Document ID: SEC-2008-1587-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange, LLC
Posted Date: 2008-11-24T05:00Z

[Federal Register: November 24, 2008 (Volume 73, Number 227)]
[Notices]               
[Page 71062-71070]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24no08-147]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58970; File No. SR-NYSE-2008-120]

 
Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by New York Stock Exchange, LLC Relating to the Limited 
Liability Company Agreement of New York Block Exchange, a Facility of 
NYSE

November 17, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Exchange Act'')\1\ and Rule 19b-4 under the Exchange Act,\2\ 
notice is hereby given that, on November 14, 2008, New York Stock 
Exchange, LLC (``NYSE'' or the ``Exchange'') filed with the Securities 
and Exchange Commission (the ``Commission'' or ``SEC'') the proposed 
rule change as described in Items I, II, and III below, which Items 
have been prepared by the self-regulatory organization. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NYSE, a New York limited liability company, registered national 
securities exchange and self-regulatory organization, is submitting 
this rule filing (the ``Proposed Rule Change'') to the Commission in 
connection with the proposed formation of a joint venture between the 
Exchange and BIDS Holdings L.P., a Delaware limited partnership 
(``BIDS''). The Exchange proposes to establish a new electronic trading 
facility, the New York Block Exchange (``NYBX''), as a facility, as 
that term is defined in Section 3(a)(2) of the Exchange Act, of the 
Exchange. NYBX will be an electronic facility of the Exchange that will 
provide for the continuous matching and execution of securities listed 
on the NYSE of all non-displayed orders with the aggregate of all 
displayed and non-displayed orders of the NYSE Display Book [supreg] 
(``Display Book'' or ``DBK'') and considers protected quotations of all 
automated trading centers. The terms ``protected quotations'' and 
``automated trading centers'' will have the same meanings as defined in 
Rule 600 of Regulation NMS. NYBX would be owned and operated by New 
York Block Exchange LLC (the ``Company''), a Delaware limited liability 
company formed and jointly owned by the Exchange and BIDS. In this 
Proposed Rule Change, the proposed Limited Liability Company Agreement 
of the Company (the ``LLC Agreement'') is attached as Exhibit 5A. 
Proposed Rule 2B, commentary.01, is attached as Exhibit 5B. The LLC 
Agreement of the Company is the source of the Company's governance and 
operating authority and, therefore, functions in a similar manner as 
articles of incorporation and by-laws function for a corporation.
    The text of the proposed rule change is available at http://
www.nyse.com, NYSE's principal office, and 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 these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
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 is submitting this Proposed Rule Change to the 
Commission in connection with the proposed formation of a joint venture 
between the Exchange and BIDS. The Exchange proposes to establish a new 
electronic trading facility, called NYBX (the ``Facility''), as a 
facility (as that term is defined in Section 3(a)(2) of the Exchange 
Act) of the Exchange. NYBX will be an electronic facility of the 
Exchange that will provide for the continuous matching and execution of 
securities listed on the NYSE of all non-displayed orders with the 
aggregate of all displayed and non-displayed orders of the Display Book 
and considers protected quotations of all automated trading centers. 
NYBX would be owned and operated by the Company, a Delaware limited 
liability company formed and jointly owned by the Exchange and BIDS. 
BIDS will become an NYSE member in connection with the establishment of 
the facility. In addition to its ownership stake in the Company, the 
Exchange will enter into a services agreement with the Company (the 
``Services Agreement'') pursuant to which the Exchange will perform 
certain financial, operational, information technology and development 
services for the Company. An affiliate of the Exchange, NYSE Market, 
Inc., is also an equity investor in BIDS.
    The LLC Agreement is the source of the Company's governance and 
operating authority and, therefore, functions in a similar manner as 
articles of incorporation and by-laws function for a corporation. The 
Exchange is submitting a separate filing to establish rules relating to 
trading on NYBX.
Structure of the Company
    As a limited liability company, ownership of the Company is 
represented by limited liability company interests in the Company 
(``Interests''). The holders of Interests are referred to as the 
members of the Company (the ``Members''). The Interests represent 
equity interests in the Company and entitle the holders thereof to 
participate in the Company's allocations and distributions. Currently, 
the Exchange and BIDS each own 50% of the Interests.

[[Page 71063]]

