Document ID: SEC-2014-2164-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: ISE Gemini, LLC
Posted Date: 2014-12-23T05:00Z

[Federal Register Volume 79, Number 246 (Tuesday, December 23, 2014)]
[Notices]
[Pages 77064-77066]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-29964]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73861; File No. SR-ISEGemini-2014-24]

Self-Regulatory Organizations; ISE Gemini, LLC; Order Granting 
Approval of Proposed Rule Change, as Modified by Amendment No. 1 
Thereto, Relating to a Corporate Transaction Involving Its Indirect 
Parent

December 17, 2014

I. Introduction

    On October 22, 2014, the ISE Gemini, LLC (the ``Exchange'' or the 
``ISE Gemini'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) \1\ of the Securities 
Exchange Act of 1934 (``Act''),\2\ and Rule 19b-4 thereunder,\3\ a 
proposed rule change to make certain amendments to its corporate 
governance documents and those of certain of its upstream owners, in 
order to effectuate changes to its indirect, non-U.S. upstream 
ownership structure (the ``Transactions'') \4\ and to amend the Amended 
and Restated Limited Liability Company Agreement of ISE Gemini (``ISE 
Gemini LLC Agreement'') with respect to distributions of its assets. On 
October 31, 2014, the Exchange filed Amendment No. 1 to the proposed 
rule change. The proposed rule change, as modified by Amendment No. 1, 
was published for comment in the Federal Register on November 12, 
2014.\5\ The Commission received no comments on the proposed rule 
change. This order approves the proposed rule change, as modified by 
Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ The amendments also update certain of the corporate 
governance documents to reflect prior transactions.
    \5\ See Securities Exchange Act Release No. 73531 (November 5, 
2014), 79 FR 67215 (``Notice'').
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II. Description of the Proposed Rule Change

    The Exchange proposes to make certain changes to its indirect, non-
U.S. upstream ownership structure.\6\ Currently, the Exchange is a 
wholly owned subsidiary of International Securities Exchange Holdings, 
Inc. (``ISE Holdings''). ISE Holdings, in turn, is a wholly owned 
subsidiary of U.S. Exchange Holdings, Inc. (``U.S. Exchange 
Holdings''), which is wholly owned by Eurex Frankfurt AG (``Eurex 
Frankfurt''). Eurex Frankfurt is a wholly owned subsidiary of a Swiss 
stock corporation, Eurex Z[uuml]rich AG (``Eurex Z[uuml]rich''), which, 
in turn, is jointly owned by Deutsche B[ouml]rse AG (``Deutsche 
B[ouml]rse'') and Eurex Global Derivatives AG (``EGD,'' and together 
with Eurex Z[uuml]rich, the ``Swiss companies''). EGD is a wholly-
owned, direct subsidiary of Deutsche B[ouml]rse.\7\
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    \6\ For a more detailed description of the anticipated steps to 
effectuate the Transactions, see Notice, supra note 5, at 67216.
    \7\ Each of Deutsche B[ouml]rse, Eurex Frankfurt, Eurex 
Z[uuml]rich, and EGD is referred to as a ``Non-U.S. Upstream Owner'' 
and collectively as the ``Non-U.S. Upstream Owners.''
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    As a result of the Transactions, the Swiss companies will cease to 
be Non-U.S. Upstream Owners of the Exchange, as Deutsche B[ouml]rse 
will become the sole, direct owner of Eurex Frankfurt, which will 
directly own 85% of U.S. Exchange Holdings. Deutsche B[ouml]rse will 
directly own the remaining 15% of U.S. Exchange Holdings. Also in 
connection with the Transactions, the Series A Preferred Stock of ISE 
Holdings (``ISE Holdings Preferred'') will be converted to shares of 
ISE Holdings common stock

[[Page 77065]]

(the ``Conversion'').\8\ Upon consummation of the Transactions, U.S. 
Exchange Holdings will remain the sole, direct owner of ISE Holdings, 
which, in turn, will also remain the sole, direct owner of the 
Exchange.\9\ In order to consummate the Transactions, including the 
Conversion, the Exchange proposes to amend certain of its, and its 
upstream owners', corporate governance documents as described below.
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    \8\ Upon consummation of the Transactions, all of the common 
stock of ISE Holdings will continue to be held by U.S. Exchange 
Holdings. See Notice, supra note 5, at 67216.
    \9\ According to the Exchange, the Transactions will not result 
in any additional person or entity acquiring direct or indirect 
ownership in the Exchange. See Notice, supra note 5, at 67216.
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A. Certificate of Designations of Series A Preferred Stock of ISE 
Holdings

