management will perform such action without the use of a compensation 
committee, as provided for in Article V, Section 5.11 of the proposed 
Bylaws (which is identical to Article V, Section 5.11 of the CBOE 
Bylaws). Thus, the responsibilities of the BZX Compensation Committee 
are duplicated by the responsibilities of the CBOE Holdings 
Compensation Committee. The Exchange believes that its proposal to 
eliminate its Compensation Committee is substantially similar to prior 
actions taken by other securities exchanges with parent company 
compensation committees to eliminate their exchange-level compensation 
committees, including CBOE and C2.\30\
---------------------------------------------------------------------------

    \29\ The Exchange notes that the Regulatory Oversight Committee 
(``ROC'') of the BZX Board recommends to the Board compensation for 
the Chief Regulatory Officer. The Exchange also notes that currently 
not all executive officers of BZX are required to have their 
compensation determined by the Compensation Committee.
    \30\ See e.g., Securities Exchange Act Release No. 80523 (April 
25, 2017), 82 FR 20399 (May 1, 2017) (SR-CBOE-2017-017) and 
Securities Exchange Act Release No. 80522 (April 25, 2017), 82 FR 
20409 (May 1, 2017) (SR-C2-2017-009). See also Securities Exchange 
Act Release No. 60276 (July 9, 2009), 74 FR 34840 (July 17, 2009) 
(SR-NASDAQ-2009-042) and Securities Exchange Act Release No. 62304 
(June 16, 2010), 75 FR 36136 (June 24, 2010) (SR-NYSEArca-2010-31).
---------------------------------------------------------------------------

Elimination of Audit Committee
    The Exchange also proposes to eliminate its Audit Committee because 
its functions are duplicative of the functions of the Audit Committee 
of its parent company, CBOE Holdings. Under its committee charter, the 
CBOE Holdings Audit Committee has broad authority to assist the CBOE 
Holdings Board in fulfilling its oversight responsibilities in 
assessing controls that mitigate the regulatory and operational risks 
associated with operating the Exchange and assist the CBOE Holdings 
Board of Directors in discharging its responsibilities relating to, 
among other things, (i) the qualifications, engagement, and oversight 
of CBOE Holdings' independent auditor, (ii) CBOE Holdings' financial 
statements and disclosure matters, (iii) CBOE Holdings' internal audit 
function and internal controls, and (iv) CBOE Holdings' oversight and 
risk management, including compliance with legal and regulatory 
requirements. Because CBOE Holdings' financial statements are prepared 
on a consolidated basis that includes the financial results of CBOE 
Holdings' subsidiaries, including BZX, the CBOE Holdings Audit 
Committee's purview necessarily includes BZX. The Exchange notes that 
unconsolidated financial statements of the Exchange will still be 
prepared for each fiscal year in accordance with the requirements set 
forth in its application for registration as a national securities 
exchange. The CBOE Holdings Audit Committee is composed of at least 
three (3) CBOE Holdings directors, all of whom must be independent 
within the meaning given to that term in the CBOE Holdings Bylaws and 
Corporate Governance Guidelines and Rule 10A-3 under the Act.\31\ All 
CBOE Holdings Audit Committee members must be financially literate (or 
become financially literate within a reasonable period of time after 
appointment to the Committee), and at least one (1) member of the 
Committee must be an ``audit committee financial expert'' as defined by 
the Securities and Exchange Commission (``SEC''). By contrast, the BZX 
Audit Committee has a more limited role, focused on BZX. Under its 
charter, the primary functions of the BZX Audit Committee are focused 
on (i) BZX's financial statements and disclosure matters and (ii) BZX's 
oversight and risk management, including compliance with legal and 
regulatory requirements, in each case, only to the extent required in 
connection with BZX's discharge of its obligations as a self-regulatory 
organization. However, to the extent that the BZX Audit Committee 
reviews financial statements and disclosure matters, its activities are 
duplicative of the activities of the CBOE Holdings Audit Committee, 
which is also charged with review of financial statements and 
disclosure matters. Similarly, the CBOE Holdings Audit Committee has 
general responsibility for oversight and risk management, including 
compliance with legal and regulatory requirements, for CBOE Holdings 
and all of its subsidiaries, including BZX. Thus, the responsibilities 
of the BZX Audit Committee are fully duplicated by the responsibilities 
of the CBOE Holdings Audit Committee. The Exchange believes that its 
proposal to eliminate its

[[Page 42188]]

Audit Committee is substantially similar to prior actions by other 
securities exchanges with parent company audit committees to eliminate 
their exchange-level audit committees, including CBOE and C2.\32\
---------------------------------------------------------------------------

    \31\ 17 CFR 240.10A-3.
    \32\ See, e.g., Securities Exchange Act Release No. 64127 (March 
25, 2011), 76 FR 17974 (March 31, 2011) (SR-CBOE-2011-010) and 
Securities Exchange Act Release No. 64128 (March 25, 2011), 76 FR 
17973 (March 31, 2011) (SR-C2-2011-003). See also, Securities 
Exchange Act Release No. 60276 (July 9, 2009), 74 FR 34840 (July 17, 
2009) (SR-NASDAQ-2009-042).
---------------------------------------------------------------------------

Elimination of Appeals Committee
    The Exchange next proposes to eliminate the Appeals Committee. 
Pursuant to Article V, Section 6(d) of the current Bylaws, the 
Chairman, with the approval of the Board, shall appoint an Appeals 
Committee. The Appeals Committee shall consist of one (1) Independent 
Director, one (1) Industry Director, and one (1) Member Representative 
Director and presides over all appeals related to disciplinary and 
adverse action determinations in accordance with the Rules. The 
Exchange notes that neither CBOE nor C2 maintain a Board-level Appeals 
Committee. Rather, CBOE and C2 currently maintain an Exchange-level 
Appeals Committee.\33\ The Exchange notes that although it is proposing 
to eliminate the Appeals Committee as a specified Board-level committee 
at this time, the Exchange will still have the ability to appoint 
either a Board-level or exchange-level Appeals Committee pursuant to 
its powers under Article IV, Section 4.1 of the proposed Bylaws. 
Although, CBOE and C2 have a standing exchange-level Appeals Committee, 
the Exchange prefers not to have to maintain and staff a standing 
Appeals Committee, but rather provide its Board the flexibility to 
determine whether to establish a Board-level or exchange-level Appeals 
Committee, as needed or desired. The Exchange also notes that other 
Exchanges similarly do not require standing Appeals Committees.\34\ The 
elimination of the requirement in the bylaws to maintain a standing 
Appeals Committee would provide consistency among the Bylaws for all of 
CBOE Holdings' U.S. securities exchanges, while still providing the 
Board the authority to appoint an Appeals Committee in the future as 
needed.
---------------------------------------------------------------------------

