Document ID: SEC-2010-0773-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: C2 Options Exchange, Inc
Posted Date: 2010-05-25T04:00Z

[Federal Register: May 25, 2010 (Volume 75, Number 100)]
[Notices]               
[Page 29375-29381]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25my10-104]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62118; File No. SR-C2-2010-002]

 
Self-Regulatory Organizations; C2 Options Exchange, Incorporated; 
Notice of Filing of a Proposed Rule Change Relating to Corporate 
Structure

May 18, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'' or ``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ 
notice is hereby given that on May 14, 2010, C2 Options Exchange, 
Incorporated (``C2'') filed with the Securities and Exchange Commission 
(the ``Commission'' or ``SEC'') the proposed rule change as described 
in Items I, II, and III below, which Items have been prepared by C2. 
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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    C2, a wholly-owned subsidiary of Chicago Board Options Exchange, 
Incorporated (``CBOE''), is filing this proposed rule change with the 
Commission under Section 19(b)(1) of the Act in connection with the 
plan of CBOE to restructure from a Delaware non-stock corporation to a 
Delaware stock corporation that will be a wholly-owned subsidiary of 
CBOE Holdings, Inc. (``CBOE Holdings''), a holding company organized as 
a Delaware stock corporation.\3\ As a result of this Restructuring 
Transaction, C2 will become a wholly-owned subsidiary CBOE Holdings.\4\
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    \3\ 15 U.S.C. 78s(b)(1).
    \4\ The term ``Restructuring Transaction'' is defined in 
proposed CBOE Rule 1.1(hhh) in the proposed rule change to 
effectuate the demutualization of CBOE (the ``CBOE Demutualization 
Filing'') as ``the restructuring of the Exchange from a non-stock 
corporation to a stock corporation and wholly-owned subsidiary of 
CBOE Holdings, Inc.'' The Commission has noticed the CBOE 
Demutualization Filing for comment, and has not received any 
comments on it. See Exchange Act Release No. 58425 (Aug. 26, 2008), 
73 FR 51652 (Sept. 4, 2008) (File No. SR-CBOE-2008-88).
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    The text of the proposed Certificate of Incorporation of CBOE 
Holdings, the proposed Bylaws of CBOE Holdings, the proposed amendments 
to C2's Certificate of Incorporation, the proposed amendments to C2's 
Bylaws, the proposed amendments to C2's Rules, and the proposed Voting 
Agreement between CBOE Holdings and C2 are available on C2's Web site 
(http://www.cboe.org/Legal), on the Commission's Web site at http://
www.sec.gov, at C2's Office of the Secretary, and at the Commission's 
Public Reference Room.\5\
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    \5\ The CBOE Demutualization Filing also includes the proposed 
Certificate of Incorporation and Bylaws of CBOE Holdings, as well as 
the proposed Certificate of Incorporation of CBOE, the proposed 
Bylaws of CBOE, the proposed amendments to the Rules of CBOE, and 
the proposed Voting Agreement between CBOE Holdings and CBOE. C2 
notes that this rule filing includes and contains descriptions of 
the most recent versions of the proposed Certificate of 
Incorporation and Bylaws of CBOE Holdings.
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, C2 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. C2 has prepared summaries, set forth in Sections A, B, 
and C below, of the most significant aspects of such statements.

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

1. Purpose
(1) The Restructuring Transaction
    C2 is filing this proposed rule change in connection with the plan 
of its parent company CBOE to restructure from a Delaware non-stock 
corporation owned by its members to a Delaware stock corporation that 
will be a wholly-owned subsidiary of CBOE Holdings, a holding company 
organized as a Delaware stock corporation.\6\ After the Restructuring 
Transaction, the owners of membership

[[Page 29376]]