Term and Termination
    Pursuant to Section 1.6 of the LLC Agreement, the Company will have 
an initial term of three years from the date the LLC Agreement is 
entered into (the ``Effective Date''), with automatic one year renewal 
terms unless a Member elects to dissolve the Company within thirty days 
prior to the end of a term. In addition, Section 10.2(a) of the LLC 
Agreement provides that the Company may be dissolved upon the first to 
occur of the following: (i) If a Member does not make its pro rata 
share of capital contributions to the Company under certain 
circumstances; (ii) if the Members jointly agree to dissolve the 
Company; (iii) the determination by BIDS to dissolve the Company if the 
Exchange or any of its Affiliates enters into any agreement or 
arrangement with respect to a joint venture, licensing, partnership or 
other similar strategic agreement with, or acquiring equity 
representing an equal or greater percentage than the aggregate 
investment by the Exchange in BIDS of, any U.S. registered alternative 
trading system, as defined in Rule 300 of the Exchange Act (``ATS''), 
that executes block trades or that does not display its liquidity or 
orders to its subscribers or other users of the ATS; (iv) the 
determination of the Exchange to dissolve the Company if BIDS or any of 
its Affiliates enters into any agreement or arrangement with respect to 
a joint venture, licensing, partnership or other similar strategic 
agreement with, or receiving an equity investment representing an equal 
or greater percentage than the Exchange's investment in BIDS from, any 
U.S. or European contract market or securities exchange other than the 
Exchange or its Affiliates or any ATS that executed 10% or more of the 
securities in the relevant class of securities traded in the preceding 
quarter in the U.S.; (v) the delivery by either Member of written 
notice to the Company and the other Member of its determination to 
dissolve the Company for cause, including for an uncured material 
breach of the LLC Agreement, bankruptcy of the other Member or a 
material change in the relevant regulatory regime that frustrates the 
business of the Company; (vi) the delivery by any Member of written 
notice to the Company and the other Member of its determination to 
exercise the SRO Termination Right (as defined below in ``Regulation of 
the Company''); or (vii) the occurrence of any other event that would 
make it unlawful for the business of the Company to be continued.
    Upon expiration of the term or the occurrence of any of the events 
set forth in Section 10.2(a) of the Agreement, the Company will be 
dissolved and terminated in accordance with the provisions of Article 
10 of the LLC Agreement, including provisions for certain transition 
services by the Members in order for NYBX to continue to operate and to 
permit an orderly transition or cessation of the operation of NYBX.
Governance of the Company
    Section 8.3 of the LLC Agreement establishes a board of directors 
of the Company (the ``Board of Directors'') to manage the business and 
affairs of the Company. Section 8.1(a) of the LLC Agreement provides 
that, subject to the limitations in the LLC Agreement and except as 
otherwise specifically contemplated by the LLC Agreement, the Board of 
Directors has exclusive and complete authority and discretion to manage 
the operations and affairs of the Company and to make all decisions 
regarding the business of the Company, and in carrying out his or her 
duties hereunder, each member of the Board of Directors shall (x) 
comply with the federal securities laws and the rules and regulations 
promulgated thereunder and (y) cooperate with NYSE LLC pursuant to its 
regulatory authority and the provisions of the LLC Agreement and with 
the SEC. Section 8.1(b) of the LLC Agreement provides that the Board of 
Directors shall delegate the day-to-day operations of the Company and 
the development of NYBX to the Exchange pursuant to the Services 
Agreement.
    Section 8.3 of the LLC Agreement provides that the Board of 
Directors will consist of four directors, comprised of two individuals 
designated by the Exchange (each, a ``NYSE Director'') and two 
individuals designated by BIDS (each, a ``BIDS Director''). Any 
individual designated to the Board of Directors by a Member must be 
reasonably acceptable to the other Member and may not be subject to any 
applicable ``statutory disqualification'' (within the meaning of 
Section 3(a)(39) of the Exchange Act). Any director who becomes subject 
to any such statutory disqualification shall be deemed to have 
automatically resigned from the Board of Directors.
    Generally, under Section 8.3(f), the entire Board of Directors, 
either present or represented by proxy, shall constitute a quorum for 
the transaction of business. If such a quorum is not present within 
sixty (60) minutes after the time appointed for any meeting, the 
meeting shall be adjourned and the directors present either in person 
or represented by proxy at such meeting shall reschedule the meeting to 
occur within five (5) Business Days. If a director who was not present 
at the initial meeting is not present either in person or represented 
by proxy at the rescheduled meeting, then (i) the Member represented by 
such director shall promptly appoint an alternate director reasonably 
acceptable to the other Member and (ii) the rescheduled meeting shall 
be adjourned and the directors present either in person or represented 
by proxy at such meeting shall reschedule the meeting to occur within 
three (3) Business Days. If such alternate director is not present in 
person or represented by proxy at such second rescheduled meeting, 
then, except as set forth in the following sentence, three (3) 
directors, either present in person or represented by proxy, shall 
constitute a quorum for the transaction of business. In the event of a 
meeting of the Board of Directors solely with respect to the business 
of suspending or terminating a Member's voting privileges or membership 
under Section 7.1(b), the presence of the directors designated by the 
Member subject to sanction shall not be required in order to constitute 
a quorum to transact such business and in such event less than three 
(3) directors, either present in person or represented by proxy, may 
constitute a quorum for the transaction of such business as long as all 
directors designated by the Member not subject to sanction are present. 
Written notice of any rescheduled meeting shall be delivered to all 
directors at least one (1) Business Day prior to the date of such 
rescheduled meeting. Each Member shall direct, and shall use its 
reasonable best efforts to cause, each director designated by it to 
attend all meetings of the Board of Directors and, in the event such 
director is unable to attend a meeting, to cause such director to 
authorize a person or persons to act for him or her by proxy in 
accordance with Section 8.3(h). Each Member shall take all necessary 
actions, to the fullest extent permitted by law, to ensure that the 
directors designated by such Member vote on all matters.
    Pursuant to Section 8.3(g), except as provided in the first 
sentence of Section 3.1(c) of the LLC Agreement the vote of a majority 
of the directors present at a meeting at which a quorum is present 
shall be the act of the Board of Directors, so long as such vote 
includes the vote of at least one NYSE Director and one BIDS Director. 
Specifically, a vote of the majority of the Board of Directors will be 
required to cause or permit the Company or any of its subsidiaries to 
do

[[Page 71064]]

