Document ID: SEC-2014-2186-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: EDGX Exchange, Inc.
Posted Date: 2014-12-29T05:00Z

[Federal Register Volume 79, Number 248 (Monday, December 29, 2014)]
[Notices]
[Pages 78122-78125]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-30274]

[[Page 78122]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73893; File No. SR-EDGX-2014-34]

Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Convert 
Direct Edge, Inc., the Parent Company of EDGX Exchange, Inc., From a 
Delaware Corporation to a Delaware Limited Liability Company

December 19, 2014.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on December 12, 2014, EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The Exchange 
has designated this proposal as a ``non-controversial'' proposed rule 
change pursuant to section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6)(iii) thereunder,\4\ which renders it effective upon filing with 
the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to: (i) Convert Direct Edge, Inc. 
(``DE'') from a Delaware corporation to a Delaware limited liability 
company (the ``Conversion''), and, in connection therewith, change the 
name of DE from ``Direct Edge, Inc.'' to ``Direct Edge LLC,'' and (ii) 
amend the Third Amended and Restated Bylaws of the Exchange (the 
``Exchange Bylaws'') to reflect the name change of DE as the Exchange's 
sole stockholder.
    The text of the proposed rule change is available at the Exchange's 
Web site at http://www.directedge.com/, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant parts of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange submits this Proposed Rule Change to seek the 
Commission's approval of the Conversion, the adoption of the 
Organizational Documents, and the Amended Exchange Bylaws. The 
Conversion is proposed as a means to simplify the administration 
associated with the Exchange's overall corporate structure. The name 
change from ``Direct Edge, Inc.'' to ``Direct Edge LLC'' reflected in 
the Amended Exchange Bylaws is a non-substantive change. Other than 
converting DE from a corporation to a limited liability company and 
changing the name of DE from ``Direct Edge, Inc.'' to ``Direct Edge 
LLC'' in the Amended Exchange Bylaws, no changes to the ownership or 
structure of the Exchange, DE Holdings, or the other entities included 
in the Exchange's overall corporate structure are proposed.\5\ The 
proposed Organizational Documents are consistent in form and scope with 
the most recent governing documents that were approved by the 
Commission.\6\
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    \5\ The Exchange notes that the Third Amended and Restated 
Bylaws of EDGA Exchange, Inc. will also be amended and restated to 
reflect the name change of DE as the sole stockholder of EDGA 
Exchange, Inc.
    \6\ See Securities Exchange Act Release Nos. 60651 (September 
11, 2009), 74 FR 47827 (Notice of Filing of Applications, as 
Amended, for Registration as National Securities Exchanges under 
section 6 of the Securities Exchange Act of 1934) (including the 
EDGX and EDGA Form 1 Applications and Exhibits); and 61698 (March 
12, 2010), 75 FR 13151 (March 18, 2010) (In the Matter of the 
Applications of EDGX Exchange, Inc. and EDGA Exchange, Inc. for 
Registration as National Securities Exchanges); and Securities 
Exchange Act Release No. 71449 (January 30, 2014), 79 FR 6961 
(February 5, 2014) (SR-EDGA-2013-34; SR-EDGX-2013-43).
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    There are no new regulatory issues implicated in this proposal. 
Other than as described herein and set forth in the attached Exhibits 
5A through 5C, the Exchange will continue to conduct its regulated 
activities (including operating and regulating its market and Members 
\7\) in the manner currently conducted, and will not make any changes 
to its regulated activities in connection with the Conversion. The 
Exchange is not proposing any amendments to its trading and regulatory 
rules at this time. If the Exchange determines to make any such 
changes, it will seek the approval of the Commission to the extent 
required by the Act, and the Commission's rules thereunder, and the 
Rules of the Exchange.
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    \7\ The term ``Member'' is defined as ``any registered broker or 
dealer, or any person associated with a registered broker or dealer, 
that has been admitted to the membership in the Exchange. A Member 
will have the status of a ``member'' of the Exchange as that term is 
defined in section 3(a)(3) of the Act.'' See Exchange Rule 1.5(n).
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1. Current Corporate Structures
    The Exchange and EDGA Exchange, Inc. (``EDGA'', and together with 
the Exchange, the ``DE Exchanges''), are each Delaware corporations 
that are national securities exchanges registered with the Commission 
pursuant to section 6(a) of the Act.\8\ Each DE Exchange is a direct, 
wholly owned subsidiary of DE, a Delaware corporation. DE, originally 
formed as a Delaware corporation on July 22, 2010, is a direct, wholly 
owned subsidiary of DE Holdings. In addition, DE Holdings owns 100 
percent of the equity interest in Direct Edge ECN LLC d/b/a DE Route, a 
Delaware limited liability company and the routing broker-dealer for 
the DE Exchanges. BATS Global Markets, Inc., a Delaware corporation 
(``BGM''), owns 100 percent of the equity interest in DE Holdings, and 
is the ultimate parent entity in the Exchange's overall corporate 
structure.
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    \8\ 15 U.S.C. 78f(a).
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2. The Conversion
    On December 9, 2014, the Board of Directors of DE approved the 
Conversion and Organizational Documents on December 9, 2014, and DE 
Holdings approved the Conversion and Organizational Documents of DE on 
December 9, 2014. Pursuant to the Conversion, DE would be converted 
from a Delaware corporation to a Delaware limited liability company. 
BGM will continue to own 100 percent of the equity interests in DE 
Holdings, and DE Holdings will continue to own 100 percent of the 
equity interest in DE, which in turn, will continue to own 100 percent 
of the equity interest in each DE Exchange.
3. Adoption of Certificate and Operating Agreement
    The Exchange proposes that DE adopt a new Certificate and Operating 
Agreement to replace the existing Restated Certificate of Incorporation 
of DE and the existing Amended and