interests in CBOE will become stockholders of CBOE Holdings through the 
conversion of their memberships into shares of common stock of CBOE 
Holdings. In addition, members of the settlement class in the lawsuit 
brought by The Board of Trade of the City of Chicago, Inc., its parent 
company CME Group, Inc. and a class of individuals (collectively, the 
``CBOT Parties'') against CBOE and CBOE's Board of Directors will 
become stockholders of CBOE Holdings.\7\
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    \6\ C2 was recently registered as a national securities exchange 
under Section 6 of the Exchange Act. See Exchange Act Release No. 
61152 (Dec. 10, 2009), 74 FR 66699 (Dec. 16, 2009). When 
operational, C2 will operate an all-electronic marketplace for the 
trading of listed options. It will not maintain a physical trading 
floor.
    \7\ CME Group Inc. et al. v. CBOE Inc. et al., Civil Action No. 
2369-VCN (Filed Aug. 23, 2006). CBOE entered into a Stipulation of 
Settlement (``Stipulation'') on August 20, 2008 with the CBOT 
Parties to resolve this lawsuit. The Stipulation and amendments to 
it can be found at (http://www.cboe.org/Legal/).
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    As noted above, C2 currently is a wholly-owned subsidiary of CBOE. 
In connection with the Restructuring Transaction, CBOE will dividend up 
to CBOE Holdings all of the shares of C2. As a result of the 
Restructuring Transaction, CBOE Holdings will hold all of the 
outstanding common stock of C2 and CBOE, as well as certain 
subsidiaries of CBOE. C2 and CBOE will continue to function as self-
regulatory organizations (``SROs'') and to operate their exchange 
businesses and facilities.
(2) CBOE Holdings
    After the Restructuring Transaction, CBOE Holdings will be the 
parent company and sole shareholder of C2 and CBOE. The Certificate of 
Incorporation and the Bylaws of CBOE Holdings will govern the 
activities of CBOE Holdings.\8\
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    \8\ While certain provisions of the Certificate of Incorporation 
and Bylaws for CBOE Holdings are not related to the operation of C2 
or CBOE, for so long as CBOE Holdings controls any Regulated 
Securities Exchange Subsidiary (currently, C2 and CBOE), before any 
amendment, alteration or repeal of any provision of the Certificate 
of Incorporation and Bylaws of CBOE Holdings becomes effective, such 
amendment, alteration or repeal will be submitted to the Board of 
Directors of each Regulated Securities Exchange Subsidiary, and if 
such amendment, alteration or repeal must be filed with or filed 
with and approved by the Commission, then such amendment, alteration 
or repeal will not become effective until filed with or filed with 
and approved by the Commission, as the case may be. See proposed 
Article Eleventh of the CBOE Holdings Certificate of Incorporation 
and proposed Article 10.2 of the CBOE Holdings Bylaws. The term 
``Regulated Securities Exchange Subsidiary'' is defined as ``any 
national securities exchange controlled, directly or indirectly, by 
[CBOE Holdings], including, but not limited to CBOE.'' See proposed 
Article Fifth(a) of the CBOE Holdings Certificate of Incorporation.
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(A) CBOE Holdings Board of Directors
    The business and affairs of CBOE Holdings will be managed by or 
under the direction of its Board of Directors (``CBOE Holdings 
Board''). The CBOE Holdings Board will consist of between 11 and 23 
directors, the exact number to be fixed by the CBOE Holdings Board from 
time to time pursuant to resolution adopted by the Board.\9\ It is 
intended that the initial CBOE Holdings Board following the 
Restructuring Transaction will be composed of the 22 individuals that 
are the directors of CBOE immediately prior to the Restructuring 
Transaction. At all times at least two-thirds of the CBOE Holdings 
directors will satisfy the independence requirements adopted by the 
CBOE Holdings Board, as may be modified and amended by the Board from 
time to time, and which shall satisfy the independence requirements 
contained in the listing standards of NYSE or The Nasdaq Stock 
Market.\10\
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    \9\ See proposed Article Seventh(b) of the CBOE Holdings 
Certificate of Incorporation and proposed Article 3.2 of the CBOE 
Holdings Bylaws.
    \10\ See proposed Article 3.3 of the CBOE Holdings Bylaws.
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    The CBOE Holdings Board will appoint one of the directors on the 
CBOE Holdings Board to serve as Chairman of the CBOE Holdings 