or take any action that would materially impact the Company, the 
ownership or use of the Company's intellectual property and the rights 
of the Members, including without limitation a merger of the Company, 
selling the Company's assets, amending the LLC Agreement or other 
governance documents, acquiring or issuing securities of the Company, 
entering new lines of business, licensing intellectual property, making 
distributions to Members, incurring debt, filing for bankruptcy, 
approving and materially amending the Company's annual budget or 
operating plan, or taking any action that would impact the Company's 
regulatory status. The LLC Agreement does not provide for a third party 
deadlock provision.
    If such alternate director is not present in person or represented 
by proxy at such second rescheduled meeting, then, except as set forth 
in the following sentence, three (3) directors, either present in 
person or represented by proxy, shall constitute a quorum for the 
transaction of business. In the event of a meeting of the Board of 
Directors solely with respect to the business of suspending or 
terminating a Member's voting privileges or membership under Section 
7.1(b), the presence of the directors designated by the Member subject 
to sanction shall not be required in order to constitute a quorum to 
transact such business and in such event less than three (3) directors, 
either present in person or represented by proxy, may constitute a 
quorum for the transaction of such business as long as all directors 
designated by the Member not subject to sanction are present. Written 
notice of any rescheduled meeting shall be delivered to all directors 
at least one (1) Business Day prior to the date of such rescheduled 
meeting. Each Member shall direct, and shall use its reasonable best 
efforts to cause, each director designated by it to attend all meetings 
of the Board of Directors and, in the event such director is unable to 
attend a meeting, to cause such director to authorize a person or 
persons to act for him or her by proxy in accordance with Section 
8.3(h). Each Member shall take all necessary actions, to the fullest 
extent permitted by law, to ensure that the directors designated by 
such Member vote on all matters.
    Section 8.3(c) of the LLC Agreement provides that a director may 
only be removed (with or without cause) by the Member who designated 
such director; provided that any director (regardless of who designated 
such director) may be removed for cause by a majority vote of the other 
members of the Board of Directors voting at a meeting duly convened, so 
long as such majority includes at least one NYSE Director and one BIDS 
Director.
    Under Section 8.1(d) of the LLC Agreement, the Board of Directors 
and each director agrees to comply with the federal securities laws and 
the rules and regulations promulgated thereunder and to cooperate with 
the Exchange pursuant to its regulatory authority and with the 
Commission. Furthermore, each director shall take into consideration 
whether his or her actions would cause the Facility or the Company to 
(i) engage in conduct that fosters and does not interfere with the 
ability of the Exchange or the Company to carry out their respective 
responsibilities under the Exchange Act and to prevent fraudulent and 
manipulative acts and practices, (ii) promote just and equitable 
principles of trade, (iii) foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, (iv) remove impediments to, and perfect the mechanisms of, 
a free and open market and a national market system, and (v) in 
general, protect investors and the public interest.
    Section 8.1(e) of the LLC Agreement provides that NYSE Regulation 
(as defined below) must receive notice of planned or proposed changes 
to the Company (not including changes relating solely to Non-Market 
Matters) or the Facility and that such changes may only be implemented 
if NYSE Regulation does not object affirmatively to such changes prior 
to implementation. If NYSE Regulation, in its sole discretion, 
determines that such planned or proposed changes to the Company or the 
Facility could cause a Regulatory Deficiency if implemented, NYSE 
Regulation may direct the Company to modify the proposal as necessary 
to ensure that it does not cause a Regulatory Deficiency, in which case 
the Company will, prior to implementation, modify the proposal such 
that NYSE Regulation does not object to the planned or proposed 
changes. In the event that NYSE Regulation, in its sole discretion, 
determines that a Regulatory Deficiency exists or is planned, NYSE 
Regulation may direct the Company to undertake such modifications to 
the Company (but not to include Non-Market Matters) or the Facility as 
are necessary or appropriate to eliminate or prevent the Regulatory 
Deficiency and allow NYSE Regulation to perform and fulfill its 
regulatory responsibilities under the Exchange Act.
    Under Section 8.9 of the LLC Agreement, the Company may, at the 
discretion of the Board of Directors, issue additional Interests to any 
person for any amount of consideration, if any, as determined by the 
Board of Directors and admit any such persons as an additional Member; 
provided, that such additional Member will automatically be bound by 
all of the terms and conditions of the LLC Agreement applicable to 
Members and that such additional Member executes the documentation 
required by the Board of Directors pursuant to which such additional 
Member agrees to be bound by the terms and provisions of the LLC 
Agreement.
Capital Contributions and Distributions
    Section 3.1(a) of the LLC Agreement provides that at the Effective 
Date, each Member will make a cash capital contribution to the Company. 
Section 3.1(c) of the LLC Agreement provides that, except as otherwise 
required by law, no Member shall be required, or permitted, to make any 
additional capital contributions to the Company without the unanimous 
consent of the Board of Directors. If and when NYSE Regulation notifies 
the Company that actions are required by the Company in order for the 
Company to maintain its status as an operator of a facility of a self-
regulatory organization pursuant to the Exchange Act, then the Company 
will determine the cost of such actions and the Board of Directors will 
direct the Members to make, on a pro rata basis, a capital contribution 
to the Company equal to the amount required for the Company to maintain 
such status. Each Member will make its pro rata share of any capital 
contribution requested by the Board of Directors promptly following its 
receipt of such request; provided, that each Member will have no 
obligation to make its pro rata share of the capital contribution 
requested pursuant to the preceding sentence if, after giving effect to 
such capital contribution, the aggregate amount of all capital 
contributions made by the Members pursuant to the preceding sentence 
during the three-year period ending on the date of such determination 
would exceed $1,000,000. If a Member does not make its pro rata share 
of such capital contribution in accordance with the preceding sentence, 
then either Member may cause the Company to dissolve in accordance with 
the provisions of the LLC Agreement.
    Pursuant to Section 4.1 of the LLC Agreement, gain from the sale of 
assets of the Company will be allocated 50% to each member and 
operating income will be allocated in the same manner as gain unless 
the Board of Directors

