Document ID: SEC-2015-0300-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: National Stock Exchange, Inc.
Posted Date: 2015-02-20T05:00Z

[Federal Register Volume 80, Number 34 (Friday, February 20, 2015)]
[Notices]
[Pages 9286-9291]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-03515]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74270; File No. SR-NSX-2014-017]

Self-Regulatory Organizations; National Stock Exchange, Inc.; 
Order Granting Approval of Proposed Rule Change in Connection With a 
Proposed Transaction in Which National Stock Exchange Holdings, Inc. 
Will Acquire Ownership of the Exchange From the CBOE Stock Exchange, 
LLC

February 13, 2015.

I. Introduction

    On December 16, 2014, National Stock Exchange, Inc. (``NSX'' or the 
``Exchange'') 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 in order to effectuate a proposed transaction (the 
``Transaction'') in which the Exchange will become a wholly-owned 
subsidiary of National Stock Exchange Holdings, Inc., a Delaware 
corporation (``NSX Holdings''). The proposed rule change was published 
for comment in the Federal Register on January 2, 2015.\4\ The 
Commission received no comments on the proposal.
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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\ See Securities Exchange Act Release No. 73944 (December 24, 
2014), 80 FR 85 (SR-NSX-2014-017) (``Notice'').
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    The Commission has reviewed carefully the proposed rule change and 
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.\5\ In particular, the Commission finds 
that the proposed rule change is consistent with sections 6(b)(1) and 
(3) of the Act,\6\ which, among other things, require a national 
securities exchange to be so organized and have the capacity to be able 
to carry out the purposes of the Act, 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, and assure the fair representation of its members in the 
selection of its directors and administration of its affairs, and 
provide that one or more directors shall be representative of issuers 
and investors and not be associated with a member of the exchange, 
broker, or dealer. The Commission also finds that the proposal is 
consistent with section 6(b)(5) of the Act,\7\ which requires that the 
rules of the exchange be designed 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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    \5\ In approving the proposed rule change, the Commission has 
considered its impact on efficiency, competition and capital 
formation. See 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78f(b)(1) and (b)(3).
    \7\ 15 U.S.C. 78f(b)(5).
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II. Discussion

A. Corporate Structure and Proposed Transaction

    Currently, the Exchange is a wholly-owned subsidiary of the CBOE 
Stock

[[Page 9287]]