    \33\ See e.g., CBOE Rule 2.1 and C2 Chapter 19, which 
incorporates by reference CBOE Chapter XIX (Hearings and Review), 
which references the Appeals Committee.
    \34\ For example, neither the Bylaws nor Rules of BOX Options 
Exchange, LLC mandate an Appeals Committee. See Bylaws of Box 
Options Exchange LLC and Rules of Box Options Exchange, LLC.
---------------------------------------------------------------------------

Elimination of Finance Committee
    Pursuant to Article V, Section 6(f) of the current Bylaws, the 
Chairman, with the approval of the Board, may appoint a Finance 
Committee. The Finance Committee shall advise the Board with respect to 
the oversight of the financial operations and conditions of the 
Exchange, including recommendations for the Exchange's annual operating 
and capital budgets. The Exchange notes that it does not currently have 
a Finance Committee and that, similarly, CBOE and C2 do not have an 
exchange-level Finance Committee. As the Exchange currently does not 
maintain, and has no current intention of establishing, an exchange-
level Finance Committee, it does not believe it is necessary to 
maintain this provision. The Exchange notes that should it desire to 
establish a Finance Committee in the future, it still maintains the 
authority to do so under Article IV, Section 4.1 of the proposed 
Bylaws.
Changes to the Regulatory Oversight Committee
    Article V, Section 6(c) of the current Bylaws relates to the 
Regulatory Oversight Committee (``ROC''), which oversees the adequacy 
and effectiveness of the Exchange's regulatory and self-regulatory 
organization responsibilities. The Exchange proposes to adopt Article 
IV, Section 4.4, which amends the ROC provision to conform to Article 
IV, Section 4.4 of the CBOE Bylaws.\35\ First, the Exchange proposes to 
specify that the ROC shall consist of at least three (3) directors, all 
of whom are Non-Industry Directors who are appointed by the Board on 
the recommendation of the Non-Industry Directors serving on the 
Nominating and Governance Committee (including the designation of the 
Chairman of the ROC). While the current Bylaws also require all ROC 
members to be Non-Industry Directors, it does not specify a minimum 
number of directors. The current Bylaws also provide that the Chairman 
of the Board (instead of a Nominating and Governance Committee), with 
approval of the Board, appoints the ROC members.
---------------------------------------------------------------------------

    \35\ The Exchange does not intend at this time to rename the ROC 
the ``Regulatory Oversight and Compliance Committee'' (``ROCC''), 
which is the name of the equivalent committee of CBOE and C2.
---------------------------------------------------------------------------

    Next, while the current Bylaws explicitly delineate some of the 
ROC's responsibilities, the Exchange proposes to provide more broadly 
that the ROC shall have the duties and may exercise such authority as 
may be prescribed by resolution of the Board, the Bylaws or the Rules 
of the Exchange. Particularly, Article V, Section 6(c) of the current 
Bylaws provide that the ROC shall oversee the adequacy and 
effectiveness of the Exchange's regulatory and self-regulatory 
organization responsibilities, assess the Exchange's regulatory 
performance, assist the Board and Board committees in reviewing the 
regulatory plan and the overall effectiveness of Exchange's regulatory 
functions and, in consultation with the CEO, establish the goals, 
assess the performance, and fix the compensation of the Chief 
Regulatory Officer (``CRO''). The Exchange notes that the ROC will 
continue to have the foregoing duties and authority, with the exception 
that the ROC will no longer consult the CEO with respect to 
establishing the goals, assessing the performance and fixing 
compensation of the CRO. The proposed change to eliminate the CEO's 
involvement in establishing the goals, assessing the performance and 
fixing compensation of the CRO is consistent with the Exchange's desire 
to maintain the independence of the regulatory functions of the 
Exchange. The Exchange notes that each of the abovementioned proposed 
changes provide for the same language and appointment process used by 
CBOE and C2 with respect to the ROC, which provides consistency among 
the CBOE Holdings U.S. securities exchanges.\36\
---------------------------------------------------------------------------

    \36\ See CBOE Bylaws Article IV, Section 4.4.
---------------------------------------------------------------------------

Creation of a Mandatory Executive Committee
    Article V, Section 6(e) of the current Bylaws provides that the 
Chairman, with approval of the Board, may appoint an Executive 
Committee, which shall, to the fullest extent permitted by Delaware and 
other applicable law, have and be permitted to exercise all the powers 
and authority of the Board in the management of the business and 
affairs of the Exchange between meetings of the Board.\37\ The current 
Bylaws provide that the number of Non-Industry Directors on the 
Executive Committee shall equal or exceed the number of Industry 
Directors on the Executive Committee. In addition, the percentage of 
Independent Directors on the Executive Committee shall be at least as 
great as the percentage of Independent Directors on the whole Board, 
and the percentage of Member Representative Directors on the Executive 
Committee shall be at least as great as the percentage of Member 
Representative Directors on the whole Board.
---------------------------------------------------------------------------

    \37\ The Exchange does not presently have an Executive 
Committee.
---------------------------------------------------------------------------

    Under the proposed Bylaws, the Exchange proposes to require that 
the

[[Page 42189]]

