Document ID: SEC-2009-1325-0001
Agency: sec
Document Type: Notice
Title: Order Granting Application by EDGX Exchange, Inc. and EDGA Exchange, Inc. for a Conditional Exemption Pursuant to Section 36(a) of the Exchange Act From Certain Requirements of Rules 6a-1 and 6a-2 Under the Exchange Act
Posted Date: 2009-09-17T04:00Z

[Federal Register: September 17, 2009 (Volume 74, Number 179)]
[Notices]
[Page 47828-47831]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17se09-77]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60650]

Order Granting Application by EDGX Exchange, Inc. and EDGA
Exchange, Inc. for a Conditional Exemption Pursuant to Section 36(a) of
the Exchange Act From Certain Requirements of Rules 6a-1 and 6a-2 Under
the Exchange Act

September 11, 2009.

I. Introduction

    EDGX Exchange, Inc. (``EDGX'') and EDGA Exchange, Inc. (``EDGA,''
and, together with EDGX, the ``Applicants'') each submitted to the
Securities and Exchange Commission (``Commission'') an application on
Form 1 under the Securities Exchange Act of 1934 (``Exchange Act'') to
register as a national securities exchange. In addition, the
Applicants, pursuant to Rule 0-12 \1\ under the Exchange Act, have
requested an exemption under Section 36(a)(1) of the Exchange Act \2\
from certain requirements of Rules 6a-1(a) and 6a-2 under the Exchange
Act.\3\ This order grants the Applicants' request for exemptive relief,
subject to the satisfaction of certain conditions, which are outlined
below.
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    \1\ 17 CFR 240.0-12.
    \2\ 15 U.S.C. 78mm(a)(1).
    \3\ 17 CFR 240.6a-1(a) and 6a-2. See letter from Eric W. Hess,
General Counsel and Secretary, EDGA and EDGX, to Elizabeth Murphy,
Secretary, Commission, dated July 30, 2009 (``Exemption Request'').
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II. Application for Conditional Exemption From Certain Requirements of
Exchange Act Rules 6a-1 and 6a-2

A. Filing Requirements Under Exchange Act Rule 6a-1(a)

    Exchange Act Rule 6a-1(a) requires an applicant for registration as
a national securities exchange to file an application with the
Commission on Form 1. Exhibit C to Form 1 requires the applicant to
provide certain information with respect to each of its subsidiaries
and affiliates.\4\ For purposes of Form 1,

[[Page 47829]]

an ``affiliate'' is ``[a]ny person that, directly or indirectly,
controls, is under common control with, or is controlled by, the
national securities exchange * * * including any employees.'' \5\ Form
1 defines ``control'' as ``[t]he power, directly or indirectly, to
direct the management or policies of a company, whether through
ownership of securities, by contract, or otherwise * * *.'' \6\ Form 1
provides, further, that any person that directly or indirectly has the
right to vote 25% or more of a class of voting securities, or has the
power to sell or direct the sale of 25% or more of a class of voting
securities, is presumed to control the entity.\7\
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    \4\ Specifically, Exhibit C requires the applicant to provide,
for each subsidiary or affiliate, and for any entity that operates
an electronic trading system used to effect transactions on the
exchange: (1) The name and address of the organization; (2) the form
of organization; (3) the name of the State and statute citation
under which it is organized, and the date of its incorporation in
its present form; (4) a brief description of the nature and extent
of the affiliation; (5) a brief description of the organization's
business or function; (6) a copy of the organization's constitution;
(7) a copy of the organization's articles of incorporation or
association, including all amendments; (8) a copy of the
organization's by-laws or corresponding rules or instruments; (9)
the name and title of the organization's present officers,
governors, members of all standing committees, or persons performing
similar functions; and (10) an indication of whether the business or
organization ceased to be associated with the applicant during the
previous year, and a brief statement of the reasons for termination
of the association.
    \5\ Form 1 Instructions, Explanation of Terms, 17 CFR 249.1.
    \6\ Id.
    \7\ Id.
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    Exhibit D to Form 1 requires an applicant for exchange registration
to provide unconsolidated financial statements for the latest fiscal
year for each subsidiary or affiliate. Exhibit D requires the financial
statements to include, at a minimum, a balance sheet and an income
statement with such footnotes and other disclosures as are necessary to
avoid rendering the financial statements misleading. Exhibit D
provides, in addition, that if any affiliate or subsidiary of the
applicant is required by another Commission rule to submit annual
financial statements, a statement to that effect, with a citation to
the other Commission rule, may be provided in lieu of the financial
statements required in Exhibit D.
    A Form 1 application is not considered filed until all necessary
information, including financial statements and other required
documents, have been furnished in the proper form.\8\
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    \8\ 17 CFR 202.3(b)(2). Defective Form 1 applications may be
returned with a request for correction or held until corrected
before being accepted as a filing. See 17 CFR 202.3(b)(2). See also
Securities Exchange Act Release No. 40760 (December 8, 1998), 63 FR
70844 (December 22, 1998) (``Regulation ATS Adopting Release'') at
note 329 and accompanying text.
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B. Filing Requirements Under Exchange Act Rule 6a-2