Exchange, LLC (``CBSX'').\8\ Pursuant to the terms of a Stock Purchase 
Agreement, dated September 8, 2014, by and among CBSX, NSX Holdings and 
the Exchange (the ``SPA''), NSX Holdings has agreed to acquire all of 
the outstanding capital stock of NSX upon the closing of the 
Transaction (the ``Closing'') in return for cash consideration paid to 
CBSX.\9\ Following the completion of the Transaction, the Exchange will 
remain a Delaware for-profit stock corporation with authority to issue 
1,000 shares of common stock and, at all times, all of the outstanding 
stock of the Exchange will be owned by NSX Holdings.
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    \8\ CBSX is the record and beneficial owner of 100 shares of the 
Exchange, par value $.01 per share, which represents all of the 
issued and outstanding shares of capital stock of the Exchange. See 
Notice, supra note 4, at 86.
    \9\ For a more detailed explanation of the conditions necessary 
to effectuate the Closing, see Notice, supra note 4, at 86, n.8.
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    The Exchange is, and will remain, registered as a national 
securities exchange under section 6 of the Act \10\ and a self-
regulatory organization (``SRO'') as defined in section 3(a)(26) of the 
Act \11\ after the Closing.\12\ The Exchange states that it plans to 
reopen its trading operations as soon as practicable after the Closing 
and plans to operate the Exchange using its existing trading system 
pursuant to the rules of the Exchange currently in effect (the 
``Exchange Rules'').\13\ However, the Exchange states that the re-
opening of its marketplace will be subject to additional proposed rule 
changes filed by the Exchange with the Commission and such proposed 
rule changes being approved by the Commission.\14\ In addition, the 
Exchange states that the Exchange Rules, all of which remain in full 
force and effect as of the date of the instant rule filing, will 
continue to govern the activities of the Exchange up to and after the 
Closing, and the Exchange will continue to discharge its SRO 
responsibilities pursuant to the Exchange's registration under section 
6 of the Act.\15\ Furthermore, assuming consummation of the 
Transaction, the Exchange noted that NSX Holdings has represented that, 
at all times, it will ensure that the Exchange has access to sufficient 
financial resources for it to discharge its SRO responsibilities after 
the date of the Closing.\16\
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    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78c(a)(26).
    \12\ See Notice, supra note 4, at 86.
    \13\ See Notice, supra note 4, at 86. The Exchange ceased 
trading operations as of the close of business on May 30, 2014. See 
Exchange Act Release No. 72107 (May 6, 2014), 79 FR 27017 (May 12, 
2014) (SR-NSX-2014-14) (``Cessation of Operations Filing'').
    \14\ See Notice, supra note 4, at 86. The Cessation of 
Operations Filing stated that the Exchange shall file a proposed 
rule change pursuant to Rule 19b-4 of the Act prior to any 
resumption of trading on the Exchange pursuant to Chapter XI 
(Trading Rules) of the Exchange Rules. See Notice, supra note 4, at 
86, n.11.
    \15\ See Notice, supra note 4, at 86.
    \16\ See Notice, supra note 4, at 86.
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    The ownership of NSX Holdings, as the new holding company of the 
Exchange, will be divided among two categories of shareholders.\17\ The 
first category of shareholders will be comprised of 12 individual 
investors who, in the aggregate, will own approximately 64% of the 
outstanding shares of NSX Holdings.\18\ At the time of the closing of 
the Transaction, the Exchange has represented that one individual 
investor may own in the aggregate more than 40% of the outstanding 
shares of NSX Holdings.\19\ According to the Exchange, four of the 12 
individual investors in NSX Holdings, owning in the aggregate 
approximately 60% of the outstanding shares, are securities industry 
and technology professionals with senior executive managerial 
experience in areas including capital markets and investment 
management, exchange operations, electronic trading, and systems 
architecture and development.\20\ The Exchange anticipates that these 
four individuals will assume senior executive roles in the Exchange's 
management upon completion of the Transaction.\21\ The remaining eight 
individual shareholders of NSX Holdings own shares in amounts ranging 
from approximately 0.063% to 1.269%.\22\
