Document ID: SEC-2012-1591-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE MKT LLC
Posted Date: 2012-09-27T04:00Z

[Federal Register Volume 77, Number 188 (Thursday, September 27, 2012)]
[Notices]
[Pages 59423-59425]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-23763]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67902; File No. SR-NYSEMKT-2012-23]

Self-Regulatory Organizations; NYSE MKT LLC; Order Granting 
Approval of a Proposed Rule Change Amending the Members' Schedule of 
NYSE Amex Options LLC in Order To Reflect Changes to the Capital 
Structure of the Company

September 21, 2012.

I. Introduction

    On July 25, 2012, NYSE MKT LLC (``NYSE MKT'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission''), pursuant 
to Section 19(b)(1) of the Securities Exchange Act of 1934 (the 
``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
amend the Members' Schedule (as defined herein) of NYSE Amex Options 
LLC to reflect changes to the capital structure of the company. The 
proposed rule change was published for comment in the Federal Register 
on August 7, 2012.\3\ The Commission received no comments on the 
proposal. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 67569 (August 1, 
2012), 77 FR 47138.
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II. Description of the Proposal

    NYSE Amex Options LLC (``Company'') was formed as a joint venture 
between NYSE MKT \4\ and its corporate parent NYSE Euronext, and seven 
firms, for the purpose of operating an options platform as a facility 
of NYSE MKT. The seven firms, which are referred to in the joint 
venture's operating documents as ``Founding Firms,'' are: Banc of 
America Strategic Investments Corporation (``BAML''), Barclays 
Electronic Commerce Holdings Inc. (``Barclays''), Citadel Securities 
LLC (``Citadel''), Citigroup Financial Strategies, Inc. 
(``Citigroup''), Goldman, Sachs & Co. (``Goldman Sachs''), Datek Online 
Management Corp. (``TD Ameritrade'') and UBS Americas Inc. (``UBS'').
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    \4\ At the time it entered into the joint venture, NYSE MKT was 
referred to as NYSE Amex LLC. On May 14, 2012, NYSE Amex LLC filed a 
proposed rule change under Section 19(b)(3)(A) of the Act, 15 U.S.C. 
78s(b)(3)(A), to change its name to NYSE MKT LLC. See Securities 
Exchange Act Release No. 67037 (May 21, 2012), 77 FR 31415 (May 25, 
2012) (SR-NYSEAmex-2012-32).
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    Collectively, NYSE MKT and the Founding Firms are ``Members'' of 
the Company. Their respective ownership interests are set forth in a 
schedule (``Members' Schedule'') to the Company's LLC Agreement, dated 
as of June 29, 2011.\5\ The amount of each Member's ownership is 
represented by limited liability interests in the Company (``Common 
Interests''). The LLC Agreement designates two types of Member, Class A 
Member and Class B Member, and the different classes of Members hold 
corresponding classes of Interests, i.e., Class A Common Interests and 
Class B Common Interests. Although both classes of Common Interests 
entitle Members to some measure of voting and economic entitlements, 
the two classes of Common Interests are not fungible. Members' voting 
and economic entitlements are determined by reference to: (1) Each 
Member's holdings of Common Interests, and (2) the aggregate economic 
and voting power of the Class A Members relative to the Class B 
Members.
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    \5\ In addition to the LLC Agreement, the Company is governed by 
an agreement among the Members, the Company and NYSE Euronext 
(``Members Agreement''), also dated as of June 29, 2011.
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    Under the Members' Schedule attached to the LLC Agreement dated as 
of June 29, 2011, NYSE MKT was the only Class A Member and therefore 
the only Member that held Class A Common Interests. The Founding Firms 
were designated Class B Members, each