    Exchange Act Rule 6a-2(a)(2) requires a national securities
exchange to update the information provided in Exhibit C within 10 days
of any action that causes the information provided in Exhibit C to
become inaccurate or incomplete. In addition, Exchange Act Rule 6a-
2(b)(1) requires a national securities exchange to file Exhibit D on or
before June 30 of each year, and Exchange Act Rule 6a-2(c) requires a
national securities exchange to file Exhibit C every three years.

C. Exemption Request

    On July 23, 2009, the Applicants requested that the Commission
grant an exemption under Section 36 of the Exchange Act, subject to the
conditions set forth below, from the requirement under Exchange Act
Rule 6a-1 to file the information requested in Exhibits C and D to Form
1 for the ``Foreign Indirect Affiliates,'' as defined below, of the
Applicants.\9\ In addition, the Applicants requested an exemption,
subject to certain conditions, with respect to the Foreign Indirect
Affiliates from the requirements under: (1) Exchange Act Rule 6a-
2(a)(2) to amend Exhibit C within 10 days if the information in Exhibit
C becomes inaccurate or incomplete; and (2) Exchange Act Rules 6a-
2(b)(1) and (c) to file periodic updates to Exhibits C and D.
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    \9\ See Exemption Request, supra note 3.
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    The Applicants are wholly-owned subsidiaries of Direct Edge
Holdings LLC (``DE Holdings''). International Securities Exchange
Holdings, Inc. (``ISE Holdings'') owns a 31.54% ownership interest in
DE Holdings.\10\ ISE Holdings is a wholly-owned subsidiary of U.S.
Exchange Holdings, Inc., which is wholly-owned by a German stock
corporation, Eurex Frankfurt AG (``Eurex Frankfurt''). Eurex Frankfurt
is wholly-owned by Eurex Zurich AG (``Eurex Zurich''), a Swiss stock
corporation owned by SIX Swiss Exchange AG (``SIX Swiss Exchange''),
and Deutsche Borse AG (``Deutsche Borse'').\11\ SIX Swiss Exchange is a
wholly-owned subsidiary of SIX Group AG (``SIX Group''), a Swiss stock
corporation. According to the Applicants, Eurex Frankfurt, Eurex
Zurich, SIX Swiss Exchange, Deutsche Borse, and SIX Group
(collectively, the ``Foreign Direct Affiliates'') hold ownership
interests in excess of 25% in a large number of other foreign entities,
some of which also own interests in excess of 25% in other entities
(such Foreign Direct Affiliate-owned entities are referred to,
collectively, as the ``Foreign Indirect Affiliates'').\12\
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    \10\ See Exemption Request, supra note 3, at 2-3. See also
Securities Exchange Act Release No. 59135 (December 22, 2008), 73 FR
79954 (December 30, 2008) (File No. SR-ISE-2008-85) (order approving
ISE Holdings' purchase of an ownership interest in DE Holdings).
    \11\ SIX Swiss Exchange, a Swiss stock corporation, and Deutsche
Borse, a German stock corporation, each own approximately 50% of
Eurex Zurich. See Exemption Request, supra note 3, at 2-3.
    \12\ See Exemption Request, supra note 3, at 3.
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    Because of the limited and indirect nature of their connection to
the Foreign Indirect Affiliates, the Applicants believe that the
corporate and financial information of the Foreign Indirect Affiliates
required by Exhibits C and D of Form 1 would have little relevance to
the Commission's review of the Applicants' Form 1 applications or to
the Commission's ongoing oversight of the Applicants as national
securities exchanges if the Commission approves the Applicants' Form 1
applications.\13\ In this regard, the Exemption Request states that the
Foreign Indirect Affiliates have no ability to influence the
management, policies, or finances of the Applicants and no obligation
to provide funding to, or ability to materially affect the funding of,
the Applicants.\14\ The Exemption Request also states that (1) the
Foreign Indirect Affiliates have no ownership interest in the
Applicants or in any of the controlling shareholders of the Applicants;
and (2) there are no commercial dealings between the Applicants and the
Foreign Indirect Affiliates.\15\ Further, the Exemption Request states
that obtaining detailed corporate and financial information with
respect to the Foreign Indirect Affiliates (1) is unnecessary for the
protection of investors and the public interest and (2) would be unduly
burdensome and inefficient because these affiliates are located in
foreign jurisdictions and the disclosure of such information could
implicate foreign information sharing restrictions in such
jurisdictions.\16\
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    \13\ Id.
    \14\ Id.
    \15\ Id.
    \16\ Id. The Applicants also believe that providing the
information required by Exhibits C and D with respect to the Foreign
Indirect Affiliates could raise confidentiality concerns because
many of the Foreign Indirect Affiliates are not public companies.
Id.
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    As a condition to the granting of exemptive relief, the Applicants
have agreed to provide: (i) A listing of the names of the Foreign
Indirect Affiliates; (ii) an organizational chart setting forth the
affiliation of the Foreign Indirect Affiliates and the Foreign Direct
Affiliates and the Applicants; and (iii) in Exhibit C of the
Applicants' respective Form 1 applications, a description of the nature
of the Foreign Indirect Affiliates' affiliation with the Foreign Direct
Affiliates and the Applicants. In addition, as a condition to the
granting of exemptive relief from the requirements of Exchange Act Rule
6a-2(a)(2), 6a-2(b)(1), and 6a-2(c), as