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    \17\ See Notice, supra note 4, at 87.
    \18\ The Exchange has represented that, pursuant to Rule 6a-2 
under the Act, within 10 days of the Closing, the Exchange will 
amend its Form 1 filed with the Commission. Exhibit K of Form 1, 
which is applicable only to ``exchanges that have one or more 
owners, shareholders, or partners that are not also members of the 
exchange . . .'', requires the Exchange to provide a list of each 
shareholder that directly owns 5% or more of a class of a voting 
security of the Exchange. As discussed above, the Exchange has 
proposed that 100% of the issued and outstanding shares of NSX be 
directly owned by NSX Holdings. See Notice, supra note 4, at 87, 
n.16.
    \19\ See discussion infra at 8 regarding exemption from the 
Concentration Limitation.
    \20\ See Notice, supra note 4, at 87.
    \21\ See Notice, supra note 4, at 87.
    \22\ See Notice, supra note 4, at 87, n.17.
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    The second category of shareholders of NSX Holdings consists of two 
affiliated entities: Thor Investment Holdings LLC (``Thor'') and TIP-1 
LLC (``TIP-1''), each a Delaware limited liability company.\23\ Thor 
will own approximately 16% of the outstanding equity of NSX Holdings, 
and TIP-1 will own approximately 20% of the outstanding equity of NSX 
Holdings.\24\
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    \23\ See Notice, supra note 4, at 87.
    \24\ See Notice, supra note 4, at 87. Thor will also have an 
ownership interest in TIP-1 and will act as its managing member. 
Thor's management will be vested in a managing member, Thor Managing 
Member LLC (``Thor MM''), which will have no ownership interest in 
either Thor or TIP-1. There are three individual members of Thor MM, 
all of whom are also members of Thor. There are also currently nine 
individuals who are members of Thor. The Exchange anticipates there 
will be six members of TIP-1, including Thor. Each such member 
thereby has an ownership interest in the respective entities' share 
of the outstanding equity of NSX Holdings. See Notice, supra note 4, 
at 87.
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    The Exchange notes that there is no commonality or overlap between 
the 12 individual investors owning approximately 64% of the outstanding 
shares of NSX Holdings and the individual members of Thor and TIP-1 
which own the remaining approximately 36% of the outstanding equity of 
NSX Holdings.\25\ No individual has an ownership interest in both Thor 
and TIP-1.\26\ Furthermore, none of the individual members of Thor or 
TIP-1 will become an employee of the Exchange, and none of these 
individual members will have any role in the day-to-day management or 
operation of the Exchange.\27\
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    \25\ See Notice, supra note 4, at 87.
    \26\ See Notice, supra note 4, at 87.
    \27\ See Notice, supra note 4, at 87.
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    With respect to voting rights, Thor will have the ability to 
exercise TIP-1's voting rights in NSX Holdings, such that Thor will 
have the ability to exercise an approximately 36% voting interest of 
NSX Holdings (Thor's approximately 16% plus TIP-1's approximately 
20%).\28\ However, Thor will not be able to exercise its voting 
interest in excess of the 20% voting limitation because of voting 
limitations contained in the NSX Holdings A&R Certificate.\29\
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    \28\ See Notice, supra note 4, at 87.
    \29\ See Notice, supra note 4, at 87.
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    The Exchange currently has one affiliated entity, NSX Securities 
LLC (``NSX Securities''). Pursuant to Exchange Rule 2.11(a), NSX 
Securities provides the outbound routing of orders from the Exchange to 
other trading centers. NSX Securities operates as a facility (as 
defined in section 3(a)(2) of the Act) \30\ of the Exchange. The 
Exchange represents that upon the Closing, Exchange Rule 2.11 will 
remain in full force and effect and the sole change impacting NSX 
Securities will be the change of ownership of the Exchange (from CBSX 
to NSX Holdings) as NSX Securities' sole affiliate.\31\
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    \30\ 15 U.S.C. 78(c)(a)(2).
    \31\ See Notice, supra note 4, at 86. The Exchange further 
represented that it, on behalf of NSX Securities, will provide 
notice to and obtain any required consents from FINRA for the NSX 
change of ownership. See Notice, supra note 4, at 86.