[[Page 78123]]

Restated Bylaws of DE. Each of the proposed Certificate and Operating 
Agreement are modeled on, and are substantially similar to, the current 
certificate of formation and operating agreement, respectively, of DE 
Holdings, which is similarly situated as an intermediate holding 
company. The Commission has previously found the DE Holdings 
certificate of formation and operating agreement to be consistent with 
the Act.\9\ Each of the regulatory provisions described below, which 
the Exchange proposes to adopt within the Operating Agreement of DE, 
are also consistent with current provisions set forth in the existing 
Restated Certificate of Incorporation of DE and the existing Amended 
and Restated Bylaws of DE.
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    \9\ See supra note 6.
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    Although DE will not carry out any regulatory functions, the 
Exchange notes that its activities with respect to the operation of the 
DE Exchanges must be consistent with, and must not interfere with, the 
self-regulatory obligations of each DE Exchange. As further described 
below, the Operating Agreement therefore will include provisions that 
are designed to maintain the independence of the Exchange's self-
regulatory functions, enable the Exchange to operate in a manner that 
complies with the federal securities laws, including the objectives of 
sections 6(b) \10\ and 19(g) \11\ of the Act, and facilitate the 
ability of the Exchange and the Commission to fulfill their regulatory 
and oversight obligations under the Act.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78s(g).
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a. Certificate of Formation
    In connection with the Conversion, the Exchange proposes that DE 
adopt a new Certificate, as set forth in Exhibit 5A, to replace the 
existing Restated Certificate of Incorporation of DE. The proposed 
Certificate includes the following provisions required under Delaware 
law:
     The full legal name of DE as ``Direct Edge LLC''; and
     The name and address of DE's registered office in the 
State of Delaware.
b. Operating Agreement
    In connection with the Conversion, the Exchange proposes that DE 
adopt a new Operating Agreement, as set forth in Exhibit 5B, to replace 
the existing Amended and Restated Bylaws of DE. The proposed Operating 
Agreement contains several provisions designed to protect the 
independence of the self-regulatory functions of the DE Exchanges.
    The Operating Agreement would require DE Holdings and DE's 
officers, employees and agents to give due regard to the preservation 
of the independence of the self-regulatory function of the Exchange, as 
well as to its obligations to investors and the general public, and not 
interfere with the effectuation of any decisions by the Exchange Board 
of Directors relating to its regulatory functions (including 
disciplinary matters) or which would interfere with the ability of the 
Exchange to carry out its responsibilities under the Act. The Operating 
Agreement would require that DE comply with the U.S. federal securities 
laws and rules and regulations thereunder and cooperate with the 
Commission and the Exchange pursuant to and to the extent of their 
respective regulatory authority. Pursuant to the Operating Agreement, 
DE's officers, employees and agents, by virtue of their acceptance of 
such positions, shall be deemed to agree to (i) comply with the U.S. 
federal securities laws and the rules and regulations thereunder; and 
(ii) cooperate with the Commission and the Exchange in respect of the 
Commission's oversight responsibilities regarding the Exchange and its 
self-regulatory functions, and DE will take reasonable steps to cause 
its officers, employees and agents to so cooperate.
    Furthermore, DE and its officers, directors, employees and agents 