Board.\11\ The CBOE Holdings Bylaws do not restrict the Chief Executive 
Officer of CBOE Holdings from serving in this role.\12\ The CBOE 
Holdings Board also may appoint an independent director to serve as 
Lead Director, who will perform such duties and possess such powers as 
the CBOE Holdings Board may from time to time prescribe.\13\ All CBOE 
Holdings directors will serve one-year terms.\14\ There is no limit on 
the number of terms a director may serve on the CBOE Holdings Board.
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    \11\ See proposed Article 3.6 of the CBOE Holdings Bylaws.
    \12\ See proposed Article 5.1 of the CBOE Holdings Bylaws.
    \13\ See proposed Article 3.7 of the CBOE Holdings Bylaws.
    \14\ See proposed Article 3.2 of the CBOE Holdings Bylaws. 
Directors will serve one-year terms ending on the annual meeting 
following the meeting at which such directors were elected or at 
such time as their successors are elected or appointed and 
qualified, except in the event of earlier death, resignation or 
removal.
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    The CBOE Holdings Board or a committee thereof each year will 
nominate CBOE Holdings director candidates for election at the CBOE 
Holdings annual meeting of shareholders.\15\ In this regard, the 
Nominating and Governance Committee, which is described below, will 
nominate candidates for the CBOE Holdings Board. Each holder of CBOE 
Holdings voting stock will be entitled to one vote for each share of 
voting stock he or she holds, except as otherwise provided by the 
General Corporation Law of the State of Delaware or the Certificate of 
Incorporation or Bylaws of CBOE Holdings.\16\ At each annual meeting of 
the shareholders of CBOE Holdings at which a quorum is present, the 
individuals receiving a plurality of the votes cast will be elected 
directors of CBOE Holdings.\17\
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    \15\ See proposed Article 2.11 of the CBOE Holdings Bylaws. 
Subject to certain conditions, stockholders also have the right 
under this provision to nominate persons for the CBOE Holdings 
Board.
    \16\ See proposed Article 2.8 of the CBOE Holdings Bylaws.
    \17\ See proposed Article 2.10 of the CBOE Holdings Bylaws. 
Except as otherwise provided by law or the Certificate of 
Incorporation or Bylaws of CBOE Holdings, the holders of a majority 
in voting power of the shares of the capital stock of CBOE Holdings 
issued and outstanding and entitled to vote at the meeting (after 
taking into account the effect of any reduction of the number of 
shares entitled to vote as a result of the voting limitations 
imposed by Article Sixth of the Certificate of Incorporation of CBOE 
Holdings, if any), present in person or represented by proxy, will 
constitute a quorum for the transaction of business. See proposed 
Article 2.6 of the CBOE Holdings Bylaws. The voting limitations in 
Article Sixth are discussed below.
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(B) Committees of CBOE Holdings
    CBOE Holdings will have an Executive Committee, an Audit Committee, 
a Compensation Committee, a Nominating and Governance Committee, as 
well as such other committees that the CBOE Holdings Board 
establishes.\18\ The Nominating and Governance Committee will consist 
of at least five directors, all of whom will be Independent Directors 
and be recommended by the Nominating and Governance Committee for 
approval by the CBOE Holdings Board.\19\ Members of the Executive, 
Audit, and Compensation Committees of CBOE Holdings will be recommended 
by the Nominating and Governance Committee for approval by the CBOE 
Holdings Board.\20\
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    \18\ See proposed Article 4.1 of the CBOE Holdings Bylaws. The 
CBOE Holdings Board will designate the members of these other 
committees and may designate a Chairman and a Vice-Chairman thereof.
    \19\ See proposed Article 4.5 of the CBOE Holdings Bylaws.
    \20\ See proposed Articles 4.2, 4.3 and 4.4 of the CBOE Holdings 
Bylaws.
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    The Executive Committee will have and may exercise all the powers 
and authority of the CBOE Holdings Board in the management of the 
business and affairs of CBOE Holdings, except it will not have the 
power or authority of the CBOE Holdings Board in reference to, among 
other things, amending the CBOE Holdings Certificate of Incorporation, 
adopting an agreement of merger or consolidation, approving the sale, 
lease or exchange of all or substantially all of the CBOE Holdings' 
property and assets, or approving the dissolution of CBOE Holdings or a 
revocation of a