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[[Page 9288]]

B. Proposed Rule Changes

    Section 19(b) of the Act and Rule 19b-4 thereunder require an SRO 
to file proposed rule changes with the Commission. Although NSX 
Holdings is not an SRO, certain provisions of its proposed certificate 
of incorporation and bylaws, are rules of the Exchange, if they are 
stated policies, practices, or interpretations, as defined in Rule 19b-
4 under the Act, and must be filed with the Commission pursuant to 
section 19(b)(4) of the Act and Rule 19b-4 thereunder. Accordingly, the 
Exchange filed with the Commission the following documents in 
connection with the Transaction: (1) The proposed Second Amended and 
Restated Certificate of Incorporation of NSX Holdings (the ``NSX 
Holdings A&R Certificate''); (2) the proposed By-laws of NSX Holdings 
(the ``NSX Holdings By-laws''); (3) the proposed Second Amended and 
Restated Certificate of Incorporation of NSX (the ``Exchange A&R 
Certificate''); and (4) the proposed Third Amended and Restated NSX By-
laws (the ``Exchange A&R By-laws'').
1. NSX Holdings Ownership and Voting Limitations
    The NSX Holdings A&R Certificate includes certain restrictions on 
the ability to own and vote shares of stock. These limitations are 
intended to prevent a stockholder from exercising undue control over 
the operation of NSX Holdings, and in turn, over the operation of the 
Exchange. These limitations are generally consistent with ownership and 
voting limits approved by the Commission for other SROs,\32\ and are 
designed to assure that the Exchange and the Commission are able to 
carry out their regulatory obligations under the Act.
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    \32\ These provisions are generally consistent with ownership 
and voting limits approved by the Commission for other SROs. See 
e.g., Securities Exchange Act Release Nos. 71375 (January 23, 2014) 
79 FR 4771 (January 29, 2014) (SR-BATS-2013-059; SR-BYX-2013-039) 
(order approving proposed business combination involving BATS Global 
Markets, Inc. and Direct Edge Holdings LLC); 70210 (August 15, 
2013), 78 FR 51758 (August 21, 2013) (SR-NYSE-2013-42, SRNYSEMKT-
2013-50 and SR-NYSEArca-2013-62) (order approving proposed 
transaction in which NYSE Euronext will become a wholly owned 
subsidiary of Intercontinental Exchange Group, Inc.); 62716 (August 
13, 2010), 75 FR 51295 (August 19, 2010) (File No. 10-198) (order 
approving registration application of BYX as a national securities 
exchange); 61698 (March 12, 2010), 75 FR 13151 (March 18, 2010) 
(File Nos. 10-194 and 10-196) (order approving registration 
application of EDGX Exchange, Inc. and EDGA Exchange, Inc.); 58375 
(August 18, 2008), 73 FR 49498 (August 21, 2008) (File No. 10-182) 
(order approving registration of BATS as a national securities 
exchange); 55293 (February 14, 2007), 72 FR 8033 (February 22, 2007) 
(SR-NYSE-2006-120) (order approving proposed combination between 
NYSE Group, Inc. and Euronext N.V.); 53382 (February 27, 2006), 71 
FR 11251 (March 6, 2006) (SR-NYSE-2005-77) (order approving merger 
of New York Stock Exchange, Inc. and Archipelago, and 
demutualization of New York Stock Exchange, Inc.); 53963 (June 8, 
2006), 71 FR 34660 (June 15, 2006) (File No. SR-NSX-2006-03); 53128 
(January 13, 2006), 71 FR 3550 (File No. 10-131) (order approving 
registration application of NASDAQ as a national securities 
exchange); 51149 (February 8, 2005), 70 FR 7531 (February 14, 2005) 
(SR-CHX-2004-26); and 49098 (January 16, 2004), 69 FR 3974 (January 
27, 2004) (SR-Phlx-2003-73).
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    For example, the NSX Holdings A&R Certificate provides that, 
subject to certain exceptions, no Person,\33\ either alone or with its 
Related Persons \34\ shall be allowed at any time to own beneficially 
shares of stock of NSX Holdings representing in the aggregate more than 
40% of the then outstanding votes entitled to be cast on any matter 
(``Concentration Limitation'').\35\
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    \33\ See NSX Holdings A&R Certificate, Article Fourth, section B 
(defining ``Person'').
    \34\ See NSX Holdings A&R Certificate, Article Fourth, section B 
(defining ``Related Persons'').
    \35\ See NSX Holdings A&R Certificate, Article Fourth, section 
C(i).
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    Because the Exchange anticipates that one shareholder will own 