will be deemed to irrevocably submit to the jurisdiction of the U.S. 
federal courts, the Commission, and each DE Exchange, as applicable, 
for the purposes of any suit, action, or proceeding pursuant to the 
U.S. federal securities laws or the rules or regulations thereunder 
relating to or arising out of the activities of a DE Exchange.
    The Operating Agreement would also contain a number of provisions 
designed to ensure that the Exchange has sufficient access to the books 
and records of DE. Pursuant to the Operating Agreement, the books, 
records, premises, officers, agents, and employees of DE are deemed to 
be the books, records, premises, officers, agents and employees of the 
Exchange to the extent they are related to the operation or 
administration of the Exchange. In addition, for as long as DE controls 
the Exchange, DE's books and records shall be subject at all times to 
inspection and copying by the Commission and the Exchange, provided 
that such books and records are related to the operation or 
administration of the Exchange.
    The Operating Agreement also would provide that, to the fullest 
extent permitted by applicable law, all confidential information 
pertaining to the self-regulatory functions of the Exchange (including 
but not limited to disciplinary matters, trading data, trading 
practices and audit information) contained in the books and records of 
the Exchanges that shall come into the possession of DE shall (i) be 
retained in confidence by DE Holdings, DE, and DE's officers, employees 
and agents, and (ii) not be used for any non-regulatory purposes. The 
Operating Agreement provides, however, that the foregoing shall not 
limit or impede the rights of the Commission or the Exchange to access 
and examine such confidential information pursuant to the U.S. federal 
securities laws and the rules and regulations thereunder, or limit or 
impede the ability of DE Holdings or DE's officers, employees or agents 
to disclose such confidential information to the Commission or the 
Exchange.
    In addition, the Operating Agreement would provide that for so long 
as DE directly or indirectly controls a registered national securities 
exchange, before any amendment to or repeal of any provision of the 
Operating Agreement may be effective, the changes must be submitted to 
the Board of Directors of each such exchange, and if the change is 
required to be filed with or filed with and approved by the Commission 
before the change may be effective under Section 19 of the Act and the 
rules promulgated thereunder,\12\ then such proposed change shall not 
be effective until filed with or filed with and approved by the 
Commission, as the case may be.
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    \12\ 15 U.S.C. 78s(b).
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    The Operating Agreement identifies DE Holdings as the sole Member 
of DE.\13\ The identification of the sole Member of DE is designed to 
assure that any change to the indirect ownership or control of the DE 
Exchanges occurs through a change in the ownership or control of DE 
Holdings, or in accordance with the rule filing process described 
above. If the change of control occurs through a change in the 
ownership or control of DE Holdings, any purported change of such 
ownership or control would need to comply with DE Holdings' 
organizational documents.
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    \13\ See Operating Agreement, Art. II, section 2.01.
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4. Amended Exchange Bylaws
    The Exchange proposes to amend the Exchange Bylaws, as set forth in 
Exhibit 5C, to change the name of its sole stockholder from ``Direct 
Edge, Inc.'' to ``Direct Edge LLC''. The name change from ``Direct 
Edge, Inc.'' to ``Direct Edge LLC'' as reflected in the Amended

[[Page 78124]]