Exchange maintain an Executive Committee and delineates its composition 
and functions in Article IV, Section 4.2 of the proposed Bylaws. 
Similar to the current Bylaw provisions relating to the Executive 
Committee, the proposed Executive Committee shall have and may exercise 
all the powers and authority of the Board in the management of the 
business and affairs of the Exchange. Unlike the current Executive 
Committee provisions, however, the proposed Executive Committee shall 
not have the power and authority of the Board to (i) approve or adopt 
or recommend to the stockholders any action or matter (other than the 
election or removal of Directors) expressly required by Delaware law to 
be submitted to stockholders for approval, including without 
limitation, amending the certificate of incorporation, adopting an 
agreement of merger or consolidation, approving a sale, lease or 
exchange of all or substantially all of the Exchange's property and 
assets, or approval of a dissolution of the Exchange or revocation of a 
dissolution, or (ii) adopt, alter, amend or repeal any bylaw of the 
Exchange. Additionally, Section 4.2 of the proposed Bylaws provides 
that the Executive Committee shall consist of the Chairman, the CEO (if 
a Director), the Lead Director, if any, at least one (1) Representative 
Director and such other number of Directors that the Board deems 
appropriate, provided that in no event shall the number of Non-Industry 
Directors constitute less than the number of Industry Directors serving 
on the Executive Committee (excluding the CEO from the calculation of 
Industry Directors for this purpose). The Directors (other than the 
Chairman, CEO and Lead Director, if any) serving on the Executive 
Committee shall be appointed by the Board on the recommendation of the 
Nominating and Governance Committee of the Board. Directors serving on 
the Executive Committee may be removed by the Board in accordance with 
the bylaws. The Chairman of the Board shall be the Chairman of the 
Executive Committee. Each member of the Executive Committee shall be a 
voting member and shall serve for a term of one (1) year expiring at 
the first regular meeting of Directors following the annual meeting of 
stockholders each year or until their successors are appointed. The 
Exchange notes that CBOE and C2 have an Executive Committee and that 
the proposed composition requirements and functions are the same as 
CBOE and C2.\38\
---------------------------------------------------------------------------

    \38\ See CBOE Bylaws, Article IV, Section 4.2.
---------------------------------------------------------------------------

Elimination of Nominating and Member Nominating Committees and Creation 
of Nominating and Governance Committee
    The Exchange also proposes to eliminate the current Nominating and 
Member Nominating Committees, and to prescribe that their duties be 
performed by the new Nominating and Governance Committee of the Board 
(as discussed below). The Nominating Committee is a non-Board committee 
and is elected on an annual basis by vote of the Exchange's sole 
stockholder, Bats Global Markets Holdings, Inc.\39\ The Nominating 
Committee is primarily charged with nominating candidates for election 
to the Board at the annual stockholder meeting and all other vacant or 
new Director positions on the Board and ensuring, in making such 
nominations, that candidates meet the compositional requirements set 
forth in the bylaws. The Member Nominating Committee is also a non-
Board committee and elected on an annual basis by vote of the 
Exchange's sole stockholder, Bats Global Markets Holdings, Inc.\40\ 
Each Member Nominating Committee member must be a Member Representative 
member (i.e., an officer, director, employee or agent of an Exchange 
Member that is not a Stockholder Exchange Member).\41\ The Member 
Nominating Committee is primarily charged with nominating candidates 
for each Member Representative Director position on the Board.
---------------------------------------------------------------------------

    \39\ See Article VI, Sections 1 and 2. A Nominating Committee 
member may simultaneously serve on the Nominating Committee and the 
Board, unless the Nominating Committee is nominating Director 
candidates for the Director's class. The number of Non-Industry 
members on the Nominating Committee shall equal or exceed the number 
of Industry members on the Nominating Committee.
    \40\ See Article VI, Sections 1 and 3.
    \41\ See Article VI, Section 3.
---------------------------------------------------------------------------

    The Exchange proposes to adopt a Nominating and Governance 
Committee which would have the same responsibilities currently 
delegated to the CBOE and C2 Nominating and Governance Committees. 
Specifically, the Exchange proposes to adopt Article IV, Section 4.3, 
which is the same as Article IV, Section 4.3 of the CBOE Bylaws, which 
would provide that the Nominating and Governance Committee shall 
consist of at least five (5) directors and shall at all times have a 
majority of Non-Industry Directors. Members of the committee would be 
recommended by the Nominating and Governance Committee for approval by 
the Board and shall not be subject to removal except by the Board. The 
Chairman of the Nominating and Governance Committee shall be 
recommended by the Nominating and Governance Committee for approval by 
the Board. The Nominating and Governance Committee would be primarily 
charged with the authority to nominate individuals for election as 
Directors of the Exchange. The Nominating and Governance Committee 
would also have such other duties and may exercise such other authority 
as may be prescribed by resolution of the Board and the Nominating and 
Governance Committee charter as adopted by resolution of the Board. If 
the Nominating and Governance Committee has two (2) or more Industry 
Directors, there shall be an Industry-Director Subcommittee consisting 
of all of the Industry Directors then serving on the Nominating and 
Governance Committee, which shall act as the Representative Director 
Nominating Body (as previously discussed) if and to the extent required 
by the proposed Bylaws. The Exchange believes that the duties and 
functions of the eliminated Nominating and Member Nominating Committees 
would continue to be performed and covered in the new corporate 
governance structure under the proposed Bylaws.
Creation of an Advisory Board
    The Exchange proposes to adopt Article VI, Section 6.1, which 
provides that the Board may establish an Advisory Board which shall 
advise the Board and management regarding matters of interest to 
Exchange Members. The Exchange believes the Advisory Board could 
provide a vehicle for Exchange management to receive advice from the 
perspective of Exchange Members and regarding matters that impact 
Exchange Members. Under Article VI, Section 6.1 of the proposed Bylaws, 
the Board would determine the number of members of an Advisory Board, 
if established, including at least two members who are Exchange Members 
or persons associated with Exchange Members. Additionally, the CEO or 
his or her designee would serve as the Chairman of an Advisory Board 
and the Nominating and Governance Committee would recommend the members 
of an Advisory Board for approval by the Board. There would also be an 
Exchange Member Subcommittee of the Advisory Board consisting of all 
members of the Advisory Board who are Exchange Members or persons 
associated with Exchange Members, which shall act as the Representative 
Director Nominating Body if and to the extent required by the proposed 
Bylaws. An Advisory Board would be completely advisory in nature and 
not be vested with any Exchange

