42206 Federal Register / Vol. 82, No. 171 / Wednesday, September 6, 2017 / Notices 

4This estimate is based on the following 

calculations: (4 hours × 97 new funds = 388 hours). 

5This estimate is based on the following 

calculation: (811 + 24 = 835). 

6Commission staff believes that rule 17a–7 does 

not impose any costs associated with record 

preservation in addition to the costs that funds 

already incur to comply with the record 

preservation requirements of rule 31a–2 under the 

Act. Rule 31a–2 requires companies to preserve 

certain records for specified periods of time. 

7The staff estimates that funds that rely on rule 

17a–7 annually enter into an average of 8 rule 17a– 

7 transactions each year. The staff estimates that the 

compliance attorneys of the companies spend 

approximately 15 minutes per transaction on this 

recordkeeping, and the board of directors spends a 

total of 1 hour annually in determining that all 

transactions made that year were done in 

compliance with the company’s policies and 

procedures. 

8This estimate is based on the following 

calculation: (3 hours × 835 companies = 2,505 

hours). 

9This estimate is based on the following 

calculation: (388 hours + 2,505 hours = 2,893 total 

hours). 

10This estimate is based on the following 

calculations: 835 funds that engage in rule 17a–7 

transactions × 8 transactions per year = 6,680. 

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

2 17 CFR 240.19b–4. 

total annual burden related to 

developing and adopting these policies 

and procedures would be approximately 

388 hours.4

Of the 3,243 existing funds, the staff 

assumes that approximately 25%, (or 

811) enter into transactions affected by 

rule 17a–7 each year (either by the fund 

directly or through one of the fund’s 

series), and that the same percentage 

(25%, or 24 funds) of the estimated 97 

funds that newly register each year will 

also enter into these transactions, for a 

total of 835 5 companies that are affected 

by the recordkeeping requirements of 

rule 17a–7. These funds must keep 

records of each of these transactions, 

and the board of directors must 

quarterly determine that all relevant 

transactions were made in compliance 

with the company’s policies and 

procedures. The rule generally imposes 

a minimal burden of collecting and 

storing records already generated for 

other purposes.6 The staff estimates that 

the burden related to making these 

records and for the board to review all 

transactions would be 3 hours annually 

for each respondent, (2 hours spent by 

compliance attorneys and 1 hour spent 

by the board of directors) 7 or 2,505 total 

hours each year.8

Based on these estimates, the staff 

estimates the combined total annual 

burden hours associated with rule 17a– 

7 is 2,893 hours.9 The staff also 

estimates that there are approximately 

835 respondents and 6,680 total 

responses.10

The estimates of burden hours are 

made solely for the purposes of the 

Paperwork Reduction Act, and are not 

derived from a comprehensive or even 

a representative survey or study of the 

costs of Commission rules. The 

collection of information required by 

rule 17a–7 is necessary to obtain the 

benefits of the rule. Responses will not 

be kept confidential. An agency may not 

conduct or sponsor, and a person is not 

required to respond to, a collection of 

information unless it displays a 

currently valid control number. 

Written comments are invited on: (a) 

Whether the collections of information 

are necessary for the proper 

performance of the functions of the 

Commission, including whether the 

information has practical utility; (b) the 

accuracy of the Commission’s estimate 

of the burdens of the collections of 

information; (c) ways to enhance the 

quality, utility, and clarity of the 

information collected; and (d) ways to 

minimize the burdens of the collections 

of information on respondents, 

including through the use of automated 

collection techniques or other forms of 

information technology. Consideration 

will be given to comments and 

suggestions submitted in writing within 

60 days of this publication. 

Please direct your written comments 

to Pamela Dyson, Director/Chief 

Information Officer, Securities and 

Exchange Commission, C/O Remi 

Pavlik-Simon, 100 F Street NE., 

Washington, DC 20549; or send an email 

to: PRA_Mailbox@sec.gov. 

Dated: August 31, 2017. 

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–18857 Filed 9–5–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81496; File No. SR– 

BatsEDGA–2017–22] 

Self-Regulatory Organizations; Bats 

EDGA 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 EDGA Exchange, Inc. 

(‘‘Exchange’’ or ‘‘EDGA’’) 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. 

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 

EDGA 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 EDGA 

along with Bats BYX Exchange, Inc. 

(‘‘Bats BYX’’), Bats BZX Exchange, Inc. 

(‘‘Bats BZX’’) and Bats EDGX Exchange, 

Inc. (‘‘Bats EDGX’’ and, together with 

Bats BYX, Bats BZX, and Bats EDGA, 

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 


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3See Article III of the CBOE Bylaws and proposed 

Bylaws. 

4See Article III, Section 1(d) and Section 1(e) of 

the current Bylaws. 

the bylaws and certificates of 

incorporation of CBOE and C2. 