[[Page 71065]]

unanimously determines that a different allocation or operating income 
is appropriate.
    Section 5.1 of the LLC Agreement provides that, to the extent 
available for distribution, cash of the Company will generally be 
distributed 50% to each Member unless the Board of Directors has 
determined that the Members should be allocated operating income in 
differing percentages, in which case cash will be distributed in a 
manner that reflects such differing percentages as determined by the 
Board of Directors.
Intellectual Property
    Pursuant to an intellectual property license to be entered into on 
the Effective Date by and among the Company, the Exchange and BIDS (the 
``IP License''), each of the Exchange and BIDS will provide to the 
Company a non-exclusive license for the use of certain of its 
intellectual property and the Company will provide to each Member a 
non-exclusive license (exercisable only upon certain events) for the 
use of the intellectual property owned by the Company.
    The LLC Agreement and the IP License provide that the Company will 
own intellectual property which is (i) developed for NYBX by a third 
party by or on behalf of the Company, (ii) expressly conveyed or 
contributed by any of the Members to the Company and all derivatives, 
improvements or enhancements thereto, or (iii) not in existence as of 
the Effective Date that is developed by any person explicitly for the 
use of NYBX and designated as such in writing during the development 
process and all derivatives, improvements or enhancements thereto; 
provided, that if such intellectual property is a derivative, 
improvement or enhancement to intellectual property owned by a Member, 
it shall only be owned by the Company if it is explicitly for the use 
of NYBX and designated as such in writing during the development 
process.
Non-Compete
    Section 7.4 of the LLC Agreement provides that during the period 
commencing on the Effective Date and continuing until the earlier of 
(x) the one-year anniversary of the Effective Date and (y) the first 
day on which NYBX is available for use by the members of any one or 
more the U.S. self-regulatory organizations operated by NYSE Euronext 
(the ``NYSE Markets'') for trading as a facility approved by the 
Commission (the ``Non-Competition Period''), neither Member shall, and 
each Member shall cause its Affiliates not to, directly or indirectly 
compete with, or enter into any agreement with any other person that 
calls for such Member or its Affiliates to enter into any equity 
investment, joint venture, licensing or partnership that competes with, 
the business of the Company anywhere in the United States. The Non-
Competition Period will be automatically extended for successive six-
month periods unless a Member gives the other Member written notice of 
its intention to terminate the Non-Competition Period at least six 
months prior to the end of the then-current Non-Competition Period as 
so extended from time to time. Notwithstanding the foregoing, each 
Member and its Affiliates may (i) provide services to any other person 
that is not engaged in any business that is competitive with the 
business of the Company; (ii) own less than 5% of the issued and 
outstanding equity of any entity (so long as such Member or Affiliate 
does not control or participate in the management of such entity); 
(iii) take any action that may be necessary for it or its Affiliates to 
remain in compliance with applicable laws, rules or regulations; and 
(iv) continue to engage in any of its existing businesses.
Changes in Ownership of the Company
    Section 9.1 of the LLC Agreement provides that each Members may not 
sell, assign, pledge or in any manner dispose of or create or suffer 
the creation of a security interest in or any encumbrance on all or a 
portion of its Interest in the Company (the commission of any such act 
being referred to as a ``Transfer''), except in accordance with the 
terms and conditions set forth in the LLC Agreement. Section 9.2 of the 
LLC Agreement permits a Member to Transfer all or any portion of its 
Interest to (i) a Permitted Transferee or (ii) a person that is not a 
Permitted Transferee with the consent of the other Member, subject to 
the satisfaction of the requirements set forth in Sections 9.3 and 9.8 
of the LLC Agreement (described below), and provides that the 
transferee of all or any portion of a Member's Interest may be admitted 
to the Company as a Member upon the prior written consent of the Board 
of Directors.
    Section 9.3 of the LLC Agreement prohibits the Transfer of all or 
any portion of an Interest in the Company unless: (i) The transferor 
pays all reasonable costs and expenses incurred by the Company in 
connection with the Transfer; (ii) the transferor delivers to the 
Company a fully executed copy of all documents relating to the Transfer 
and the agreement of the transferee in writing and otherwise in form 
and substance acceptable to the Board of Directors to be bound by the 
terms imposed upon such Transfer by the Board of Directors and by the 
terms of the LLC Agreement and to assume all obligations of the 
transferor under the LLC Agreement relating to the Interest that is the 
subject of such Transfer; (iii) the Board of Directors is reasonably 
satisfied that the Transfer will not (A) cause the Company to be 
treated as an association taxable as a corporation for federal income 
tax purposes, (B) cause the Company to be treated as a ``publicly 
traded partnership'' within the meaning of the Internal Revenue Code of 
1986, as amended from time to time (the ``Code''), (C) violate any 
federal, state or non-United States securities laws, rules or 
regulations, (D) cause some or all of the assets of the Company to be 
``plan assets'' or the investment activity of the Company to constitute 
``prohibited transactions'' under ERISA or the Code, and (E) cause the 
Company to be an investment company required to be registered under the 
Investment Company Act of 1940, as amended. Under Section 9.1 of the 
LLC Agreement, any Transfer or purported Transfer of an Interest not 
made in accordance with the LLC Agreement will be null and void and of 
no force or effect whatsoever.
    Section 9.8(a) of the LLC Agreement provides that beginning after 
Commission approval of this proposed rule change, the Company must 
provide the Commission with written notice ten days prior to the 
closing date of any acquisition of an Interest by a person that results 
in a Member's percentage ownership interest in the Company, alone or 
together with any Related Person of such Member, meeting or crossing 
either the 5%, 10%, or 15% thresholds.
    Section 9.8(b) of the LLC Agreement provides that beginning after 
Commission approval of this proposed rule change, no person that is not 
a Member as of the Effective Date, either alone or together with its 
Related Persons, may directly own an Interest that would result in such 
person having a percentage ownership interest exceeding 20% (the 
``Concentration Limitation''); provided, however, that the 
Concentration Limitation shall not apply to the Exchange. The 
Concentration Limitation shall apply to each person (other than the 
Exchange) unless and until: (i) Such person shall have delivered to the 
Board of Directors a notice in writing, not less than 45 days (or such 
shorter period as the Board of Directors expressly consents to) prior 
to the acquisition of any Interest that