    The Exchange proposes to amend and restate the Certificate of 
Designations of Series A Preferred Stock of ISE Holdings (the ``COD''). 
In particular, the Exchange proposes to amend Section 6(b) of the COD, 
which currently provides that the ISE Holdings Preferred is not 
convertible, to state that each share of ISE Holdings Preferred may, at 
the option of the holder thereof, be converted into one fully paid and 
non-assessable share of ISE Holdings common stock (``ISE Holdings 
Common'') on the date on which such holder delivers a duly executed 
notice of conversion to ISE Holdings substantially in the form of a new 
Annex A attached to the COD.\10\
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    \10\ The Exchange also proposes to retitle the COD as the 
``Amended and Restated'' Certificate of Designations of Series A 
Preferred Stock of ISE Holdings.
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B. Amended and Restated Certificate of Incorporation of ISE Holding

    The Exchange proposes to amend and restate the Amended and Restated 
Certificate of Incorporation of ISE Holdings (the ``COI'') by 
increasing the number of authorized shares of ISE Holdings Common from 
1,000 shares to 101,000 shares in order to account for the increase in 
the authorized number of ISE Holdings Common that will result from the 
Conversion.\11\ As such, the total number of authorized ISE Holdings 
Common and ISE Holdings Preferred will increase from 101,000 shares to 
201,000 shares.\12\
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    \11\ The Exchange also proposes to retitle the COI as the 
``Second'' Amended and Restated Certificate of Incorporation of ISE 
Holdings and update the date thereof.
    \12\ The Exchange will maintain the total number of authorized 
ISE Holdings Preferred Stock at 100,000 shares.
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C. Trust Agreement

    The Exchange proposes to amend and restate the Second Amended and 
Restated Trust Agreement (the ``Trust Agreement'') that exists among 
ISE Holdings, U.S. Exchange Holdings, and the Trustees (as defined 
therein) in connection with the Transactions. Specifically, the 
Exchange proposes to: (i) Update the recitals of the Trust Agreement 
with respect to the Transactions; (ii) remove references to the Swiss 
companies from the definition of ``Affected Affiliate'' in section 1.1 
of the Trust Agreement; (iii) remove outdated references to EDGA 
Exchange, Inc. (``EDGA'') and EDGX Exchange, Inc. (``EDGX'') from the 
definition of ``Controlled National Securities Exchange'' in section 
1.1 and update the recitals of the Trust Agreement accordingly; \13\ 
and (iv) remove EGD's address from the notices provision in section 8.8 
of the Trust Agreement.\14\
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    \13\ EDGA and EDGX previously were Controlled National 
Securities Exchanges, but ceased to be so as a result of a business 
combination whereby BATS Global Markets, Inc. became the ultimate 
parent company for each. See Securities Exchange Act Release No. 
71449 (January 30, 2014), 79 FR 6961 (February 5, 2014) (SR-EDGA-
2014-34; SR-EDGX-2014-43). See also Notice, supra note 5, at 67217 
n.22.
    \14\ The Exchange also proposes to retitle the Trust Agreement 
as the ``Third'' Amended and Restated Trust Agreement and update the 
date thereof.
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D. Certain Resolutions and Agreements