[[Page 42190]]

decision-making authority or other authority to act on behalf of the 
Exchange. The Exchange notes that CBOE and C2 currently maintain an 
Advisory Board, with the same proposed compositional requirements and 
functions.\42\ The Exchange also notes, however, that while for CBOE 
and C2 an Advisory Board is mandatory, an Advisory Board for the 
Exchange would be permissive as the Exchange desires flexibility to 
determine if an Advisory Board should be established in the future. The 
Exchange notes that there is no statutory requirement to maintain an 
Advisory Board or Advisory Committee and indeed, other Exchanges, 
including BZX itself, do not require the establishment of an Advisory 
Board.\43\
---------------------------------------------------------------------------

    \42\ See Article VI, Section 6.1 of CBOE Bylaws.
    \43\ For example, BOX Options Exchange, LLC does not require an 
advisory committee.
---------------------------------------------------------------------------

Officers, Agents and Employees
General
    Article VII, Section 1 of the current Bylaws provides that that an 
individual may not hold office as both the President and Secretary, 
whereas the CBOE Bylaws provide an individual may not hold office as 
both the CEO and President and that the CEO and President may not hold 
office as either the Secretary or Assistant Secretary.\44\ As these 
requirements are similar, if not more restrictive under the CBOE 
Bylaws, the Exchange proposes to include the same provisions in the 
CBOE Bylaws in Article V, Section 5.1 of the proposed Bylaws.
---------------------------------------------------------------------------

    \44\ See Article V, Section 5.1 of CBOE Bylaws.
---------------------------------------------------------------------------

Resignation and Removal
    Article VII, Section 3 of the current Bylaws provides that any 
officer may resign at any time upon notice of resignation to the 
Chairman and CEO, the President or the Secretary. The Exchange proposes 
to amend the provision relating to officer resignations to provide that 
any officer may resign at any time upon delivering written notice to 
the Exchange at its principal office, or to the CEO or Secretary.\45\ 
Article VII, Section 3 of the current Bylaws also provides that any 
officer may be removed, with or without cause, by the Board. The 
Exchange proposes to provide that, in addition to being removed by the 
Board, an officer may be removed at any time by the CEO or President 
(provided that the CEO can only be removed by the Board).\46\ 
Provisions relating to resignation and removal of officers in the 
proposed Bylaws will be identical to the relevant provisions of the 
CBOE Bylaws.\47\
---------------------------------------------------------------------------

    \45\ See Proposed Bylaws, Article V, Section 5.9.
    \46\ See Proposed Bylaws, Article V, Section 5.8.
    \47\ See Article V, Sections 5.8 and 5.9 of the CBOE Bylaws.
---------------------------------------------------------------------------

Compensation
    Article VII, Section 4 of the current Bylaws provides that the CEO, 
after consultation of the Compensation Committee, shall fix the 
salaries of officers of the Exchange and also states that the CEO's 
compensation shall be fixed by the Compensation Committee. In order to 
conform compensation practices to those of CBOE and C2, the Exchange 
proposes to modify these provisions to provide that in lieu of the CEO, 
the Board, unless otherwise delegated to a committee of the Board or to 
members of senior management, may fix the salaries of officers of the 
Exchange.\48\ Additionally, in conjunction with the proposed change to 
eliminate the BZX Compensation Committee, the Exchange proposes to 
eliminate language providing that the CEO's compensation is fixed by 
the Compensation Committee.
---------------------------------------------------------------------------

    \48\ See Proposed Bylaws, Article V, Section 5.11.
---------------------------------------------------------------------------

Chief Executive Officer and President
    Article VII, Section 6 of the current Bylaws pertains to the CEO. 
The current Bylaws provide that the CEO shall be the Chairman of the 
Board. CBOE and C2, however, do not require that the CEO be Chairman of 
the Board. The Exchange desires similar flexibility in appointing its 
Chairman and, therefore, this requirement is not carried over in the 
proposed Bylaws.\49\ Instead, Article V, Section 5.1 of the proposed 
Bylaws provides that the CEO shall be appointed by an affirmative vote 
of the majority of the Board, and may but need not be, the Chairman of 
the Board. The Exchange notes that to conform the language to the CBOE 
Bylaws, Article V, Section 5.2 of the proposed Bylaws also states that 
the CEO shall be the official representative of the Exchange in all 
public matters and provides that the CEO shall not engage in another 
business during his incumbency except with approval of the Board. 
Additionally, the Exchange proposes not to carry over language in the 
current Bylaws that provides that the CEO shall not participate in 
executive sessions of the Board, as CBOE Bylaws do not contain a 
similar restriction.
---------------------------------------------------------------------------

    \49\ The Exchange notes that currently the CEO of BZX is also 
Chairman of the Board.
---------------------------------------------------------------------------

    Article V, Section 5.3 of the proposed Bylaws proposes to provide 
that the President shall be the chief operating officer of the 
Exchange. The Exchange notes that the current Bylaws do not address 
appointing a chief operating officer. Additionally, while Article VII, 
Section 7 of the current Bylaws provides that the President shall have 
all powers and duties usually incident to the office of the President, 
except as specifically limited by a resolution of the Board, and shall 
exercise such other powers and perform such other duties as may be 
assigned to the President from time to time by the Board, Article V, 
Section 5.3 of the proposed Bylaws further states that in the event 
that the CEO does not act, the President shall perform the officer 
duties of the CEO, which is consistent with the language in the CBOE 
Bylaws.
Other Officers
    The Exchange notes the following modifications relating to officer 
provisions in the proposed Bylaws, which are intended to conform the 
proposed Bylaws to the CBOE Bylaws:
    <bullet> Article V, Sections 5.1 and 5.4 of the proposed Bylaws, 
which is identical to Article V, Sections 5.1 and 5.4 of the CBOE 
Bylaws, will provide that the Chief Financial Officer (``CFO'') is 
designated as an officer of the Exchange and that the Board and CEO may 
assign the CFO powers and duties as they see fit. The Exchange notes 
that the role of a CFO is not referenced in the current Bylaws.
    <bullet> The proposed Bylaws eliminate the requirement in the 
current Bylaws that the Chief Regulatory Officer (``CRO'') is a 
designated officer of the Exchange.\50\ As noted above, the Exchange 
desires to conform its Bylaws to the Bylaws of CBOE and the CBOE Bylaws 
do not reference the role of the CRO. The Exchange notes that 
notwithstanding the proposed elimination of the CRO provision, there is 
no intention to eliminate the role of the CRO.
---------------------------------------------------------------------------