[[Page 29377]]

dissolution.\21\ The Audit, Compensation, and Nominating and Governance 
Committees will have such duties and may exercise such authority as may 
be prescribed by the CBOE Holdings Board and their respective Charters 
as adopted by resolution of the CBOE Holdings Board.\22\
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    \21\ See proposed Article 4.2 of the CBOE Holdings Bylaws.
    \22\ See proposed Articles 4.3, 4.4 and 4.5 of the CBOE Holdings 
Bylaws.
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(C) Officers of CBOE Holdings
    The officers of CBOE Holdings will be the Chief Executive Officer, 
a Chief Financial Officer, a President, one or more Vice-Presidents 
(the number thereof to be determined by the CBOE Holdings Board), a 
Secretary, a Treasurer, and such other officers as the CBOE Holdings 
Board may determine, including an Assistant Secretary or Assistant 
Treasurer.\23\ The CBOE Holdings Board by an affirmative vote of the 
majority of the board will appoint the Chief Executive Officer of CBOE 
Holdings, who will have general charge and supervision of the business 
of the CBOE Holdings.\24\ In general, the other officers of CBOE 
Holdings will have the duties or powers or both set out in the CBOE 
Holdings Bylaws, as well as such other duties or powers or both as the 
CBOE Holdings Board or the Chief Executive Officer may from time to 
time prescribe.\25\
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    \23\ See proposed Article 5.1 of the CBOE Holdings Bylaws.
    \24\ See proposed Articles 5.1 and 5.2 of the CBOE Holdings 
Bylaws.
    \25\ See proposed Articles 5.3, 5.4, 5.5, 5.6 and 5.7 of the 
CBOE Holdings Bylaws.
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(D) Shareholder Restrictions
    In addition to the restrictions on the ability of certain CBOE 
Holdings stockholders to transfer their shares prior to and after an 
initial public offering if such an offering were to occur, the 
Certificate of Incorporation of CBOE Holdings places certain ownership 
and voting limits on the holders of CBOE Holdings stock and their 
Related Persons.\26\ These restrictions are intended to address the 
possibility that a person holding a controlling interest in an SRO 
could use that interest to affect the SRO's regulatory responsibilities 
under the Exchange Act.\27\ In particular, these restrictions provide 
that:
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    \26\ The term ``Related Person'' is defined in proposed Article 
Fifth(a) of the CBOE Holdings Certificate of Incorporation and 
includes, among other things, any ``person associated with a 
member'' (as such term is defined in Section 3(a)(21) of the 
Exchange Act).
    \27\ In 2004, the Commission proposed rules that were designed 
to address conflicts of interest relating to for-profit SROs. See, 
e.g., Securities Exchange Act Release No. 50699 (Nov. 18, 2004), 69 
FR 71126 (Dec. 8, 2004).
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Ownership
     No person (either alone or together with its Related 
Persons) may beneficially own directly or indirectly shares of stock 
representing in the aggregate more than 10% of the total outstanding 
shares of CBOE Holdings stock; provided, that, in the event a public 
offering of common stock is completed, the ownership percentage that a 
person is permitted to beneficially own will increase from 10% to 20% 
of the total outstanding shares of CBOE Holdings stock; \28\ and
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    \28\ See proposed Article Sixth(b) of the CBOE Holdings 
Certificate of Incorporation.
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     In the event that a person, either alone or together with 
its Related Persons, beneficially owns shares of stock representing 
more than 10% of the outstanding shares of stock (or, in the event that 
a public offering of common stock has been completed, 20% of the 
outstanding shares of stock), CBOE Holdings will be obligated to redeem 
promptly, at a price equal to the par value of such shares of stock and 
to the extent that funds are legally available for such redemption, 
that number of shares of stock necessary so that such person, together 
with its Related Persons, will beneficially own directly or indirectly 
shares of stock representing in the aggregate no more than 10% of the 
outstanding shares of stock (or, in the event that a public offering of 
common stock has been completed, 20% of the outstanding shares of 
stock), after taking into account that such repurchased shares will 
become treasury shares and will no longer be deemed to be 
outstanding.\29\
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    \29\ See proposed Article Sixth(b) of the CBOE Holdings 
Certificate of Incorporation. If and to the extent that shares of 
CBOE Holdings stock beneficially owned by any person or its Related 
Persons are held of record by any other person, this provision will 
be enforced against such record owner by requiring the redemption of 
shares of CBOE Holdings stock held by such record owner in a manner 
that will accomplish the ownership limitation applicable to such 
person and its Related Persons.
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Voting
     No person (either alone or together with its Related 
Persons) will be entitled to vote or cause the voting of shares of 
stock beneficially owned directly or indirectly by that person or those 
Related Persons to the extent that those shares would represent in the 
aggregate more than 10% of the total number of votes entitled to be 
cast on any matter, and no person (either alone or together with its 
Related Persons) will be entitled to vote more than 10% of the total 
number of votes entitled to be cast on any matter by virtue of 
agreements entered into by that person or those Related Persons with 
other persons not to vote shares of outstanding stock; provided, that, 
in the event a public offering of common stock is completed, the voting 
percentage that any person is permitted to control, whether through 
beneficial ownership or other agreement, will increase from 10% to 20% 
of the total number of votes entitled to be cast on any matter; \30\ 
and
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    \30\ See proposed Article Sixth(a) of the CBOE Holdings 
Certificate of Incorporation. The voting limitation does not apply 
to a solicitation of a revocable proxy by any CBOE Holdings 
stockholder on behalf of CBOE Holdings or by directors or officers 
of CBOE Holdings on behalf of CBOE Holdings or to a solicitation of 
a revocable proxy by a stockholder in accordance with Regulation 14A 
under the Exchange Act. 17 CFR 240.14A. This exception, however, 
would not apply to a solicitation by a stockholder pursuant to Rule 
14a-2(b)(2) under the Exchange Act, which permits a solicitation 
made otherwise than on behalf of CBOE Holdings where the total 
number of persons solicited is not more than 10.
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     In the event that a person, either alone or together with 
its Related Persons, is entitled to vote or cause the voting of shares 
representing in the aggregate more than 10% (or, in the event that a 
public offering of common stock has been completed, 20%) of the total 
number of votes entitled to be cast on any matter (including if it and 
its Related Persons possess this voting power by virtue of agreements 
entered into with other persons not to vote shares of stock), then such 
person, either alone or together with its Related Persons, will not be 
entitled to vote or cause the voting of these shares of stock to the 
extent that such shares represent in the aggregate more than 10% (or, 
in the event that a public offering of common stock has been completed, 
20%) of the total number of votes entitled to be cast on any matter, 
and any such votes purported to be cast in excess of this percentage 
will be disregarded.\31\
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    \31\ See proposed Article Sixth(a) of the CBOE Holdings 
Certificate of Incorporation. If and to the extent that shares of 
CBOE Holdings stock beneficially owned by any person or its Related 
Persons are held of record by any other person, this provision will 
be enforced against such record owner by limiting the votes entitled 
to be cast by such record owner in a manner that will accomplish the 
voting limitation applicable to such person and its Related Persons.
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    The CBOE Holdings Board of Directors may waive the provisions 
regarding ownership and voting limits by a resolution expressly 
permitting ownership or voting rights in excess of such limits (which 
resolution must be filed with and approved by the SEC

[[Page 29378]]

