Document ID: SEC-2021-1810-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq BX, Inc
Posted Date: 2021-12-28T05:00Z

[Federal Register Volume 86, Number 246 (Tuesday, December 28, 2021)]
[Notices]
[Pages 73831-73833]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-28108]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93848; File Nos. SR-BX-2021-050; SR-BX-2021-051]

Self-Regulatory Organizations; Nasdaq BX, Inc.; Order Approving 
Proposed Rule Changes Regarding the Transfer of Ownership of Nasdaq BX 
Equities LLC and the Merger of Nasdaq BX Equities LLC With and Into the 
Exchange

December 21, 2021.

I. Introduction

    On October 22, 2021, Nasdaq BX, Inc. (``BX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission''), pursuant 
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') 
\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change regarding the 
transfer of Nasdaq, Inc.'s (``Nasdaq HoldCo'') entire ownership 
interest in Nasdaq BX Equities LLC (``BX Equities'') to the Exchange 
(``Transfer Proposal''). The Transfer Proposal was published for 
comment in the Federal Register on November 9, 2021.\3\ Also on October 
22, 2021, the Exchange filed with the Commission, pursuant to Section 
19(b)(1) of the Act \4\ and Rule 19b-4 thereunder,\5\ a proposed rule 
change regarding the merger of BX Equities with and into the Exchange 
(``Merger Proposal''). The Merger Proposal was published for comment in 
the Federal Register on November 9, 2021.\6\ The Commission received no 
comment letters on the proposed rule changes. This order approves the 
proposed rule changes.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 93514 (November 3, 
2021), 86 FR 62229 (``Transfer Notice'').
    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CFR 240.19b-4.
    \6\ See Securities Exchange Act Release No. 93513 (November 3, 
2021), 86 FR 62222 (``Merger Notice'').
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II. Description of the Proposals

    The Exchange proposes, through the Transfer Proposal and the Merger 
Proposal, a two-step process that will first allow the Exchange to 
become the 100% direct owner and sole LLC member of BX Equities, and 
subsequently allow the merger of BX Equities with and into the Exchange 
(``Transactions'').

A. Transfer Proposal

    BX Equities was acquired by Nasdaq HoldCo in 2008, and was 
established as a facility of and controlled subsidiary

[[Page 73832]]