    \50\ See Current Bylaws, Article VII, Section 9.
---------------------------------------------------------------------------

    <bullet> Article VII, Section 10 of the current Bylaws requires the 
Secretary to keep official records of Board meetings. The Exchange 
proposes to add to Article V, Section 5.6 of the proposed Bylaws, which 
is similar to the current Bylaws and based on Article V, Section 5.6 of 
the CBOE Bylaws, which requires that in addition to all meetings of the 
Board, the Secretary must keep official records of all meetings of 
stockholders and of Exchange Members at which action is taken.
    <bullet> Article V, Section 5.7 of the proposed Bylaws, which is 
based on Article 5.7 of the CBOE Bylaws, would provide that the 
Treasurer perform such duties and powers as the Board, the CEO or CFO 
proscribes (whereas Article VII, Section 12 of the current Bylaws 
provides that such duties and powers

[[Page 42191]]

may be proscribed by the Board, CEO or President).
    <bullet> While the current Bylaws contain separate provisions 
relating to an Assistant Secretary and an Assistant Treasurer, the 
proposed Bylaws do not, as CBOE Bylaws similarly do not contain such 
provisions.\51\
---------------------------------------------------------------------------

    \51\ See Article VII, Sections 11 and 13 of the current Bylaws.
---------------------------------------------------------------------------

Amendments
    Article IX, Section 1 of the current Bylaws provides that the 
bylaws may be altered, amended, or repealed, or new bylaws adopted, (i) 
by written consent of the stockholders of the Exchange or (ii) at any 
meeting of the Board by resolution. The proposed Bylaws, however, 
eliminate the ability of stockholders to act by written consent and 
instead provides that in order for the stockholders of the Exchange to 
alter, amend, repeal or adopt new bylaws, there must be an affirmative 
vote of the stockholders present at any annual meeting at which a 
quorum is present.\52\ Additionally, unlike the current Bylaws, the 
Exchange proposes to explicitly provide that changes to the bylaws 
shall not become effective until filed with or filed with and approved 
by the SEC, to avoid confusion as to when proposed amendments to the 
Bylaws can take effect.\53\ The proposed provisions are the same as the 
corresponding provisions in the CBOE Bylaws.\54\
---------------------------------------------------------------------------

    \52\ See Proposed Bylaws, Article IX, Section 9.2.
    \53\ See Proposed Bylaws, Article IX, Section 9.3.
    \54\ See Article IX, Sections 9.2 and 9.3 of the CBOE Bylaws.
---------------------------------------------------------------------------

General Provisions
    The Exchange proposes to add Article VIII, Section 8.1 of the 
proposed Bylaws, which is the same as Article VIII, Section 8.1 of the 
CBOE Bylaws, that unless otherwise determined by the Board, the fiscal 
year of the Exchange ends on the close of business December 31 each 
year, as compared to Article XI, Section 1 of the current Bylaws, which 
provides that the fiscal year of the Exchange shall be as determined 
from time to time by the Board. Note that the Exchange's fiscal year 
currently ends on the close of business December 31 each year.
    The Exchange also proposes to add Article VIII, Section 8.2 of the 
proposed Bylaws, which is the same as Article VIII, Section 8.2 of the 
CBOE Bylaws, which governs the execution of instruments such as checks, 
drafts and bills of exchange and contracts and which is similar to 
Article XI, Section 6 of the current Bylaws.
    Next, the Exchange proposes to adopt Article VIII, Section 8.4, 
which provides that, except as the Board may otherwise designate, the 
Chairman of the Board, CEO, CFO or Treasurer may waive notice of, and 
act as, or appoint any person or persons to act as, proxy or attorney-
in-fact for the Exchange (with or without power of substitution) at, 
any meeting of stockholders or shareholders of any other corporation or 
organization, the securities of which may be held by the Exchange. The 
proposed provision is the same as Article VIII, Section 8.4 of the CBOE 
Bylaws and similar to Article XI, Section 7 of the current Bylaws, 
which provides generally that the CEO has the power and authority to 
act on behalf of the Company at any meeting of stockholders, partners 
or equity holders of any other corporation or organization, the 
securities of which may be held by the Exchange.
    The Exchange proposes to adopt Article VIII, Section 8.7, which 
governs transactions with interested parties. Proposed Article VIII, 
Section 8.7 is the same as Article VIII, Section 8.7 of the CBOE Bylaws 
and substantially similar to language contained in Article III, Section 
18 of the current Bylaws. Similarly, the Exchange proposes to adopt 
Article VIII, Section 8.8 which governs severability and is the same as 
Article VIII, Section 8.8 of CBOE Bylaws and substantially similar to 
Article XI, Section 8 of the current Bylaws.
    The Exchange proposes to adopt Article VIII, Section 8.10 which 
provides that the board may authorize any officer or agent of the 
Corporation to enter into any contract, or execute and deliver any 
instrument in the name of, or on behalf of the Corporation. The 
proposed language is the same as the language in Article VIII, Section 
8.10 of the CBOE Bylaws and similar to related language in Article XI, 
Section 6 of the current Bylaws.
    The Exchange proposes to adopt Article VIII, Section 8.12, relating 
to books and records and which is the same as Article VIII, Section 
8.12 of CBOE Bylaws and which is similar to language contained in 
Article XI, Section 3 of the current Bylaws.
New Bylaw Provisions
    The Exchange proposes to add provisions to the proposed Bylaws that 
are not included in the current Bylaws in order to conform the 
Exchange's bylaws to those of CBOE and C2 and provide consistency among 
the CBOE Holdings' U.S. securities exchanges. Specifically, the 
Exchange proposes to add the following to the proposed Bylaws:
    <bullet> Article VII, which addresses notice requirements for any 
notice required to be given by the bylaws or Rules, including Article 
VII, Section 7.2, which provides whenever any notice to any stockholder 
is required, such notice may be given by a form of electronic 
transmission if the stockholder to whom such notice is given has 
previously consented to the receipt of notice by electronic 
transmission. The language mirrors the language set forth in Article 
VII, Section 7.2 of the CBOE Bylaws.
    <bullet> Article VIII, Section 8.3 which is identical to Article 
VIII, Section 8.3 of the CBOE Bylaws, which provides that the corporate 
seal, if any, shall be in such form as approved by the board or officer 
of the Corporation.
    <bullet> Article VIII, Section 8.5, which provides that a 
certificate by the Secretary, or Assistant Secretary, if any, as to any 
action taken by the stockholders, directors, a committee or any officer 
or representative of the Exchange shall, as to all persons who rely on 
the certificate in good faith, be conclusive evidence of such action. 
This language is identical to the language contained in Article VIII, 
Section 8.5 of the CBOE Bylaws.
    <bullet> Article VIII, Section 8.6., which is identical to Article 
VIII, Section 8.6 of the CBOE Bylaws, which provides all references to 
the Certificate of Incorporation shall be deemed to refer to the 
Certificate of Incorporation of the Corporation, as amended, altered or 
restated and in effect from time to time.
    <bullet> Article VIII, Section 8.11, which provides that the 
Exchange may lend money or assist an employee of the Exchange when the 
loan, guarantee or assistance may reasonably benefit the Exchange. This 
language is identical to the language contained in Article VIII, 
Section 8.11 of the CBOE Bylaws.
Eliminated Bylaw Provisions
    The Exchange notes that the following provisions in the current 
Bylaws are not carried over in either the proposed Bylaws or proposed 
Certificate in order to conform the Exchange's bylaws to those of CBOE 
and C2 and provide consistency among the CBOE Holdings' U.S. securities 
exchanges:
    <bullet> Article III, Sections 13 and 17. Section 13 provides that 
a director who is present at a Board or Board Committee meeting at 
which action is taken is conclusively presumed to have assented to 
action being taken unless his or her dissent or election to abstain is 
entered into the minutes or filed. Section 17 provides that the Board 
has the power to interpret the Bylaws and any interpretations made 
shall be final and conclusive. The Exchange does not