beneficially more than 40% of the outstanding shares of NSX Holdings at 
the Closing, the Exchange has proposed that a Person (either alone or 
with their Related Persons) who exceeds the Concentration Limitation as 
of the filing date of the NSX Holdings A&R Certificate shall be exempt 
from the Concentration Limitation. The exemption shall not extend 
beyond May 19, 2015.\36\ The Commission believes that the proposed 
exemption is consistent with the requirements of section 6(b) of the 
Act.\37\ The Commission believes that an exemption for this specific 
period of time should allow a shareholder sufficient time after the 
Closing to reduce his or her ownership percentage in order to comply 
with the Concentration Limitation.
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    \36\ See NSX Holdings A&R Certificate, Article Fourth, section 
C(i). See also Notice, supra note 4, at 87.
    \37\ The Commission previously has approved a period of time for 
the reduction of share ownership concentration. See Securities 
Exchange Act Release No. 45803 (April 23, 2002), 67 FR 21306 (April 
30, 2002) (SR-ISE-2002-01) (allowing a temporary exemption, not to 
extend past a date certain, from ownership concentration limits).
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    Pursuant to NSX Holdings A&R Certificate, Article Fourth, section 
C(i)(a), the Concentration Limitation applies unless and until: (i) A 
Person (either alone or with its Related Persons) intending to acquire 
such ownership shall have delivered to the Board of Directors of NSX 
Holdings (the ``Holdings Board'') a notice in writing, not less than 45 
days (or such shorter period as the Holdings Board shall expressly 
consent to) prior to the acquisition of any shares that would cause 
such Person (either alone or with its Related Persons) to exceed the 
Concentration Limitation, of its intention to acquire such ownership; 
(ii) the Holdings Board shall have resolved to expressly permit such 
ownership; and (iii) such resolution shall have been filed with the 
Commission under section 19(b) of the Act and shall have become 
effective thereunder.\38\
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    \38\ See NSX Holdings A&R Certificate, Article Fourth, section 
C(i)(a).
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    The Exchange has provided for additional safeguards that must be 
satisfied in the event a Person alone or with their Related Persons 
seeks an exemption from the Concentration Limitation. For example, the 
Holdings Board shall not adopt any resolution permitting an exemption 
from the Concentration Limitation unless the Holdings Board first 
determines that such acquisition of beneficial ownership by such Person 
(either alone or with its Related Persons) (i) will not impair any of 
NSX Holdings' or NSX's ability to discharge its responsibilities under 
the Act and the rules and regulations thereunder, and is otherwise in 
the best interests of NSX Holdings and its stockholders; (ii) such 
acquisition of beneficial ownership by such Person (either alone or 
with its Related Persons) will not impair the Commission's ability to 
enforce the Act; and (iii) neither such Person nor any of its Related 
Persons is subject to any statutory disqualification as defined in 
section 3(a)(39) of the Act.\39\
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    \39\ See NSX Holdings A&R Certificate, Article Fourth, section 
C(i)(b).
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    The NSX Holdings A&R Certificate further provides that, in making 
such determinations, the Holdings Board may impose such conditions and 
restrictions on a Person and its Related Persons owning any shares of 
stock of NSX Holdings entitled to vote on any matter as it may in its 
sole discretion deem necessary, appropriate or desirable in furtherance 
of the objectives of the Act and the governance of NSX Holdings.\40\ In 
the event that a Person (either alone or with its Related Persons) at 
any time owns beneficially shares of stock of NSX Holdings in excess of 
the Concentration Limitation without having first satisfied the 
requirement of providing timely written notice to the Holdings Board, 
and the Holdings Board expressly permits such ownership and files the 
resolution with the Commission pursuant to section 19(b) of the Act,