    The Exchange proposes to delete certain corporate resolutions and 
agreements that were previously adopted by the Swiss companies that 
will cease to be indirect, upstream owners of ISE Gemini after the 
Transactions. In particular, each of the Non-U.S. Upstream Owners 
previously adopted resolutions, which were approved by the Commission, 
to incorporate measures regarding ownership, jurisdiction, books and 
records, and other issues related to their control of the Exchange, 
with respect to the Non-U.S. Upstream Owners, as well as its board 
members, officers, employees, and agents (as applicable), to the extent 
that they are involved in the activities of the Exchange.\15\ In 
addition to these resolutions, the Swiss companies previously entered 
into an ``Agreement and Consent,'' in which EGD agreed to provide 
certain information related to the activities of the Exchange, 
including books and records of EGD related to the activities of the 
Exchange, to the Commission, through Eurex Z[uuml]rich. As the Swiss 
companies will cease to be Non-U.S. Upstream Owners of the Exchange 
following the consummation of the Transactions, the Exchange proposes 
to delete the resolutions of these entities, as referenced above, along 
with the Agreement and Consent, such that they will no longer be rules 
of the Exchange as of a date in December 2014 that corresponds to the 
effective closing date of the applicable step in the Transactions.
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    \15\ In this regard, the Exchange also proposes to delete the 
form of agreement and consent to be entered into by relevant 
officers and employees of the Swiss companies. See SR-ISEGemini-
2014-24, Exhibit 5G, proposing to delete in its entirety the ``Form 
of Agreement and Consent (Swiss Entities).''
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E. ISE Gemini LLC Agreement

    In addition to the changes described above, the Exchange proposes 
to amend and restate the ISE Gemini LLC Agreement by deleting the first 
sentence of section 3.3 which provides that distributions may not be 
made to ISE Holdings except: (i) Pursuant to section 3.4 (Tax 
Characterization; Returns; Distributions in Respect of Taxes) of the 
ISE Gemini LLC Agreement; or (ii) upon liquidation of the Exchange.\16\ 
The Exchange also proposes to clarify in section 3.3 that Regulatory 
Funds shall not be used for non-regulatory purposes.\17\
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    \16\ The Exchange states that this deletion would not impact the 
current practice of distributions from the Exchange to ISE Holdings. 
See Notice, supra note 5, at 67218.
    \17\ As amended, section 3.3 of the ISE Gemini LLC Agreement 
will provide that, notwithstanding any provision to the contrary in 
the ISE Gemini LLC Agreement, (i) the Exchange would not be required 
to make a distribution to ISE Holdings if such distribution would 
violate the Delaware Limited Liability Company Act, any other 
applicable law, or is otherwise required to fulfill the regulatory 
functions or responsibilities of the Exchange, and (ii) Regulatory 
Funds will not be used for non-regulatory purposes, but rather shall 
be used to fund the legal. The Exchange also proposes to retitle the 
ISE Gemini LLC Agreement as the ``Second'' Amended and Restated 
Limited Liability Company Agreement, update the date thereof, and 
update the table of contents.
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U.S. Exchange Holdings Certificate of Incorporation

    Lastly, the Exchange proposes to make several administrative 
amendments to the Second Amended and Restated Certificate of 
Incorporation of U.S. Exchange Holdings (``U.S. Exchange Holdings 
COI'') to update references therein to the Trust Agreement. 
Specifically, Article THIRTEENTH of the U.S. Exchange Holdings COI 
contains outdated references to (i) the ``Amended and Restated'' Trust 
Agreement, which is currently the ``Second Amended and Restated'' Trust 
Agreement and will become the ``Third Amended and Restated'' Trust 
Agreement; and (ii) the effective date of the Trust Agreement, which 
will be changed to a date in December 2014 that corresponds to the

[[Page 77066]]