[[Page 42192]]

wish to include these provisions in the proposed Bylaws as no 
equivalent provisions exist in the CBOE Bylaws and the Exchange wishes 
to have uniformity across the bylaws of the CBOE Holdings' exchanges.
    <bullet> Article IX, Section 2, which relates to the Board's 
authority to adopt emergency Bylaws to be operative during any 
emergency resulting from, among other things, any nuclear or atomic 
disaster or attack on the United States, any catastrophe, or other 
emergency condition, as a result of which a quorum of the Board or a 
committee cannot readily be convened for action. Similarly, Article IX, 
Section 3, provides that the Board, or Board's designee, in the event 
of extraordinary market conditions, has the authority to take certain 
actions. The Exchange does not wish to include these provisions in the 
proposed Bylaws as no equivalent provisions exist in the CBOE Bylaws 
and the Exchange wishes to have uniformity across the bylaws of the 
CBOE Holdings' exchanges.
    <bullet> Article X, Section 2, which relates to disciplinary 
proceedings and provides that the Board is authorized to establish 
procedures relating to disciplinary proceedings involving Exchange 
Members and their associated persons, as well as impose various 
sanctions applicable to Exchange Members and persons associated with 
Exchange Members. The Exchange does not wish to include this provision 
in the proposed Bylaws as no equivalent provisions exist in the CBOE 
Bylaws. Additionally, the Exchange notes that Article III, Section 3.3 
of the proposed Bylaws grants the Board broad powers to adopt such 
procedures and/or rules if necessary or desirable.\55\
---------------------------------------------------------------------------

    \55\ The Exchange notes that the language in proposed Article 
III, Section 3.3 is similar to language provided for in Article X, 
Section 1 of the current Bylaws.
---------------------------------------------------------------------------

    <bullet> Article X, Section 3, which relates to membership 
qualifications and provides, among other things, that the Board has 
authority to adopt rules and regulations applicable to Exchange Members 
and Exchange Member applicants, as well as establish specified and 
appropriate standards with respect to the training, experience, 
competence, financial responsibility, operational capability, and other 
qualifications. The Exchange does not wish to include this provision in 
the proposed Bylaws as no equivalent provisions exist in the CBOE 
Bylaws. The Exchange again notes that Article III, Section 3.3 of the 
proposed Bylaws grants the Board broad powers to adopt such rules and 
regulations if necessary or desirable.
    <bullet> Article X, Section 4, which relates to fees, provides that 
the Board has authority to fix and charge fees, dues, assessments, and 
other charges to be paid by Exchange Members and issuers and any other 
persons using any facility or system that the Company operates or 
controls; provided that such fees, dues, assessments, and other charges 
shall be equitably allocated among Exchange Members and issuers and any 
other persons using any facility or system that the Company operates or 
controls. The Exchange does not wish to include this section of the 
provision in the proposed Bylaws as no equivalent provisions exist in 
the CBOE Bylaws. To the extent the Board wishes to adopt such fees and 
dues, it has the authority pursuant to Article III, Section 3.3 of the 
proposed Bylaws. The Exchange notes that with respect to the language 
in Article X, Section 4 of the current Bylaws relating to the 
prohibition of using revenues received from fees derived from its 
regulatory function or penalties for non-regulatory purposes, similar 
language exists within CBOE Rules, particularly, CBOE Rule 2.51. In 
order to conform the Bylaws, the Exchange wishes to similarly relocate 
this language to its rules, instead of maintaining it in its Bylaws. 
Specifically, the Exchange proposes to adopt new Rule 15.2, which 
language is based off CBOE Rule 2.51. The Exchange notes that this 
provision is designed to preclude the Exchange from using its authority 
to raise regulatory funds for the purpose of benefitting its 
Stockholder. Unlike CBOE Rule 2.51 however, proposed Rule 15.2 
explicitly provides that regulatory funds may not be distributed to the 
stockholder. The Exchange notes that this language is currently 
contained in Article X, section 4 of the current Bylaws. Additionally, 
while not explicit in CBOE Rule 2.51, the Exchange notes that the rule 
filing that adopted Rule 2.51 does similarly state that regulatory 
funds may be not distributed to CBOE's stockholder.\56\ Although 
proposed Rule 15.2 will differ slightly from CBOE Rule 2.51, the 
Exchange wishes to make this point clear to avoid potential confusion. 
Lastly, the Exchange notes that unlike Article X, Section 4 of the 
current Bylaws, proposed Rule 15.2, like CBOE Rule 2.51, will provide 
that notwithstanding the preclusion to use regulatory revenue for non-
regulatory purposes, in the event of liquidation of the Exchange, Bats 
Global Markets Holdings, Inc. will be entitled to the distribution of 
the remaining assets of the Exchange.
---------------------------------------------------------------------------