Exchange Bylaws is a non-substantive change. No other changes to the 
ownership or structure of the Exchange have taken place.
2. Statutory Basis
    The Exchange believes that the Proposed Rule Change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange, and, 
in particular, with the requirements of section 6(b) of the Act.\14\ In 
particular, the proposal is consistent with section 6(b)(1) of the Act 
\15\ in that it enables the Exchange to be so organized as to have the 
capacity to be able to carry out the purposes of the Act and to comply, 
and to enforce compliance by its Members and persons associated with 
its Members, with the provisions of the Act, the rules and regulations 
thereunder, and the Rules of the Exchange. The Proposed Rule Change is 
designed to effect the Conversion while ensuring that the Exchange will 
continue to have the authority and ability to effectively fulfill its 
self-regulatory duties pursuant to the Act and the rules promulgated 
thereunder. In particular, the Proposed Rule Change includes in the 
Operating Agreement various provisions intended to protect and maintain 
the integrity of the self-regulatory functions of the Exchange. For 
example, the Operating Agreement, as described above, is drafted to 
preserve the independence of the Exchange's self-regulatory function 
and ensure that the Exchange is able to obtain information it needs 
from the specified parties to detect and deter any fraudulent and 
manipulative acts in its marketplace and carry out their regulatory 
responsibilities under the Act. Moreover, with the Proposed Rule 
Change, the Commission will continue to have regulatory authority \16\ 
over the Exchange, as is currently the case, as well as jurisdiction 
over the Exchange's direct and indirect parents with respect to 
activities related to the Exchange. As a result, the Proposed Rule 
Change will facilitate an ownership structure that will provide the 
Commission with appropriate oversight tools to ensure that the 
Commission will have the ability to enforce the Act with respect to the 
Exchange, its direct and indirect parent entities and their directors, 
officers, employees and agents to the extent they are involved in the 
activities of the Exchange.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(1).
    \16\ See, e.g., Operating Agreement, Article X, section 10.03.
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    The Exchange also believes that the Proposed Rule Change furthers 
the objectives of section 6(b)(5) of the Act \17\ because the Proposed 
Rule Change would be consistent with and facilitate a governance and 
regulatory structure that is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to, and perfect the mechanism of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest. Furthermore, the Exchange is 
not proposing any changes to its regulated activities in connection 
with the Conversion; the Exchange will operate and regulate its Members 
in the same manner upon consummation of the Conversion as it does 
today. Therefore, the Exchange believes that it will continue to 
satisfy the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange.
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    \17\ 15 U.S.C. 78f(b)(5).
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    In addition, the Proposed Rule Change provides transparency and 
certainty, and promotes efficiency, with respect to the governance and 
corporate structure of the Exchange and its direct and indirect parent 
companies. The Exchange believes that these additional changes, among 
other things, will remove administrative impediments to the governance 
of the Exchange. By simplifying the governance structure in this way, 
the Proposed Rule Change promotes the maintenance of a fair and orderly 
market, the protection of investors and the protection of the public 
interest.

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

    The Exchange does not believe that the Proposed Rule Change would 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. The 
Exchange will continue to conduct regulated activities (including 
operating and regulating its market and Members) of the type it 
currently conducts, but will be able to do so in a more efficient 
manner to the benefit of its Members. Furthermore, the proposed 
Conversion is not a competitive proposal, but rather is intended to add 
efficiency with respect to the governance process for the Exchange and 
its affiliates.

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

    The Exchange has not solicited or received written comments on the 
Proposed Rule Change.

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

    Because the foregoing proposed rule change does not: (1) 
Significantly affect the protection of investors or the public 
interest; (2) impose any significant burden on competition; and (3) by 
its terms does not become operative for 30 days after the date of this 
filing, or such shorter time as the Commission may designate if 
consistent with the protection of investors and the public interest, 
the proposed rule change has become effective pursuant to section 
19(b)(3)(A) of the Act \18\ and Rule 19b-4(f)(6) thereunder.\19\
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to provide the Commission 
with written notice of its intent to file the proposed rule change, 
along with a brief description and text of the proposed rule change, 
at least five business days prior to the date of filing of the 
proposed rule change, or such shorter time as designated by the 
Commission. The Exchange has met this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. The Exchange has asked the Commission to waive the 
30-day operative delay so that the proposal may become operative 
immediately upon filing. The Commission believes that waiving the 30-
day operative delay is consistent with the protection of investors and 
the public interest as it will allow the Exchange to effect the 
Conversion upon filing with the Secretary of State of the State of 
Delaware and, according to the Exchange, simplify the administration 
associated with the Exchange's overall corporate structure 
immediately.\20\ Accordingly, the Commission hereby grants the 
Exchange's request and designates the proposal operative upon filing.
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    \20\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if

[[Page 78125]]

it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act..

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-EDGX-2014-34 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-EDGX-2014-34. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-EDGX-2014-34, and should be 
submitted on or before January 20, 2015.
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    \21\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
Brent J. Fields,
Secretary.
[FR Doc. 2014-30274 Filed 12-24-14; 8:45 am]
BILLING CODE 8011-01-P