46848 Federal Register / Vol. 82, No. 193 / Friday, October 6, 2017 / Notices 

18 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3On June 30, 2016, HoldCo acquired all of the 

capital stock of U.S. Exchange Holdings, Inc., the 

Exchange’s indirect parent company (the 

‘‘Acquisition’’). As a result, the Exchange, in 

addition to its affiliates Nasdaq ISE, LLC (‘‘ISE’’) 

and Nasdaq GEMX, LLC (‘‘GEMX’’), became a 

wholly-owned subsidiary of HoldCo, and also 

became an affiliate of NSM, Phlx, and BX through 

common, ultimate ownership by HoldCo. HoldCo is 

the ultimate parent of the Exchange. See Securities 

Exchange Act Release No. 78119 (June 21, 2016), 81 

FR 41611 (June 27, 2016) (SR–ISEMercury-2016– 

10). 

4The Exchange’s affiliates, ISE and GEMX, have 

submitted nearly identical proposed rule changes. 

See Securities Exchange Release No. 81263 (July 31, 

2017), 82 FR 36497 (August 4, 2017) (SR–ISE–2017– 

32) (ISE Approval Order) and Securities Exchange 

Release No. 81422 (August 17, 2017), 82 FR 40026 

(August 23, 2017) (SR–GEMX–2017–37) (GEMX 

Notice of Filing). 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549 on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change; 

the Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–NYSE– 

2017–50 and should be submitted on or 

before October 27, 2017. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.18

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–21535 Filed 10–5–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81795; File No. SR–MRX– 

2017–18] 

Self-Regulatory Organizations; Nasdaq 

MRX, LLC; Notice of Filing of Proposed 

Rule Change To Adopt New Corporate 

Governance and Related Process 

Similar to Those of the Nasdaq 

Exchanges 

October 2, 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 

September 19, 2017, Nasdaq MRX, LLC 

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

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘Commission’’) the proposed 

rule change as described in Items I, II, 

and III below, which Items have been 

prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes a rule change 

(the ‘‘Proposed Rule Change’’) in 

connection with the proposed merger 

(the ‘‘Merger’’) with a newly-formed 

Delaware limited liability company 

under the Exchange’s ultimate parent, 

Nasdaq, Inc., resulting in the Exchange 

as the surviving entity. Following the 

Merger, the Exchange’s board and 

committee structure, and all related 

corporate governance processes, will be 

harmonized with that of the three other 

registered national securities exchanges 

and self-regulatory organizations owned 

by Nasdaq, Inc., namely: The NASDAQ 

Stock Market LLC (‘‘NSM’’), NASDAQ 

PHLX LLC (‘‘Phlx’’), and NASDAQ BX, 

Inc. (‘‘BX’’ and together with NSM and 

Phlx, the ‘‘Nasdaq Exchanges’’). 

In connection with the Merger and as 

discussed more fully below, the 

Exchange proposes to adopt new 

organizational documents that set forth 

a corporate governance framework and 

related processes that are substantially 

similar in all material respects to those 

of the Nasdaq Exchanges. 

The Exchange intends to implement 

the Proposed Rule Change no later than 

by the end of Q4 2017. The Exchange 

will alert its members in the form of a 

Regulatory Alert to provide notification 

of the implementation date. 

The text of the proposed rule change 

is available on the Exchange’s Web site 

at www.ise.com, at the principal office 

of the Exchange, and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

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 aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange was recently acquired 

by Nasdaq, Inc. (‘‘HoldCo’’).3 Following 

the acquisition, the Exchange has 

continued to operate as a separate selfregulatory organization (‘‘SRO’’) and 

continues to have separate rules, 

membership rosters, and listings, 

distinct from the rules, membership 

rosters, and listings of the Nasdaq 

Exchanges as well as from ISE and 

GEMX. The Exchange now proposes to 

harmonize the corporate governance 

framework of the Exchange with that of 

the Nasdaq Exchanges, and submits this 

Proposed Rule Change to seek the 

Commission’s approval of various 

changes to the Exchange’s 

organizational documents and Rules 

that are necessary in connection with 

the Merger, as described below. 

The proposed changes consist of: (1) 

Deleting the Exchange’s current Limited 

Liability Company Agreement (the 

‘‘Current LLC Agreement’’) in its 

entirety and replacing it with a new 

limited liability company agreement 

(the ‘‘LLC Agreement’’) that is based on 

the limited liability company agreement 

of NSM, (2) deleting the Exchange’s 

current Constitution (‘‘Current 

Constitution’’ and together with the 

Current LLC Agreement, the ‘‘Current 

Governing Documents’’) in its entirety 

and replacing it with a new set of bylaws (the ‘‘Bylaws’’ and together with 

the LLC Agreement, the ‘‘New 

Governing Documents’’) that is based on 

the by-laws of NSM, and (3) making 

minor clarifying changes to its rules, as 

discussed below.4

All of the proposed changes are 

designed to align the Exchange’s 

corporate governance framework to the 

existing structure at the Nasdaq 

Exchanges, particularly as it relates to 


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5The new LLC Agreement and Bylaws are based 

in form and substance on The NASDAQ Stock 

Market LLC’s Second Amended Limited Liability 

Company Agreement (the ‘‘NSM LLC Agreement’’) 

and By-Laws (the ‘‘NSM Bylaws’’). Additionally, 

the majority of provisions in the organizational 

documents of Phlx and BX were also based on those 

of NSM with differences that relate mainly to 

disciplinary processes (for Phlx) or to corporate 

structure (for BX). Notwithstanding, the vast 

majority of the new governance framework and 

processes proposed herein are materially identical 

to those of all three Nasdaq Exchanges. 

6The proposed LLC Agreement was filed as part 

of the Proposed Rule Change as Exhibit 5B. 

7The Current LLC Agreement was filed as part of 

the Proposed Rule Change as Exhibit 5A. 

8See the Second Amended Limited Liability 

Company Agreement of The NASDAQ Stock Market 

LLC (the ‘‘NSM LLC Agreement’’). The Second 

Amended Limited Liability Company Agreement of 

NASDAQ PHLX LLC (the ‘‘Phlx LLC Agreement’’) 

is also based on and is substantially similar to the 

NSM LLC Agreement. BX is a Delaware corporation 

and is governed by a Certificate of Incorporation, 

not an LLC Agreement. However, the board 

structure is identical across the Nasdaq Exchanges 

and therefore, BX’s Second Restated Certificate of 

Incorporation (the ‘‘BX COI’’) contains substantially 

similar governance provisions as the NSM LLC 

Agreement and Phlx LLC Agreement. 

9 In June 2017, the Exchange relocated its office 

from 60 Broad Street in New York to One Liberty 

Plaza in New York. Accordingly, Section 2 of the 

proposed LLC Agreement now reflects the new One 

Liberty Plaza address as the principal business 

office of the Exchange instead of the old 60 Broad 

address. Similarly, Schedule B of the proposed LLC 

Agreement, which includes the mailing address of 

the Exchange’s Sole LLC Member, also reflects the 

new One Liberty Plaza address instead of 60 Broad 

as the Sole LLC Member’s mailing address. 

10See NSM LLC Agreement, Sections 3 and 4; 

Phlx LLC Agreement, Section 3; and BX COI, 

Article Second. 

board and committee structure, 

nomination and election processes, and 

related governance practices.5 The 

Exchange is not proposing any 

amendments to its ownership structure 

and International Securities Exchange 

Holdings, Inc. (‘‘ISE Holdings’’) will 

remain as the Exchange’s sole limited 

liability company member (‘‘Sole LLC 

Member’’) and owner of 100% of the 

Exchange’s limited liability company 

interests. Furthermore, the Exchange is 

not proposing any amendments to its 

trading rules at this time relating to the 

Merger other than the minor clarifying 

changes and technical amendments as 

noted below. 

A. The Merger 

In order to effectuate the proposed 

changes above, the Exchange proposes 

to merge with a Delaware limited 

liability company (‘‘NewCo’’), newlyformed as a wholly-owned subsidiary of 

ISE Holdings, resulting in the Exchange 

as the surviving entity. Specifically, 

pursuant to the Delaware Limited 

Liability Company Act, as amended 

from time to time (the ‘‘LLC Act’’), 

NewCo would be formed under ISE 

Holdings upon filing a certificate of 

formation with the Secretary of State of 

the State of Delaware (‘‘DE Secretary of 

State’’). Subsequently, the Exchange 

would enter into an agreement and plan 

of merger with NewCo (the ‘‘Merger 

Agreement’’), under which NewCo 

would merge into the Exchange, with 

the Exchange surviving the Merger. The 

Merger Agreement contemplates that the 

merged limited liability company (i.e. 

the Exchange) would have a new LLC 

Agreement and new Bylaws, which 

would be attached to the Merger 

Agreement. Then, a certificate of merger 

would be filed with the DE Secretary of 

State, which will effectuate the Merger 

at the time of filing. The new LLC 

Agreement and the new Bylaws would 

also become effective at the time of 

filing the certificate of merger. Under 

the LLC Act, the Merger is subject to 

approval by the Exchange Board and by 

ISE Holdings as the Sole LLC Member. 

The Exchange represents that it has 

obtained or will obtain the necessary 

approvals prior to filing the certificate of 

merger with the DE Secretary of State. 

Following the Merger, the Exchange 

proposes to be governed by the New 

Governing Documents in accordance 

with the LLC Act. The specific changes 

effected by the New Governing 

Documents to the current documents are 

discussed in the following sections. 

B. Limited Liability Company 

Agreement 

Following the Merger, the Exchange 

proposes to adopt the LLC Agreement,6

which would replace the Current LLC 

Agreement.7 The proposed LLC 

Agreement reflects the expectation that 

the Exchange will be operated with a 

governance structure substantially 

similar to that of the Nasdaq Exchanges, 

and substantially mirrors the provisions 

found in the NSM LLC Agreement other 

than as specifically noted herein.8

Schedule B of the LLC Agreement 

describes the proposed ownership of the 

Exchange’s limited liability company 

interests, which ownership structure is 

identical to that currently in place. ISE 

Holdings would remain as the Sole LLC 

Member (and a member of the Exchange 

within the meaning of the LLC Act) and 

the sole owner of 100% of the limited 

liability company interests of the 

Exchange. Except as specified below, 

the proposed changes do not affect the 

manner of the Exchange’s operations or 

governance structure. 

Section 1 of the LLC Agreement, titled 

‘‘Name,’’ specifies the name of the 

surviving entity of the Merger as the 

name of the Exchange. Section 2 of the 

LLC Agreement, titled ‘‘Principal 

Business Office,’’ provides for the 

principal business office of the 

Exchange and such other location as 

may hereafter be determined by the 

Board.9

Sections 3 and 4 of the LLC 

Agreement, titled ‘‘Registered Office’’ 

and ‘‘Registered Agent,’’ specifies the 

place of the Exchange’s registered office 

and the entity acting as its registered 

agent, which is the same place and 

entity used by the Nasdaq Exchanges.10

The Exchange proposes to replace its 

current registered office and agent set 

forth in Section 1.5 of the Current LLC 

Agreement with the registered office 

and agent used by the Nasdaq 

Exchanges for administrative efficiency. 

This change will not have any material 

substantive effect on the current 

operations or the governance of the 

Exchange. 

Section 5 of the LLC Agreement, titled 

‘‘Sole LLC Member,’’ provides that the 

mailing address of the Sole LLC Member 

is set forth on Schedule B of the LLC 

Agreement. As noted above, ISE 

Holdings will remain as the Sole LLC 

Member of the Exchange. 

Section 6 of the LLC Agreement, titled 

‘‘Certificates,’’ refers to the filing of the 

Certificate of Merger with respect to the 

Merger. Such provision acknowledges 

and confirms that such filings, which 

were necessary for the merger to be 

effected, were authorized by the 

Exchange. This Section additionally sets 

forth those person(s) who have the 

authority to file any other certificates 

with the Delaware Secretary of State on 

behalf of the Exchange pursuant to the 

LLC Act. This provision is purely 

administrative in nature and therefore 

will have no material substantive effect 

on the current operations or the 

governance of the Exchange. 

Section 7 of the LLC Agreement, titled 

‘‘Purposes,’’ discusses the Exchange’s 

business purpose, which provides that 

the Exchange may engage in any lawful 

act or activity for which limited liability 

companies may be formed under the 

LLC Act and any and all activities 

necessary or incidental to the foregoing. 

Without limiting these general powers, 

proposed Section 7 also specifically 

provides that the Exchange’s business 

would include actions that support its 

regulatory responsibilities under the 

Act, including: (i) Supporting the 

operation, regulation, and surveillance 

of the national securities exchange 

operated by the Exchange, (ii) 

preventing fraudulent and manipulative 

acts and practices, promoting just and 

equitable principles of trade, fostering 

cooperation and coordination with 


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11See Current LLC Agreement, Sections 5.1 and 

5.7 and Current Constitution, Sections 3.1 and 4.1 

12See also Current Constitution, Section 3.1. 

13See NSM LLC Agreement, Section 9; Phlx LLC 

Agreement, Section 8; and BX COI, Article Fifth. 

14 ‘‘Director’’ will be defined as the persons 

elected or appointed to the board of directors from 

time to time in accordance with the LLC Agreement 

and the Bylaws, in their capacity as managers of the 

Exchange. See proposed Bylaw Article I(j), which 

is based on NSM Bylaw Article I(i). 

15See proposed LLC Agreement, Section 9(a). In 

contrast, the Current Governing Documents have 

specific limits on the size of the Board in that the 

Exchange is required to have no less than eight and 

no more than sixteen directors. See Current LLC 

Agreement, Section 5.2 and Current Constitution, 

Section 3.2(a). 

16See NSM LLC Agreement, Section 9; Phlx LLC 

Agreement, Section 8; BX Bylaws, Section 4.3. 

‘‘Member Representative Director’’ will be defined 

as a Director who has been elected or appointed 

after having been nominated by the Member 

Nominating Committee or by an Exchange Member. 

A Member Representative Director may, but is not 

required to be, an officer, director, employee, or 

agent of an Exchange Member. See proposed Bylaw 

Article I(r), which is based on NSM Bylaw Article 

I(q). 

17See proposed Section 6(b) of Bylaw Article III. 

‘‘Member Nominating Committee’’ will be defined 

as the Member Nominating Committee appointed 

pursuant to the Bylaws. See proposed Bylaw Article 

I(q), which is based on NSM Bylaw Article I(p). 

18The Commission has previously found that the 

requirement in the NSM LLC Agreement that 20% 

of the directors shall be ‘‘Member Representative 

Directors’’ and the means by which they are elected 

by the members provides for the fair representation 

of members in the selection of directors and 

administration of NSM consistent with the 

requirement in Section 6(b) of the Act. See 

Securities Exchange Act Release No. 53128 (Jan. 13, 

2006), 71 FR 3550 (January 23, 2006) (Order 

Granting Registration as a National Securities 

Exchange). 

19See Rule 300 Series. ‘‘Exchange Rights’’ means 

the PMM Rights, CMM Rights and EAM Rights 

collectively. See Rule 100(a)(17). PMM Rights, 

CMM Rights and EAM Rights have the meaning set 

forth in Article VI of the Current LLC Agreement. 

See Rules 100(a)(12), 100(a)(15) and 100(a)(36). See 

also Current Constitution, Section 13.1(o). PMMs, 

CMMs, and EAMs represent the three classes of 

membership on the Exchange. See Current 

Constitution, Sections 13.1(f), 13.1(j) and 13.1(z). 

20These directors are defined as ‘‘Industry 

Directors’’ in Section 3.2(b)(i) of the Current 

Constitution, but will be referred to herein as 

‘‘Exchange Directors.’’ 

21See Current Constitution, Section 3.2(b). 

Section 3.2(b) further requires that the Board be 

composed of at least 30% Exchange Directors. 

22See Section 6(b)(3) of the Act, 15 U.S.C. 