    \56\ See Securities Exchange Act Release No. 62158 (May 24, 
2010), 75 FR 30082 (May 28, 2010) (SR-CBOE-2008-088).
---------------------------------------------------------------------------

    <bullet> Certain sections in Article XI, including Section 2 
(``Participation in Board and Committee Meetings''), Section 4 
(``Dividends'') and Section 5 (``Reserves''). More specifically, 
Article XI, Section 2 governs who may attend Board and Board committee 
meetings pertaining to the self-regulatory function of the Exchange and 
particularly, provides among other things, that Board and Board 
Committee meetings relating to the self-regulatory function of the 
Company are closed to all persons other than members of the Boards, 
officers, staff and counsel or other advisors whose participation is 
necessary or appropriate.\57\ Article XI, Section 4 provides that 
dividends may be declared upon the capital stock of the Exchange by the 
Board. Article XI, Section 5 provides that before any dividends are 
paid out, there must be set aside funds that the Board determines is 
proper as a reserves. The Exchange does not wish to include these 
provisions in the proposed Bylaws as no equivalent provisions exist in 
the CBOE Bylaws and the Exchange wishes to have uniformity across the 
bylaws of the CBOE Holdings' U.S. securities exchanges.
---------------------------------------------------------------------------

    \57\ Article XI, Section 2 also provides that in no event shall 
members of the Board of Directors of CBOE Holdings, Inc., CBOE V, 
LLC or Bats Global Markets Holdings, Inc. who are not also members 
of the Board, or any officers, staff, counsel or advisors of CBOE 
Holdings, Inc., CBOE V, LLC or Bats Global Markets Holdings, Inc. 
who are not also officers, staff, counsel or advisors of the Company 
(or any committees of the Board), be allowed to participate in any 
meetings of the Board (or any committee of the Board) pertaining to 
the self-regulatory function of the Company (including disciplinary 
matters).
---------------------------------------------------------------------------

(c) Changes to Rules
    The Exchange will also amend its rules in conjunction with the 
proposed changes to its bylaws. The proposed rule changes are set forth 
in Exhibit 5E. First, the Exchange proposes to update the reference to 
the bylaws in Rule 1.1. Next, the Exchange notes that in order to keep 
the governance documents uniform, it proposes to eliminate the 
definitions of ``Industry member'', ``Member Representative member'' 
and ``Director'' from Article I of the current Bylaws. The Exchange 
notes that Industry members and Member Representative members are still 
used for Hearing Panels pursuant to Rule 8.6. As such, the Exchange 
proposes to relocate these definitions to the rules (specifically, Rule 
8.6) and proposes to update the reference to the location of the 
definitions in Rule 8.6 accordingly (i.e., refer to the definition in 
Rule 8.6

[[Page 42193]]

as opposed to the definition in the bylaws). The Exchange also proposes 
to eliminate language in Rule 2.10 that, in connection with a reference 
to ``Director'', states ``as such term is defined in the Bylaws of the 
Exchange''. As the definition of Director is being eliminated in the 
Bylaws, the Exchange is seeking to remove the obsolete language in Rule 
2.10.
    Lastly, as discussed above, the Exchange proposes to add new Rule 
15.2, which will provide that any revenues received by the Exchange 
from fees derived from its regulatory function or regulatory fines will 
not be used for non-regulatory purposes or distributed to the 
Stockholder, but rather, shall be applied to fund the legal and 
regulatory operations of the Exchange (including surveillance and 
enforcement activities), or be used to pay restitution and disgorgement 
of funds intended for customers (except in the event of liquidation of 
the Exchange, which case Bats Global Markets Holdings, Inc. will be 
entitled to the distribution of the remaining assets of the Exchange). 
As more fully discussed above in the ``Eliminated Bylaw Provisions'' 
section, the proposed change is similar to Article X, Section 4 of the 
current Bylaws and based on Rule 2.51 of CBOE Rules.
    The Exchange believes that the proposed changes to the current 
Bylaws and current Certificate would align its governance documents 
with the governance documents of each of CBOE and C2, which preserves 
governance continuity across each of CBOE Holdings' six U.S. securities 
exchanges. The Exchange also notes that the Exchange will continue to 
be so organized and have the capacity to be able to carry out the 
purposes of the Act and to comply and to enforce compliance by its 
Members and persons associated with its Members, with the provisions of 
the Act, the rules and regulations thereunder, and the Rules, as 
required by Section 6(b)(1) of the Act.\58\
---------------------------------------------------------------------------

    \58\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder applicable to the 
Exchange and, in particular, the requirements of Section 6(b) of the 
Act.\59\ Specifically, the Exchange believes the proposed rule change 
is consistent with the Section 6(b)(5) \60\ requirements that the rules 
of an exchange be designed to prevent fraudulent and manipulative acts 
and practices, to promote just and equitable principles of trade, to 
foster cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
Additionally, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \61\ requirement that the rules of 
an exchange not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers. The Exchange also believes 
that its proposal is consistent with Section 6(b) of the Act in 
general, and furthers the objectives of Section 6(b)(1) of the Act in 
particular, in that it enables the Exchange to be so organized as to 
have the capacity to be able to carry out the purposes of the Act and 
to comply, and to enforce compliance by its exchange members and 
persons associated with its exchange members, with the provisions of 
the Act, the rules and regulations thereunder, and the rules of the 
Exchange.
---------------------------------------------------------------------------

    \59\ 15 U.S.C. 78f(b).
    \60\ 15 U.S.C. 78f(b)(5).
    \61\ Id.
---------------------------------------------------------------------------

