Document ID: SEC-2011-1685-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: BATS Y-Exchange, Inc.
Posted Date: 2011-11-02T04:00Z

[Federal Register Volume 76, Number 212 (Wednesday, November 2, 2011)]
[Notices]
[Pages 67784-67786]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-28350]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65647, File No. SR-BYX-2011-021]

Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Order 
Approving Proposed Rule Change To Amend and Restate the Second Amended 
and Restated Certificate of Incorporation of BATS Global Markets, Inc.

October 27, 2011.

I. Introduction

    On August 29, 2011, BATS Y-Exchange, Inc. (``BYX'' 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 to 
amend the certificate of incorporation (``Certificate of 
Incorporation'') of BATS Global Markets, Inc. (``Corporation'') in 
connection with its anticipated initial public offering of shares of 
its Class A Common Stock (the ``IPO''). The proposed rule change was 
published for comment in the Federal Register on September 14, 2011.\3\ 
The Commission received no comment letters regarding the proposal. This 
order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 65299 (September 8, 
2011), 76 FR 56833 (September 14, 2011) (``Notice'').
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II. Description of the Proposal

    On May 13, 2011, the Corporation filed a registration statement on 
Form S-1 with the Commission to register shares of Class A Common Stock 
(as defined below) and disclose its intention to conduct its IPO and to 
list those shares for trading on the Exchange. In connection with its 
IPO, the Exchange filed this proposed rule change to amend and restate 
the Corporation's current Second Amended and Restated Certificate of 
Incorporation and adopt a Third Amended and Restated Certificate of 
Incorporation (``New Certificate of Incorporation'').

A. Reclassification of Common Stock and Additional Authorized Shares

    The Exchange has proposed to revise the Certificate of 
Incorporation to reclassify the Corporation's existing common stock, 
``Voting Common Stock'' and ``Non-Voting Common Stock.'' This 
reclassification will result in two classes of common stock, Class A 
and Class B. Class A will be designated as either ``Class A Common 
Stock'' or ``Non-

[[Page 67785]]

Voting Class A Common Stock.'' Class B will be designated as either 
``Class B Common Stock'' or ``Non-Voting Class B Common Stock.'' In 
connection with this reclassification, the Exchange has proposed 
certain voting rights,\4\ transfer restrictions,\5\ and conversion 
features \6\ for each class. The Class A Common Stock will have the 
right to one vote per share, while the Class B Common Stock will have 
the right to 2\1/2\ votes per share.
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    \4\ See generally proposed Section 4.04(a) of the New 
Certificate of Incorporation.
    \5\ See generally proposed Section 4.04(b) of the New 
Certificate of Incorporation.
    \6\ See generally proposed Section 4.04(c) of the New 
Certificate of Incorporation. Among the conversion features 
proposed, the Corporation proposes to have Class B shares 
automatically convert into Class A shares upon a Class B holder 
owning less than a 4,960,491 (approximately 2%) of the Corporation's 
outstanding common stock. See proposed Section 4.04(c)(v)(B) of the 
New Certificate of Incorporation.
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    The Exchange notes that the purpose of the reclassification of the 
Corporation's common stock is to encourage the Corporation's existing 
strategic investors to remain strategic investors of the Corporation 
after the IPO.\7\ In its proposal, BYX states that the Class B holders 
will in aggregate control a meaningful, but less than majority, 
percentage of the vote on matters coming before the stockholders.\8\ 
The Exchange also notes that the transfer restrictions balance the 
ability of existing strategic investors to orderly sell shares in the 
open market, while at the same time retaining strategic benefits to the 
Corporation of their significant ownership for a certain period of 
time, through their holdings of Class B shares.\9\ Finally, the 
Exchange notes that its automatic conversion features are intended to 
ensure that only those investors with a significant economic investment 
in the company (approximately 2%) will own the Class B Common 
Stock.\10\
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    \7\ See Notice supra note 3, at 76 FR at 56835.
    \8\ See id.
    \9\ See id.
    \10\ See id.
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    The proposed New Certificate of Incorporation would increase the 
number of shares the Corporation would be authorized to issue and would 
also give the Corporation the authority to issue 40 million shares of 
Preferred Stock, par value $0.01 per share.\11\
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    \11\ See proposed Section 4.01 of the proposed New Certificate 
of Incorporation. The total number of authorized shares the 
Corporation has authority to issue is 614,607,649.
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B. Limitations on Ownership and Voting Power