78f(b)(3). Upon granting the Exchange’s application 

for registration as a national securities exchange, 

the Commission found that the board composition 

requirements related to the Exchange Directors 

satisfied the principles of fair representation as 

required by Section 6(b) of the Act. See Securities 

Exchange Act Release No. 76998 (January 29, 2016), 

81 FR 6066 (February 4, 2016) (Order Granting 

Registration as a National Securities Exchange) 

(hereinafter, ‘‘MRX Approval Order’’). 

23Currently, the six Exchange Directors comprise 

37.5% of the sixteen-member Board. 

24See note 18 above. 

25Related concepts include: ‘‘CMM Right,’’ 

‘‘Competitive Market Maker,’’ ‘‘EAM Right,’’ 

‘‘Electronic Access Member,’’ ‘‘Exchange Member 

Representative,’’ ‘‘Exchange Rights,’’ ‘‘Industry 

Directors’’ (defined herein as ‘‘Exchange 

Directors’’), ‘‘PMM Rights,’’ ‘‘Primary Market 

Maker,’’ and ‘‘Voting Rights.’’ See Current 

Constitution, Section 13 for the definitions. 

persons engaged in regulating, clearing, 

settling, processing information with 

respect to, and facilitating transactions 

in securities, removing impediments to 

and perfecting the mechanisms of a free 

and open market and a national market 

system, and, in general, protecting 

investors and the public interest, (iii) 

supporting the various elements of the 

national market system pursuant to 

Section 11A of the Act and the rules 

thereunder, (iv) fulfilling the Exchange’s 

self-regulatory responsibilities as set 

forth in the Act, and (v) supporting such 

other initiatives as the Board may deem 

appropriate. Section 7 mirrors the 

Section 7 of the NSM LLC Agreement, 

and is similar to the language in Section 

1.3 of the Current LLC Agreement of the 

Exchange. 

Section 8 of the LLC Agreement, titled 

‘‘Powers,’’ discusses the general powers 

of the Exchange, the Board and the 

officers of the Exchange. Specifically, 

the Exchange, the Board and the officers 

on behalf of the Exchange (i) shall have 

and exercise all powers necessary, 

convenient or incidental to accomplish 

its purposes as set forth in Section 7 of 

the LLC Agreement and (ii) shall have 

and exercise all of the powers and rights 

conferred upon limited liability 

companies formed pursuant to the LLC 

Act. Section 8 is based on Section 8 of 

the NSM LLC Agreement, and is similar 

to the provisions in the Current LLC 

Agreement and the Current Bylaws.11

Section 9 of the LLC Agreement, titled 

‘‘Management,’’ sets forth the proposed 

management structure of the Exchange. 

Section 9(a) pertains to the Board of the 

Exchange and provides that the Board 

will manage the Exchange’s business 

and affairs, similar to the provisions in 

Section 5.1 of the Current LLC 

Agreement.12 By adopting new Section 

9(a), the Exchange proposes to mirror 

the board structure of the Nasdaq 

Exchanges.13 The Exchange proposes to 

add language to indicate that the Sole 

LLC Member may determine at any time 

in its sole and absolute discretion the 

number of Directors 14 to constitute the 

Board.15 The authorized number of 

Directors may be increased or decreased 

by the Sole LLC Member at any time in 

its sole and absolute discretion, upon 

notice to all Directors, but no decrease 

in the number of Directors shall shorten 

the term of any incumbent Member 

Representative Director. This language 

mirrors Section 9(a) of the NSM LLC 

Agreement. In addition, the exact 

composition of the Board is subject to 

the requirements in the Bylaws relating 

to independence and fair representation 

of members, which are described in 

detail below. 

Fair Representation of Members 

The Exchange proposes in Section 

9(a), similar to the Nasdaq Exchanges, 

that at least 20% of the Directors would 

be Member Representative Directors.16

Member Representative Directors are 

elected or appointed after having been 

nominated by a Member Nominating 

Committee 17 composed of 

representatives of the Exchange 

members or by Exchange members in 

the manner described in the proposed 

Bylaws.18 Currently, there are six 

directors on the Board who are officers, 

directors or partners of Exchange 

members, and are elected by a plurality 

of the holders of Exchange Rights 19 (the 

‘‘Exchange Directors’’),20 of which at 

least: (i) One must be elected by a 

plurality of the holders of Primary 

Market Maker (‘‘PMM’’) Exchange 

Rights, (ii) one must be elected by a 

plurality of holders of Competitive 

Market Maker (‘‘CMM’’) Exchange 

Rights, and (iii) one must be elected by 

a plurality of holders of Electronic 

Access Member (‘‘EAM’’) Exchange 

Rights; provided, however, that the 

number of each type of Exchange 

Director will always be equal to one 

another.21 The Exchange adopted the 

current board structure as it relates to 

Exchange Directors to comply with 

Section 6(b) of the Act, which provides 

that the Exchange must, among other 

things, assure fair representation of its 

members (here, the PMMs, CMMs, and 

EAMs) in the selection of its directors 

and administration of its affairs (the 

‘‘fair representation requirement’’).22

Therefore, the Exchange believes that 

the Exchange Directors serve the same 

function on the current Board as 

‘‘Member Representative Directors’’ on 

the boards of the Nasdaq Exchanges in 

that the Exchange Directors give 

members a voice in the Exchange’s use 

of self-regulatory authority.23 The 

Exchange further believes that the new 

Board structure will still provide for the 

fair representation of its members 

because the new structure is wellestablished as meeting the fair 

representation requirement.24

By adopting the new Board structure 

set forth in the New Governing 

Documents, the Exchange is proposing 

to replace the Exchange Director 

positions and all related concepts 

thereto,25 with Member Representative 

Director positions and all related 

concepts that will be further discussed 

below. In particular, there are a number 


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26See Current LLC Agreement, Article VI and 

Current Constitution, Article XII. The Exchange also 

notes that it is not carrying over the termination 

provisions in Section 6.4 of the Current LLC 

Agreement into the New Governing Documents as 

these generally relate to the voting rights associated 

with the Exchange Rights, and therefore will no 

longer be applicable for the reasons discussed 

above. 

27See Current LLC Agreement, Sections 6.1 and 

6.3 and Rules 300 and 302(c); see also MRX 

Approval Order. 

28For example, Exchange members holding PMM 

and CMM Rights may seek appointment to become 

market makers in one or more options classes 

traded on the Exchange, which entitles them to 

enter quotations and orders into the Exchange’s 

trading system. See Rules 100(a)(34), 100(a)(42) and 

Rule 800 series; see also Sections 12.1(a) and 12.2(a) 

of the Current Constitution. Exchange members 

holding EAM Rights are entitled to enter orders into 

the Exchange’s trading system and clear Exchange 

transactions. See Rules 100(a)(9) and 100(a)(34); see 

also Section 12.3(a) of the Current Constitution. The 

Exchange Rights may not be leased and are not 

transferable except in the event of a change in 

control of an Exchange member or corporate 

reorganization involving an Exchange member. See 

Rule 302(c); see also Current LLC Agreement, 

Section 6.4 and Current Constitution, Sections 

12.1(b), 12.2(b), and 12.3(b). There is no limit on 

the number of Exchange Rights issued by MRX. See 

Rule 300; see also Current LLC Agreement, Section 

6.1. 

29See proposed Sections 9(b) through (f) of the 

Exchange’s LLC Agreement. 

30See Current Constitution, Section 3.1. 

31See Current LLC Agreement, Section 2.2 

(providing that the Sole LLC Member does not have 

the power to bind the Exchange, said power being 

vested solely and exclusively in the Board) and 

Current Constitution, Sections 3.1, 4.13 and 5.1. 

32The proposed language on board and 

committee meeting participation in Section 9(d) is 

not in the governing documents of the Nasdaq 

Exchanges, but is retained from Section 3.2(d) of the 

Current Constitution and is intended to help 

maintain the independence of the Exchange’s selfregulatory functions. 

33See Current Constitution, Sections 3.6 and 3.7. 

of provisions related to the Exchange 

Rights set forth in the Current 

Governing Documents that will not 

carry over into the New Governing 

Documents because they relate to the 

trading rights and privileges of the 

Exchange members.26 It should be noted 

that on MRX, the Exchange Rights do 

not convey any ownership rights, and 

only provide for voting rights for 

representation on the Board (i.e., 

through the Exchange Directors) and 

confers the ability to transact on the 

Exchange.27 Because the Exchange 

Director positions will not be reflected 

in the New Governing Documents for 

the reasons discussed above, the 

Exchange believes that the remaining 

provisions in the Current Governing 

Documents that relate to the trading 

rights of its members are more 

appropriately located in the Rules than 

in its organizational documents. 

Already, all of the provisions governing 

the trading privileges associated with 

the Exchange Rights that are located in 

the Current Governing Documents are 

also substantially set forth in the 

Rules,28 and the Exchange is not 

proposing any changes to those rules or 

to any of its trading rules in connection 

with the Merger except as noted below. 

As described in more detail below, the 

Exchange will amend its Rules only (i) 

to clarify any Rules that refer back to the 

Current LLC Agreement or the Current 

Constitution in the rule text or (ii) to 

relocate in the rulebook any provisions 

in the Current Governing Documents 

related to the trading privileges of the 

Exchange Rights holders that are not 

expressly set forth in the Rules. As such, 

the holders of Exchange Rights will 

continue to have the same trading 

privileges they currently hold as PMMs, 

CMMs and EAMs under the Exchange 

Rules and the proposed Board structure 

of the Exchange will not change any 

trading privileges. Virtually all of the 

proposed changes regarding the removal 

of Exchange Director positions and 

related concepts from the Exchange’s 

organizational documents are corporate 

in nature, and are intended simply to 

conform the organizational documents 

with those of the Nasdaq Exchanges in 

order to harmonize the Exchange’s 

board structure with its affiliates. The 

proposed changes will primarily affect 

current board composition 

requirements, the current nomination 

and election processes of the directors 

and the current committee composition 

requirements. These provisions are 

outlined in detail in the proposed 

Bylaws of the Exchange, which will be 

discussed below. 

New Section 9(a) of the LLC 

Agreement also proposes that all 

Directors other than the Member 

Representative Directors shall be elected 

by the Sole LLC Member in the manner 

described in the proposed Bylaws. 

Mirroring Section 9(a) of the NSM LLC 

Agreement, each Director elected, 

designated or appointed by the Sole LLC 

Member shall hold office until a 

successor is elected and qualified or 

until such Director’s earlier death, 

resignation, expulsion or removal. As 

noted above, Member Representative 

Directors shall be elected in accordance 

with the Bylaws. Each Director shall 

execute and deliver an instrument 

accepting such appointment and 

agreeing to be bound by all the terms 

and conditions of the LLC Agreement 

and the Bylaws. A Director need not be 

an Exchange member. 

The Exchange is also proposing to 

adopt substantially similar provisions 

set forth in Section 9 of the NSM LLC 

Agreement with respect to the Powers of 

the Board, the By-Laws, the Meeting of 

the Board of Directors, Quorum; LLC 

Acts of the Board and Electronic 

Communications.29 The section 

discussing the Powers of the Board is 

similar to the current provisions in the 

Current Constitution in that the Board is 

vested with the power to do any and all 

acts necessary or for the furtherance of 

the purposes described in the LLC 

Agreement, including all powers, 

statutory or otherwise.30 The Board also 

has the power to bind the Exchange and 

delegate powers.31 As discussed in the 

Bylaws section below, the Bylaws 

proposed to be adopted by the 

Exchange, the Sole LLC Member and the 

Board in Section 9(c) of the LLC 

Agreement will replace the Current 

Constitution of the Exchange. 

The Meeting of the Board of Directors 

subsection contains standard Delaware 

limited liability company provisions 

governing regular and special meetings 

of the board, and related notice 

provisions. Similar language is found in 

Section 3.6 of the Current Constitution, 

and the Exchange is proposing to 

streamline these administrative 

procedures across the Nasdaq 

Exchanges. The Exchange also proposes 

to add a provision in this subsection 

that all meetings of the Board of 

Directors of the Exchange (and any 

committees of the Exchange) pertaining 

to the self-regulatory function of the 

Exchange (including disciplinary 

matters) or relating to the structure of 

the market which the Exchange 

regulates shall be closed to all persons 

other than members of the Board of 

Directors and officers, staff, counsel or 

other advisors whose participation is 

necessary or appropriate to the proper 

discharge of such regulatory functions 

and any representatives of the 

Commission. The proposed language 

also prohibits members of the Sole LLC 

Member’s board of directors who are not 

also members of the Exchange’s board of 

directors or any officers, staff, counsel 

or advisors of the Sole LLC Member 

who are not also officers, staff, counsel 

or advisors of the Exchange from 

participating in such meetings.32

The subsections, Quorum; LLC Acts 

of the Board and Electronic 

Communications, contain standard 

Delaware limited liability company 

provisions governing quorum rules for 

Board actions, Board action by 

unanimous written consent, and how 

Board and committee members may 

participate in Board and committee 

meetings, as applicable. The Exchange 

notes that these provisions are similar in 

all material respects to those in the 

Current Governing Documents 33 and 


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34See proposed LLC Agreement, Section 9(g)(i)– 

(v). 

35This limitation is based on substantially similar 

language in Section 5.2(ii) of the Current 

Constitution, and is intended to assure the fair 

administration and governance of the Exchange. 

36See Current LLC Agreement, Sections 2.3 and 

5.8. 

37See Current LLC Agreement, Sections 3.1 and 

3.2. 

38The Exchange notes that Section 3.3 of the 

Current LLC Agreement also sets forth two 

exceptions where the Sole LLC Member is entitled 

to distributions made by the Exchange: (i) For U.S. 

federal and state income tax purposes pursuant to 

Section 3.4 of the Current LLC Agreement and (ii) 

upon liquidation of the Exchange. 

39The Nasdaq Exchanges will each separately file 

proposed rule changes to harmonize the 

distribution provisions in their respective governing 

documents with the language the Exchange 

proposes for Section 15, specifically to add the 

language imported from Section 3.3 of the 

Exchange’s Current LLC Agreement. 

relate primarily to the administrative 

processes of the Board. Therefore, the 

Exchange is proposing to streamline 

these processes across the Nasdaq 

Exchanges for the sake of efficiency. 

Section 9(g) of the LLC Agreement 

generally discusses the standing 

committees and provides that the Board 

may designate one or more committees. 

By adopting new Section 9(g), the 

Exchange is proposing to delete the 

current committees set forth in Article 

V of the Current Constitution and adopt 

the standing committees similar to those 

of the Nasdaq Exchanges. Article V of 

the Current Constitution provides for 

the following committees: An Executive 

Committee, a Corporate Governance 

Committee, a Finance and Audit 

Committee, a Compensation Committee, 

and such other additional committees as 

may be established by Board resolution. 

Article V also provides for a nominating 

committee, which is a committee of the 

Exchange and not the Board, and 

nominates the Exchange Directors for 

election to the Board (the ‘‘Exchange 

Director Nominating Committee’’). The 

Exchange proposes to replace these 

rules with ‘‘Committees Composed 

Solely of Directors’’ and ‘‘Committees 

Not Composed Solely of Directors’’ at 

newly proposed and named Bylaw 

Article III. The details of those 

committees will be discussed below in 

the Bylaws section. 

The Exchange proposes to adopt 

substantially similar provisions set forth 

in Section 9(g) of the NSM LLC 

Agreement with respect to the standing 

committees.34 First, as set forth in 

proposed subsection (g)(i), the Board 

may designate one or more Directors as 

alternate members of any committee 

who may replace any absent or 

disqualified member at any meeting of 

the committee. Second, in proposed 

subsection (g)(ii), the Committee 

members shall hold office for such 

period as may be fixed by a resolution 

adopted by the Board. Any member of 

a committee may be removed from such 

committee only by the Board. Vacancies 

shall be filled by the Board. Third, in 

proposed subsection (g)(iii), each 

committee may adopt its own rules of 

procedure and may meet at stated times 

or on such notice as such committee 

may determine. Each committee shall be 

required to keep regular minutes of its 

meetings and report the same to the 

Board when required. Fourth, in 

proposed subsection (g)(iv), a majority 

of the committee shall constitute a 

quorum and the vote of a majority 

present shall be an act of the committee. 