prior to being effective), subject to a determination of the Board 
that: \32\
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    \32\ See proposed Articles Sixth(a) and (b) of the CBOE Holdings 
Certificate of Incorporation.
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     The acquisition of beneficial ownership in excess of the 
ownership limits or the exercise of voting rights in excess of the 
voting limits will not impair the ability of CBOE Holdings and any 
Regulated Securities Exchange Subsidiary to discharge their 
responsibilities under the Exchange Act and the rules and regulations 
under the Exchange Act and is otherwise in the best interests of CBOE 
Holdings and its stockholders and the Regulated Securities Exchange 
Subsidiaries;
     The acquisition of beneficial ownership in excess of the 
ownership limits or the exercise of voting rights in excess of the 
voting limits will not impair the SEC's ability to enforce the Exchange 
Act;
     Neither the person obtaining the waiver nor any of its 
Related Persons is subject to any statutory disqualification (as 
defined in Section 3(a)(39) of the Exchange Act) if such person is 
seeking to obtain a waiver above the applicable ownership or voting 
percentage level; \33\ and
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    \33\ 15 U.S.C. 78c(a)(39).
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     For so long as CBOE Holdings directly or indirectly 
controls any Regulated Securities Exchange Subsidiary, neither the 
person obtaining the waiver nor any of its Related Persons is a Trading 
Permit Holder in any Regulated Securities Exchange Subsidiary if such 
person is seeking to obtain a waiver above the applicable ownership or 
voting percentage level.
    In making these determinations, the CBOE Holdings Board may impose 
conditions and restrictions on the relevant stockholder and its Related 
Persons that it deems necessary, appropriate or desirable in 
furtherance of the objectives of the Exchange Act and the governance of 
CBOE Holdings.\34\
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    \34\ See proposed Articles Sixth(a) and (b) of the CBOE Holdings 
Certificate of Incorporation.
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    The CBOE Holdings Certificate of Incorporation also provides that 
the CBOE Holdings Board has the right to require any person and its 
Related Persons that the Board reasonably believes (i) to be subject to 
the ownership or voting restrictions summarized above, or (ii) to 
beneficially own an aggregate of 5% or more of the then outstanding 
shares of CBOE Holdings stock entitled to vote on any matter, which 
ownership has not been reported to CBOE Holdings, to provide to CBOE 
Holdings complete information as to all shares of the stock that such 
stockholder beneficially owns, as well as any other information 
relating to the applicability to such stockholder of the voting and 
ownership requirements outlined above as may reasonably be 
requested.\35\
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    \35\ See proposed Article Sixth(d) of the CBOE Holdings 
Certificate of Incorporation.
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    CBOE has received a legal opinion that the foregoing ownership and 
voting rights limitations, as well as the provisions providing for the 
redemption of shares held by a person (either alone or together with 
its Related Persons) in excess of the ownership limitation, are valid 
under Delaware law.
(E) Self-Regulatory Function and Oversight
    The CBOE Holdings Certificate of Incorporation contains various 
provisions designed to protect the independence of the self-regulatory 
function of any Regulated Securities Exchange Subsidiary (currently, C2 
and CBOE) and to make clear the Commission's and each Regulated 
Securities Exchange Subsidiary's jurisdiction with respect to CBOE 
Holdings. For example, pursuant to the CBOE Holdings Certificate of 
Incorporation, for so long as CBOE Holdings controls any Regulated 
Securities Exchange Subsidiary, each officer, director and employee of 
CBOE Holdings must give due regard to the preservation of the 
independence of the self-regulatory function of the Regulated 
Securities Exchange Subsidiaries and to their obligations under the 
Exchange Act.\36\ In addition, such officers, directors and employees 
are specifically prohibited from taking any actions that they 
reasonably should have known would interfere with the effectuation of 
any decisions by the Board of Directors of any Regulated Securities 
Exchange Subsidiary relating to such Regulated Securities Exchange 
Subsidiary's regulatory functions, including disciplinary matters, or 
would adversely affect the Regulated Securities Exchange Subsidiary's 
ability to carry out its responsibilities under the Exchange Act.\37\
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    \36\ See proposed Article Sixteenth(c) of the CBOE Holdings 
Certificate of Incorporation.
    \37\ Id.
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    The CBOE Holdings Certificate of Incorporation also contains a 
specific requirement that to the fullest extent permitted by applicable 
law, all confidential information pertaining to the self-regulatory 
function of Regulated Securities Exchange Subsidiaries (including but 
not limited to disciplinary matters, trading data, trading practices 
and audit information) contained in the books and records of any 
Regulated Securities Exchange Subsidiary that comes into the possession 
of CBOE Holdings will: (1) Not be made available to any persons other 
than to those officers, directors, employees and agents of CBOE 
Holdings that have a reasonable need to know the contents thereof; (2) 
be retained in confidence by CBOE Holdings and the officers, directors, 
employees and agents of CBOE Holdings; and (3) not be used for any 
commercial purposes.\38\ The CBOE Holdings Certificate of Incorporation 
also provides that for so long as CBOE Holdings controls any Regulated 
Securities Exchange Subsidiary, the books, records, premises, officers, 
directors and employees of CBOE Holdings will be deemed to be the 
books, records, premises, officers, directors and employees of the 
Regulated Securities Exchange Subsidiary for purposes of and subject to 
oversight pursuant to the Act, but only to the extent that such books, 
records, premises, officers, directors and employees of CBOE Holdings 
relate to the exchange business of such Regulated Securities Exchange 
Subsidiary.\39\
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    \38\ Notwithstanding this restriction, nothing in the CBOE 
Holdings Certificate of Incorporation will be interpreted so as to 
limit or impede the rights of the SEC or any Regulated Securities 
Exchange Subsidiary to access and examine such confidential 
information pursuant to the Federal securities laws and the rules 
and regulations thereunder, or to limit or impede the ability of any 
officers, directors, employees or agents of CBOE Holdings to 
disclose such confidential information to the SEC or any Regulated 
Securities Exchange Subsidiary. See proposed Article Fifteenth of 
the CBOE Holdings Certificate of Incorporation.
    \39\ The books and records related to the exchange business of a 
Regulated Securities Exchange Subsidiary will be subject at all 
times to inspection and copying by the SEC and the Regulated 
Securities Exchange Subsidiary. Id. In addition, the CBOE Holdings 
Bylaws provide that the books of CBOE Holdings must be kept within 
the United States. See proposed Section 1.3 of the CBOE Holdings 
Bylaws.
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    Further, the CBOE Holdings Certificate of Incorporation provides 
that CBOE Holdings will take reasonable steps necessary to cause its 
directors, officers and employees, prior to accepting such a position 
with CBOE Holdings, to consent in writing to the applicability to them 
of Article Fourteenth, Article Fifteenth and Sections (c) and (d) of 
Article Sixteenth of the CBOE Holdings Certificate of Incorporation, as 
applicable, with respect to their activities related to any of the 
Regulated Securities Exchange Subsidiaries.\40\ In addition, CBOE 
Holdings will take reasonable steps necessary to cause its agents, 
prior to