    As noted by the Exchange, the proposal maintains and enhances the 
limitations on aggregate ownership and total voting power that exist 
under the current Certificate of Incorporation.\12\ The Exchange has 
also proposed to aggregate all shares of Class A Common Stock, Non-
Voting Class A Common Stock, Class B Common Stock, Non-Voting Class B 
Common Stock, and any series of Preferred Stock of the Corporation as a 
single class of capital stock of the Corporation for purposes of 
determining compliance with the ownership and voting limitations. The 
proposed New Certificate of Incorporation would explicitly include non-
voting stock in the calculation of ownership applicable to non-Member 
shareholders.\13\
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    \12\ The relevant provisions of the Certificate of Incorporation 
impose a 40% ownership limit on the amount of capital stock of the 
Corporation that any person, either alone or together with its 
related persons, may own, directly or indirectly, of record or 
beneficially; a 20% ownership limit on the amount of capital stock 
of the Corporation that any member of the Exchange, either alone, or 
together with its related persons, may own directly or indirectly, 
of record or beneficially, and prohibit any person, either alone or 
together with its related persons, from having or exercising more 
than 20% of the voting power of the capital stock of the 
Corporation. See proposed Section 5.01(a)(i)-(iii) of the New 
Certificate of Incorporation.
    \13\ See proposed Section 5.01(b)(1) of the New Certificate of 
Incorporation.
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C. Bylaws and Future Amendments to the Certificate of Incorporation

    Currently, the Certificate of Incorporation provides that either 
the Board of Directors or shareholders may adopt, amend, or repeal the 
Bylaws of the Corporation. The proposal would modify this provision so 
that, upon the change in ownership,\14\ stockholders may only adopt, 
amend, or repeal the Bylaws upon the affirmative vote of at least 70% 
of the total voting power of all outstanding shares of the 
Corporation.\15\
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    \14\ ``Change of Ownership'' would be defined as a transaction 
or series of transactions which results in the beneficial owners of 
the Class B Common Stock and Non-Voting Class B Common Stock owning 
in the aggregate less than a majority of the total voting power of 
all outstanding securities of the Corporation then entitled to vote 
generally in the election of directors, voting together as a single 
class. See proposed Section 6.01(b) of the New Certificate of 
Incorporation.
    \15\ See proposed Section 9.02(b) of the New Certificate of 
Incorporation.
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D. Other Amendments

    The proposal will amend and restate various other provisions of the 
current Certificate of Incorporation in a manner that the Exchange 
believes are intended to reflect provisions that are more customary for 
publicly-owned companies (such as those relating to the indemnification 
of directors and business combinations, among others).

III. Discussion

    After careful review of the proposal, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\16\ In particular, the Commission finds that the 
proposal is consistent with Section 6(b)(1) of the Act, \17\ which 
requires a national securities exchange to be so organized and have the 
capacity to carry out the purposes of the Act and to enforce compliance 
by its members and persons associated with the provisions of the Act.
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    \16\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \17\ 15 U.S.C. 78f(b)(1).
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    The Commission notes that the Exchange has represented that the 
proposed rule change relates solely to the Certificate of the 
Incorporation of the Corporation and that the Exchange will continue to 
be governed by its existing certificate of incorporation and by-
laws.\18\ The Exchange has also represented that the Corporation will 
continue to directly and solely hold all the stock in, and voting power 
of, the Exchange and that the Exchange will continue to operate 
pursuant to its existing governance structure.\19\
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    \18\ See Notice, supra note 3, 76 FR at 56834.
    \19\ See id.
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    The Commission further notes that the Exchange has represented that 
the proposed rule change will maintain and enhance the existing 
ownership and voting limitations in the Certificate of 
Incorporation.\20\ To this end, the Exchange has proposed to aggregate 
all classes of Common Stock and any Preferred Stock (if issued) of the 
Corporation for purposes of determining stockholder compliance with its 
ownership and voting limitations.\21\ The proposed rule change would 
also include non-voting common stock in the calculations of such 
ownership limitations. As a result, the Commission believes that the 
proposed rule change should effectively maintain and bolster the 
ownership and voting limits currently in place for the Corporation 
consistent with Section 6(b)(1) of the Exchange Act.
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    \20\ See supra note 12 (discussing the limitations of ownership 
of capital stock of the Corporation to 40% for any Person and 20% 
for any member and voting power of capital stock of the Corporation 
to 20% for any Person).
    \21\ See proposed Section 5.01(b)(i) of the New Certificate of 
Incorporation.
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    The Commission believes that the enhanced ownership and voting 
limitations should minimize the

[[Page 67786]]

potential that a person, including members, could improperly interfere 
with or restrict the ability of the Commission or the Exchange to 
effectively carry out their regulatory oversight responsibilities under 
the Exchange Act. In addition, these limitations should protect against 
the instance whereby a member's interest in an exchange or an entity 
controlling the exchange becomes so large as to cast doubt on whether 
the exchange can fairly and objectively exercise its self-regulatory 
responsibilities with respect to that member.

III. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
\22\ that the proposed rule change (SR-BYX-2011-021) be, and hereby is, 
approved.
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    \22\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 7 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-28350 Filed 11-1-11; 8:45 am]
BILLING CODE 8011-01-P