Finally, in proposed subsection (g)(v), to 

the extent provided in the resolution of 

the Board, any committee that consists 

solely of one or more Directors shall 

have and may exercise all the powers 

and authority of the Board in the 

management of the business and affairs 

of the Exchange. The Exchange also 

proposes in subsection (g)(v) to limit 

such committee from having the powers 

of the Board with respect to approving 

any matters pertaining to the selfregulatory function of the Exchange or 

relating to the structure of the market 

which the Exchange regulates.35 Such 

committee or committees shall have 

such name or names as may be 

determined from time to time by 

resolution adopted by the Board. 

Further, in the absence or 

disqualification of a member of a 

committee composed solely of Directors, 

the member or members thereof present 

at any meeting and not disqualified 

from voting, whether or not such 

members constitute a quorum, may 

unanimously appoint another member 

of the Board to act at the meeting in the 

place of any such absent or disqualified 

member. The foregoing provisions are 

similar to the language found in Section 

5.1 of the Current Constitution. 

Similar to Section 3.9 of the Current 

Constitution, proposed Section 9(h) 

provides that the compensation of 

Directors shall be fixed by the Board. 

This language mirrors the provisions in 

Section 9(h) of the NSM LLC 

Agreement. The Removal and 

Resignation of Directors language in 

proposed Section 9(i) also mirrors 

Section 9(i) of the NSM LLC Agreement, 

and is similar to the resignation and 

removal language in Section 5.4 of the 

Current LLC Agreement and Sections 

3.4 and 3.5 of the Current Constitution. 

The Directors as Agents language in 

proposed Section 9(j) provides that the 

Directors are agents of the Exchange and 

mirrors Section 9(j) of the NSM LLC 

Agreement. 

Section 10, titled ‘‘Officers,’’ the 

Exchange proposes to adopt identical 

language regarding officer appointments 

found in Section 10 of the NSM LLC 

Agreement, which provisions are 

similar in nature to the existing 

provisions in Article IV of the Current 

Constitution. 

Section 11, titled ‘‘Limited Liability,’’ 

contains standard Delaware limited 

liability company language on the 

limitation of liability of the Sole LLC 

Member and the Directors in the manner 

permitted under the LLC Act. The 

proposed language is similar to the 

limitation of liability language found in 

the Current LLC Agreement 36 and 

mirrors Section 11 of the NSM LLC 

Agreement. 

Sections 12 through 14 of the LLC 

Agreement, which are virtually identical 

to Sections 12 through 14 of the NSM 

LLC Agreement, are equity-related 

provisions that encompass the topics of 

capital contributions, additional capital 

contributions, and allocations of profits 

and losses. These provisions set forth 

the basic economic arrangement of the 

Sole LLC Member and remain consistent 

with the economic arrangement under 

the Current Governing Documents.37

Proposed Section 15, which relates to 

distributions, provides that ISE 

Holdings, as the Sole LLC Member, is 

generally entitled to all distributions 

made by the Exchange. Similar to 

Section 3.3 of the Current LLC 

Agreement,38 however, proposed 

Section 15 also contains a stipulation 

that (i) the Exchange shall not be 

required to make a distribution to the 

Sole LLC Member on account of its 

interest in the Exchange if such 

distribution would violate the LLC Act 

or any other applicable law or is 

otherwise required to fulfill the 

regulatory functions or responsibilities 

of the Exchange, and (ii) Regulatory 

Funds shall not be used for nonregulatory purposes, but rather shall be 

used to fund the legal, regulatory and 

surveillance operations of the Exchange 

and the Exchange shall not make a 

distribution to the Sole LLC Member 

using Regulatory Funds.39 ‘‘Regulatory 

Funds’’ means fees, fines, or penalties 

derived from the regulatory operations 

of the Exchange. ‘‘Regulatory Funds’’ 

shall not be construed to include 

revenues derived from listing fees, 

market data revenues, transaction 

revenues, or any other aspect of the 

commercial operations of the Exchange, 

even if a portion of such revenues are 

used to pay costs associated with the 


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40See proposed LLC Agreement, Schedule A. 

41See Section 16 of the NSM LLC Agreement for 

substantially similar provisions. 

42These concepts are generally not in the 

governing documents of the Nasdaq Exchanges, and 

relate to where the Exchange’s books and records 

must be maintained and who may access such 

books and records, in particular those that contain 

confidential information pertaining to the selfregulatory function of the Exchange. While Phlx has 

a requirement under Section 15 of the Phlx LLC 

Agreement to keep its books and records in the 

United States, neither BX nor NSM has this 

requirement under their respective governing 

documents. Furthermore, none of the Nasdaq 

Exchanges have in their governing documents a 

provision that explicitly sets forth the 

Commission’s right to access their books and 

records. The Nasdaq Exchanges will each separately 

file proposed rule changes to harmonize the books 

and records provisions in their respective governing 

documents with the language the Exchange 

proposes for Section 16. 

43See Section 17 of the NSM LLC Agreement for 

identical provisions. 44BX has a similar provision in Section 9.4(c) of 

the BX Bylaws, which restricts HoldCo, as BX’s sole 

shareholder, from transferring any shares of stock 

to any entity unless such transfer is filed and 

approved by the Commission pursuant to a rule 

filing. In contrast, Section 20 of the NSM LLC 

Agreement allows HoldCo, as NSM’s sole LLC 

member, to assign NSM’s limited liability company 

interest solely to an affiliate of HoldCo, but does not 

require approval by the Commission for such 

assignments. Phlx follows the NSM model. As such, 

Phlx and NSM will each separately file a proposed 

rule change to harmonize their assignment 

provisions with the Exchange’s proposal hereunder. 

45For example, see Sections 22 through 28 of the 

NSM LLC Agreement and Sections 22 through 28 

of the Phlx LLC Agreement. 

46This provision is based in concept on Section 

6–9 of the Phlx Bylaws, which requires Phlx to file 

any amendments to the Phlx Bylaws with the 

Commission. The Phlx LLC Agreement, however, 

does not have a similar requirement for 

amendments to the Phlx LLC Agreement. As well, 

neither BX nor NSM has filing requirements for 

amendments in their respective governing 

documents. Therefore, the Nasdaq Exchanges will 

each separately file proposed rule changes with the 

Commission to add this requirement in (as 

applicable): The Phlx LLC Agreement, the BX COI, 

the BX Bylaws, the NSM LLC Agreement and the 

NSM Bylaws. 

47The proposed Bylaws were filed as part of the 

Proposed Rule Change as Exhibit 5D. 

regulatory operations of the Exchange.40

This provision is designed to preclude 

the Exchange from using its authority to 

raise Regulatory Funds for the purpose 

of benefitting its Sole LLC Member. 

Similar to Section 4.1 of the Current 

LLC Agreement, Section 16 of the LLC 

Agreement, titled ‘‘Books and Records,’’ 

sets forth certain information relating to 

general administrative matters with 

respect to the books and records of the 

Exchange. Specifically, the Board shall 

keep or cause to be kept complete and 

accurate books of account and records 

with respect to the Exchange’s business. 

The books of the Exchange shall at all 

times be maintained by the Board. The 

Exchange’s books of account shall be 

kept using the method of accounting 

determined by the Sole LLC Member. 

Further, the Exchange’s independent 

auditor shall be an independent public 

accounting firm selected by the Board.41

Finally, the Exchange proposes to retain 

some of the existing concepts on books 

and records from Section 4.1(b) of the 

Current LLC Agreement in the new 

Section 16.42 First, the books of account 

and records with respect to the 

Exchange’s business must be kept 

within the United States. Second, other 

than as provided in Section 16 with 

respect to the Commission, all 

confidential information pertaining to 

the self-regulatory function of the 

Exchange (including but not limited to 

disciplinary matters, trading data, 

trading practices and audit information) 

contained in the books and records of 

the Exchange shall: (i) Not be made 

available to any persons other than to 

those officers, directors, employees and 

agents of the Exchange that have a 

reasonable need to know the contents 

thereof; (ii) be retained in confidence by 

the Exchange and the officers, directors, 

employees and agents of the Exchange; 

and (iii) not be used for any nonregulatory purposes. Nothing in the LLC 

Agreement 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 and 

impede the ability of any officers, 

directors, employees or agents of the 

Exchange to disclose such confidential 

information to the Commission. 

Section 17, titled ‘‘Reports,’’ is being 

added to mirror the language of the 

NSM LLC Agreement, and requires the 

Board, after the end of each fiscal year, 

to use reasonable efforts to cause the 

Exchange’s independent accountants, if 

any, to prepare and transmit to the Sole 

LLC Member any tax information that 

the Sole LLC Member may reasonably 

need to prepare its federal, state and 

local income tax returns for such fiscal 

year.43 Section 18, titled ‘‘Other 

Business,’’ is standard language in the 

Delaware limited liability company 

context and merely states that the Sole 

LLC Member and any Director, officer, 

employee or agent of the Exchange may 

engage in other business and that the 

Exchange has no rights to such other 

business or the proceeds derived 

therefrom. The Exchange is proposing to 

mirror the language found in Section 18 

of the NSM LLC Agreement. 

Section 19, titled ‘‘Exculpation and 

Indemnification,’’ is based on Section 

19 of the NSM LLC Agreement. Similar 

to the provisions in Article VI of the 

Current Constitution, the language 

provides for the exculpation and 

indemnification of ISE Holdings and 

any officer, Director, employee or agent 

of the Exchange or of the affiliate of ISE 

Holdings. Section 20, titled 

Assignments, is based on Section 20 of 

the NSM LLC Agreement, but retains 

similar transfer restrictions from Section 

7.1 of the Current LLC Agreement on 

any assignments by the Sole LLC 

Member and prohibits the Sole LLC 

Member from transferring or assigning 

its limited liability company interest in 

the Exchange, unless the Commission 

approves such transfer or assignment 

pursuant to a rule filing under Section 

19 of the Act.44 Section 21, titled 

‘‘Dissolution,’’ sets forth the events 

which will cause the dissolution of the 

Exchange, as prescribed by mandatory 

provisions of the LLC Act or as 

otherwise agreed among the parties, and 

is based on Section 21 of the NSM LLC 

Agreement. The proposed language is 

similar to the language currently in 

Section 7.2 of the Current LLC 

Agreement. 

Sections 22 through 28 of the 

proposed LLC Agreement contain 

general provisions which are relatively 

standard in Delaware limited liability 

company agreements.45 These 

provisions include: A benefits of 

agreement clause, a severability clause, 

an entire agreement clause, a binding 

agreement clause, a governing law 

clause, an amendment provision and a 

notice provision. The Exchange notes 

that its members are acknowledged in 

proposed Section 22 as holding rights 

under the LLC Agreement and included 

as third-party beneficiaries to the LLC 

Agreement as is similarly provided in 

Section 22 of the NSM LLC Agreement. 

Section 27, titled ‘‘Amendments,’’ 

provides that the LLC Agreement may 

be amended by a resolution adopted by 

the Board and a written agreement 

executed and delivered by the Sole LLC 

Member, and further provides that all 

such amendments to the LLC Agreement 

will not become effective until filed 

with, or filed with and approved by, the 

Commission, as required under Section 

19 of the Exchange Act and the rules 

promulgated thereunder.46

The Exchange proposes to add a new 

Schedule A to the LLC Agreement, 

which contains key definitions used in 

the LLC Agreement. The Exchange also 

proposes a section on rules of 

construction further explaining the 

definitions in proposed Schedule A. 

C. Bylaws 

The Exchange proposes to adopt the 

Bylaws,47 which would replace the 


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48The Current Constitution was filed as part of 

the Proposed Rule Change as Exhibit 5C. 

49Phlx and BX also have the identical nomination 

and election processes for their Member 

Representative Directors. See Phlx Bylaw Article II 

and Section 4.4 of the BX Bylaws. 

50See Current Constitution, Section 3.10(a). With 

respect to the Exchange Director Nominating 

Committee process, the Secretary of the Exchange, 

on behalf of the Exchange Director Nominating 

Committee, will circulate a memorandum to all 

holders of Exchange Rights soliciting interest in 

presenting Exchange Director candidates to the 

Exchange Director Nominating Committee. Shortly 

after the receipt of candidate submissions, the 

Exchange Director Nominating Committee will 

conduct a short interview with each candidate. 

Following all interviews, the Exchange Director 

Nominating Committee, by majority vote, will select 

its Exchange Director candidates and the Secretary 

of the Exchange will inform the holders of 

Exchange Rights of the Exchange Director 

Nominating Committee’s selections. 

51See Current Constitution, Section 3.10(a). 

Specifically, in addition to the Exchange Director 

nominees named by the Nominating Committee, 

persons eligible to serve as such may be nominated 

for election to the Board by a petition, signed by 

the holders of not less than 5% of the outstanding 

Exchange Rights of the series entitled to elect such 

person if there are more than eighty (80) Exchange 

Rights in the series entitled to vote, ten percent 

(10%) of the outstanding rights of such series 

entitled to elect such person if there are between 

eighty (80) and forty (40) Exchange Rights in the 

series entitled to vote, and twenty-five percent 

(25%) of the outstanding Exchange Rights of such 

series entitled to elect such person if there are less 

than forty (40) Exchange Rights in the series 

entitled to vote. For purposes of determining 

whether a person has been nominated for election 

by petition by the requisite percentage, no Exchange 

member, alone or together with its affiliates, may 

account for more than fifty percent (50%) of the 

signatures of the holders of outstanding Exchange 

Rights of the series entitled to elect such person, 

and any such signatures by such Exchange 

members, alone or together with its affiliates, in 

excess of such fifty percent (50%) limitation shall 

be disregarded. Id. 

52See Current Constitution, Sections 2.1 and 2.5. 

A holder of Exchange Rights, together with any 

affiliate, may not exercise the voting rights (i.e., 

voting to elect the Exchange Directors) associated 

with more than twenty percent (20%) of the 

outstanding Exchange Rights. See Current LLC 

Agreement, Section 6.3(b). 

53See Current Constitution, Section 3.2(c). 

54 Id. 

55See Current Constitution, Sections 3.2(e). The 

Exchange does not impose term limits on NonIndustry Directors. 

56See Section 1 of NSM Bylaw Article II, Section 

2–1 of the Phlx Bylaws and Section 4.4 of the BX 

Bylaws. Currently, the Exchange Directors are 

elected for two-year terms. 

57 ‘‘Record Date’’ will be defined as a date 

selected by the Board for the purpose of 

determining the Exchange members entitled to vote 

for the election of Member Representative Directors 

on an Election Date in the event of a Contested 

Election. See proposed Bylaw Article I(bb), which 

is based on NSM Bylaw Article I(aa). 

‘‘Contested Election’’ will be defined as an 

election for one or more Member Representative 

Directors for which the number of candidates on the 

List of Candidates exceeds the number of positions 

to be elected. See proposed Bylaw Article I(g), 

which is based on NSM Bylaw Article I(ee). 

58 ‘‘Election Date’’ will be defined as a date 

selected by the Board on an annual basis, on which 

the Exchange members may vote with respect to 

Member Representative Directors in the event of a 

contested election. See proposed Bylaw Article I(k), 

which is based on NSM Bylaw Article I(j). 

Exchange’s Current Constitution.48 The 

Bylaws reflect the expectation that the 

Exchange will be operated with 

governance structures similar to those of 

the Nasdaq Exchanges. Accordingly, the 

Exchange proposes to adopt Bylaws that 

set forth the same corporate governance 

framework and related processes as 

those contained in the Bylaws of the 

Nasdaq Exchanges. Article I of the 

Bylaws, titled ‘‘Definitions,’’ contains 

key definitions used in the Bylaws, and 

are based on the defined terms used in 

NSM Bylaw Article I. 