owned and operated by the Exchange for the listing and trading of cash 
equity securities.\7\ Currently, Nasdaq HoldCo \8\ directly owns 100% 
of the Exchange, and the Exchange and Nasdaq HoldCo are the only owners 
and LLC members of BX Equities--the Exchange directly owns 53.21% of BX 
Equities and Nasdaq HoldCo directly owns the remaining 46.79% of BX 
Equities.\9\ BX Equities is currently governed by, among other things, 
the Nasdaq BX Equities LLC Fifth Amended and Restated Operating 
Agreement (``Operating Agreement''), which provides that management of 
BX Equities is vested in the Exchange.\10\ Nasdaq HoldCo has no direct 
management role in the operation of BX Equities, with the exception of 
its limited role as tax matters member \11\ and its limited rights with 
regard to capital contributions in and dissolution of BX Equities.\12\
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    \7\ See Transfer Notice, supra note 3, at 62229.
    \8\ Nasdaq HoldCo was formerly known as NASDAQ OMX Group, Inc. 
See id. at 62229 n.5. The Transactions will have no effect on Nasdaq 
HoldCo's direct ownership of the Exchange. See id. at 62229; Merger 
Notice, supra note 6, at 62222.
    \9\ See Transfer Notice, supra note 3, at 62229-30. Nasdaq 
HoldCo previously remained an LLC member of BX Equities to avoid 
certain adverse tax consequences that would be associated with 
contributing its ownership interest to the Exchange, but according 
to the Exchange, these tax considerations have since expired. See 
id. at 62230 n.7. See also Securities Exchange Act Release No. 59154 
(December 23, 2008), 73 FR 80468, 80469-70 n.20 (December 31, 2008).
    \10\ See Transfer Notice, supra note 3, at 62230.
    \11\ See definitions of ``Capital Account'' and ``Tax Amount'' 
in Section 1.1, and Sections 10.9 and 12.6 of the Operating 
Agreement.
    \12\ See Sections 7.4 and 11.1 of the Operating Agreement. See 
also Transfer Notice, supra note 3, at 62230.
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    As proposed, Nasdaq HoldCo will transfer its entire ownership 
interest in BX Equities to the Exchange, which will result in the 
Exchange becoming the 100% direct owner and sole LLC member of BX 
Equities.\13\ The Exchange represents that the Transfer Proposal merely 
seeks to simplify the corporate structure of BX Equities, that the 
Exchange will operate in a substantially similar manner following the 
transfer as it currently operates (with the addition of the Exchange's 
role as the tax matters member of BX Equities), and that the transfer 
will have no impact on how the Exchange operates its equities 
market.\14\
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    \13\ Section 8.1 of the Operating Agreement states that the 
Exchange must obtain Commission approval for transfers of ownership 
interest in BX Equities. According to the Exchange, upon Commission 
approval of the Transfer Proposal, the Exchange and Nasdaq HoldCo 
will enter into a contribution and assignment agreement 
(``Contribution Agreement'') pursuant to which Nasdaq HoldCo will 
transfer its entire 46.79% ownership interest in BX Equities, and 
all of its other rights and obligations arising thereunder, to the 
Exchange, resulting in the Exchange directly owning 100% of BX 
Equities. See Transfer Notice, supra note 3, at 62230.
    \14\ See id.
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    The Exchange proposes to amend the Operating Agreement to reflect 
the transfer. In particular, the Exchange proposes to add a description 
of the Contribution Agreement,\15\ remove references to Nasdaq HoldCo 
as an LLC member of BX Equities,\16\ replace references to Nasdaq 
HoldCo with references to the Exchange to reflect that Nasdaq HoldCo 
will no longer be the tax matters member of BX Equities; \17\ provide 
that Nasdaq HoldCo will no longer have limited rights with respect to 
capital contributions in BX Equities \18\ and the dissolution of BX 
Equities; \19\ and delete a provision relating to the books, records, 
premises, officers, directors, agents, and employees of Nasdaq 
HoldCo.\20\
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    \15\ See proposed changes to the Recitals section of the 
Operating Agreement.
    \16\ See proposed changes to the introductory paragraphs, 
Sections 1.1 and 7.2, and Schedules 1 and 2 of the Operating 
Agreement.
    \17\ See proposed changes to the definitions of ``Capital 
Account'' and ``Tax Amount'' in Section 1.1, and Sections 10.9 and 
12.6 of the Operating Agreement.
    \18\ See proposed changes to Section 7.4 of the Operating 
Agreement.
    \19\ See proposed changes to Section 11.1 of the Operating 
Agreement.
    \20\ See proposed changes to Section 18.6 of the Operating 
Agreement.
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B. Merger Proposal

    Following the transfer of ownership interest in BX Equities as 
described above, the Exchange proposes to merge BX Equities with and 
into the Exchange.\21\ As a result, BX Equities will be eliminated, the 
Exchange will be the surviving entity, and the Exchange will directly 
operate its equities market.\22\
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    \21\ See Merger Notice, supra note 6, at 62222-23. The Exchange 
anticipates that the merger will occur immediately after the 
transfer. See id. at 62223.
    \22\ See id. at 62222-23.
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    Currently, the Exchange has delegated certain responsibilities to 
BX Equities to operate the Exchange's equities market under a 
Delegation Agreement.\23\ The delegation is limited to the Exchange's 
equities market functions and does not include other functions not 
specifically mentioned in the limited delegation.\24\ Pursuant to the 
Delegation Agreement, the Exchange retains ultimate responsibility for 
its equities market, including the responsibility to ensure the 
fulfillment of statutory and self-regulatory obligations under the 
Act.\25\ In connection with the proposed merger, the Exchange proposes 
to terminate the delegation of functions to BX Equities and delete the 
Delegation Agreement from its rules. With the termination of the 
Delegation Agreement, all of the functions previously delegated to BX 
Equities will be performed by the Exchange, and the Exchange will 
directly operate its equities market.\26\ The Exchange will continue to 
bear responsibility over its equities market of ensuring the 
fulfillment of its statutory and self-regulatory obligations.\27\
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    \23\ See id. at 62222.
    \24\ See id. at 62223.
    \25\ See id.
    \26\ See id.
    \27\ See id.
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    As described above, BX Equities is also currently governed by the 
Operating Agreement, which provides that management of BX Equities is 
vested in the Exchange.\28\ In connection with the proposed merger and 
the proposed termination of the Delegation Agreement, BX Equities will 
no longer be operating the Exchange's equities market and the Operating 
Agreement will become obsolete.\29\ Accordingly, the Exchange proposes 
to delete the Operating Agreement from its rules.
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    \28\ The Exchange also states that BX Equities can only act 
through the action of the Exchange and the Exchange's officers and 
directors, because there is no separate BX Equities board of 
directors and all BX Equities officers are officers of the Exchange. 
See id.
    \29\ See id.
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    Finally, the Exchange proposes to make conforming changes to its 
rules to reflect the proposed merger and the proposed deletion of the 
Delegation Agreement and Operating Agreement. In particular, the 
Exchange proposes to delete General 2, Section 8, which relates to the 
Delegation Agreement and the staff, books, records, premises, officers, 
employees, and agents of BX Equities. The Exchange also proposes to 
amend Equity 1, Section 1 to remove references to the Operating 
Agreement, Delegation Agreement, and BX Equities.