Specifically, the Exchange proposes to 

replace the certificate of incorporation 

of Bats EDGA Exchange, Inc., (the 

‘‘current Certificate’’) in its entirety with 

the Second Amended and Restated 

Certificate of Incorporation of Bats 

EDGA Exchange, Inc. (the ‘‘proposed 

Certificate’’). Additionally, the 

Exchange proposes to replace the Sixth 

Amended and Restated Bylaws of Bats 

EDGA Exchange, Inc. (the ‘‘current 

Bylaws’’) in its entirety with the 

Seventh Amended and Restated Bylaws 

of Bats EDGA 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 

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. 

• Adopt an introductory section. 

• 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. 

• Article Fourth of the proposed 

Certificate specifies that Direct Edge 

LLC will be the sole owner of the 

Common Stock and that any sale, 

transfer or assignment by Direct Edge 

LLC 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. 

• 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

• 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. 

• 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. 

• 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. 

• 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. 

• 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 


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5See Article IX, Section 1 of the current Bylaws 

and Article IX, Section 9.1 of the proposed Bylaws. 

6See Proposed EDGA 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 EDGA is Direct Edge LLC, 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. 

7The 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. 

8See Article Second of the current and proposed 

Certificates. 

9See Current Bylaws, Article III, Section 4 

(‘‘Nomination and Election’’) and Article VI, 

Section 2 (‘‘Nominating Committee’’). 

10See 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. 

11See Current Bylaws Article I, subparagraph (t) 

(‘‘Member Representative member’’). See also, 

Article III, Section [sic] (‘‘Nomination and 

Election’’) and Article VI, Section 3 (‘‘Member 

Nominating Committee’’) of the current Bylaws. 

12See Article III, Section 3.1 and Article IV, 

Section 4.3 of the proposed Bylaws. 

repeal the Exchange’s bylaws, which is 

already provided for in both the current 

Bylaws and proposed Bylaws.5

• 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 selfregulatory 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 

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 EDGA 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

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. 

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

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 


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13The 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. 

14Article 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. 

15The 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. 

16Article 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). 

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 

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. 

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. 

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 


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17The sole stockholder of EDGA is Direct Edge 

LLC, a wholly owned subsidiary of CBOE Holdings. 

18See Proposed Bylaws and CBOE Bylaws, 

Article III, Section 3.1. 

19See Current Bylaws, Article III, Section 2. 

20 Id. 

21 Id. 

22See Current Bylaws, Article III, Section 5. 

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 selfregulatory authority. 

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 EDGA 

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. 

The Exchange proposes to adopt the 

same process to fill vacancies as CBOE 

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: 

• 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

• 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. 

• 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

• 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 


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23See Proposed Bylaws and CBOE Bylaws, 

Article III, Sections 3.6 and 3.8. 

24See Current Bylaws, Article III, Section 5. 

25See Proposed Bylaws and CBOE Bylaws, 

Article III, Section 3.7. 

26See Proposed Bylaws and CBOE Bylaws, 

Article III, Section 3.2. 

provides that the Board may designate 

an Acting Chairman in the event the 

Chairman is absent or fails to act.23

• 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

• 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. 

Meetings 

Annual Meeting of the Stockholders 

Article IV, Section 1 of the current 

Bylaws provides that the annual 

meeting of the stockholders shall be 

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 EDGA’s sole stockholder is 

Direct Edge LLC, 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 

EDGA’s sole stockholder is Direct Edge 

LLC, 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 EDGA’s sole 

stockholder is Direct Edge LLC, 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. 


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27See Current Bylaws, Article V, Section 1 and 

Section 2(a). 

28See Current Bylaws, Article V, Sections 6(e) 

and (f), respectively. 

29The Exchange notes that the Regulatory 

Oversight Committee (‘‘ROC’’) of the EDGA Board 

recommends to the Board compensation for the 

Chief Regulatory Officer. The Exchange also notes 

that currently not all executive officers of EDGA are 

required to have their compensation determined by 

the Compensation Committee. 

30See 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). 

31 17 CFR 240.10A–3. 

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 

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 EDGA’s current Nominating 

and Member Nominating Committees, 

which the Exchange proposes to 

eliminate. 

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 EDGA 

Compensation Committee has authority 

to fix the compensation of EDGA’s CEO 

and to consider and recommend 

compensation policies, programs, and 

practices to the EDGA CEO in 

connection with the EDGA CEO’s fixing 

of the salaries of other officers and 

agents of the Exchange.29 As such, other 

than to the extent that the EDGA 

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 EDGA Compensation 

Committee only fixes the compensation 

amount of the EDGA 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 EDGA 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 EDGA 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 exchangelevel compensation committees, 

including CBOE and C2.30

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 EDGA, 

the CBOE Holdings Audit Committee’s 

purview necessarily includes EDGA. 