Nomination and Election Process 

Article II of the Bylaws, titled 

‘‘Annual Election of Member 

Representative Directors and Other 

Actions by Exchange Members,’’ mirrors 

the language in NSM Bylaw Article II,49

and contains key provisions regarding 

the processes for the nomination and 

election of Member Representative 

Directors. As discussed in the LLC 

Agreement section above, the Exchange 

is proposing to replace the Exchange 

Directors with Member Representative 

Directors to harmonize its board 

structure with the Nasdaq Exchanges. 

The proposed nomination and election 

process for Member Representative 

Directors described in new Article II 

would replace the current processes for 

the Exchange Directors set forth in the 

Current Governing Documents. 

Current Nomination and Election 

Process 

Under the current nomination and 

election process, nominees for election 

of the Exchange Directors are selected 

each year by the Exchange Director 

Nominating Committee (which is not a 

Board committee but composed of three 

Exchange member representatives).50 A 

petition process will also allow holders 

of the Exchange Rights to nominate 

alternate candidates for consideration as 

Exchange Directors.51 At an annual 

meeting of the holders of Exchange 

Rights, the Exchange Directors are 

elected by a plurality of the votes cast 

at the meeting by the holders of 

Exchange Rights entitled to vote 

thereon.52 Following the full 

nomination, petition, and voting 

process, each Exchange Director holds 

office for a term of two years.53

Specifically pursuant to Section 3.2(c) 

of the Current Constitution, the 

Exchange Directors are divided into two 

classes, designated as Class I and Class 

II directors. Each of Class I and Class II 

is comprised of half of the Exchange 

Directors. The Exchange Directors of 

each class holds office until their 

successors are duly elected and 

qualified. At each annual meeting of the 

holders of Exchange Rights, the 

successors of the class of Exchange 

Directors whose term expires at that 

meeting will be elected by the Exchange 

Rights holders to hold office for a term 

expiring at the annual meeting held in 

the second year following the year of 

their election, and until their successors 

are elected and qualified.54 No 

Exchange Director may serve more than 

three consecutive terms, and after a twoyear hiatus, may be eligible to serve as 

an Exchange Director again.55

Proposed Nomination and Election 

Process 

The Exchange is proposing to adopt 

identical nomination and election 

processes as the Nasdaq Exchanges as 

set forth in proposed Bylaw Article II, 

Section 1 so that Member 

Representative Directors would be 

elected to the Board on an annual 

basis.56 For each annual election, the 

Board would select a Record Date 57 and 

an Election Date.58 The Record Date 

would be at least 10 days but not more 

than 60 days prior to the Election Date. 

The Member Nominating Committee, 

consisting of representatives of the 

Exchange members, would create a list 

of one or more candidates for each 

Member Representative Director 

position (the ‘‘List of Candidates’’) on 

the Board to be elected on the Election 

Date. Promptly after selection of the 

Election Date, in a notice transmitted to 

the Exchange members and in a 

prominent location on a publicly 

accessible Web site, the Exchange (i) 

shall announce the Election Date and 

the List of Candidates, and (ii) shall 

describe the procedures for Exchange 

members to nominate candidates for 

election at the next annual meeting. In 

the event of a Contested Election, the 

Exchange shall also send its members 

the List of Candidates and a formal 

notice of the Election Date, which notice 

shall be sent by the Exchange at least 10 

days but no more than 60 days prior to 

the Election Date to the Exchange 

members that were Exchange members 

on the Record Date, by any means, 

including electronic transmission, as 

determined by the Board or committee 

thereof. 

An additional candidate may be 

added to the List of Candidates by any 

Exchange member that submits a timely 

and duly executed written nomination 

to the Secretary of the Exchange. To be 


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59 ‘‘Executive Representative’’ will be defined as 

an individual appointed by an Exchange member to 

represent, vote, and act for the Exchange member 

in all the affairs of the Exchange; provided, 

however, that other representatives of an Exchange 

member may also serve on the Board or committees 

of the Exchange or otherwise take part in the affairs 

of the Exchange. If an Exchange member is also a 

member of FINRA, the Exchange executive 

representative shall be the same person appointed 

to serve as the FINRA executive representative. An 

Exchange member may change its executive 

representative or appoint a substitute for its 

executive representative upon giving notice thereof 

to the Exchange Secretary via electronic process or 

such other process as the Exchange may prescribe. 

An executive representative of an Exchange 

member or a substitute shall be a member of senior 

management and registered principal of the 

Exchange member. Each executive representative 

shall maintain an Internet electronic mail account 

for communication with the Exchange and shall 

update firm contact information as prescribed by 

the Exchange. Each member shall review and, if 

necessary, update its executive representative 

designation and contact information in the manner 

prescribed by the Exchange. See proposed Bylaw 

Article I(l), which is based on NSM Bylaw Article 

I(k) and NSM Rule 1150. 

60This 50% limitation is not in the governing 

documents of the Nasdaq Exchanges but is based on 

the existing 50% limitation found in Section 

3.10(a)(ii) of the Current Constitution. The existing 

50% limitation caps the signature count by member 

class (i.e., 50% of the signatures of the holders of 

Exchange Rights of the series entitled to elect such 

person). Because the fair representation directors 

will no longer be elected separately by each 

member class but by the Exchange members as a 

whole, it is also no longer necessary to apply a 

separate 50% limitation on each class of members. 

61This is the same as the 20% voting limitation 

included in Section 6.3(b) of the Exchange’s Current 

LLC Agreement. See note 52 above. 

62See Current Constitution, Section 3.3. 63 In contrast, the Current Constitution requires 

that an annual meeting of the holders of Exchange 

Rights be held for the purpose of electing Exchange 

Directors to fill expiring terms. See Current 

Constitution, Section 2.1. As noted above for the 

proposed process, the Exchange members may vote 

in the event of a Contested Election, through a 

balloting process without a formal meeting. 64 ‘‘Member Representative member’’ will be 

defined as a member of any committee appointed 

by the Board who has been elected or appointed 

after having been nominated by the Member 

Nominating Committee pursuant to the Bylaws. See 

proposed Bylaw Article I(s), which is based on 

NSM Bylaw Article I(r). 

timely, an Exchange member’s notice 

would have to be delivered to the 

Secretary at the principal executive 

offices of the Exchange not later than 

the close of business on the 90th day 

nor earlier than the close of business on 

the 120th day prior to the first 

anniversary of the preceding year’s 

Election Date, provided however that in 

the event that the Election Date is more 

than 30 days before or more than 70 

days after such anniversary date, notice 

by the Exchange member must be so 

delivered not earlier than the close of 

business on the 120th day prior to such 

Election Date and not later than the 

close of business on the later of the 90th 

day prior to such Voting Election or the 

tenth day following the day on which 

public announcement of such Election 

Date is first made by the Exchange. Such 

Exchange member’s notice shall set 

forth: (i) As to the person whom the 

Exchange member proposes to nominate 

for election as a Member Representative 

Director, all information relating to that 

person that is required to be disclosed 

in solicitations of proxies for election of 

directors in an election contest, or is 

otherwise required, in each case 

pursuant to Regulation 14A under the 

Act and the rules thereunder (and such 

person’s written consent to be named in 

the List of Candidates as a nominee and 

to serving as a Director if elected); (ii) 

a petition in support of the nomination 

duly executed by the Executive 

Representatives 59 of 10% or more of all 

Exchange members; and (iii) the name 

and address of the Exchange members 

making the nomination. The Exchange 

may require any proposed nominee to 

furnish such other information as it may 

reasonably require to determine the 

eligibility of such proposed nominee to 

serve as a Member Representative 

Director. 

For purposes of determining whether 

a person has been nominated for 

election by petition by the requisite 

percentage, no Exchange member, alone 

or together with its affiliates, may 

account for more than 50% of the 

signatures endorsing a particular 

candidate, and any such signatures by 

such Exchange member, alone or 

together with its affiliates, in excess of 

such 50% limitation shall be 

disregarded.60

If by the date on which an Exchange 

member may no longer submit a timely 

nomination, there is only one candidate 

for each Member Representative 

Director position to be elected on the 

Election Date, the Member 

Representative Directors will be elected 

by ISE Holdings as the Sole LLC 

Member from the List of Candidates. In 

the event of a Contested Election, the 

Exchange would conduct a vote to 

determine the candidates on the List of 

Candidates in accordance with 

proposed Section 2 of Bylaw Article II, 

which mirrors the language found in 

Section 2 of the NSM Bylaw Article II. 

If there is a Contested Election, each 

Exchange member would have the right 

to cast one vote for each Member 

Representative Director position to be 

filled; provided, however, that any such 

vote must be cast for a person on the 

List of Candidates. However, an 

Exchange member, either alone or 

together with its affiliates, may not cast 

votes representing more than 20% of the 

votes cast for a candidate, and any votes 

cast by the Exchange member, either 

alone or together with its affiliates, in 

excess of such 20% limitation would be 

disregarded.61 The votes would be cast 

by written ballot, electronic 

transmission or any other means as set 

forth in a notice to the Exchange 

members sent by the Exchange prior to 

the Election Date. Only votes received 

prior to 11:59 p.m. Eastern Time on the 

Election Date would count for the 

election of a Member Representative 

Director. The persons on the List of 

Candidates who receive the most votes 

would be elected to the Member 

Representative Director positions. 

New Section 3 of Bylaw Article II 

proposes that if a Member 

Representative Director position 

becomes vacant prior to the expiration 

of such person’s term, or it an increase 

in the size of the Board results in the 

creation of a new Member 

Representative Director position, the 

Sole LLC Member will elect a person 

from a list of candidates prepared by the 

Member Nominating Committee to fill 

such vacancy, except that if the 

remaining term of office for the vacant 

Director position is less than six 

months, no replacement will be 

required. The proposal would replace 

the current process for filling Exchange 

Director vacancies on the Board,62 and 

mirrors Section 3 of NSM Bylaw Article 

II. Finally, new Section 4 of Bylaw 

Article II, copied from Section 4 of NSM 

Bylaw Article II, proposes that the 

Exchange will not be required to hold 

meetings of the Exchange members.63

Related to the proposed changes to 

the Exchange’s nomination and election 

process described above, the Exchange 

also proposes to create a Member 

Nominating Committee, which would 

replace the current Exchange Director 

Nominating Committee in nominating 

candidates for director positions that 

meet the fair representation requirement 

(i.e., the proposed Member 

Representative Directors). In addition, 

the new Member Nominating 

Committee would nominate candidates 

for committee positions that meet the 

fair representation requirement (i.e., the 

‘‘Member Representative members’’).64

Similar to the Member Representative 

Directors on the Board, the function of 

Member Representative members is to 

provide members a voice in the 

administration of the Exchange’s affairs, 

specifically on certain committees that 

are responsible for providing advice on 

any matters pertaining to the Exchange’s 

self-regulatory function or relating to the 

market structure which the Exchange 

regulates. The Exchange will therefore 

require that at least 20% of the persons 


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65Under the Proposed Rule Change, the new 

Quality of Markets Committee, whose primary 

function is to provide advice on industry-wide 

market issues, will be required to be composed of 

at least 20% Member representative members. The 

Quality of Markets Committee is discussed in detail 

below. 

66See e.g. Securities Exchange Act Release No. 

53128 (Jan. 13, 2006), see note 18 above; Securities 

Exchange Act Release No. 58324 (August 7, 2008), 

73 FR 46936 (August 12, 2008) (SR–BSE–2008–02, 

–23, –25, SR–BSECC–2001–01) (Order Approving a 

Proposal by BX to Amend and Restate its COI and 

its Constitution to Reflect its Acquisition by the 

NASDAQ OMX Group); and Securities Exchange 

Act Release No. 59794 (April 20, 2009), 74 FR 

18761 (April 24, 2009) (SR-Phlx-2009–17) (Order 

Approving Proposed Rule Change Relating to the 

Nomination and Election of Candidates for 

Governor and Independent Governor). 

67See proposed Section 9(a) of the LLC 

Agreement. 

68See Current Constitution, Section 3.2(a). 

Currently, the Board is comprised of sixteen 

directors. 

69The term ‘‘non-industry representative’’ means 

any person who would not be considered an 

‘‘industry representative,’’ as well as (i) a person 

affiliated with a broker or dealer that operates solely 

to assist the securities-related activities of the 

business of non-member affiliates, or (ii) an 

employee of an entity that is affiliated with a broker 

or dealer that does not account for a material 

portion of the revenues of the consolidated entity, 

and who is primarily engaged in the business of the 

non-member entity. See Current Constitution, 

Section 13.1(v). 

The term ‘‘industry representative’’ means a 

person who is an officer, director or employee of 

a broker or dealer or who has been employed in any 

such capacity at any time within the prior three (3) 

years, as well as a person who has a consulting or 

employment relationship with or has provided 

professional services to the Exchange and a person 

who had any such relationship or provided any 

such services to the Exchange at any time within 

the prior three (3) years. See Current Constitution, 

Section 13.1(s). 

70See Current Constitution, Section 3.2(a). 

Section 3.2(a), similar to proposed Section 2(a) of 

Bylaw Article III, also provides that a director may 

not be subject to a statutory disqualification (as 

defined in Section 3(a)(39) of the Exchange Act). 

71See Current Constitution, Section 3.2(b). 

72A ‘‘Public Director’’ is a non-industry 

representative who has no material relationship 

with a broker or dealer or any affiliate of a broker 

or dealer or the Exchange or any affiliate of the 

Exchange. See Current Constitution, Section 3.2(b) 

and Sections 13.1(aa) and (bb). 

73See Current Constitution, Section 3.2(b). The 

President and Chief Executive Officer of the 

Exchange is elected by the Board and will be 

nominated by the Board for a directorship by virtue 

of his or her office. See Current Constitution, 

Section 4.6(a). The President and Chief Executive 

Officer will only serve on the Board for so long as 

such person remains the President and Chief 

Executive Officer. See Current Constitution, Section 

3.2(e). 

74See Current Constitution, Section 3.2(b). 

75See Section 2(a) of NSM Bylaw Article III, 

Section 3–2(a) of Phlx Bylaws and Section 4.3 of BX 

Bylaws. 

serving on any such committees be 

individuals who will have been 

appointed by the Member Nominating 

Committee and be representative of the 

Exchange’s membership in order to 

ensure that its members have the 

opportunity to formally provide input 

on matters that are important to them.65

New Section 6(b) of Bylaw Article III, 

which is copied from Section 6(b) of 

NSM Bylaw Article III, proposes that the 

Member Nominating Committee would 

nominate candidates for each Member 

Representative Director position on the 

Board, and would also nominate 

candidates for appointment by the 

Board for positions on any committees 

with positions reserved for Member 

Representative members. The Member 

Nominating Committee would consist of 

no fewer than three and no more than 

six members. All members of the 

Member Nominating Committee would 

be a current associated person of a 

current Exchange member. The Board 

would appoint such individuals after 

appropriate consultation with the 

Exchange members. Member 

Nominating Committee members would 

be appointed annually by the Board and 

may be removed by a majority vote of 

the Board. 

The Exchange believes that the 

proposed process for selecting Member 

Representative Directors, together with 

the requirement in the proposed LLC 

Agreement that the Board be comprised 

of at least 20% Member Representative 

Directors as discussed in the LLC 

Agreement section above, will continue 

to provide for a fair representation of its 

members on the Board. Similar to the 

nomination and election process 

currently in place, proposed Bylaw 

Article II includes a process by which 

members can directly petition and vote 

for representation on the Board. The 

Exchange also believes that proposed 

process for selecting Member 

Representative members, together with 

requirements in the proposed Bylaws 

that certain committees such as the 

Quality of Markets Committee be 

composed of at least 20% Member 

Representative members, will continue 

to provide for fair representation of its 

members in the administration of the 

Exchange’s affairs. In addition, the 

proposed Member Nominating 

Committee would be composed solely of 

persons associated with Exchange 

members, similar to the current 

Exchange Director Nominating 

Committee, and is selected after 

consultation with representatives of 

Exchange members. The Commission 

has previously approved rule changes 

for substantially similar board 

nomination and election processes for 

the Nasdaq Exchanges.66

Board Composition 

The Exchange is proposing to adopt 

Article III of the Bylaws, titled ‘‘Board 

of Directors,’’ which is based on NSM 

Bylaw Article III. Section 1 of Bylaw 

Article III proposes that if any Director 

position other than a Member 

Representative Director position 

becomes vacant, whether because of 

death, disability, disqualification, 

removal, or resignation, the Nominating 

Committee (discussed below) shall 

nominate, and the Sole LLC Member 

shall select, a person satisfying the 

classification (Industry, Non-Industry, 

or Public Director), if applicable, for the 

directorship to fill such vacancy. 