[[Page 71066]]

would cause such person (either alone or together with its Related 
Persons) to exceed the Concentration Limitation, of such person's 
intention to acquire such Interest; (ii) such notice shall have been 
filed with, and approved by, the Commission under Section 19(b) of the 
Exchange Act and shall have become effective thereunder; and (iii) the 
Board of Directors shall not have determined to oppose such person's 
acquisition of such Interest. The Board of Directors shall oppose such 
person's acquisition of such Interest if the Board of Directors 
determines, in its sole discretion, that (A) such ownership by such 
person, either alone or together with its Related Persons, will impair 
the ability of the Company and the Board of Directors to carry out its 
functions and responsibilities, including but not limited to, under the 
Exchange Act, or is otherwise not in the best interests of the Company; 
(B) such ownership by such person, either alone or together with its 
Related Persons, will impair the ability of the Commission to enforce 
the Exchange Act; (C) such person or its Related Persons are subject to 
any applicable ``statutory disqualification'' (within the meaning of 
Section 3(a)(39) of the Exchange Act); or (D) if such Interest would 
result in the person having an ownership interest in the Company 
exceeding the Concentration Limitation, either such person or one of 
its Related Persons is a ``member'' or ``member organization'' of the 
Exchange (as defined in the rules of the Exchange, as such rules may be 
in effect from time to time). In making a determination pursuant to the 
foregoing, the Board of Directors may impose such conditions and 
restrictions on such person and its Related Persons as the Board of 
Directors may in its sole discretion deem necessary, appropriate or 
desirable in furtherance of the objectives of the Exchange Act and the 
governance of the Company.
    Section 9.8(c) of the LLC Agreement provides that beginning after 
Commission approval of this proposed rule change, the Exchange's 
percentage ownership interest shall not decline below 50% unless and 
until: (i) The Exchange shall have delivered to the Board of Directors 
a notice in writing, not less than 45 days (or such shorter period as 
the Board of Directors shall expressly consent to) prior to the 
Transfer of any Interest that would result in the Exchange (either 
alone or together with its Related Persons) holding less than a 50% 
ownership interest in the Company, of the Exchange's intention to 
Transfer such Interest; and (ii) such notice shall have been filed 
with, and approved by, the Commission under Section 19(b) of the 
Exchange Act and shall have become effective thereunder.
    Section 9.8(d) of the LLC Agreement provides for indirect changes 
in control of the Company. Any person that acquires a controlling 
interest (i.e., an interest of 25% or more of the total voting power) 
in a Member who, alone or together with any Related Person of such 
Member, holds a Percentage Interest in the Company equal to or greater 
than 20% would be required to agree to become a party to the LLC 
Agreement and abide by its terms. The amendment to the LLC Agreement 
caused by the addition of the indirect controlling party would trigger 
a proposed rule change that the Exchange would have to file with the 
Commission pursuant to Section 19(b) of the Exchange Act. The non-
economic rights and privileges, including all voting rights, of the 
Member in which such controlling interest is acquired would be 
suspended until this proposed rule change becomes effective under the 
Exchange Act or until the indirect controlling party ceases to have a 
controlling interest in such Member.
Trading Volume Limitations
    Section 9.9 of the LLC Agreement provides that if (i) during at 
least 4 of the then preceding 6 calendar months, the average daily 
trading volume in the Facility exceeds 10% of the aggregate average 
daily trading volume of the Exchange (The aggregate average daily 
trading volume in the Facility shall be calculated based upon the 
trading volume of the Facility itself combined with trading volume in 
the NYSE Display Book [supreg] (``Display Book'') that originated in 
the Facility, if any) and (ii) a Member (other than the Exchange), 
either alone or together with its Related Persons owns Interests 
resulting in a percentage ownership interest exceeding the 
Concentration Limitation, then if such Member elects not to Transfer 
sufficient Interests within 180 days after the date on which both the 
conditions in clauses (i) and (ii) are satisfied so that such Member 
does not exceed the Concentration Limitation, an independent third 
party SRO engaged by the Company shall begin, within such 180-day 
period, to conduct market surveillance of such Member with respect to 
such Member's trading activity in both the Facility and in NYSE LLC, 
such that no Transfer in respect of the Concentration Limitation set 
forth in this Section 9.9 will be required under applicable law or 
regulation.
Regulation of the Company
    Under Section 8.1(c) of the LLC Agreement, the Members acknowledge 
and agree that NYSE Regulation, Inc., an independent, not-for-profit 
subsidiary of the Exchange, together with its successors (``NYSE 
Regulation''), will have regulatory responsibility for the activities 
of NYBX and will perform all actions related thereto, including without 
limitation the following actions: (i) The adoption, amendment and 
interpretation of policies arising out of and regarding any statement 
made generally available to the membership of the Exchange, to persons 
having or seeking access to NYBX or to a group or category of such 
persons that establishes or changes any standard, limit or guideline 
with respect to (A) the rights, obligations or privileges of such 
persons or group or category of persons or (B) the meaning, 
administration or enforcement of any new or existing rule or policy of 
NYBX, including any exemption from such rule or policy; (ii) adoption, 
amendment and interpretation of policies and rules relating to and 
regarding the regulation of NYBX and approval of rule filings related 
to NYBX prior to filing with the Commission; (iii) securities 
regulation, record keeping obligations and other matters implicating 
the self-regulatory organization responsibilities of the Exchange under 
the Exchange Act; and (iv) real-time market surveillance and trading 
activity reported to NYBX (collectively, the ``SRO Responsibilities'').
    The Exchange will consult with the Board of Directors with respect 
to the SRO Responsibilities of NYSE Regulation; provided, however, that 
to the extent it is impracticable or prohibited by law for the Exchange 
to consult with the Board of Directors in advance of taking any action 
as part of its SRO Responsibilities, the Exchange will consult with the 
Board of Directors or the applicable Member as soon as practicable 
thereafter. Such consultation will include providing the Board of 
Directors with the reasonable opportunity to review and comment in 
advance upon non-routine information relating to NYBX that appears in 
filings, statements or applications submitted to the Commission or 
another governmental or regulatory authority on behalf of the Company 
that are material to ensuring that the Company and NYBX comply with 
applicable federal securities laws and, to the extent not otherwise 
prohibited by law, keeping the Board of Directors apprised, on a 
regular and timely manner, of non-routine notices or orders relating to