III. Discussion and Commission Findings

    The Commission finds that the proposed rule changes are consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\30\ In 
particular, the Commission finds that the proposed rule changes are 
consistent with Section 6(b)(1) of the Act,\31\ which requires that a 
national securities exchange be so organized and have the capacity to 
be able to carry out the purposes of the Act

[[Page 73833]]

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 
Commission also finds that the proposed rule changes are consistent 
with Section 6(b)(5) of the Act,\32\ which requires, among other 
things, that the rules of a national securities exchange be designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to remove impediments to and perfect 
the mechanism of a free and open market and a national market system, 
and, in general, to protect investors and the public interest.
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    \30\ In approving the proposed rule changes, the Commission has 
considered the proposed rules' impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \31\ 15 U.S.C. 78f(b)(1).
    \32\ 15 U.S.C. 78f(b)(5).
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    As described above, the proposed rule changes will allow (i) the 
transfer of Nasdaq HoldCo's ownership interest in BX Equities to the 
Exchange, and (ii) the merger of BX Equities with and into the 
Exchange. The proposed transfer will have no impact on how the Exchange 
operates its equities market and, as described above, the Exchange 
anticipates that the merger will occur immediately after the transfer. 
Following the merger, the Exchange will directly operate its equities 
market and perform the functions that were previously delegated to BX 
Equities. Moreover, the Exchange will continue to have ultimate 
responsibility over its equities market, including the responsibility 
to ensure the fulfillment of its statutory and self-regulatory 
obligations under the Act.\33\ Because the proposed rule changes will 
allow the Exchange to directly operate its equities market (rather than 
through a subsidiary) and the Exchange will continue to have ultimate 
regulatory responsibility over its equities market, the Commission 
believes that the proposed rule changes are consistent with the Act and 
will not impair the ability of the Commission or the Exchange to 
discharge their respective responsibilities under the Act. The 
Commission also believes that the Exchange's proposals to amend the 
Operating Agreement in connection with the transfer, and to 
subsequently remove the Delegation Agreement and the amended Operating 
Agreement and make conforming changes to its rules in connection with 
the merger, are consistent with the Act and will allow the Exchange's 
rulebook to reflect the Transactions.
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    \33\ The Exchange states that its independent regulatory 
oversight committee (``ROC'') will continue to oversee the 
Exchange's regulatory and self-regulatory organization 
responsibilities with regard to both its equities and options 
markets, and the Exchange's regulatory department will continue to 
carry out its regulatory functions with respect to both markets 
under the oversight of the ROC. See Merger Notice, supra note 6, at 
62224.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\34\ that the proposed rule changes (SR-BX-2021-050; SR-BX-2021-
051) be, and hereby are, approved.
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    \34\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\35\
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    \35\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-28108 Filed 12-27-21; 8:45 am]
BILLING CODE 8011-01-P