Section 2(a) of Bylaw Article III sets 

forth the proposed Board composition 

requirements and provides that a 

Director may not be subject to a 

statutory disqualification. The Exchange 

is proposing to replace the current 

Board qualification requirements with 

the ones set forth in the new Section 

2(a), which mirrors the qualifications 

language in Section 2(a) of NSM Bylaw 

Article III. This proposed change to the 

current Board composition is in 

addition to the proposal discussed in 

the LLC Agreement section above to 

give the Sole LLC Member discretion to 

determine the size of the Board from 

time to time.67

Currently, the number of directors on 

the Board must be no less than eight and 

no more than sixteen 68 and in no event 

shall the number of Exchange Directors 

constitute less than 30% of the members 

of Board and in no event shall the 

number of directors who meet the 

qualifications of ‘‘non-industry 

representatives’’ as set forth in the 

Current Constitution 69 constitute less 

than the number of Exchange 

Directors.70 Furthermore, the Board 

must be composed as follows: (i) At 

least 50% directors who meet the 

qualifications of ‘‘non-industry 

representatives’’ 71 and elected by ISE 

Holdings as the Sole LLC Member, at 

least one (1) of whom must meet the 

qualifications of ‘‘Public Director,’’ 72

(ii) one (1) director, who is the President 

and Chief Executive Officer of the 

Exchange (the ‘‘CEO Director’’),73 and 

(iii) at least 30% Exchange Directors, as 

described above.74

The Exchange is proposing to replace 

the aforementioned Board composition 

with the board structure in place at the 

Nasdaq Exchanges. As is the case with 

the Nasdaq Exchanges, the proposed 

Board composition would be required to 

reflect a balance among ‘‘Industry 

Directors,’’ ‘‘Member Representative 

Directors,’’ and ‘‘Non-Industry 

Directors,’’ including ‘‘Public 

Directors.’’ 75 The new Board structure 

would be as follows: 


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76See proposed LLC Agreement, Section 9(a). 

‘‘Member Representative Director’’ will be defined 

as a Director who has been elected or appointed 

after having been nominated by the Member 

Nominating Committee or by an Exchange Member. 

A Member Representative Director may, but is not 

required to be, an officer, director, employee, or 

agent of an Exchange member. See proposed 

Bylaws, Article I(r), which is based on NSM Bylaw 

Article I(q). 

77 ‘‘Non-Industry Director’’ will be defined as a 

Director (excluding Staff Directors) who is (i) a 

Public Director; (ii) an officer, director, or employee 

of an issuer of securities listed on the Exchange; or 

(iii) any other individual who would not be an 

Industry Director. See proposed Bylaws, Article 

I(w), which is based on NSM Bylaw Article I(v). 

78An ‘‘Industry Director’’ will be a person with 

direct ties to the securities industry as a result of 

connections to a broker-dealer, the Exchange or its 

affiliates, FINRA, or certain service providers to 

such entities. Specifically, an ‘‘Industry Director’’ 

will be defined as a Director (excluding Staff 

Directors), who (i) is or has served in the prior three 

years as an officer, director, or employee of a broker 

or dealer, excluding an outside director or a director 

not engaged in the day-to-day management of a 

broker or dealer; (ii) is an officer, director 

(excluding an outside director), or employee of an 

entity that owns more than ten percent of the equity 

of a broker or dealer, and the broker or dealer 

accounts for more than five percent of the gross 

revenues received by the consolidated entity; (iii) 

owns more than five percent of the equity securities 

of any broker or dealer, whose investments in 

brokers or dealers exceed ten percent of his or her 

net worth, or whose ownership interest otherwise 

permits him or her to be engaged in the day-to-day 

management of a broker or dealer; (iv) provides 

professional services to brokers or dealers, and such 

services constitute 20 percent or more of the 

professional revenues received by the Director or 20 

percent or more of the gross revenues received by 

the Director’s firm or partnership; (v) provides 

professional services to a director, officer, or 

employee of a broker, dealer, or corporation that 

owns 50 percent or more of the voting stock of a 

broker or dealer, and such services relate to the 

director’s, officer’s, or employee’s professional 

capacity and constitute 20 percent or more of the 

professional revenues received by the Director or 

member or 20 percent or more of the gross revenues 

received by the Director’s or member’s firm or 

partnership; or (vi) has a consulting or employment 

relationship with or provides professional services 

to the Exchange or any affiliate thereof or to FINRA 

(or any predecessor) or has had any such 

relationship or provided any such services at any 

time within the prior three years. See proposed 

Bylaws Article I(m), which is based on NSM Bylaw 

Article I(l). 

79See proposed Section 2(a) of Bylaw Article III. 

80 Id. ‘‘Public Director’’ will be defined as a 

Director who has no material business relationship 

with a broker or dealer, the Exchange or its 

affiliates, or FINRA. See proposed Bylaw Article 

I(z), which is based on NSM Bylaw Article I(y). 

81See proposed Bylaw Article I(m). Staff 

Directors will not be considered as either Industry 

or Non-Industry Directors. 

82See proposed Section 4(b) of Bylaw Article III, 

which mirrors the language in Section 4(b) of NSM 

Bylaw Article III. 

83These changes consisted of the resignations of 

all directors, other than the Exchange Directors, 

sitting on the Board immediately prior to the 

consummation of the Acquisition, and the 

appointments of Nasdaq designees to fill these 

vacancies on the Board. The changes were effected 

through a series of unanimous written consents by 

the Board, as well as unanimous written consents 

by the Exchange Director Nominating Committee 

and the Corporate Governance Committee. The 

Exchange represents that these changes were 

effected in accordance with the Current Governing 

Documents. 

84These eight directors also sat on the three 

Nasdaq Exchange boards immediately prior to the 

Acquisition. 

85 In addition, the current Board also satisfies the 

requirement under the Nasdaq Exchange Bylaws 

that the board be composed of at least one Public 

Director and at least one (or two, if the board 

consists of ten or more directors) issuer 

representatives. 

86See Current Constitution, Section 3.2; proposed 

LLC Agreement, Section 9(a); and proposed Bylaw 

Article III, Section 2(a). 

• At least twenty percent (20%) of the 

directors on the Board would be 

‘‘Member Representative Directors;’’ 76

• The number of ‘‘Non-Industry 

Directors’’ 77 would equal or exceed the 

sum of the number of ‘‘Industry 

Directors’’ 78 and ‘‘Member 

Representative Directors’’ 79

• The Board would include at least 

one ‘‘Public Director’’ 80 and at least one 

issuer representative (or if the Board 

consists of ten or more Directors, at least 

two issuer representatives); 

• Up to two officers of the Exchange 

(‘‘Staff Directors’’) may be elected to the 

Board.81

Under Section 2(b) of proposed Bylaw 

Article III, which mirrors Section 2(b) of 

NSM Bylaw Article III, a Director would 

be disqualified and removed 

immediately upon a determination by 

the Board, by a majority vote of the 

remaining Directors, (a) that the Director 

no longer satisfies the classification for 

which the Director was elected; and (b) 

that the Director’s continued service as 

such would violate the compositional 

requirements of the Board set forth in 

proposed Section 2(a). Thus, for 

example, if a Public Director became 

employed by a broker-dealer and the 

Board thereby had an inadequate 

number of Public Directors, the Director 

would be disqualified and removed. If a 

Director is disqualified and removed, 

and the remaining term of office of such 

Director at the time of termination is not 

more than 6 months, a replacement for 

the Director is not required until the 

next annual meeting. Analogous 

disqualification provisions exist for 

committee members.82

Upon the Acquisition, there were a 

number of harmonizing changes to the 

Board,83 which resulted in a complete 

overlap of directors on the boards of the 

Exchange, NSM, Phlx and BX. 

Specifically, there were eight (8) 

directors meeting the qualifications of 

‘‘non-industry representatives’’ under 

the Current Constitution and ‘‘NonIndustry Directors’’ under each of the 

Nasdaq Exchanges’ Bylaws.84

Furthermore, two of these directors also 

met the compositional requirements of 

‘‘Public Directors’’ under the Current 

Constitution and under the Bylaws of 

each Nasdaq Exchange.85 The Chief 

Executive Officer appointed upon the 

Acquisition by the Sole LLC Member 

became a Board member by virtue of his 

office under the current Constitution, 

and also met the qualifications of ‘‘Staff 

Director’’ under each of the Nasdaq 

Exchange Bylaws. Five of the six 

Exchange Directors serving on the Board 

immediately prior to the Acquisition 

remained on the Board postAcquisition. One Exchange Director was 

appointed by the Exchange Director 

Nominating Committee and elected to 

the Board upon the Acquisition due to 

his predecessor being term limited out 

under the Current Constitution. The 

Board therefore satisfied the 

composition requirements in the 

Current Constitution that at least 50% of 

directors be ‘‘non-industry 

representatives,’’ and at least 30% be 

Exchange Directors. The six Exchange 

Directors also served as ‘‘Member 

Representative Directors’’ on the Nasdaq 

Exchange boards, therefore satisfying 

the 20% Member Representative 

Director requirement under their 

Bylaws. As such, the post-Acquisition 

Board satisfied the composition 

requirements contained both in the 

Current Constitution and in the 

proposed Bylaws. 

The terms of the directors on the postAcquisition Board ended at the 2017 

annual meeting of the Exchange 

Members and Sole LLC Member (‘‘2017 

Annual Election’’), which was held on 

June 19, 2017 to elect the current Board 

and coincided with the 2017 annual 

elections of the Nasdaq Exchange 

boards. The Exchange held the 2017 

Annual Election to elect the current 

Board in accordance with the 

nomination, petition and voting 

processes set forth in the Current 

Governing Documents. Once the New 

Governing Documents become 

operative, no additional actions will be 

required under the LLC Act with respect 

to the current Board. All of the directors 

on the current Board are existing 

directors who served on the postAcquisition Board and, similar to the 

post-Acquisition Board as described 

above, the current Board satisfies the 

board composition requirements both in 

the Current Governing Documents and 

in the New Governing Documents.86

Even though the current Board was not 

nominated or voted upon in accordance 

with New Governing Documents, the 

Exchange believes that the current 

Board is consistent with the Act in that 

it still provides for the fair 

representation of members and has one 


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87See MRX Approval Order. 

88 ‘‘Industry member’’ will be defined as a 

member of any committee appointed by the Board 

who (i) is or has served in the prior three years as 

an officer, director, or employee of a broker or 

dealer, excluding an outside director or a director 

not engaged in the day-to-day management of a 

broker or dealer; (ii) is an officer, director 

(excluding an outside director), or employee of an 

entity that owns more than ten percent of the equity 

of a broker or dealer, and the broker or dealer 

accounts for more than five percent of the gross 

revenues received by the consolidated entity; (iii) 

owns more than five percent of the equity securities 

of any broker or dealer, whose investments in 

brokers or dealers exceed ten percent of his or her 

net worth, or whose ownership interest otherwise 

permits him or her to be engaged in the day-to-day 

management of a broker or dealer; (iv) provides 

professional services to brokers or dealers, and such 

services constitute 20 percent or more of the 

professional revenues received by the committee 

member or 20 percent or more of the gross revenues 

received by the committee member’s firm or 

partnership; (v) provides professional services to a 

director, officer, or employee of a broker, dealer, or 

corporation that owns 50 percent or more of the 

voting stock of a broker or dealer, and such services 

relate to the director’s, officer’s, or employee’s 

professional capacity and constitute 20 percent or 

more of the professional revenues received by the 

committee member or 20 percent or more of the 

gross revenues received by the committee member’s 

firm or partnership; or (vi) has a consulting or 

employment relationship with or provides 

professional services to the Exchange or any 

affiliate thereof or to FINRA (or any predecessor) or 

has had any such relationship or provided any such 

services at any time within the prior three years. 

See proposed Bylaw Article I(n), which is based on 

NSM Bylaw Article I(m). 

89 ‘‘Member Representative member’’ will be 

defined as a member of any committee appointed 

by the Board who has been elected or appointed 

after having been nominated by the Member 

Nominating Committee pursuant to the Bylaws. See 

proposed Bylaw Article I(s), which is based on 

NSM Bylaw Article I(r). 

90 ‘‘Non-Industry member’’ will be defined as a 

member of any committee appointed by the Board 

who is (i) a Public member; (ii) an officer or 

employee of an issuer of securities listed on the 

national securities exchange operated by the 

Exchange; or (iii) any other individual who would 

not be an Industry member. See proposed Bylaw 

Article I(x), which is based on NSM Bylaw Article 

I(w). 

91 ‘‘Public member’’ will be defined as a member 

of any committee appointed by the Board who has 

no material business relationship with a broker or 

dealer, the Exchange or its affiliates, or FINRA. See 

proposed Bylaw Article I(aa), which is based on 

NSM Bylaw Article I(z). 

92See proposed Section 6(b)(v) of Bylaw Article 

III, which is based on Section 6(b)(v) of NSM Bylaw 

Article III. 

or more directors that are representative 

of issuers and investors and not 

associated with a member of the 

exchange, broker, or dealer. First, six 

Exchange Directors, who are officers, 

directors or partners of Exchange 

members as required by Section 3.2(b) 

of the Current Constitution, were 

nominated by the Exchange Director 

Nominating Committee and elected to 

the current Board by a plurality of the 

holders of the Exchange Rights. These 

Exchange Directors were subject to the 

full petition and voting process by 

membership in accordance with Articles 

II and III of the Current Constitution, 

which process the Commission has 

already found as satisfying the 

principles of fair representation as 

required by Section 6(b) of the Act.87

Furthermore as noted above, the 

Exchange believes that the Exchange 

Directors serve the same function as the 

Member Representative Directors under 

the proposed board structure in that 

both directorships give Exchange 

members a voice in the Exchange’s use 

of self-regulatory authority. The 

Exchange notes that only the corporate 

governance structure is changing under 

the Proposed Rule Change, and that the 

Exchange’s membership has remained 

substantially the same both before and 

after the 2017 Annual Election. 

Second, eight directors who meet the 

requirements of non-industry 

representatives under the Current 

Constitution as well as Non-Industry 

Directors under the proposed Bylaws 

were nominated by the existing 

Corporate Governance Committee and 

elected by the Sole LLC Member to the 

current Board. Further, at least three of 

these directors are Public Directors or 

issuer representatives, consistent with 

the composition requirements under the 

Current Constitution and proposed 

Bylaws. The current Board therefore 

reflects a balance among the six 

Exchange Directors (i.e., Member 

Representative Directors) and the eight 

non-industry representative directors 

(i.e., Non-Industry Directors, including 

Public Directors or issuer 

representatives). The Exchange’s Chief 

Executive Officer was also elected to the 

current Board by the Sole LLC Member, 

thereby satisfying the composition 

requirements of CEO Director and Staff 

Director under the Current Constitution 

and proposed Bylaws. 

For the annual elections starting in 

2018 and subject to approval by the 

Commission, the Exchange will hold its 

annual elections in accordance with the 

processes contemplated in the New 

Governing Documents and as such, the 

2017 Board will serve until the 2018 

annual election. Specifically upon the 

Merger, the 2017 Board will appoint a 

Nominating Committee (as discussed in 

detail below) and a Member Nominating 

Committee, and such committees would 

nominate candidates for the 2018 

annual election pursuant to the 

procedures set forth in proposed Bylaw 

Article I (for Member Representative 

Directors) and in proposed Section 9(a) 

of the LLC Agreement and proposed 

Bylaw Article III (for all other Directors). 