[[Page 71067]]

NYBX received by the Exchange or NYSE Regulation from the Commission or 
another governmental or regulatory authority. The Board of Directors 
cannot require the Exchange to act or fail to act in a manner that the 
Exchange reasonably believes to be inconsistent with its regulatory 
obligations.
    Section 8.1(c) of the LLC Agreement also provides that should NYSE 
Regulation (i) exercise its authority in a manner that materially 
adversely affects the ability of any Member to utilize NYBX in 
accordance with the LLC Agreement or (ii) require the Company to take 
any action having a material effect that would otherwise require the 
approval of the Board of Directors, but which does not receive such 
approval either prior to or following such action, then (x) in the case 
of clause (i) above, each Member so adversely affected, and (y) in the 
case of clause (ii) above, each Member, will have the right to cause 
the Company to dissolve in accordance with the provisions of the LLC 
Agreement (the ``SRO Termination Right'').
    Section 7.1(b) of the LLC Agreement provides that, after 
appropriate notice and opportunity for hearing, the Board of Directors, 
by a vote of a majority of the directors (excluding the vote of the 
directors designated by the Member subject to sanction), may suspend or 
terminate a Member's voting privileges or membership in the event: (i) 
Such Member has materially violated a provision of the LLC Agreement 
relating to Regulatory Matters or any federal or state securities law; 
(ii) such Member is subject to any applicable ``statutory 
disqualification'' (as defined in Section 3(a)(39) of the Exchange 
Act); or (iii) such action is necessary or appropriate in the public 
interest or for the protection of investors. Prior to any such 
suspension or termination, the Board of Directors will deliver to such 
Member a written notice specifying in reasonable detail the basis for 
such proposed suspension or termination.
    Section 14.1 of the LLC Agreement generally provides that the 
Members, the members of the Board of Directors and the Company may not 
disclose any confidential information of the Company or any Member to 
any person, except as expressly permitted by the LLC Agreement. Section 
14.1 of the LLC Agreement provides exceptions for, among other things, 
disclosure required by any applicable law, regulation or legal process 
or by the rules of any stock exchange, regulatory body or governmental 
authority, including without limitation any rules and regulations 
promulgated under the Exchange Act, and disclosure to the SEC or other 
regulatory body or governmental authority in connection with any 
necessary regulatory or governmental approval. Furthermore, nothing in 
the LLC Agreement shall be interpreted to limit or impede the rights of 
the Commission, the Exchange or NYSE Regulation to access and examine 
confidential information of the Company pursuant to U.S. federal 
securities laws, and the rules and regulations promulgated thereunder, 
or to limit or impede the ability of a member of the Board of 
Directors, any Member or officer, director, agent or employee of a 
Member or of the Company to disclose confidential information of the 
Company to the Commission, the Exchange or NYSE Regulation.
    Furthermore, Section 14.1 of the LLC Agreement provides that all 
confidential information pertaining to the self-regulatory function of 
the Exchange or the Company (including but not limited to disciplinary 
matters, trading data, trading practices and audit information) 
contained in the books and records of the Company will not be made 
available to any persons other than to those officers, directors, 
employees and agents of the Company and the Members that have a 
reasonable need to know the contents thereof, will be retained in 
confidence by the Company and the Members and their respective 
officers, directors, employees and agents, and will not be used for any 
commercial purposes.
Regulatory Jurisdiction Over Members
    Under Section 6.1(a) of the LLC Agreement, the Members acknowledge 
that, to the extent related to the Company's business, the books, 
records, premises, officers, directors, agents and employees of the 
Company and of its Members shall be deemed to be the books, records, 
premises, officers, directors, agents and employees of the Exchange for 
purposes of, and subject to oversight pursuant to, the Exchange Act. In 
addition, the books and records of the Company will be maintained at 
the principal office of the Company in New York and will be subject at 
all times to inspection and copying by the Commission and the Exchange 
at no additional charge to the Commission or the Exchange.
    Under Section 6.1(b) of the LLC Agreement, the Company, its Members 
and the officers, directors, agents and employees of the Company and 
its Members irrevocably submit to the jurisdiction of the U.S. federal 
courts, the Commission and the Exchange for purposes of any suit, 
action or proceeding pursuant to U.S. federal securities laws, and the 
rules and regulations promulgated thereunder, arising out of, or 
relating to, activities of the Company and waive, and agree not to 
assert by way of motion, as a defense or otherwise in any such suit, 
action or proceeding, any claims that they are not personally subject 
to the jurisdiction of the Commission, that the suit, action or 
proceeding is an inconvenient forum or that the venue of the suit, 
action or proceeding is improper, or that the subject matter hereof may 
not be enforced in or by such courts or agency.
    Under Section 6.1(c) of the LLC Agreement, the Company, its 
Members, and the officers, directors, agents, and employees of the 
Company and its Members agree to comply with the federal securities 
laws and the rules and regulations promulgated thereunder and to 
cooperate with the Exchange pursuant to its regulatory authority and 
the provisions of the LLC Agreement and with the Commission and to 
engage in conduct that fosters and does not interfere with the 
Company's and NYSE LLC's ability to (i) prevent fraudulent and 
manipulative acts and practices; (ii) promote just and equitable 
principles of trade; (iii) foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in, 
securities; (iv) remove impediments to and perfect the mechanisms of a 
free and open market and a national market system; and (v) in general, 
protect investors and the public interest.
    Furthermore, Section 8.1(d) provides that the Company and each 
Member shall take such action as is necessary to ensure that the 
Company's and such Member's officers, directors, agents and employees 
consent in writing to the application to them of the provisions in the 
LLC Agreement with respect to their activities relating to the Company.
    The Exchange believes that these provisions will serve as notice to 
Members that they will be subject to the jurisdiction of the U.S. 
federal courts, the Commission and the Exchange. Accordingly, these 
provisions ensure that, should an occasion arise which requires 
regulatory cooperation or jurisdictional submission from the Members, 
it will be forthcoming and uncontested.
Amendments to the LLC Agreement and the Certificate of Formation
    Pursuant to Section 13.1 of the LLC Agreement, any amendment to the 
LLC Agreement which does not adversely affect the right of any Member 
in any material respect may be made by the Board of Directors without 
the consent of the Members if such amendment is