    The Exchange also believes that its proposal to adopt the Board and 
committee structure and related nomination and election processes set 
forth in the proposed Bylaws are consistent with the Act, including 
Section 6(b)(1) of the Act, 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. In general, the 
proposed changes would make the Board and committee composition 
requirements, and related nomination and election processes, more 
consistent with those of its affiliates, CBOE and C2. The Exchange 
therefore believes that the proposed changes would contribute to the 
orderly operation of the Exchange and would enable the Exchange to be 
so organized as to have the capacity to carry out the purposes of the 
Act and comply with the provisions of the Act by its members and 
persons associated with members. The Exchange also believes that this 
proposal furthers the objectives of Section 6(b)(3) \62\ and (b)(5) of 
the Act in particular, in that it is designed to assure a fair 
representation of Exchange Members in the selection of its directors 
and administration of its affairs and provide that one or more 
directors would be representative of issuers and investors and not be 
associated with a member of the exchange, broker, or dealer; and is 
designed to promote just and equitable principles of trade, 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. For example, the number of Non-Industry Directors must 
not be less than the number of Industry Directors. Additionally, the 
Exchange believes that the 20% requirement for Representative Directors 
and the proposed method for selecting Representative Directors ensures 
fair representation and allows members to have a voice in the 
Exchange's use of its self-regulatory authority. For instance, the 
proposed Bylaws includes a process by which Exchange members can 
directly petition and vote for representation on the Board.
---------------------------------------------------------------------------

    \62\ 15 U.S.C. 78f(b)(3).
---------------------------------------------------------------------------

    Additionally, the Exchange believes the proposed Certificate, 
Bylaws and rules support a corporate governance framework, including 
the proposed Board and Board Committee structure that preserves the 
independence of the Exchange's self-regulatory function and insulates 
the Exchange's regulatory functions from its market and other 
commercial interests so that the Exchange can continue to carry out its 
regulatory obligations. Particularly, the proposed governance documents 
provide that Directors must take into consideration the effect that his 
or her actions would have on the ability of the Company to carry out 
its regulatory responsibilities under the Act and the proposed changes 
to the rules includes the restriction on using revenues derived from 
the Exchange's regulatory function for non-regulatory purposes, which 
further underscores the independence of the Exchange's regulatory 
function. The Exchange also believes that requiring that the number of 
Non-Industry Directors not be less than the number of Industry 
Directors and requiring that all Directors serving on the ROC be Non-
Industry Directors would help to ensure that no single group of market 
participants will have the ability to systematically disadvantage other 
market participants through the exchange governance process, and would 
foster the integrity of the Exchange by providing unique, unbiased 
perspectives.
    Moreover, the Exchange believes that the new corporate governance 
framework and related processes being proposed are consistent with 
Section 6(b)(5) of the Act because they are substantially similar to 
the framework and processes used by CBOE and C2, which have been well-
established as fair

[[Page 42194]]

and designed to protect investors and the public interest.\63\ The 
Exchange believes that conforming its governance documents based on the 
documents of the CBOE and C2 exchanges would streamline the CBOE 
Holdings' U.S. securities exchanges' governance process, create 
equivalent governing standards among the exchanges and also provide 
clarity to its members, which is beneficial to both investors and the 
public interest.
---------------------------------------------------------------------------

    \63\ See e.g., Securities Exchange Act Release No. 62158 (May 
24, 2010), 75 FR 30082 (May 28, 2010) (SR-CBOE-2008-088); Securities 
Exchange Act Release No. 64127 (March 25, 2011), 76 FR 17974 (March 
31, 2011) (SR-CBOE-2011-010); and Securities Exchange Act Release 
No. 80523 (April 25, 2017), 82 FR 20399 (May 1, 2017) (SR-CBOE-2017-
017).
---------------------------------------------------------------------------

    To the extent there are differences between the current CBOE and C2 
framework and the proposed Exchange framework, the Exchange believes 
the differences are reasonable. First, the Exchange believes it's 
reasonable to provide that in Run-Off Elections, each Exchange Member 
shall have one (1) vote for each Representative Director position to be 
filled that year instead of one vote per Trading Permit held, because 
the Exchange, unlike CBOE and C2, does not have Trading Permits and 
because other exchanges have similar practices \64\ The Exchange 
believes it's also reasonable not to require the establishment of an 
Advisory Board, as the Exchange desires flexibility in maintaining such 
a Committee, and is not statutorily required to maintain such a 
committee. Additionally, the Exchange notes that it currently does not 
have an Advisory Board. Lastly, the Exchange notes that it is 
reasonable to not require a standing exchange-level Appeals Committee 
because the Board still has the authority to appoint an Appeals 
Committee in the future as needed pursuant to its powers under Article 
IV, Section 4.1 of the proposed Bylaws and because an Appeals Committee 
is not statutorily required.
---------------------------------------------------------------------------

    \64\ See e.g., Amended and Restated By-Laws of Miami 
International Securities Exchange, LLC, Article II, Section 2.4(f).
---------------------------------------------------------------------------

    Finally, the proposed amendments to the rules as discussed above 
are non-substantive changes meant to merely update the Rules in light 
of the proposed changes to the current Bylaws and to relocate certain 
provisions to better conform the Exchange's governance documents to 
those of CBOE and C2.

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

    The Exchange does not believe the proposed rule change will impose 
any burden on competition not necessary or appropriate in furtherance 
of the purposes of the Act. The proposed rule change relates to the 
corporate governance of BZX and not the operations of the Exchange. 
This is not a competitive filing and, therefore, imposes no burden on 
competition.

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

    The Exchange neither solicited nor received comments on the 
proposed rule change.

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 Exchange consents, the Commission will: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposal 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#7705021b125a14181a1a121903043704121459101801"><span class="__cf_email__" data-cfemail="a2d0d7cec78fc1cdcfcfc7ccd6d1e2d1c7c18cc5cdd4">[email protected]</span></a>. Please include 
File No. SR-BatsBZX-2017-55 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 No. SR-BatsBZX-2017-55. 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 will also 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 No. SR-BatsBZX-2017-55 and should be 
submitted on or before September 27, 2017.
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    \65\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\65\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-18791 Filed 9-5-17; 8:45 am]
 BILLING CODE 8011-01-P


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