Section 3 of Bylaw Article III, which 

is copied from Section 3 of NSM Bylaw 

Article III, contains standard provisions 

for a Delaware limited liability company 

governing the appropriateness of 

reliance by Directors upon the records 

of the Exchange. Section 3 also 

recognizes the Exchange’s status as an 

SRO by providing that the Board, when 

evaluating any proposal, shall, to the 

fullest extent permitted by applicable 

law, take into account all factors that the 

Board deems relevant, including, 

without limitation, (i) the potential 

impact thereof on the integrity, 

continuity and stability of the national 

securities exchange operated by the 

Exchange and the other operations of 

the Exchange, on the ability to prevent 

fraudulent and manipulative acts and 

practices and on investors and the 

public, and (ii) whether such would 

promote just and equitable principles of 

trade, foster cooperation and 

coordination with persons engaged in 

regulating, clearing, settling, processing 

information with respect to and 

facilitating transactions in securities or 

assist in the removal of impediments to 

or perfection of the mechanisms for a 

free and open market and a national 

market system. Taken together, these 

provisions are designed to reinforce the 

notion that the Exchange is not solely a 

commercial enterprise but rather an 

SRO registered pursuant to the Act and 

subject to the obligations imposed by 

the Act. 

Standing Committees 

The proposed new Sections 4, 5 and 

6 of Bylaw Article III, which are based 

on Sections 4, 5 and 6 of the NSM 

Bylaw Article III, would include 

provisions governing the composition 

and authority of various standing 

committees established by the Board. 

Proposed new Section 4 of Bylaw 

Article III would require prospective 

committee members, who are not 

Directors, to provide the Secretary of the 

Exchange with certain information to 

classify a committee member as an 

Industry member,88 a Member 

Representative member,89 a NonIndustry member,90 or a Public 

member.91 Analogous new provisions 

are also proposed for prospective 

Directors.92

Sections 5 and 6 of proposed Bylaw 

Article III, titled ‘‘Committees 

Composed Solely of Directors’’ and 

‘‘Committees Not Composed Solely of 

Directors,’’ establishes several standing 

committees and delineates their general 

duties and responsibilities. The 

proposed committee structure is 

modeled substantially on the committee 


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93For example, the Exchange does not propose to 

establish an Exchange Listing and Hearing Review 

Council because the Exchange does not offer any 

original listings. Similarly, the Exchange does not 

propose to establish an Arbitration and Mediation 

Committee as the Exchange’s arbitration and 

mediation program is operated by the Financial 

Industry Regulatory Authority (‘‘FINRA’’) in 

accordance with the FINRA rules pursuant to a 

regulatory services agreement dated June 10, 2013, 

as amended (‘‘RSA’’). Under the RSA, FINRA 

provides a comprehensive dispute resolution 

program for Exchange members. 

94See Current Constitution, Article V. 

95The Executive Committee (consisting of six 

directors, and with the number of non-industry 

representatives equaling or exceeding the number of 

Exchange Directors) on behalf of the Board and 

subject to its control, has all of the powers of the 

Board except the power to approve (i) any merger, 

consolidation, sale or dissolution of the Exchange 

or (ii) any matters pertaining to the self-regulatory 

function of the Exchange or relating to the structure 

of the market which the Exchange regulates. See 

Current Constitution, Section 5.2. 

96See Section 5(a) of NSM Bylaw Article III, 

Section 4.13(a) of the BX Bylaws and Section 5–2(a) 

of the Phlx Bylaws. 

97See Article IV, Section 4.13(g) of the HoldCo 

By-Laws. See also the HoldCo Audit Committee 

Charter (available at http://ir.nasdaq.com/ 

corporate-governancedocument.cfm?DocumentID=195). 

98The current Finance and Audit Committee 

must be composed of at least three (3) and not more 

than five (5) directors, all of whom must be nonindustry representatives. See Current Constitution, 

Section 5.5. In addition, committee members must 

be ‘‘financially literate’’ as determined by the 

Board. 

99See Section 5(b) of NSM Bylaw Article III, 

Section 4.13(b) of the BX Bylaws and Section 5–2(b) 

of the Phlx Bylaws. 

100See U.S.C. 78j–1(m). 

101See MRX Approval Order. 

structures of the Nasdaq Exchanges, and 

are copied to the extent such 

committees are relevant to the 

Exchange.93

Currently, the standing Board 

committees of the Exchange are: An 

Executive Committee, a Corporate 

Governance Committee, a Finance and 

Audit Committee, a Compensation 

Committee, and such other additional 

committees as may be established by 

Board resolution.94 As discussed above, 

the Exchange also has an Exchange 

Director Nominating Committee, which 

is a committee of the Exchange and not 

the Board. All committee appointments 

are made by the Board, and each 

appointee serves for one year or until 

his or her successor is duly appointed. 

Proposed Committees Composed Solely 

of Directors 

New Section 5 of Bylaw Article III, 

which copies the language in Section 5 

of NSM Bylaw Article III, provides for 

an Executive Committee, a Finance 

Committee, and a Regulatory Oversight 

Committee. 

Creation of an Executive Committee 

The Exchange proposes to adopt new 

Section 5(a), which provides that the 

Board may appoint an Executive 

Committee and delineates its 

composition and functions. In 

particular, the proposed Executive 

Committee may 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. The number of Non-Industry 

Directors on the Executive Committee 

must equal or exceed the number of 

Industry Directors on the Executive 

Committee. The percentage of Public 

Directors on the Executive Committee 

must be at least as great as the 

percentage of Public Directors on the 

whole Board, and the percentage of 

Member Representative Directors on the 

Executive Committee must be at least as 

great as the percentage of Member 

Representative Directors on the whole 

Board. Currently, the Executive 

Committee is a permanent standing 

committee of the Board.95 Under the 

new Section 5(a), the Executive 

Committee would be an optional 

committee, to be appointed only if 

deemed necessary by the Board. The 

Exchange’s proposal is similar to all 

three Nasdaq Exchanges where the 

Exchange Committee is optional, at the 

discretion of the Board.96

Elimination of the Current Finance and 

Audit Committee 

The Exchange also proposes to adopt 

new Section 5(b), which provides that 

the Board may appoint a Finance 

Committee and delineates its 

composition and functions. In 

particular, the Finance Committee will 

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 

and proposed changes to the rates and 

fees charged by the Exchange. By 

adopting new Section 5, the Exchange is 

proposing to eliminate the current 

Finance and Audit Committee, and have 

all of its duties and functions performed 

at the Board level, assigned to other 

proposed Board committees or to the 

HoldCo audit committee (the ‘‘HoldCo 

Audit Committee’’).97

Pursuant to its current charter, the 

Finance and Audit Committee 98 is 

primarily charged with: (i) Oversight of 

financial operations of the Exchange; (ii) 

oversight of the Exchange’s financial 

reporting process; (iii) oversight of the 

systems of internal controls established 

by management and the Board, and for 

monitoring compliance with laws and 

regulations; (iv) evaluation of 

independent external auditors; and (v) 

direction and oversight of the internal 

audit function. Under the new Section 

5(b), the Board would retain oversight of 

the financial operations of the Exchange 

instead of delegating these functions to 

standing committee, and would have to 

option to appoint a Finance Committee 

at the Board’s discretion. The 

Exchange’s proposal is similar to all 

three Nasdaq Exchanges where the 

Finance Committee is optional, at the 

discretion of the Board.99

Furthermore, the HoldCo Audit 

Committee also covers the functions of 

the current Finance and Audit 

Committee. The HoldCo Audit 

Committee is composed of at least three 

directors, all of whom must satisfy the 

standards for independence set forth in 

Section 10A(m) of the Act 100 and Rule 

5605 of NSM’s listing rules. All 

committee members must be able to 

read and understand financial 

statements, and at least one member 

must have past employment experience 

in finance or accounting, requisite 

professional certification in accounting 

or any other comparable experience or 

background that results in the 

individual’s financial sophistication. 

The HoldCo Audit Committee has 

broad authority to review the financial 

information that will be provided to 

shareholders of HoldCo and others, 

systems of internal controls, and audit, 

financial reporting and legal and 

compliance processes. Because 

HoldCo’s financial statements are 

prepared on a consolidated basis that 

includes the financial results of 

HoldCo’s subsidiaries, including the 

Exchange and the other Nasdaq 

Exchange subsidiaries, HoldCo’s audit 

committee purview necessarily includes 

these subsidiaries. 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.101 To the extent the 

current Finance and Audit Committee 

oversees the Exchange’s financial 

reporting process, its activities are 

duplicative of the activities of the 

HoldCo Audit Committee, which is also 

charged with providing oversight over 

financial reporting and independent 

auditor selection for HoldCo and all of 

its subsidiaries, including the Exchange 

and the other Nasdaq Exchange 

subsidiaries. Similarly, the HoldCo 

Audit Committee has general 

responsibility for oversight over internal 

controls, and direction and oversight 

over the internal audit function for 


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102See Securities Exchange Act Release No. 

60276 (July 9, 2009), 74 FR 34840 (July 17, 2009) 

(SR–NASDAQ–2009–042); Securities Exchange Act 

Release No. 60247 (July 6, 2009), 74 FR 33495 (July 

13, 2009) (SR–BX–2009–021); and Securities 

Exchange Act Release No. 60687 (September 18, 

2009), 74 FR 49060 (September 25, 2009) (SR–Phlx– 

2009–59). 

103See proposed Section 5(c) of Bylaw Article III. 

The Nasdaq Exchanges also have Regulatory 

Oversight Committees, which have the same 

authority in all material respects to the proposed 

ROC. See Section 5(c) of NSM Bylaw Article III, 

Section 4.13(c) of the BX Bylaws and Section 5–2(c) 

of the Phlx Bylaws. 

104See the Regulatory Oversight Committee 

Charter of NSM, Phlx and BX (available at http:// 

ir.nasdaq.com/corporate-governancedocument.cfm?DocumentID=1097). 

105The committee must be composed of at least 

three and not more than five directors who must all 

meet the ‘‘Non-Industry Director’’ qualifications 

under the Current Constitution. See Current 

Constitution, Section 5.6. 

106As discussed in the proposed Board 

composition section above, ‘‘Staff Directors’’ would 

be Exchange directors that are also serving as 

officers. Since the Board would not be responsible 

for setting the compensation of any Staff Directors 

who are also officers of HoldCo, they would be 

permitted to participate in discussions concerning 

compensation of Exchange employees, but would 

HoldCo and all of its subsidiaries. Thus, 

the responsibilities of the Exchange’s 

Finance and Audit Committee as it 

relates to the functions set forth in 

clauses (ii)–(v) above are fully 

duplicated by the responsibilities of the 

HoldCo Audit Committee. Accordingly, 

the Exchange is proposing to allow the 

elimination of its Finance and Audit 

Committee. The Commission has 

previously approved similar proposals 

by the Nasdaq Exchanges to eliminate 

their respective audit committees.102

Creation of a Regulatory Oversight 

Committee 

The Exchange believes, however, that 

even in light of the HoldCo Audit 

Committee’s overall responsibilities for 

internal controls and the internal audit 

function, it is nevertheless important for 

the Board to maintain its own 

independent oversight over the 

Exchange’s controls and internal audit 

matters relating to the Exchange’s 

operations. Therefore, the Exchange is 

proposing to create a Regulatory 

Oversight Committee (‘‘ROC’’) so that 

regulatory oversight functions formerly 

performed by the Finance and Audit 

Committee may be assumed by the new 

committee.103 Like the ROCs of the 

Nasdaq Exchanges, the new committee 

will have broad authority to oversee the 

adequacy and effectiveness of the 

Exchange’s regulatory and selfregulatory organization responsibilities, 

and will therefore be able to maintain 

oversight over controls in tandem with 

the HoldCo Audit Committee’s overall 

oversight responsibilities. 

Similarly, it is already a formal 

practice of HoldCo’s Internal Audit 

Department, which performs internal 

audit functions for all HoldCo 

subsidiaries, to report to the Nasdaq 

Exchange boards on all Nasdaq 

Exchange-related internal audit matters 

and to direct such reports to the ROCs 

of the Nasdaq Exchanges.104 The 

Exchange proposes that the HoldCo 

Internal Audit Department would also 

similarly report to the Exchange Board 

and direct such reports to the new ROC. 

In addition, to ensure that the Exchange 

Board retains authority to direct the 

Department’s activities with respect to 

the Exchange, the Department’s written 

procedures will to stipulate that the 

Exchange’s ROC may, at any time, direct 

the Department to conduct an audit of 

a matter of concern to it and report the 

results of the audit both to the Exchange 

ROC and the HoldCo Audit Committee. 

The Internal Audit Department is 

currently required to conduct such 

audits upon the request of the Nasdaq 

Exchange ROCs. 

To effectuate this change, the 

Exchange proposes to adopt the new 

Section 5(c) providing for a ROC and 

delineating its composition and 

functions. In particular, the proposed 

ROC’s responsibilities will be to: (i) 

Oversee the adequacy and effectiveness 

of the Exchange’s regulatory and selfregulatory organization responsibilities; 

(ii) assess the Exchange’s regulatory 

performance; and (iii) assist the Board 

and other committees of the Board in 

reviewing the regulatory plan and the 

overall effectiveness of the Exchange’s 

regulatory functions. In furtherance of 

its functions, the ROC shall: (A) Review 

the Exchange’s regulatory budget and 

specifically inquire into the adequacy of 

resources available in the budget for 

regulatory activities; (B) meet regularly 

with the Exchange’s Chief Regulatory 

Officer in executive session; and (C) be 

informed about the compensation and 

promotion or termination of the Chief 

Regulatory Officer and the reasons 

therefor. The Exchange proposes that 

the ROC shall consist of three members, 

each of whom shall be a Public Director 

and an ‘‘independent director’’ as 

defined in Rule 5605 of the Rules of The 

NASDAQ Stock Market, LLC. 

Given the expansive regulatory and 

internal oversight of the proposed ROC 

and HoldCo Audit Committee, coupled 

with the oversight and responsibilities 

of the full Board and HoldCo’s Internal 

Audit Department, the Exchange 

believes that all of the duties and 

functions of the eliminated Finance and 

Audit Committee would continue to be 

performed in the new governance 

structure as proposed herein. 

Elimination of the Current 

Compensation Committee 

By adopting the new Board 

committees in Section 5, the Exchange 

also proposes to eliminate its current 

Compensation Committee, and to 

prescribe that its duties be performed by 

the HoldCo management compensation 

committee or the full Board when 

required. The Compensation 

Committee 105 is primarily charged with 

reviewing and approving compensation 

policies and plans for the Chief 

Executive Officer and other senior 

executive officers of the Exchange. 

Under the Nasdaq governance structure, 

this function is performed by the 

HoldCo management compensation 

committee or the full boards of the 

Nasdaq Exchanges. The HoldCo ByLaws provide that its management 

compensation committee (a committee 

consisting of at least two HoldCo board 

members meeting the independence and 

other eligibility standards in the listing 

rules of NSM) considers and 

recommends compensation policies, 

programs, and practices for employees 

of HoldCo. Because many employees 

performing work for the Exchange are 

also employees of HoldCo, its 

compensation committee already 

performs these functions for such 

employees. Moreover, certain of its 

senior officers are also officers of 

HoldCo and other HoldCo subsidiaries 

because their responsibilities relate to 

multiple entities within the HoldCo 

corporate structure. Accordingly, 

HoldCo pays these individuals and 

establishes compensation policy for 

them. Most notably, the current Chief 

Executive Officer of the Exchange is also 

an ‘‘executive officer’’ of HoldCo within 

the meaning of NSM Rule 5605. Under 

that rule, the compensation of executive 

officers of an issuer of securities, such 

as the common stock of HoldCo, that is 

listed on NSM, must be determined by, 

or recommended to the board of 

directors for determination by, a 

majority of independent directors or a 

compensation committee comprised 

solely of independent directors. 