[[Page 9289]]

NSX Holdings must call from such Person and its Related Persons that 
number of shares of stock of NSX Holdings entitled to vote on any 
matter that exceeds the Concentration Limitation at a price equal to 
the par value of such shares of stock.\41\
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    \40\ See NSX Holdings A&R Certificate, Article Fourth, section 
C(i)(b).
    \41\ See NSX Holdings A&R Certificate, Article Fourth, section 
C(i)(c).
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    The NSX Holdings A&R Certificate also provides for limitations on 
ownership of shares by ETP Holders of NSX.\42\ As long as NSX remains 
registered as a national securities exchange under section 6 of the 
Act, no ETP Holder (either alone or with its Related Persons) shall be 
permitted to own beneficially shares of stock of NSX Holdings 
representing in the aggregate more than 20% of the then outstanding 
votes of NSX Holdings stock entitled to be cast on any matter.\43\ If 
any ETP Holder (either alone or with its Related Persons) at any time 
owns beneficially shares of stock in excess of such 20% limitation, NSX 
Holdings shall call from such ETP Holder and its Related Persons that 
number of shares of stock of NSX Holdings entitled to vote on any 
matter that exceeds such 20% limitation at a price equal to the par 
value of such shares of stock.\44\
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    \42\ See Exchange Rule 1.1E.(1) for definition of the term 
``ETP.''
    \43\ See NSX Holdings A&R Certificate, Article Fourth, section 
C(ii).
    \44\ See NSX Holdings A&R Certificate, Article Fourth, section 
C(ii).
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    With respect to voting limitations, Article Fourth, section B(i) of 
the NSX Holdings A&R Certificate provides that, notwithstanding any 
other provisions of that document, no Person (either alone or with its 
Related Persons) as of any record date for the determination of 
stockholders entitled to vote on any matter, shall be entitled to vote 
or cause the voting of shares of stock of NSX Holdings, in person or by 
proxy or through any voting agreement or other arrangement, to the 
extent such shares represent in the aggregate more than 20% of the then 
outstanding votes entitled to be cast on such matter (the ``Voting 
Limitation''). If votes have been cast, in person or by proxy or 
through any voting agreement or other arrangement, by any Person 
(either alone or with its Related Persons) in excess of the Voting 
Limitation, NSX Holdings shall disregard such votes in excess of the 
Voting Limitation.\45\ The Voting Limitation (or Nonvoting Agreement 
Prohibition) shall apply unless and until a Person (and its Related 
Persons) owning any shares of stock of NSX Holdings entitled to vote on 
such matter shall have delivered to the Holdings Board a notice in 
writing, not less than 45 days (or such shorter period as the Holdings 
Board shall expressly consent to) prior to any vote, of its intention 
to cast more than 20% of the votes entitled to be cast on such matter 
or to enter into an agreement, plan or other arrangement that would 
violate the Nonvoting Agreement Prohibition, as applicable; the 
Holdings Board shall have resolved to expressly permit such exercise or 
the entering into of such agreement, plan or other arrangement, as 
applicable, and such resolution shall have been filed with the 
Commission pursuant to section 19(b) of the Act and shall have become 
effective thereunder.\46\
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    \45\ NSX Holdings A&R Certificate, Article Fourth, section B(i) 
prohibits ``Nonvoting Agreements'' by or among Persons and their 
Related Persons that would result in shares of stock that would be 
subject to such agreement not being voted on any matter, or the 
withholding of any proxy relating to those shares, where the effect 
of such an agreement would be to enable any Person, either alone or 
with its Related Persons, to vote or cause the voting of shares 
representing in the aggregate more than 20% of the then outstanding 
votes entitled to be cast (the ``Nonvoting Agreement Prohibition''). 
Any share owner seeking a waiver of the Nonvoting Agreement 
Prohibition so as to be able to enter into such an agreement would 
also be required to obtain express permission of the Holdings Board 
through a duly authorized written resolution that is filed with and 
approved by the Commission pursuant to section 19(b) of the Act. See 
NSX Holdings A&R Certificate, Article Fourth, section B(i).
    \46\ See NSX Holdings A&R Certificate, Article Fourth, section 
B(ii).
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    The Commission believes that the proposed restrictions on the 
ownership and voting of members are consistent with the requirements of 
section 6(b) of the Act. These restrictions are generally consistent 
with ownership and voting limits approved by the Commission for other 
SROs.\47\ Moreover, the Commission believes that the proposed ownership 
and voting limits should reduce the potential that the control of the 
Exchange by one or a few shareholders would impair the Exchange's 
ability to carry out its self-regulatory obligations.
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    \47\ See note 32, supra.
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2. Jurisdiction; Books and Records; Due Regard
    As described above, following the Closing, NSX Holdings will be the 
sole stockholder of the Exchange. Although NSX Holdings will not carry 
out any regulatory functions, its activities with respect to the 
operation of the Exchange must be consistent with, and must not 
interfere with, the self-regulatory obligations of the Exchange. The 
NSX Holdings A&R Certificate and the NSX Holdings By-laws therefore 
include certain provisions that are designed to maintain the 
independence of the Exchange's self-regulatory functions, enable the 
Exchange to operate in a manner that complies with the federal 
securities laws, including the objectives of sections 6(b) \48\ and 
19(g) \49\ of the Act, and facilitate the ability of the Exchange and 
the Commission to fulfill their regulatory and oversight obligations 
under the Act.\50\
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    \48\ 15 U.S.C. 78f(b).
    \49\ 15 U.S.C. 78s(g).
    \50\ See e.g., NSX Holdings A&R Certificate, Articles Twelfth 
through Sixteenth and NSX Holdings By-laws, Article VI.
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    For example, Article VI of the NSX Holdings By-laws, entitled ``SRO 
Functions of NSX,'' governs the conduct of NSX Holdings as the holding 
company for the Exchange with respect to NSX's status and obligations 
as a registered national securities exchange and an SRO.\51\ Among the 
key provisions are requirements that, for so long as NSX Holdings 
shall, directly or indirectly, control NSX, the directors, officers, 
employees and agents of NSX Holdings shall give due regard to the 
preservation of the independence of the self-regulatory function of NSX 
and to its obligations to investors and the general public and shall 
not take actions which would interfere with the effectuation of 
decisions by the Exchange Board of Directors relating to NSX's 
regulatory functions (including disciplinary matters) or which would 
interfere with the Exchange's ability to carry out its responsibilities 
under the Exchange Act.\52\
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    \51\ Articles Twelfth through Sixteenth of the NSX Holdings A&R 
Certificate contain substantially the same provisions with respect 
to NSX Holdings' obligations as the controlling entity for the 
Exchange. See Notice, supra note 4, at 88, n.34.
    \52\ See NSX Holdings By-laws, Article VI, section 6.1.
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    Further, NSX Holdings is required to comply with the federal 
securities laws, and the rules and regulations thereunder, and must 
cooperate with the Commission and with NSX pursuant to and to the 
extent of their respective regulatory authority.\53\ In addition, the 
NSX Holdings A&R Certificate and the NSX Holdings By-laws provide that 
the officers, directors, employees and agents of NSX Holdings, by 
virtue of their acceptance of such position, shall comply with the 
federal securities laws and the rules and regulations thereunder; and 
shall be deemed to agree to cooperate with the Commission and the 
Exchange in respect of the Commission's oversight responsibilities 
regarding NSX and the self-regulatory functions and responsibilities of 
NSX, and NSX Holdings will take reasonable