[[Page 71068]]

for the purpose of admitting substituted or additional Members as 
permitted by the LLC Agreement, necessary to maintain the Company's 
status as a partnership that is not a ``publicly traded partnership'' 
pursuant to the Code, necessary to preserve the validity of any and all 
allocations of income, gain, loss or deduction pursuant to the Code, or 
contemplated by the LLC Agreement. Any amendments other than those 
described in the foregoing sentence require the consent of all Members. 
If the LLC Agreement is amended, the Board of Directors will amend the 
Certificate of Formation to reflect such change if the Board of 
Directors deems such amendment to be necessary or appropriate.
    Furthermore, Section 13.1 of the LLC Agreement provides that for so 
long as the Company is a facility of the Exchange or of a successor of 
the Exchange that is a self-regulatory organization, before any 
amendment or repeal of any provision of the LLC Agreement becomes 
effective, such amendment or repeal must either (i) be filed with or 
filed with and approved by the Commission under Section 19 of the 
Exchange Act and the rules promulgated thereunder or (ii) be submitted 
to the board of directors of the Exchange or its successor, and if the 
Exchange's board of directors determines that such amendment or repeal 
must be filed with or filed with and approved by the Commission under 
Section 19 of the Exchange Act and the rules promulgated thereunder 
before such amendment or repeal may be effectuated, then such amendment 
or repeal will not be effectuated until filed with or filed with and 
approved by the Commission, as the case may be.
Relationship of the Exchange to BIDS
    On February 25, 2008, NYSE Market, Inc., a Delaware corporation and 
wholly-owned subsidiary of the Exchange, and BIDS entered into a 
Contribution Agreement. Pursuant to the Contribution Agreement, NYSE 
Market, Inc. contributed cash to the capital of BIDS in exchange for 
limited partnership interests in BIDS representing on the date of such 
issuance 8.57% of the aggregate limited partnership interests in BIDS 
(the ``Purchased Interests''). The Exchange and its affiliates do not 
have any voting or other ``control'' arrangements with any of the other 
limited partners or general partner of BIDS relating to its investment 
in BIDS. The purchase by NYSE Market, Inc. of the Purchased Interests 
was consummated on February 25, 2008. As a result of such purchase, 
NYSE Market, Inc. became a limited partner of BIDS pursuant to the 
Amended and Restated Limited Partnership Agreement of BIDS dated 
January 31, 2007. The general partner of BIDS is BIDS Holdings GP LLC.
    The Exchange proposes that there be an exemption from Rule 2B of 
the Exchange with respect to the investment by NYSE Market, Inc. in 
BIDS. In relevant part, Rule 2B provides that, without prior Commission 
approval, the Exchange or any entity with which it is affiliated shall 
not, directly or indirectly, acquire or maintain an ownership interest 
in a member organization. In addition, a member organization shall not 
be or become an affiliate of the Exchange, or an affiliate of any 
affiliate of the Exchange; provided, however, that, if a director of an 
affiliate of a member organization serves as a director of NYSE 
Euronext, this fact shall not cause such member organization to be an 
affiliate of the Exchange, or an affiliate of an affiliate of the 
Exchange. Upon execution of the LLC Agreement and BIDS' approval as a 
member organization, the Exchange (through an affiliate) will maintain 
an ownership interest in a member organization and BIDS will be 
affiliated with an affiliate of the Exchange, in each case which 
without Commission approval would be prohibited by Rule 2B. The 
Commission has also previously noted its concern regarding (i) the 
potential for conflicts of interest in instances where an exchange is 
affiliated with one of its members and (ii) the potential for 
informational advantages that could place an affiliated member of an 
exchange at a competitive advantage vis-[agrave]-vis other non-
affiliated members. As such, the Exchange requests that the Commission 
approve the relationships between BIDS and the Exchange described 
above, subject to the conditions and limitations set out below.
    In making such a request, the Exchange notes that, consistent with 
the Exchange's procedures relating to its affiliated outbound router, 
Archipelago Securities LLC, the Exchange will adopt certain policies 
and procedures relating to BIDS to mitigate concerns that there are 
potential conflicts of interest in instances where a member firm is 
affiliated with an exchange, including with respect to the potential 
for informational advantages that could place an affiliated member of 
an exchange at a competitive advantage vis-[agrave]-vis other non-
affiliated members.
    The Exchange notes that with respect to its business activities, 
BIDS, which will become an NYSE member prior to commencement of the 
Facility, is subject to independent oversight and enforcement by the 
Financial Industry Regulatory Authority (``FINRA''), an unaffiliated 
self-regulatory organization (``SRO'') that is BIDS'designated 
examining authority. In this capacity, FINRA is responsible for 
examining BIDS with respect to its books and records and capital 
obligations, and shares with NYSE Regulation the responsibility for 
reviewing BIDS' compliance with intermarket trading rules such as SEC 
Regulation NMS. In addition, through an agreement between FINRA and the 
NYSE pursuant to the provisions of SEC Rule 17d-2 under the Exchange 
Act, FINRA's staff will review for BIDS' compliance with other NYSE 
rules through FINRA's examination program. NYSE Regulation will, upon 
commencement of the Facility's operations, monitor BIDS for compliance 
with NYSE trading rules, subject, of course, to SEC oversight of NYSE 
Regulation's regulatory program.
    In order to alleviate any residual concerns the Commission may have 
regarding the potential for conflicts of interest, the Exchange notes 
that NYSE Regulation has agreed with the Exchange that it will collect 
and maintain the following information of which NYSE Regulation staff 
becomes aware--namely, all alerts, complaints, investigations and 
enforcement actions where BIDS (in its capacity as an NYSE member) is 
identified as having potentially violated NYSE or applicable SEC 
rules--in an easily accessible manner, so as to facilitate any review 
conducted by the SEC's Office of Compliance Inspections and 
Examinations. NYSE Regulation has further agreed with the Exchange that 
it will provide a report to the Exchange's Chief Regulatory Officer, on 
at least a quarterly basis, which: (i) Quantifies all alerts (of which 
NYSE Regulation is aware in its tracking system) that identify BIDS as 
having potentially violated NYSE or SEC rules and (ii) quantifies the 
number of all investigations that identify BIDS as having potentially 
violated NYSE or SEC rules.
    The Exchange is also proposing to amend Exchange Rule 2B by adding 
commentary.01. As amended, Exchange Rule 2B, commentary.01 will require 
the implementation of policies and procedures that are reasonably 
designed to ensure that BIDS Holdings, L.P. and its affiliates do not 
have access to non-public information relating to the Exchange, 
obtained as a result of BIDS' affiliation with the Exchange, until such 
information is available generally to similarly situated members of the 
Exchange; provided, however, that BIDS Holdings, L.P. and its 
affiliates shall be