Accordingly, the HoldCo board of 

directors and/or its compensation 

committee is legally required to 

establish the compensation for this 

individual. 

To the extent that policies, programs, 

and practices must also be established 

for any Exchange officers or employees 

who are not also HoldCo officers or 

employees, the Board would perform 

such actions without the use of a 

compensation committee (but subject to 

the recusal of the Staff Directors).106


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recuse themselves from a vote on the subject to 

allow the determination to be made by directors 

that are not officers or employees of the Exchange. 

If a Staff Director was an officer or employee of the 

Exchange but not of HoldCo, that Staff Director 

would also absent himself or herself from any 

deliberations regarding his or her compensation. 

107See note 102 above. 

108The committee must consist of at least three 

directors, all of whom are required to meet the 

‘‘Non-Industry Director’’ standards under the 

Current Constitution. See Current Constitution, 

Section 5.4. 

109See proposed Section 6(b) of Bylaw Article III. 

110See the Corporate Governance Guidelines of 

NSM, Phlx and BX (available at http://

ir.nasdaq.com/corporate-governancedocument.cfm?DocumentID=6027). 

111The Board Chair will be an ‘‘independent 

director’’ (i.e. person other than an officer or 

employee of HoldCo or its subsidiaries, including 

the Exchange) as provided under the listing rules 

of NSM and SEC requirements. 

112See Section 6(b) of NSM Bylaw Article III, 

Section 4.14(b) of the BX Bylaws and Section 5–3(a) 

of the Phlx Bylaws for similar provisions related to 

the Nominating Committee. 

113See Section 6(c) of NSM Bylaw Article III, 

Section 4.14(c) of the BX Bylaws and Section 5–3(c) 

of the Phlx Bylaws. 

Finally, it should be noted that under 

the new Section 5(c) of Bylaw Article 

III, the ROC of the Board would be 

informed about the compensation and 

promotion or termination of the 

Exchange’s Chief Regulatory Officer and 

the reasons therefor, to allow the ROC 

to provide oversight over decisions 

affecting this key officer. Therefore, the 

Exchange believes that the duties and 

functions of the eliminated 

Compensation Committee would 

continue to be performed and covered 

in the new corporate governance 

structure proposed by the New 

Governing Documents. The Commission 

has previously approved proposals by 

the Nasdaq Exchanges to eliminate their 

respective compensation committees.107

Elimination of the Current Corporate 

Governance Committee 

Finally, the Exchange also proposes to 

eliminate the current Corporate 

Governance Committee, and to prescribe 

that its duties be performed by the new 

Nominating Committee (as discussed 

below), the new ROC or by the full 

Board when required. The Corporate 

Governance Committee 108 is primarily 

charged with: (i) Nominating candidates 

for all vacant or new non-industry 

representative positions on the Board, 

(ii) overseeing the Exchange’s regulatory 

activities and program, and (iii) 

overseeing and evaluating the 

governance of the Exchange. As 

discussed below, the Exchange is 

proposing to establish a new 

Nominating Committee that would 

nominate candidates for all vacant or 

new non-Member Representative 

Director positions on the Board, and 

therefore would perform the NonIndustry Director nominating functions 

of the current Corporate Governance 

Committee.109 Furthermore, the new 

ROC would have to carry out the 

regulatory oversight tasks currently 

within purview of the Corporate 

Governance Committee. In particular, 

the new ROC would (i) oversee the 

adequacy and effectiveness of the 

Exchange’s regulatory and selfregulatory organization responsibilities; 

(ii) assess the Exchange’s regulatory 

performance; and (iii) assist the Board 

and other committees of the Board in 

reviewing the regulatory plan and the 

overall effectiveness of the Exchange’s 

regulatory functions. Its duties would 

include reviewing the Exchange’s 

regulatory budget and inquiring into the 

adequacy of resources available in the 

budget for regulatory activities; meeting 

regularly with the Exchange’s Chief 

Regulatory Officer in executive session; 

and having oversight over 

compensation, hiring and termination 

decisions affecting this key officer as 

discussed above. 

As it relates to the general supervision 

over the corporate governance of the 

Exchange, the full Board would perform 

such functions without the use of a 

corporate governance committee, 

similar to the boards of the Nasdaq 

Exchanges.110 In particular, the full 

Board, led by the Chair of the Board,111

would perform annual self-assessments, 

oversee annual formal director and 

Chair evaluations, and periodically 

review the allocations of powers 

between management and the Board. 

Therefore, the Exchange believes that 

the duties and functions of the 

eliminated Corporate Governance 

Committee would continue to be 

performed and covered in the new 

corporate governance structure 

proposed by the New Governing 

Documents. 

Proposed Committees Not Composed 

Solely of Directors 

In addition to the proposed Board 

committees discussed above, new 

Section 6 of Bylaw Article III provides 

for the appointment by the Board of 

certain standing committees, not 

composed solely of Directors, to 

administer various provisions of the 

rules that the Exchange expects to 

propose with respect to governance, 

options trading and member discipline. 

By adopting Section 6, the Exchange 

proposes to eliminate certain standing 

committees and have their relevant 

functions performed by the new 

committees, each as described below. 

Creation of a Member Nominating 

Committee 

The new Member Nominating 

Committee, responsible for: (i) The 

nomination for election of Member 

Representative Directors to the Board or 

(ii) the nomination for appointment of 

Member Representative members to the 

committees requiring such members, 

would replace the Exchange Director 

Nominating Committee. The 

composition requirements of the 

Member Nominating Committee are 

discussed in the Nomination and 

Election Process section above. 

Creation of a Nominating Committee 

The new Nominating Committee will 

nominate candidates for all other vacant 

or new Director positions on the Board, 

and therefore, would perform the nonindustry representative nomination 

function currently assigned to the 

Corporate Governance Committee. The 

Nominating Committee will consist of 

no fewer than six and no more than nine 

members, and the number of NonIndustry members (i.e. committee 

members not associated with brokerdealers) shall equal or exceed the 

number of Industry members on the 

Nominating Committee. If the 

Nominating Committee consists of six 

members, at least two shall be Public 

members. If the Nominating Committee 

consists of seven or more members, at 

least three shall be Public members. No 

officer or employee of the Exchange 

shall serve as a member of the 

Nominating Committee in any voting or 

non-voting capacity. No more than three 

of the Nominating Committee members 

and no more than two of the Industry 

members shall be current Directors. A 

Nominating Committee member may 

not simultaneously serve on the 

Nominating Committee and the Board, 

unless such member is in his or her 

final year of service on the Board, and 

following that year, that member may 

not stand for election to the Board until 

such time as he or she is no longer a 

member of the Nominating Committee. 

Nominating Committee members will be 

appointed annually by the Board and 

may be removed by a majority vote of 

the Board.112

Creation of a Quality of Markets 

Committee 

The new Quality of Markets 

Committee (the ‘‘QMC’’), which is 

modeled off of the QMCs of the Nasdaq 

Exchanges,113 will have the following 

functions: (i) To provide advice and 

guidance to the Board on issues relating 

to the fairness, integrity, efficiency, and 


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114The Chair of the Board would be an 

independent Director as defined in Rule 5605 of the 

listing rules of The NASDAQ Stock Market, LLC. 

115See NSM Bylaw Article IV for substantially 

similar provisions. 

116Sections 4.1 and 4.7 of the Current 

Constitution also specifically provide for a Chief 

Regulatory Officer. 

117As proposed, all such changes must be filed 

with the Commission under Section 19(b) of the 

Act, 15 U.S.C. 78s(b), and become effective 

thereunder before being implemented. See 

proposed Bylaw Article VIII, Section 1. The BX 

Bylaws and the NSM Bylaws do not have a similar 

requirement, but Phlx has a similar requirement in 

Section 6–9 of the Phlx Bylaws. BX and NSM will 

each separately file proposed rule changes with the 

Commission to add this requirement in their 

respective governing documents. See note 46 above. 

118The amended Rules were filed as part of the 

Proposed Rule Change as Exhibit 5E. 

119 In particular, the proposed changes are in 

Rules 200, 202, 203, 305(a), 307(c), 307(d), and 

711(a), as well as in .01(b)(2)(iii) of Supplementary 

Material to Rule 706. 

120 In particular, the proposed changes are in 

Rules 100(a)(22A), 302(c), and 302(e). 

competitiveness of the information, 

order handling, and execution 

mechanisms of the Exchange from the 

perspective of investors, both individual 

and institutional, retail firms, market 

making firms and other market 

participants; and (ii) to advise the Board 

with respect to national market system 

plans and linkages between the facilities 

of the Exchange and other markets. The 

QMC shall include broad representation 

of participants in the Exchange, 

including investors, market makers, 

retail firms, and order entry firms. The 

QMC shall include a number of Member 

Representative members that is equal to 

at least 20% of the total number of 

members of the QMC. The number of 

Non-Industry members on the proposed 

QMC shall equal or exceed the sum of 

the number of Industry members and 

Member Representative members. A 

quorum of the QMC will consist of a 

majority of its members, including not 

less than 50% of its Non-Industry 

members, unless this requirement is 

waived pursuant to proposed Section 

6(c)(iii) of Bylaw Article III. 

Other Proposed Bylaw Provisions 

Proposed Section 7 of Bylaw Article 

III contains standard provisions for a 

Delaware limited liability company 

requiring recusal by Directors or 

committee members subject to a conflict 

of interest, and providing for the 

enforceability of contracts in which a 

Director has an interest if appropriately 

approved or ratified by disinterested 

Directors. This language is based on 

Section 7 of NSM Bylaw Article III. 

Proposed Section 8 of Bylaw Article III 

allows for reasonable compensation of 

the Board and committee members, and 

mirrors Section 8 of NSM Bylaw Article 

III. 

Bylaw Article IV, titled ‘‘Officers, 

Agents, and Employees,’’ contains 

provisions governing the Exchange’s 

officers, agents and employees, and is 

based on Article IV of the NSM Bylaws. 

Proposed Section 1 of Bylaw Article IV 

provides that the Board may delegate 

the duties and powers of any officer of 

the Exchange to any other officer or to 

any Director for a specified period of 

time and for any reason that the Board 

may deem sufficient. Proposed Section 

2 discusses how an officer of the 

Exchange may resign or may be 

removed. Proposed Sections 3 through 

11 each specifically provides for the 

appointment of a Chair of the Board,114

a Chief Executive Officer, a President, 

Vice Presidents, a Chief Regulatory 

Officer, a Secretary, an Assistant 

Secretary, a Treasurer, and an Assistant 

Treasurer.115 The Exchange notes that 

proposed Section 7 of Bylaw Article IV 

specifically provides for a Chief 

Regulatory Officer,116 who would have 

general supervision of the regulatory 

operations of the Exchange, including 

responsibility for overseeing the 

Exchange’s surveillance, examination, 

and enforcement functions and for 

administering any regulatory services 

agreements with another SRO to which 

the Exchange is a party. The Chief 

Regulatory Officer shall meet with the 

Regulatory Oversight Committee of the 

Exchange in executive session at 

regularly scheduled meetings of such 

committee, and at any time upon 

request of the Chief Regulatory Officer 

or any member of the Regulatory 

Oversight Committee. The Chief 

Regulatory Officer may also serve as the 

General Counsel of the Exchange. 

Bylaw Article VII, titled 

‘‘Miscellaneous Provisions,’’ contains 

standard limited liability company 

provisions relating to waiver of notice of 

meetings and the Exchange’s contracting 

ability. Article VIII, titled 

‘‘Amendments; Emergency By-Laws,’’ 

authorizes amendments to the By-Laws 

by either the Sole LLC Member or the 

vote of a majority of the whole Board,117

as well as the adoption of emergency bylaws by the Board. Other than as noted 

above, Articles VII and VIII mirror the 

language in Articles VII and VIII of the 

NSM Bylaws. 

Article IX, titled ‘‘Exchange 

Authorities,’’ which mirrors NSM Bylaw 

Article IX, contains specific 

authorization for the Board to adopt 

rules needed to effect the Exchange’s 

obligations as an SRO, to establish 

disciplinary procedures and impose 

sanctions on its members, to establish 

standards for membership, to impose 

dues, fees, assessments, and other 

charges and to take action under 

emergency or extraordinary market 

conditions. 

D. Rules 

The Exchange proposes to amend its 

current Rules to reflect the changes to 

its constituent documents through the 

adoption of the New Governing 

Documents to replace the Current 

Governing Documents.118 All of the 

proposed changes are non-substantive, 

and primarily reflect the changing 

terminology from ‘‘Constitution’’ to ‘‘ByLaws,’’ 119 or to remove references to the 

Current LLC Agreement 120 as these will 

become obsolete under the Proposed 

Rule Change. Furthermore, a number of 

defined terms used in the Rules refer 

back to the Current LLC Agreement or 

the Current Constitution for their 

meanings. As discussed below, the 

Exchange proposes to add these defined 

terms originally contained in the 

Current Governing Documents as new 

Rules. In addition, a number of existing 

Rules contain references to the Current 

Governing Documents, and the 

Exchange proposes to amend these 

provisions either by (i) replacing those 

references with references to the New 

Governing Documents or (ii) importing 

language originally found in the Current 

Governing Documents, as further 

described below. Finally, the Exchange 

proposes to make a number of technical 

amendments to renumber the Rules, 

which is a result of adding the new 

definitions as further discussed below. 

In Rule 100, titled ‘‘Definitions,’’ the 

Exchange proposes to make the 

following changes: 

• Rule 100(a) currently refers to 

Article XIII of the Current Constitution 

as containing certain defined terms that 

are also used in the Exchange’s 

rulebook. The proposed change would 

replace the reference to Article XIII of 

the Current Constitution with references 

to the proposed LLC Agreement and ByLaws. 

• Rule 100(a)(5) ‘‘board of directors’’ 

or ‘‘Board’’ currently refers to Article I 

of the LLC Agreement. The proposed 

change reflects that this definition will 

be set forth in Article I of the new 

Bylaws. 

• Rule 100(a)(12) ‘‘CMM Rights’’ 

currently refers to Article VI of the 

Current LLC Agreement. The proposed 

change would relocate the concept of 

CMM Rights from the Current LLC 

Agreement to this Rule, and would state 

that the term CMM Rights means the 


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121CMM Rights are non-transferable rights in that 

the holders of CMM Rights may not lease or sell 

these rights. As discussed in the LLC Agreement 

section above, all Exchange Rights (i.e., PMM, CMM 

and EAM Rights) convey voting rights and trading 

privileges on the Exchange. From MRX’s inception, 

the voting rights and trading privileges associated 

with the PMM, CMM, and EAM Rights have never 

been transferable. See MRX Approval Order. 

122See note 121 above. 

123 ‘‘European-style option’’ and ‘‘Exchange Act’’ 

are both inadvertently numbered as Rule 100(a)(16) 

in the current Rules, so the proposed changes will 

renumber these Rules as Rules 100(a)(18) and (19), 

respectively. 

124See note 121 above. 

125See proposed Bylaw Article II, Section 2. An 

Exchange Member, either alone or together with its 

affiliates, may not cast votes representing more than 

20% of the votes cast for a candidate. A similar 

20% voting limitation is also in Section 6.3(b) of the 

Current LLC Agreement. 

126 15 U.S.C. 78f(b). 

127 15 U.S.C. 78f(b)(1). 

128 15 U.S.C. 78f(b)(3) and (b)(5). 

non-transferable rights held by a 

Competitive Market Maker.121

• New Rule 100(a)(13) ‘‘Competitive 

Market Maker’’ would be relocated from 

Section 13.1(f) of the Current 

Constitution. Currently, this term is 

used throughout the Exchange’s 

rulebook, but the definition is only 

found in the Current Constitution. 

• Rules 100(a)(13)–(14) ‘‘covered 

short position’’ and ‘‘discretion,’’ 

respectively, would be renumbered as 

Rules 100(a)(14)–(15). 