[[Page 9290]]

steps necessary to cause its officers, directors, employees and agents 
to so cooperate.\54\ Furthermore, NSX Holdings and its officers, 
directors, employees and agents by virtue of their acceptance of such 
positions, shall be deemed to irrevocably submit to the jurisdiction of 
the United States federal courts, the Commission and NSX for the 
purposes of any suit, action or proceeding pursuant to the United 
States federal securities laws, and the rules or regulations 
thereunder, arising out of, or relating to, the activities of NSX, and 
by virtue of their acceptance of any such position, shall be deemed to 
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 it or 
they are not personally subject to the jurisdiction of the United 
States federal courts, the Commission or the Exchange, 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 of 
that suit, action or proceeding may not be enforced in or by such 
courts or agency.\55\ NSX Holdings and its officers, directors, 
employees and agents also agree that they will maintain an agent in the 
United States for the service of process of a claim arising out of, or 
relating to, the activities of the Exchange.\56\
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    \53\ See NSX Holdings A&R Certificate, Article Fifteenth; NSX 
Holdings By-laws, Article VI, section 6.6.
    \54\ See NSX Holdings A&R Certificate, Articles Twelfth and 
Fifteenth; NSX Holdings By-laws, Article VI, section 6.6.
    \55\ See NSX Holdings A&R Certificate, Article Twelfth; NSX 
Holdings By-laws, Article VI, section 6.7. Additionally, as noted, 
no individual who is subject to any statutory disqualification as 
defined in section 3(a)(39) of the Exchange Act may serve as a 
director or officer of NSX Holdings. See Notice, supra note 4, at 
89, n.39.
    \56\ See NSX Holdings A&R Certificate, Article Twelfth; NSX 
Holdings By-laws, Article VI, section 6.7.
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    In addition, for so long as NSX remains a registered national 
securities exchange, the books, records, premises, officers, directors, 
employees and agents of NSX Holdings shall be deemed to be the books, 
records, premises, officers, directors, employees and agents of NSX for 
purposes of and subject to oversight pursuant to the Act.\57\
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    \57\ See NSX Holdings A&R Certificate, Article Fourteenth.
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    The NSX Holdings By-laws further provide that NSX Holdings' books 
and records shall be maintained within the United States and shall be 
at all times subject to inspection and copying by the Commission and by 
the Exchange, to the extent that such books and records are related to 
the administration and operation of the Exchange.\58\
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    \58\ See NSX Holdings By-laws, Article VI, sections 6.4 and 6.5.
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    The NSX Holdings A&R Certificate and the NSX Holdings By-laws 
provide that, to the extent that NSX continues to be controlled, 
directly or indirectly, by NSX Holdings and to the fullest extent 
permitted by applicable law, all books and records of the Exchange 
reflecting confidential information pertaining to the self-regulatory 
function of the Exchange or its successors (including but not limited 
to disciplinary matters, trading data, trading practices and audit 
information) that shall come into the possession of NSX Holdings, shall 
not be made available other than to those officers, directors, 
employees and agents of NSX Holdings that have a reasonable need to 
know the contents thereof, and shall be retained in confidence by NSX 
Holdings, and the officers, directors, employees and agents of NSX 
Holdings, and not used for any non-regulatory purposes.\59\ The NSX 
Holdings A&R Certificate and the NSX Holdings By-laws, however, specify 
that the NSX Holdings A&R Certificate and NSX Holdings By-laws, 
respectively, (including these confidentiality provisions) shall not be 
interpreted so as to limit or impede the rights of the Commission or 
the Exchange to access and examine such NSX 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 NSX Holdings to disclose NSX 
confidential information to the Commission or the Exchange.\60\
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    \59\ See NSX Holdings A&R Certificate, Article Thirteenth and 
NSX Holdings By-laws, section 6.2.
    \60\ See NSX Holdings A&R Certificate, Article Thirteenth and 
NSX Holdings By-laws, section 6.3.
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    The NSX Holdings A&R Certificate and the NSX Holdings By-laws 