[[Page 29379]]

accepting such a position with CBOE Holdings, to be subject to the 
provisions of Article Fourteenth, Article Fifteenth and Sections (c) 
and (d) of Article Sixteenth of the CBOE Holdings Certificate of 
Incorporation, as applicable, with respect to their activities related 
to any of the Regulated Securities Exchange Subsidiaries.
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    \40\ See proposed Article Sixteenth(b) of the CBOE Holdings 
Certificate of Incorporation.
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    The CBOE Holdings Certificate of Incorporation also provides that 
CBOE Holdings, its directors, officers, agents and employees, 
irrevocably submit to the jurisdiction of the U.S. Federal courts, the 
SEC, and the Regulated Securities Exchange Subsidiaries, for the 
purposes of any suit, action or proceeding pursuant to U.S. Federal 
securities laws or the rules or regulations thereunder, commenced or 
initiated by the SEC arising out of, or relating to, the Regulated 
Securities Exchange Subsidiaries' activities.\41\ Further, the 
Certificate of Incorporation provides that CBOE Holdings, its 
directors, officers, agents and employees, waive, and agree not to 
assert by way of motion, as a defense or otherwise in any such suit, 
action or proceeding, any claims that they are not personally subject 
to the jurisdiction of the U.S. Federal courts, the SEC, and the 
Regulated Securities Exchange Subsidiaries, that the suit, action or 
proceeding is an inconvenient forum or that the venue of the suit, 
action or proceeding is improper, or that the subject matter thereof 
may not be enforced in or by such courts or agency.\42\
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    \41\ See proposed Article Fourteenth of the CBOE Holdings 
Certificate of Incorporation.
    \42\ Id.
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    In addition, the CBOE Holdings Certificate of Incorporation (and 
Bylaws) provide that, before any amendment or repeal of any provision 
of the Certificate of Incorporation and Bylaws of CBOE Holdings becomes 
effective, such amendment or repeal will be submitted to the Board of 
Directors of each Regulated Securities Exchange Subsidiary, and if such 
amendment or repeal must be filed with or filed with and approved by 
the Commission, then such amendment or repeal will not become effective 
until filed with or filed with and approved by the Commission, as the 
case may be.\43\ The CBOE Holdings Certificate of Incorporation also 
contains a provision that requires each director of the Board of CBOE 
Holdings to take into consideration the effect that CBOE Holdings' 
actions would have on each Regulated Securities Exchange Subsidiary's 
ability to carry out its responsibilities under the Exchange Act.\44\
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    \43\ See proposed Article Eleventh of the CBOE Holdings 
Certificate of Incorporation and proposed Article 10.2 of the CBOE 
Holdings Bylaws.
    \44\ See proposed Article Sixteenth(d) of the CBOE Holdings 
Certificate of Incorporation.
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(3) C2
    CBOE Holdings will become the parent company and sole shareholder 
of C2 (and CBOE) in connection the demutualization of CBOE. C2 (and 
CBOE), and not CBOE Holdings, will continue to be the entities 
registered as national securities exchanges under Section 6 of the 
Exchange Act.
(A) C2 Certificate of Incorporation and Bylaws
    The Commission recently approved C2's Certificate of Incorporation 
and Bylaws, which are modeled after the proposed Certificate of 
Incorporation and Bylaws for CBOE after it demutualizes and becomes a 
wholly-owned subsidiary of CBOE Holdings.\45\ Accordingly, C2 is not 
proposing any significant changes to its Certificate of Incorporation 
and Bylaws. Rather, C2 is proposing to make certain changes to C2's 
Certificate of Incorporation to effect the change of ownership of C2 
from CBOE to CBOE Holdings, to clarify certain aspects of C2's Bylaws 
as a result of this transfer of ownership, and to make certain 
ministerial changes to C2's Certificate of Incorporation and Bylaws.
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    \45\ See supra note 5.
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    With respect to C2's Certificate of Incorporation, C2 is proposing 
to amend Article Fourth of the certificate to transfer the ownership of 
all of the common stock of C2 from CBOE to CBOE Holdings. As required 
in Article Fourth, C2 is seeking in this proposed rule change 
Commission approval for this transfer of ownership of C2 from CBOE to 
CBOE Holdings. C2 also is amending Article Fourth to require Commission 
approval if CBOE Holdings sells, transfers or assigns any shares of C2 
common stock. In addition, C2 is proposing to delete Article Twelfth of 
the C2 Certificate of Incorporation because it is no longer necessary. 
This provision lists the incorporator of C2 and provides that once C2's 
Certificate of Incorporation is filed in Delaware, C2 is required to 
appoint its initial Board of Directors, which is required to be 
compromised of the same individuals then-serving as the Board of 
Directors of CBOE. These actions have already been taken, and 
accordingly, Article Twelfth is no longer necessary.
    With respect to C2's Bylaws, C2 is making several clarifying and 
ministerial changes to them. In particular, C2 is proposing to delete 
the second sentence of the first paragraph of Section 3.1 of the C2 
Bylaws, which provides that ``[t]he Board shall initially consist of 23 
directors, including the Chief Executive Officer, twelve Non-Industry 
Directors and ten Industry Directors,'' because the initial Board of 
Directors of C2 (``C2 Board'') has already been appointed.\46\ 
Similarly, C2 is proposing to delete a reference in the last sentence 
of the first paragraph regarding the initial C2 Board because that 
Board has already been appointed.
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    \46\ C2 also is changing the reference to the ``Board of the 
Corporation'' in that sentence to the ``Board.''
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    C2 is proposing to amend the sixth paragraph of Section 3.1 of the 
C2 Bylaws to provide that all directors of the C2 Board will serve one-
year terms.\47\ Previously, the C2 directors were divided into two 
classes, with each class serving staggered two-year terms. C2 is 
proposing to make this change because CBOE has decided to convert all 
of the terms of the directors of CBOE Holdings and CBOE to one-year 
terms after the demutualization. Similarly, C2 is proposing to amend 
the fifth paragraph of Section 3.2 of the C2 Bylaws to remove a 
reference to electing a class of directors because C2 will no longer 
have different classes of directors.
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    \47\ C2 also is proposing to amend this paragraph to clarify 
that C2 directors can be replaced if they become disqualified (e.g., 
a ``Non-Industry Director'' becomes an ``Industry Director''). 
Similarly, C2 is proposing to amend paragraph (a) of Section 3.5 of 
the C2 Bylaws to clarify that a director elected to fill a vacancy 
will not serve until the next annual meeting of stockholders if he 
or she becomes disqualified. In addition, C2 is proposing to move a 
reference to ``Representative Directors'' (described below) in the 
first sentence of the seventh paragraph of Section 3.1 of the C2 
Bylaws to clarify the intent of that sentence.
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    C2 is proposing to amend paragraph (c) of Section 3.4 of the C2 
Bylaws to clarify that Representative Directors (as opposed to any 
Director) can be removed for cause, which will include, but not be 
limited to (i) a breach of a Representative Director's duty of loyalty 
to C2 or its stockholders, (ii) acts or omissions not in good faith or 
which involve intentional misconduct or a knowing violation of law, 
(iii) transactions from which a Representative Director derived an 
improper personal benefit, or (iv) a failure of a Representative 
Director to be free from a statutory disqualification (as defined in 
Section 3(a)(39) of the Act).\48\ C2 is further amending this paragraph 
to provide that any Representative Director