• Rule 100(a)(15) ‘‘EAM Rights’’ 

currently refers to Article VI of the 

Current LLC Agreement. The proposed 

change would relocate the concept of 

EAM Rights from the Current LLC 

Agreement to this Rule, and would state 

that EAM Rights means the nontransferable rights held by an Electronic 

Access Member.122 The Rule would also 

be renumbered as Rule 100(a)(16). 

• New Rule 100(a)(17) ‘‘Electronic 

Access Member’’ would be relocated 

from Section 13.1(j) of the Current 

Constitution. Currently, this term is 

used throughout the Exchange’s 

rulebook, but the definition is only 

found in the Current Constitution. 

• Rules 100(a)(16) and (17) 

‘‘European-style option,’’ ‘‘Exchange 

Act’’ and ‘‘Exchange Rights,’’ 

respectively, would be renumbered as 

Rules 100(a)(18)–(20).123

• New Rule 100(a)(21) ‘‘Exchange 

Transaction’’ would be relocated from 

Section 13.1(p) of the Current 

Constitution. Currently, this term is 

used throughout the Exchange’s 

rulebook, but the definition is only 

found in the Current Constitution. 

• Rules 100(a)(18) and (19) ‘‘exercise 

price’’ and ‘‘Federal Reserve Board,’’ 

respectively, would be renumbered as 

Rules 100(a)(22) and (23). 

• New Rule 100(a)(24) ‘‘good 

standing’’ would be relocated from 

Section 13.1(q) of the Current 

Constitution. Currently, this term is 

used throughout the Exchange’s 

rulebook, but the definition is only 

found in the Current Constitution. 

• Rules 100(a)(20)–(22) ‘‘he,’’ ‘‘him’’ 

or ‘‘his,’’ ‘‘ISE,’’ ‘‘Nasdaq GEMX,’’ and 

‘‘long position,’’ respectively, would be 

renumbered as Rules 100(a)(25)–(27). 

• Rule 100(a)(22A) ‘‘LLC Agreement’’ 

would be deleted as that term would no 

longer be used in the Rules, as amended 

by this rule change. 

• Rules 100(a)(23)–(35) ‘‘Member,’’ 

‘‘Membership,’’ ‘‘market makers,’’ 

‘‘Market Maker Rights,’’ ‘‘NonCustomer,’’ ‘‘Non-Customer Order,’’ 

‘‘offer,’’ ‘‘opening purchase 

transaction,’’ ‘‘opening writing 

transaction,’’ ‘‘Voluntary Professional,’’ 

‘‘options contract,’’ ‘‘OPRA,’’ ‘‘order’’ 

and ‘‘outstanding,’’ respectively, would 

be renumbered as Rules 100(a)(28)–(40). 

• Rule 100(a)(36) ‘‘PMM Rights’’ 

currently refers to Article VI of the 

Current LLC Agreement. The proposed 

change would relocate the concept of 

PMM Rights from the Current LLC 

Agreement to this Rule, and would state 

that PMM Rights means the nontransferable rights held by a Primary 

Market Maker.124 The Rule would also 

be renumbered as Rule 100(a)(41). 

• New Rule 100(a)(42) ‘‘Primary 

Market Maker’’ would be relocated from 

Section 13.1(z) of the Current 

Constitution. Currently, this term is 

used throughout the Exchange’s 

rulebook, but the definition is only 

found in the Current Constitution. 

• Rules 100(a)(37), (37A), (37B), 

(37C), (38)–(48) ‘‘primary market,’’ 

‘‘Priority Customer,’’ ‘‘Priority Customer 

Order,’’ ‘‘Professional Order,’’ ‘‘Public 

Customer,’’ ‘‘Public Customer Order,’’ 

‘‘put,’’ ‘‘Quarterly Options Series,’’ 

‘‘quote’’ or ‘‘quotation,’’ ‘‘Rules of the 

Clearing Corporation,’’ ‘‘SEC,’’ ‘‘series of 

options,’’ ‘‘short position,’’ ‘‘Short Term 

Option Series’’ and ‘‘SRO,’’ respectively, 

would be renumbered as Rules 

100(a)(43), (43A), (43B), (43C), (44)–(54). 

• New Rule 100(a)(55) ‘‘System’’ 

would be relocated from Section 

13.1(ee) of the Current Constitution. 

Currently, this term is used throughout 

the Exchange’s rulebook, but the 

definition is only found in the Current 

Constitution. 

• Rules 100(a)(49)–(51) ‘‘type of 

option,’’ ‘‘uncovered’’ and ‘‘underlying 

security,’’ respectively, would be 

renumbered as Rules 100(a)(56)–(58). 

In Rule 304(b), the Exchange is 

proposing to replace the references to 

the Current Governing Documents with 

the proposed Bylaws to state that no 

Exchange member shall exercise voting 

rights in excess of those permitted 

under the Bylaws.125

In Rule 309 ‘‘Limitation on Affiliation 

between the Exchange and Members,’’ 

the Exchange proposes to replace 

references to ‘‘Exchange Director’’ and 

‘‘Constitution’’ with ‘‘Member 

Representative Director’’ and ‘‘ByLaws,’’ respectively, for the reasons 

discussed above. Lastly, the proposed 

changes in Rule 713(a) and Rule 

720(a)(1) reflect the renumbering of the 

defined terms ‘‘offer,’’ ‘‘quotations,’’ 

‘‘Priority Customer Orders,’’ 

‘‘Professional Orders,’’ and ‘‘Priority 

Customer.’’ 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act 126 in general, and furthers the 

objectives of Section 6(b)(1) of the 

Act 127 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 this proposal furthers 

the objectives of Section 6(b)(3) and 

(b)(5) of the Act 128 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. 

The Exchange believes that its 

proposal to adopt the Board and 

committee structure and related 

nomination and election processes set 

forth in New Governing Documents 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 

Exchange’s Board and committee 

composition requirements, and related 


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nomination and election processes, 

more consistent with those of its 

affiliates, BX, NSM and Phlx. 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. 

Additionally, the Exchange believes 

that the New Governing Documents 

support a corporate governance 

framework that is designed to insulate 

the Exchange’s regulatory functions 

from its market and other commercial 

interests so that the Exchange can carry 

out its regulatory obligations in 

furtherance of Section 6(b)(1) of the Act. 

Specifically, the Exchange believes that 

creation of a ROC, modeled on the 

approved ROCs of other Nasdaq 

Exchanges, and the inclusion of the 

Chief Regulatory Officer in the proposed 

Bylaws, would underscore the 

importance of the Exchange’s regulatory 

function and specifically empower an 

independent committee of the Board to 

oversee regulation and meet regularly 

with the Chief Regulatory Officer. 

Furthermore, proposed language in the 

New Governing Documents specifically 

providing that the Exchange’s business 

and the Board’s evaluations would 

include actions and evaluations that 

support and take into account its 

regulatory responsibilities under the 

Act, reinforce the notion that the 

Exchange is not solely a commercial 

enterprise, but an SRO subject to the 

obligations imposed by the Act. The 

restriction on using Regulatory Funds to 

pay dividends to the Sole LLC Member 

further underscores the independence of 

the Exchange’s regulatory function. 

Finally, the Exchange believes that the 

proposed requirements to include 

Public Directors on the Board (at least 

two Directors) and that on the ROC (all 

three 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. Accordingly, the 

Exchange believes that the new board 

and committee structure contemplated 

by the proposed New Governing 

Documents is designed to insulate the 

Exchange’s regulatory functions from its 

market and other commercial interests 

so that the Exchange can carry out its 

regulatory obligations in furtherance of 

Section 6(b)(1) of the Act. 

The Exchange also believes that the 

proposed 20% requirement for Member 

Representative Directors and the 

proposed method for selecting Member 

Representative Directors would ensure 

fair representation of Exchange 

members on the Board and allow 

members to have a voice in the 

Exchange’s use of its self-regulatory 

authority. In particular, the Exchange 

notes that the Member Nominating 

Committee would be composed solely of 

persons associated with Exchange 

members and is selected after 

consultation with representatives of 

Exchange members. In addition, the 

new Bylaws include a process by which 

Exchange members can directly petition 

and vote for representation on the 

Board. For the foregoing reasons, the 

Exchange believes that the proposed 

change to remove the Exchange Director 

positions and related concepts from its 

organizational documents is consistent 

with fair representation requirement 

under the Act. Specifically, Exchange 

members will continue to be 

represented on the Board and on key 

standing committees, and will have a 

voice in the selection of Member 

Representative Directors through the 

Member Nominating Committee and 

through their ability to petition and vote 

on alternate candidates. As noted above, 

the trading privileges associated with 

the Exchange Rights, which are 

currently located in the Exchange’s 

organizational documents, are already 

substantively in the Exchange’s 

rulebook, and the Rules would be 

clarified to the extent such Rules refer 

back to the Current Governing 

Documents. 

The Exchange also believes that the 

proposed Board and composition 

requirements set forth in the New 

Governing Documents is consistent with 

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

the Act, because the Public Director 

positions on the Board and on the ROC 

would include the representatives of 

issuers and investors with no material 

business relationship with a broker 

dealer or the Exchange. Further, the 

Exchange believes that the proposed 

compositional balance of the proposed 

committees continues to provide for the 

fair representation of members in the 

administration of the affairs of the 

Exchange. In particular, all members of 

the new Member Nominating 

Committee must be associated persons 

of an Exchange member. In addition, at 

least 20% of the new QMC must be 

composed of Member Representative 

members. Moreover, the proposed 

compositional requirements provide 

that the Nominating Committee and the 

QMC must be compositionally balanced 

between Industry members and NonIndustry members. The proposed 

compositional requirements are 

designed to ensure that members are 

protected from unfair, unfettered actions 

by an exchange pursuant to its rules, 

and that, in general, an exchange is 

administered in a way that is equitable 

to all those who trade on its market or 

through its facilities. 

Moreover, the Exchange believes that 

the new corporate governance 

framework and related processes 

proposed by the New Governing 

Documents are consistent with Section 

6(b)(5) of the Act because they are 

identical to the framework and 

processes used by the Nasdaq 

Exchanges, which have been wellestablished as fair and designed to 

protect investors and the public interest. 

The Exchange believes that adopting the 

New Governing Documents based on the 

NSM model would streamline the 

Nasdaq Exchanges’ governance process, 

create equivalent governing standards 

among HoldCo’s SROs and also provide 

clarity to its members, which is 

beneficial to both investors and the 

public interest. 

Finally, the proposed amendments to 

the Rules as discussed above are nonsubstantive changes to clarify the rule 

text where the Rule referred only to the 

Current LLC Agreement or to the 

Current Constitution, and also the 

technical amendments to renumber 

certain Rules. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

Because the Proposed Rule Change 

relates to the corporate governance of 

the Exchange and not to the operations 

of the Exchange, the Exchange does not 

believe that the proposed rule change 

will impose any burden on competition 

not necessary or appropriate in 

furtherance of the purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were either 

solicited or received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period (i) 

as the Commission may designate up to 

90 days of such date if it finds such 

longer period to be appropriate and 

publishes its reasons for so finding or 


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Federal Register / Vol. 82, No. 193 / Friday, October 6, 2017 / Notices 46865 

129 17 CFR 200.30–3(a)(12). 

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

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

4For the purposes of the Schedule, the term 

‘‘Exchange Traded Products’’ includes securities 

described in NYSE Arca Rules 5.2–E(j)(3) 

(Investment Company Units); 8.100–E (Portfolio 

Depositary Receipts); 8.200–E (Trust Issued 

Receipts); 8.201–E (Commodity-Based Trust 

Shares); 8.202–E (Currency Trust Shares); 8.203–E 

(Commodity Index Trust Shares); 8.204–E 

(Commodity Futures Trust Shares); 8.300–E 

(Partnership Units); 8.500–E (Trust Units); 8.600–E 

(Managed Fund Shares), and 8.700–E (Managed 

Trust Securities). 

5Exchange rules applicable to Trust Issued 

Receipts (Commentary .02 to NYSE Arca Rule 

8.200–E); Commodity-Based Trust Shares (NYSE 

Arca Rule 8.201–E), Commodity Index Trust Shares 

(NYSE Arca Rule 8.203–E),, [sic] Commodity 

Futures Trust Shares (NYSE Arca Rule 8.204–E), 

Partnership Units (NYSE Arca Rule 8.300–E), Trust 

Units (NYSE Arca Rule 8.500–E), and Managed 

Trust Securities (NYSE Arca Rule 8.700–E) do not 

provide for listing pursuant to Rule 19b–4(e) under 

the Act. 

6See Securities Exchange Act Release Nos. 77883 

(May 23, 2016), 81 FR 33720 (May 27, 2016) (SR– 

NYSEArca–2016–69) (Notice of Filing and 

Immediate Effectiveness of Proposed Rule Change 

Amending the Exchange’s Schedule of Fees and 

Charges to Eliminate the Listing Fee in Connection 

with Exchange Listing of Certain Exchange Traded 

Products); 78633 (August 22, 2016), 81 FR 59025 

(August 26, 2016) (SR–NYSEArca–2016–114) 

(Notice of Filing and Immediate Effectiveness of 

Proposed Rule Change Amending the Exchange’s 

Schedule of Fees and Charges to Eliminate the 

Listing Fee in Connection with Exchange Listing of 

Certain Exchange Traded Products). 

7Commentary .01 to NYSE Arca Rule 8.200–E 

provides generic standards for listing Trust Issued 

Receipts pursuant to Rule 19b–4(e) under the Act. 

However, the Exchange does not currently intend 

to list Trust Issued Receipts under Commentary .01, 

Continued 

(ii) as to which the Exchange consents, 

the Commission shall: (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 proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

MRX–2017–18 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Brent J. Fields, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE., Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–MRX–2017–18. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change; 

the Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–MRX– 

2017–18 and should be submitted on or 

before October 27, 2017. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.129

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–21538 Filed 10–5–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81796; File No. SR– 

NYSEArca–2017–105] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Amend the Schedule 

of Fees and Charges Relating to the 

Listing Fees Applicable to Exchange 

Traded Products 

October 2, 2017. 

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

Securities Exchange Act of 1934 

(‘‘Act’’) 2 and Rule 19b–4 thereunder,3

notice is hereby given that on 

September 19, 2017, NYSE Arca, Inc. 

(‘‘Exchange’’ or ‘‘NYSE Arca’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been prepared by the Exchange. 

The Commission is publishing this 

notice to solicit comments on the 

proposed rule change from interested 

persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend the 

Exchange’s ‘‘Schedule of Fees and 

Charges’’ relating to the Listing Fee 

applicable to Exchange Traded 

Products, effective September 19, 2017. 

The proposed rule change is available 

on the Exchange’s Web site at 

www.nyse.com, at the principal office of 

the Exchange, and at the Commission’s 

Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

self-regulatory organization included 

statements concerning the purpose of, 

and basis for, the proposed rule change 

and discussed any comments it received 

on the proposed rule change. The text 

of those statements may be examined at 

the places specified in Item IV below. 

The Exchange has prepared summaries, 

set forth in sections A, B, and C below, 

of the most significant parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to amend the 

Exchange’s Schedule of Fees and 

Charges (‘‘Schedule’’) relating to the 

‘‘Listing Fee’’ applicable to ExchangeTraded Products (‘‘ETPs’’), effective 

September 19, 2017, as described 

below.4

Currently the Schedule does not 

impose a Listing Fee for the following 

ETPs listed on the Exchange pursuant to 

Rule 19b–4(e) under the Act, and for 

which a proposed rule change pursuant 

to Section 19(b) of the Act is not 

required to be filed with the 

Commission: 5 Investment Company 

Units; Portfolio Depositary Receipts; 

Currency Trust Shares and Managed 

Fund Shares (collectively, ‘‘GenericallyListed Exchange Traded Products’’).6

Certain other ETPs—specifically, 

Trust Issued Receipts,7 CommodityVerDate Sep<11>2014 18:40 Oct 05, 2017 Jkt 244001 PO 00000 Frm 00113 Fmt 4703 Sfmt 4703 E:\FR\FM\06OCN1.SGM 06OCN1

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