[[Page 59424]]

holding Class B Common Interests. According to this schedule, NYSE MKT 
owned Class A Common Interests amounting to an equity interest of 
47.20% in the Company, while the Founding Firms collectively owned 
Class B Common Interests amounting to an equity interest of the 
remaining 52.80% in the Company.
    The Exchange proposes to amend the Members' Schedule to reflect 
changes to the capital structure of the Company based on three 
transactions that have occurred or will occur since the Commission 
approved the Exchange's proposal relating to the formation of the 
Company.\6\ The first transaction relates to the admission of NYSE 
Market, Inc. (``NYSE Market''), an affiliate of NYSE MKT, on September 
19, 2011, as a Member with an equity ownership interest in the Company. 
The second transaction relates to the issuance of additional Common 
Interests to Class B Members of the Company on February 29, 2012, 
pursuant to an annual incentive program as set forth in the Members 
Agreement. The third transaction relates to the expected transfer of 
Common Interests on or around September 25, 2012, from the Founding 
Firms to NYSE Market. These transactions are described in greater 
detail below.
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    \6\ See Securities Exchange Act Release No. 64742 (June 24, 
2011), 76 FR 38436 (June 30, 2011).
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Admission of NYSE Market as a Member

    Each Founding Firm has the right, pursuant to Section 3.2 of the 
Members Agreement and subject to certain conditions and limitations, to 
cause NYSE MKT (or an affiliate designated by NYSE MKT) to purchase a 
portion of the Founding Firm's Common Interests. All of the Founding 
Firms exercised this right on September 19, 2011, thereby causing an 
aggregate equity interest of 5.28% in the Company to be transferred 
from the Founding Firms to NYSE Market, the NYSE MKT affiliate that 
NYSE MKT designated to receive the ownership interest. As a result of 
the transaction, NYSE MKT continued to own an equity interest of 47.20% 
in the Company, NYSE Market owned an equity interest of 5.28% in the 
Company, and the Founding Firms collectively owned the remaining equity 
interest of 47.52% in the Company.
    Several provisions of the LLC Agreement impact the terms of this 
transfer. Because NYSE Market is an affiliate of NYSE MKT, pursuant to 
Section 11.2(c) of the LLC Agreement, Common Interests transferred from 
Founding Firms to NYSE Market automatically convert from Class B Common 
Interests to Class A Common Interests. Also, under Sections 10.4 and 
11.1, upon receiving the transfer of Common Interests and satisfying 
certain other conditions, and subject to amendment of the Member's 
Schedule, NYSE Market became a Class A Member of the Company.
    NYSE MKT represented that, notwithstanding the transfer of Common 
Interests to NYSE Market, the Company's governance structure did not 
change. NYSE MKT continues to appoint a majority (7 of 13) of the 
Company's Board of Directors, and NYSE Market has no right to appoint a 
separate director. According to NYSE MKT, this transaction was 
structured as a transfer of Common Interests to NYSE Market, rather 
than NYSE MKT, for non-substantive business reasons relating to the 
corporate structure of NYSE MKT. NYSE MKT also noted that, as a Member, 
NYSE Market is bound by all of the provisions of the LLC Agreement and 
the Members Agreement.

Issuance of Annual Incentive Shares

    The Members Agreement provides that each year, until 2015, unless 
extended by the Company's Board of Directors, the Company must issue a 
specified amount of Annual Incentive Shares to be allocated among 
eligible Class B Members. Pursuant to Section 2.1 of the Members 
Agreement, the Company must issue a number of Class B Common Interests 
equal to 30% of the then-outstanding Class B Common Interests as Annual 
Incentive Shares, and such shares are to be allocated among Class B 
Members based on each Class B Member's contribution to the volume of 
the Exchange relative to volume targets specified for the Members. 
While the issuance of Annual Incentive Shares may change the relative 
economic and voting rights of and among Class B Members, by its terms 
it cannot impact the aggregate economic and voting rights of Class B 
Members in relation to Class A Members.
    On February 29, 2012, the Company issued a total of 14.2560 Annual 
Incentive Shares to the Founding Firms. Because each Founding Firm 
achieved or exceeded its specified volume target, each Founding Firm's 
economic and voting interests remained the same in relation to the 
other Class B Members. The Exchange proposes to amend the Members' 
Schedule to reflect this issuance of Class B Common Interests.