[[Page 29380]]

may be removed for cause by the holders of a majority of the shares of 
stock then entitled to be voted at an election of directors.\49\ C2 is 
making these changes since it is no longer proposed that C2 have a 
classified Board (this change also will make C2's Bylaws consistent in 
this regard with CBOE's post-demutualization Bylaws).
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    \48\ At least 20% of the directors on the Board will be 
nominated (or otherwise selected by a petition of C2 Permit Holders) 
by the Industry-Director Subcommittee of the Nominating and 
Governance Committee (such directors are referred to collectively as 
the ``Representative Directors''). See Section 3.2 of the C2 Bylaws.
    \49\ C2 is amending paragraph (b) of Section 3.4 of the Bylaws 
to replace a reference to ``SEC'' with ``Securities and Exchange 
Commission (``SEC'').''
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    C2 is proposing to amend Section 4.6 of the C2 Bylaws to provide 
that the C2 Regulatory Oversight Committee will consist of at least 
three directors instead of at least four directors. C2 believes that 
the Regulatory Oversight Committee will be able to function just as 
effectively with three or more members as it would with four or more 
members and is proposing this change to provide for greater flexibility 
in the designation of C2 Board committees.
    C2 is proposing to amend Section 5.8 of the C2 Bylaws to modify the 
responsibilities of the Treasurer of C2. Specifically, C2 is proposing 
to delete the second sentence in this section, which reads ``[i]n 
addition, the Treasurer shall perform such duties and have such powers 
that are incident to the office of Treasurer, including without 
limitation the duty to keep and be responsible for all funds of the 
Corporation,'' to make this section consistent with the Treasurer 
provision in CBOE's proposed post-demutualization Bylaws.
(B) C2 Rules
    Because the C2 Rules use terms from and incorporate by reference 
CBOE Rules, C2 is proposing to make certain minor, non-substantive 
changes to its Rules to reflect the changes that CBOE will make to its 
Rules in connection with the demutualization. In this regard, CBOE is 
proposing to replace the term ``member'' (or variations of it) with the 
term ``Trading Permit Holder'' (or variations of it) throughout its 
Rules in connection with the demutualization.
    Accordingly, C2 is proposing to adopt in C2 Rule 1.1 the term 
``CBOE Trading Permit,'' which is defined as a ``Trading Permit'' as 
such term is defined in CBOE's Bylaws and Rules, and the term ``CBOE 
Trading Permit Holder,'' which is defined as a ``Trading Permit 
Holder'' as such term is defined in CBOE's Bylaws and Rules. C2 
proposes to replace references in its Rules to (1) a CBOE ``member'' 
with the term ``CBOE Trading Permit Holder'' (or ``Trading Permit 
Holder'' in certain instances where there is a direct cross-reference 
to CBOE Rules),\50\ (2) a CBOE ``membership'' with the term ``CBOE 
Trading Permit'' (or ``Trading Permit'' in certain instances where 
there is a direct cross-reference to CBOE Rules),\51\ and (3) a CBOE 
``Clearing Member'' (or variations of it) with the term ``Clearing 
Trading Permit Holder.'' \52\ C2 is making these changes to reflect in 
the C2 Rules certain changes that will be made to CBOE Rules in 
connection with the demutualization.
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    \50\ See, e.g., proposed C2 Rule 3.1(a) and Chapter 4 of the C2 
Rules.
    \51\ See, e.g., proposed C2 Rule 3.1(c) and Chapter 16 of the C2 
Rules.
    \52\ See, e.g., proposed Chapter 11 of the C2 Rules.
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    C2 also is making a few minor, non-substantive fixes to its Rules. 
For example, C2 is replacing references to a C2 ``member'' in its Rules 
with the term ``Permit Holder'' or ``Participant'' (which both have the 
same meaning under C2 Rules).\53\ C2 also is deleting a reference in C2 
Rule 3.3(b) regarding member organizations not registered as broker-
dealers because C2 does not have such organizations (i.e., all Permit 
Holders of C2 are required to be registered as broker-dealers). In 
addition, C2 is fixing some of some of the cross-references in its 
Rules to CBOE Rules. For instance, C2 is amending Chapter 15 of its 
Rules, which cross-references Chapter XV of CBOE's Rules, to provide 
that references to ``Trading Permit Holder'' (i.e., CBOE Trading Permit 
Holder) in Chapter XV of CBOE's Rules mean ``Participant'' or ``Permit 