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 EDGA Audit Committee 

has a more limited role, focused on 

EDGA. Under its charter, the primary 

functions of the EDGA Audit Committee 

are focused on (i) EDGA’s financial 


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32See, 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). 

33See 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. 

34For 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. 

35The 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. 36See CBOE Bylaws Article IV, Section 4.4. 

statements and disclosure matters and 

(ii) EDGA’s oversight and risk 

management, including compliance 

with legal and regulatory requirements, 

in each case, only to the extent required 

in connection with EDGA’s discharge of 

its obligations as a self-regulatory 

organization. However, to the extent 

that the EDGA 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 EDGA. Thus, the 

responsibilities of the EDGA Audit 

Committee are fully duplicated by the 

responsibilities of the CBOE Holdings 

Audit Committee. The Exchange 

believes that its proposal to eliminate its 

Audit Committee is substantially similar 

to prior actions by other securities 

exchanges with parent company audit 

committees to eliminate their exchangelevel audit committees, including CBOE 

and C2.32

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 exchangelevel 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. 

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 selfregulatory 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. 

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 selfregulatory 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

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 


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37The Exchange does not presently have an 

Executive Committee. 

38See CBOE Bylaws, Article IV, Section 4.2. 39See 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. 40See Article VI, Sections 1 and 3. 41See Article VI, Section 3. 

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. 

Under the proposed Bylaws, the 

Exchange proposes to require that the 

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

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, Direct 

Edge LLC39 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, Direct Edge LLC. 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. 

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 


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42See Article VI, Section 6.1 of CBOE Bylaws. 

43For example, BOX Options Exchange, LLC does 

not require an advisory committee. 

44See Article V, Section 5.1 of CBOE Bylaws. 

45See Proposed Bylaws, Article V, Section 5.9. 

46See Proposed Bylaws, Article V, Section 5.8. 

47See Article V, Sections 5.8 and 5.9 of the CBOE 

Bylaws. 

48See Proposed Bylaws, Article V, Section 5.11. 

49The Exchange notes that currently the CEO of 

EDGA is also Chairman of the Board. 50See Current Bylaws, Article VII, Section 9. 

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 

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 EDGA itself, do 

not require the establishment of an 

Advisory Board.43

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. 

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

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 EDGA Compensation 

Committee, the Exchange proposes to 

eliminate language providing that the 

CEO’s compensation is fixed by the 

Compensation Committee. 

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. 

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: 

• 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. 

• 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 


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51See Article VII, Sections 11 and 13 of the 

current Bylaws. 

52See Proposed Bylaws, Article IX, Section 9.2. 

53See Proposed Bylaws, Article IX, Section 9.3. 

54See Article IX, Sections 9.2 and 9.3 of the 

CBOE Bylaws. 

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. 

• 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. 

• 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 

may be proscribed by the Board, CEO or 

President). 

• 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

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

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: 

• 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. 

• 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. 

• 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. 

• 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. 

• 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 


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55The 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. 

56See Securities Exchange Act Release No. 62158 

(May 24, 2010), 75 FR 30082 (May 28, 2010) (SR– 

CBOE–2008–088). 

57Article XI, Section 2 also provides that in no 

event shall members of the Board of Directors of 

CBOE Holdings, Inc., CBOE V, LLC or Direct Edge 

LLC who are not also members of the Board, or any 

officers, staff, counsel or advisors of CBOE 

Holdings, Inc., CBOE V, LLC or Direct Edge LLC 

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). 

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: 

• 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 

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. 

• 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. 

• 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

• 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. 

• 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 nonregulatory 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, Direct Edge LLC will be 

entitled to the distribution of the 

remaining assets of the Exchange. 

• 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. 


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42218 Federal Register / Vol. 82, No. 171 / Wednesday, September 6, 2017 / Notices 

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

59 15 U.S.C. 78f(b). 

60 15 U.S.C. 78f(b)(5). 

61 Id. 62 15 U.S.C. 78f(b)(3). 

(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 

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 

Direct Edge LLC 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

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. 

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. 

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, 


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Federal Register / Vol. 82, No. 171 / Wednesday, September 6, 2017 / Notices 42219 

63See 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). 

64See e.g., Amended and Restated By-Laws of 

Miami International Securities Exchange, LLC, 

Article II, Section 2.4(f). 65 17 CFR 200.30–3(a)(12). 

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 

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. 

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. 

Finally, the proposed amendments to 

the rules as discussed above are nonsubstantive 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 EDGA 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 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File No. SR– 

BatsEDGA–2017–22 on the subject line. 

Paper Comments 

• 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–BatsEDGA–2017–22. 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–BatsEDGA– 

2017–22 and should be submitted on or 

before September 27, 2017. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.65

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–18790 Filed 9–5–17; 8:45 am] 

BILLING CODE 8011–01–P 


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