[[Page 71069]]

permitted to have access to non-public information relating to the 
parties' obligations under the LLC Agreement or the relationship of the 
parties contemplated by the LLC Agreement, and such non-public 
information shall be kept confidential in accordance with Section 14.1 
of the LLC Agreement, including the requirement that such non-public 
information shall not be made available to any Persons other than to 
those officers, directors, employees and agents of the Company and the 
Members that have a reasonable need to know the contents thereof. These 
policies and procedures would include systems development protocols to 
facilitate an audit of the efficacy of these policies and procedures.
    Specifically, Exchange Rule 2B, commentary.01 shall provide as 
follows:
    The Exchange and BIDS shall establish and maintain procedures and 
internal controls reasonably designed to ensure that BIDS Holdings, 
L.P. and its affiliates do not have access to non-public information 
relating to the Exchange, obtained as a result of BIDS' affiliation 
with the Exchange, until such information is available generally to 
similarly situated members of the Exchange; provided, however, that 
BIDS Holdings, L.P. and its affiliates shall be permitted to have 
access to non-public information relating to the parties' obligations 
under the LLC Agreement or the relationship of the parties contemplated 
by the LLC Agreement, and such non-public information shall be kept 
confidential in accordance with Section 14.1 of the LLC Agreement, 
including the requirement that such non-public information shall not be 
made available to any Persons other than to those officers, directors, 
employees and agents of the Company and the Members that have a 
reasonable need to know the contents thereof.
    The Exchange believes these measures effectively address the 
concerns identified by the Commission regarding the potential for 
informational advantages favoring BIDS vis-[agrave]-vis other non-
affiliated NYSE members. The Exchange also notes that Section 9.9 of 
the LLC Agreement will also mitigate these concerns. Section 9.9 of the 
LLC Agreement provides that if during at least 4 of the then preceding 
6 calendar months, the average daily trading volume in the Facility 
exceeds 10% of the aggregate average daily trading volume of the 
Exchange, then, within 180 days, either an independent third party SRO 
engaged by the Company must begin to conduct market surveillance of 
BIDS with respect to BIDS's trading activity in both the Facility and 
in NYSE LLC, or BIDS must Transfer sufficient Interests so that BIDS 
does not exceed the Concentration Limitation.
    In addition, the Exchange notes that NYSE Market, Inc. owns less 
than 9% of the equity in BIDS and therefore does not own a controlling 
interest in BIDS or otherwise have any veto or other special voting 
rights with respect to the management or operation of BIDS. The 
Exchange further notes that the general partner of BIDS, in which the 
Exchange and its affiliates hold no interests, manages the day-to-day 
business of BIDS. The Exchange acknowledges that if the Exchange or any 
of its affiliates were to directly or indirectly increase the equity 
ownership of BIDS, such increase would require prior Commission 
approval. The Exchange believes the foregoing measures and factors 
minimize the concerns identified by the Commission regarding potential 
conflicts of interest.
Pilot Period
    The Exchange proposes that the Commission authorize the exemption 
from Rule 2B for a pilot period of one year from the date of the 
approval of this rule filing. The Exchange believes that this pilot 
period is of sufficient length to permit both the Exchange and the 
Commission to assess the impact of the rule change described herein.
2. Statutory Basis
    The basis under the Exchange Act for this proposed rule change is 
the requirement under Section 6(b)(5) \3\ that an exchange have rules 
that are 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.
---------------------------------------------------------------------------

    \3\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    The Exchange does not believe that this proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Exchange Act.

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

    The Exchange has not received any unsolicited written comments from 
members or other interested parties.

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

    Within 35 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 (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NYSE-2008-120 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSE-2008-120. This file 
number should be included on the subject line if e-mail 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 inspection and 
copying in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m.

[[Page 71070]]

Copies of such filing also will be available for inspection and copying 
at the principal offices 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-2008-120 and should be submitted on 
or before December 15, 2008.
---------------------------------------------------------------------------

    \4\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\4\
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-27795 Filed 11-21-08; 8:45 am]

BILLING CODE 8011-01-P