Holder'' for purposes of Chapter 15 of C2's Rules.
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    \53\ See, e.g., proposed C2 Rules 6.55.
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(C) C2 Voting Agreement With CBOE
    C2 currently has in place a Voting Agreement with CBOE in which 
CBOE agrees to vote in favor of those individuals nominated by C2's 
Nominating and Governance Committee for election as C2 Representative 
Directors. After the demutualization, CBOE Holdings, and not CBOE, will 
be the sole stockholder of C2. Accordingly, C2 is proposing to enter 
into a new Voting Agreement with CBOE Holdings that similarly will 
require CBOE Holding to vote in favor of those individuals nominated by 
C2's Nominating and Governance Committee for election as C2 
Representative Directors. This new agreement will be modeled after and 
virtually identical the current CBOE agreement. Accordingly, C2 
proposes to change the references in the current CBOE agreement from 
``CBOE'' to ``Holdings.'' This will have the effect of requiring CBOE 
Holdings to vote in favor of those individuals nominated by C2's 
Nominating and Governance Committee for election as C2 Representative 
Directors.
    In addition, C2 is adding a provision in the Voting Agreement to 
reflect the ``for cause'' removal standard for Representative Directors 
in C2's Bylaws, which is discussed above. This provision will provide 
that CBOE Holdings agrees that it will not take action to remove any 
Representative Director of C2 from office at any time unless CBOE 
Holdings believes there is cause to remove such director. For purposes 
of this section ``cause'' will include, but not be limited to, (i) a 
breach of a Representative Director's duty of loyalty to C2 or its 
stockholders, (ii) acts or omissions not in good faith or which involve 
intentional misconduct or a knowing violation of law, (iii) 
transactions from which a Representative Director derived an improper 
personal benefit, or (iv) a failure of a Representative Director to be 
free from a statutory disqualification (as defined in Section 3(a)(39) 
of the Act).
2. Statutory Basis
    For the reasons set forth above, C2 believes that this filing is 
consistent with Section 6(b) of the Exchange Act,\54\ in general, and 
furthers the objectives of Section 6(b)(1) of the Exchange Act,\55\ in 
particular, in that it enables C2 to be so organized as to have the 
capacity to be able to carry out the purposes of the Exchange Act and 
to comply, and to enforce compliance by its members and persons 
associated with its members, with the provisions of the Exchange Act, 
the rules and regulations thereunder, and the rules of C2. C2 also 
believes that this filing furthers the objectives of Section 6(b)(5) of 
the Exchange Act because the rules summarized herein would create 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 remove impediments to, and perfect 
the mechanism of a free and open market and, in general, to protect 
investors and the public interest.\56\ Among other things, the 
Certificate of Incorporation and Bylaws of CBOE Holdings and C2 are 
designed to protect and maintain the integrity of the SRO functions of 
C2, and to allow it to carry out it regulatory responsibilities under 
the Exchange Act.
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    \54\ 15 U.S.C. 78f(b).
    \55\ 15 U.S.C. 78f(b)(1).
    \56\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    C2 does not believe that the proposed rule change will impose any 
burden on

[[Page 29381]]

competition that is not necessary or appropriate in furtherance of the 
purposes of the Act.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.
    The Commission is considering granting accelerated approval of the 
proposed rule change at the end of a 15-day comment period.

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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-C2-2010-002 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-C2-2010-002. This file 
number should be included on the subject line if e-mail 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 
a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of the C2. 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-C2-2010-002 and should be 
submitted on or before June 9, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\57\
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    \57\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-12507 Filed 5-24-10; 8:45 am]
BILLING CODE 8010-01-P