effective closing date of the applicable step in the Transactions. The 
Exchange also proposes to add language in Article THIRTEENTH specifying 
that the Trust Agreement may be amended, restated, or replaced from 
time to time and remove references to EDGA Exchange and EDGX Exchange 
from the definition of ``Controlled National Securities Exchange'' in 
Article TENTH.\18\
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    \18\ The Exchange also proposes to retitle the U.S. Exchange 
Holdings COI as the ``Third'' Amended and Restated Certificate of 
Incorporation of U.S. Exchange Holdings, and update the effective 
date thereof.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and rules and 
regulations thereunder applicable to a national securities 
exchange.\19\ Specifically, the Commission finds that the proposal is 
consistent with section 6(b)(1) of the Act,\20\ which requires that an 
exchange be organized and 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.
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    \19\ In approving the proposed rule changes, the Commission has 
considered their impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \20\ 15 U.S.C. 78s(b)(1).
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    The Exchange represents that it will continue to operate and 
regulate its market and members in the same manner following the 
Transactions as it operates today.\21\ The Exchange further states that 
the proposed rule change will facilitate an ownership structure that 
will continue to provide the Commission with appropriate oversight 
tools to allow the Commission to enforce the provisions of the Act with 
respect to the Exchange and its direct and indirect Non-U.S. Upstream 
Owners, including each of their directors, officers, employees, and 
agents, to the extent they are involved in the activities of the 
Exchange.\22\ The Commission notes that as a result of the 
Transactions, the Swiss companies will no longer be indirect, upstream 
owners of the Exchange, but that the upstream ownership of the Exchange 
otherwise remains substantially the same.\23\ The Commission also notes 
that the Exchange has represented that it is not proposing any changes 
to the Exchange's operational or trading structure in connection with 
the Transactions.\24\ The Exchange further stated that no changes will 
be made to other aspects of the Exchange's corporate governance 
documents that were previously approved by the Commission.\25\
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    \21\ See Notice, supra note 5 at 67227.
    \22\ See id. at 67228.
    \23\ Although prior to the Transactions Deutsche B[ouml]rse's 
interest in U.S. Exchange Holdings was held solely through its 100% 
indirect ownership in Eurex Frankfurt, upon consummation of the 
transactions it will instead directly own Eurex Frankfurt and will 
hold a direct 15% interest in U.S. Exchange Holdings. The remaining 
85% interest in U.S. Exchange Holdings will continue to be directly 
held by Eurex Frankfurt.
    \24\ See id.
    \25\ See id.
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    The Commission believes that the proposed changes related to the 
Transactions will not impact provisions of the Exchange's, or its 
upstream owners, corporate governance documents that were designed to 
enable the ISE Gemini to operate in a manner that complies with the 
federal securities laws, and were intended to assist the ISE Gemini in 
fulfilling its self-regulatory obligations and administering and 
complying with the requirements of the Act.\26\ The Commission also 
believes that the proposed rule change will allow the Commission to 
continue to exercise its plenary regulatory authority over the Exchange 
and continue to provide the Commission and the Exchange with access to 
necessary information that will allow the Exchange to comply, and 
enforce compliance, with the Act. As the Exchanges notes, the proposed 
administrative amendments will continue to preserve the independence of 
the Exchange's self-regulatory functions and ensure that it will be 
able to obtain any information it needs in order to address fraudulent 
and manipulative acts in its marketplace and carry out its regulatory 
responsibilities under the Act.\27\
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    \26\ See e.g., Securities Exchange Act Release No. 70050 (July 
26, 2013), 78 FR 46622 (August 1, 2013) (approving the application 
for registration as a national securities exchange of Topaz 
Exchange, LLC).
    \27\ See id.
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    The Commission also believes that the proposed amendments to the 
ISE Gemini LLC Agreement related to distributions are consistent with 
the Act. The Commission notes, as discussed above, that the Exchange 
states that the proposed changes will not impact the current practice 
of distributions from the Exchange to ISE Holdings, and would continue 
to ensure that any distributions by the Exchange to ISE Holdings, and 
subsequently to its indirect upstream owners, would not be made in 
violation of the Exchange's legal and regulatory responsibilities or 
with Regulatory Funds.\28\ The Commission believes that the proposed 
rule change is designed to facilitate the ability of ISE Gemini to 
fulfill its regulatory obligations under the Act and will help ensure 
the independence of its regulatory function from its market operations 
and other commercial interests.\29\
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    \28\ See Notice, supra note 5, at 67218.
    \29\ The Commission notes that, as amended, the provision in ISE 
Gemini's LLC Agreement governing distributions will be consistent 
with similar provisions the Commission has previously approved for 
other self-regulatory organizations. See, e.g., Securities Exchange 
Act Release No. 68341 (December 3, 2012), 77 FR 73065 (December 7, 
2012) (approving the application for registration as a national 
securities exchange of Miami International Securities Exchange, 
LLC).
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IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the Act 
\30\ that the proposed rule change (SR-ISEGemini-2014-24), as modified 
by Amendment No. 1, be, and hereby is, approved.
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    \30\ 15 U.S.C. 78f(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
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    \31\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-29964 Filed 12-22-14; 8:45 am]
BILLING CODE 8011-01-P