Expected Transfer From Founding Firms to NYSE Market

    Article XI of the LLC Agreement and Section 3.1 of the Members 
Agreement provide that a Member may transfer Common Interests to 
another Member or to a third party in accordance with the conditions 
and limitations set forth therein. In its proposal, NYSE MKT noted that 
the Founding Firms collectively intend to transfer an aggregate equity 
interest of 5.28% in the Company to NYSE Market. As with the first 
transaction noted above, the Founding Firms' Class B Common Interests 
will automatically convert to Class A Common Interests upon their 
transfer to NYSE Market. As a result of this transfer, NYSE MKT will 
continue to own an equity interest of 47.20% in the Company, NYSE 
Market will own an equity interest of 10.56% in the Company, and the 
Founding Firms, collectively, will own the remaining equity interest of 
42.24% in the Company. The Exchange proposes, upon consummation of this 
transfer by the Founding Firms, to amend the Members' Schedule to 
reflect this transfer.

III. Discussion and Commission Findings

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange.\7\ In particular, the Commission finds that the proposed rule 
change is consistent with Section 6(b)(1) of the Act,\8\ which 
requires, among other things, that a national securities exchange be so 
organized and have the capacity to carry out the purposes of the Act 
and to comply, and to enforce compliance by its members and persons 
associated with its members, with the provisions of the Act, the rules 
and regulations promulgated thereunder, and the rules of the Exchange.
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    \7\ In approving the proposal, the Commission has considered the 
proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78(f)(b)(1).
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    The Commission also finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\9\ which requires, among 
other things, that the rules of a national securities exchange be 
designed to prevent fraudulent and manipulative acts and practices; to 
promote just and equitable principles of trade; to foster cooperation 
and coordination with persons engaged in

[[Page 59425]]

regulating, clearing, settling, and processing information with respect 
to, and facilitating transactions in securities; to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system; and, in general, to protect investors and the public 
interest.
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    \9\ 15 U.S.C. 78(f)(b)(5).
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    As the Commission noted when it approved the Exchange's proposal 
relating to the formation of the Company, while the Company does not 
carry out any regulatory functions, all of its activities must be 
consistent with the Act.\10\ The Company's LLC Agreement and Members 
Agreement must be reasonably designed to enable the Company to operate 
in a manner that is consistent with the principle that the Company is 
not solely a commercial enterprise, but rather an integral part of an 
SRO that is registered pursuant to the Act and therefore subject to 
obligations imposed by the Act.\11\ In addition, under Section 4.9 of 
the LLC Agreement, because the transactions described in the proposal 
result in NYSE Market, a ``Permitted Transferee'' of NYSE MKT,\12\ 
together with NYSE MKT, owning more than 19.9% of outstanding Common 
Interests, the transfer and corresponding amendment to the Member's 
Schedule are subject to receipt of Commission approval pursuant to the 
rule filing process under Section 19(b) of the Exchange Act.
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    \10\ See supra note 6, 76 FR at 38439.
    \11\ See id.
    \12\ ``Permitted Transferee'' is defined in Sections 1.1 and 
11.4(a) of the LLC Agreement.
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    The Commission notes that the addition of NYSE Market as a Member 
of the Company, and the proposed amendments to the Members' Schedule to 
reflect the changes in ownership interest percentages as a result of 
the three transactions described above, do not significantly alter the 
governance structure of the Company. The result of the three 
transactions is to increase the equity ownership interest in the 
Company of NYSE MKT, together with its affiliate NYSE Market, from 
47.20% of the Company to 57.76% of the Company and add NYSE Market as a 
Member of the Company. The Commission notes that, NYSE Market, as a new 
Member of the Company, is subject to, and bound by, all provisions of 
the LLC Agreement and Members Agreement. The Commission notes further 
that the provisions in the LLC Agreement and Members Agreement that are 
designed to preserve the independence of the Exchange's regulatory 
functions and its ability to fulfill the Exchange's regulatory 
oversight obligations are unaffected by the proposed rule change.
    For the reasons discussed above, the Commission finds that the 
proposed rule change is consistent with the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-NYSEMKT-2012-23) be, and 
hereby is, approved.
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    \13\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-23763 Filed 9-26-12; 8:45 am]
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