[[Page 47830]]

described above, the Applicants have agreed to provide amendments to
the information required under conditions (i) through (iii) above on or
before June 30th of each year. Further, the Applicants note that they
will provide the information required by Exhibits C and D for all of
their affiliates other than the Foreign Indirect Affiliates, including
the Foreign Direct Affiliates.\17\
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    \17\ See Exemption Request, supra note 3, at 4.
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III. Order Granting Conditional Section 36 Exemption

    Section 6 of the Exchange Act \18\ sets forth a procedure for an
exchange to register as a national securities exchange.\19\ Exchange
Act Rule 6a-1(a) \20\ requires an application for registration as a
national securities exchange to be filed on Form 1 in accordance with
the instructions in Form 1. A Form 1 application is not considered
filed until all necessary information, including financial statements
and other required documents, have been furnished in the proper
form.\21\ Exchange Act Rule 6a-2 establishes ongoing requirements to
file certain amendments to Form 1.
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    \18\ 15 U.S.C. 78f.
    \19\ Specifically, Section 6(a) of the Exchange Act states that
``[a]n exchange may be registered as a national securities exchange
* * * by filing with the Commission an application for registration
in such form as the Commission, by rule, may prescribe containing
the rules of the exchange and such other information and documents
as the Commission, by rule, may prescribe as necessary or
appropriate in the public interest or for the protection of
investors.'' Section 6 of the Exchange Act also sets forth various
requirements to which a national securities exchange is subject.
    \20\ 17 CFR 240.6a-1(a).
    \21\ 17 CFR 202.3(b)(2). See also note 8, supra.
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    Section 36(a)(1) of the Exchange Act provides that ``the
Commission, by rule, regulation, or order, may conditionally or
unconditionally exempt any person, security, or transaction, or any
class or classes of persons, securities, or transactions, from any
provision or provisions of [the Exchange Act] or of any rule or
regulation thereunder, to the extent that such exemption is necessary
or appropriate in the public interest, and is consistent with the
protection of investors.'' \22\
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    \22\ 15 U.S.C. 78mm(a)(1).
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    For the reasons discussed below, the Commission believes that it is
appropriate in the public interest and consistent with the protection
of investors to exempt the Applicants from the requirement under
Exchange Act Rule 6a-1 to provide the information required in Exhibits
C and D to Form 1 with respect to the Foreign Indirect Affiliates,
subject to the following conditions:
    (1) The Applicants must provide a list of the names of the Foreign
Indirect Affiliates;
    (2) The Applicants must provide an organizational chart setting
forth the affiliation of the Foreign Indirect Affiliates and the
Foreign Direct Affiliates and the Applicants; and
    (3) As part of Exhibit C to the Applicants' respective Form 1
Applications, the Applicants must provide a description of the nature
of the affiliation between the Foreign Indirect Affiliates and the
Foreign Direct Affiliates and the Applicants.
    The Commission believes, further, that it is appropriate in the
public interest and consistent with the protection of investors to
exempt the Applicants, with respect to the Foreign Indirect Affiliates,
from the requirements under: (a) Exchange Act Rule 6a-2(a)(2) to amend
Exhibit C within 10 days of any action that renders the information in
Exhibit C inaccurate or incomplete; (b) Exchange Act Rules 6a-2(c) to
provide periodic updates of Exhibit C; and (c) Exchange Act Rules 6a-
2(b)(1) to provide periodic updates of Exhibits D, subject to the
condition that the Applicants provide amendments to the information
required under conditions (1) through (3) above on or before June 30th
of each year.
    As part of an application for exchange registration, the
information included in Exhibits C and D is designed to help the
Commission make the determinations required under Sections 6(b) and
19(a) of the Exchange Act with respect to the application. The updated
Exhibit C and D information required under Exchange Act Rule 6a-2 is
designed to help the Commission exercise its oversight responsibilities
with respect to registered national securities exchanges. Specifically,
Exhibit D is designed to provide the Commission with information
concerning the financial status of an exchange and its affiliates and
subsidiaries,\23\ and Exhibit C provides the Commission with the names
and organizational documents of these affiliates and subsidiaries.\24\
Such information is designed to help the Commission determine whether
an applicant for exchange registration would have the ability to carry
out its obligations under the Exchange Act, and whether a registered
national securities exchange continues to have the ability to carry out
its obligations under the Exchange Act.
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    \23\ See Securities Exchange Act Release No. 18843 (June 25,
1982), 47 FR 29259 (July 6, 1982) (proposing amendments to Form 1);
see also Form 1, 17 CFR 249.1, and Section II.A., supra.
    \24\ Form 1, 17 CFR 249.1. See also note 4, supra.
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    Since the most recent amendments to Form 1 in 1998,\25\ many
registered national securities exchanges that previously were member-
owned organizations with few affiliated entities have demutualized.
Some of these demutualized exchanges have been consolidated under
holding companies with numerous affiliates that, in some cases, have
only a limited and indirect connection to the registered national
securities exchange, with no ability to influence the management or
policies of the registered exchange and no obligation to fund, or to
materially affect the funding of, the registered exchange. The
Commission believes that, for these affiliated entities, the
information required under Exhibits C and D would have limited
relevance to the Commission's review of an application for exchange
registration or to its oversight of a registered exchange.
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    \25\ See Regulation ATS Adopting Release, note 8, supra.
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    Based on the Applicants' representations, the indirect nature of
the relationship between the Applicants and the Foreign Indirect
Affiliates, and the information that the Applicants will provide with
respect to the Foreign Direct Affiliates and the Foreign Indirect
Affiliates, the Commission believes that it will have sufficient
information to review the Applicants' Form 1 applications and to make
the determinations required under Sections 6(b) and 19(a) of the
Exchange Act with respect to their applications for registration as
national securities exchanges.\26\ The Commission believes, further,
that it would have the information necessary to oversee the Applicants'
activities as national securities exchanges if the Commission approves
the Applicants' Form 1 applications. In particular, the Commission
notes that the Applicants have represented that they have no direct
connection to the Foreign Indirect Affiliates, that the Foreign
Indirect Affiliates have no ability to influence the management or
policies of the Applicants, and that the Foreign Indirect Affiliates
have no obligation to fund, or ability to materially affect the funding
of, the Applicants. In addition, the Commission notes that the
Applicants represented that: (1) The Foreign Indirect Affiliates have
no ownership interest in the Applicants or

[[Page 47831]]

in any of the controlling shareholders of the Applicants; and (2) there
are no commercial dealings between the Applicants and the Foreign
Indirect Affiliates.\27\ The Commission also believes that, based on
the Applicants' representations, it could be burdensome for the
Applicants to obtain detailed corporate and financial information with
respect to the Foreign Indirect Affiliates because these affiliates are
located in foreign jurisdictions and the disclosure of such information
could implicate foreign information sharing restrictions in such
jurisdictions.\28\ Given the limited and indirect relationship between
the Applicants and the Foreign Indirect Affiliates and the location of
the Foreign Indirect Affiliates in foreign jurisdictions, as described
above, the Commission believes that the detailed corporate and
financial information required in Exhibits C and D with respect to the
Foreign Indirect Affiliates is unnecessary for the Commission's review
of the Applicants' Form 1 applications and would be unnecessary for the
Commission's oversight of the Applicants as registered national
securities exchanges following any Commission approval of their Form 1
applications.
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    \26\ 15 U.S.C. 78f(b) and 78s(a). Section 6(b) of the Exchange
Act enumerates certain determinations that the Commission must make
with respect to an exchange before registering the exchange as a
national securities exchange. The Commission will not register an
exchange as a national securities exchange unless it is satisfied
that the exchange meets these requirements. See Regulation ATS
Adopting Release, supra note 8, at IV.B.
    \27\ See Exemption Request, supra note 3, at 3.
    \28\ See id.
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    For the reasons discussed above, the Commission finds that the
conditional exemptive relief requested by the Applicants is appropriate
in the public interest and is consistent with the protection of
investors.
    It is ordered, pursuant to Section 36 of the Exchange Act,\29\ and
subject to the conditions described above, that the Applicants are
exempt from the requirements to: (1) Include in their Form 1
applications the information required in Exhibits C and D to Form 1
with respect to the Foreign Indirect Affiliates; and (2) with respect
to the Foreign Indirect Affiliates, update the information in Exhibits
C and D to Form 1 as required by Exchange Act Rules 6a-2(a)(2), 6a-
2(b)(1), and 6a-2(c).
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    \29\ 15 U.S.C. 78mm.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-22346 Filed 9-16-09; 8:45 am]

BILLING CODE 8010-01-P