provide that, for so long as NSX remains a registered national 
securities exchange, before any amendment to or repeal of any provision 
of the NSX Holdings A&R Certificate or the NSX Holdings By-laws may be 
effective, those changes must be submitted to the Exchange Board of 
Directors, and if the amendment is required to be filed with, or filed 
with and approved by the Commission pursuant to section 19(b) of the 
Act,\61\ such change shall not be effective until filed with, or filed 
with and approved by, the Commission.\62\
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    \61\ 15 U.S.C. 78s(b).
    \62\ See NSX Holdings A&R Certificate, Article Sixteenth and NSX 
Holdings By-laws, section 7.7(b).
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    The Exchange submits that the NSX Holdings A&R Certificate and the 
NSX Holdings By-laws establish an organizational framework that assures 
that the Commission and NSX will have regulatory jurisdiction and 
authority over NSX Holdings and its directors, officers, employees and 
agents, and will preserve the independence and effectiveness of the 
Exchange in discharging its self-regulatory responsibilities pursuant 
to the Act.\63\ Further, the Exchange represents that these provisions 
of the NSX Holdings corporate documents will not impair the ability of 
the Exchange to carry out its functions and responsibilities as a 
national securities exchange under the Act and the rules and 
regulations promulgated thereunder, or the ability of the Commission to 
enforce the Act and the rules and regulations promulgated 
thereunder.\64\ The Exchange further states that it will continue to 
enforce the Act, the Commission's rules thereunder, and the Exchange's 
own rules, in the same manner as prior to the Transaction, and notes 
that the Commission will continue to have plenary regulatory authority 
over NSX.\65\
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    \63\ See Notice, supra note 4, at 89.
    \64\ See Notice, supra note 4, at 89.
    \65\ See Notice, supra note 4, at 89.
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    The Commission finds that these provisions are consistent with the 
Act, and that they are intended to assist the Exchange in fulfilling 
its self-regulatory obligations and in administering and complying with 
the requirements of the Act. The Commission also notes that, even in 
the absence of these provisions, under section 20(a) of the Act,\66\ 
any person with a controlling interest in the Exchange shall be jointly 
and severally liable with and to the same extent the Exchange is liable 
under any provision of the Act, unless the controlling person acted in 
good faith and did not directly or indirectly induce the act or acts 
constituting the violation or cause of action. In addition, section 
20(e) of the Act \67\ creates aiding and abetting liability for any 
person who knowingly provides substantial assistance to another person 
in violation of any provision of the Act or rule thereunder. Further, 
section 21C of the Act \68\ authorizes the Commission to enter a cease-
and-desist order against any person who has been ``a cause of'' a 
violation of any provision of the Act through an act or omission that 
the person knew or should have known would contribute to the violation.
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    \66\ 15 U.S.C. 78t(a).
    \67\ 15 U.S.C. 78t(e).
    \68\ 15 U.S.C. 78u-3.
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3. Board Composition; Committees
    Following the completion of the Transaction, the board of directors 
of the Exchange will continue to be the

[[Page 9291]]

governing body of the Exchange and possess all of the powers necessary 
for the management of its business and affairs and the execution of its 
responsibilities as an SRO. In particular, the Exchange A&R By-laws 
will continue to provide that the Exchange Board shall consist of no 
fewer than seven or more than 25 directors.\69\ In addition, the 
Exchange Board's composition at all times shall include the Chief 
Executive Officer of the Exchange, at least 50% Non-Industry Directors 
\70\ (at least one of whom shall be an Independent Director \71\) and 
such number of ETP Holder Directors \72\ as is necessary to comprise at 
least 20% of the Exchange Board.\73\
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    \69\ See Exchange A&R By-laws, Article III, section 3.2(a).
    \70\ The term ``Non-Industry Director'' is defined in Article I, 
section 1.1, para. N of the Exchange A&R By-laws as ``a member of 
the [NSX] Board who is (i) an Independent Director; or (ii) any 
other individual who would not be an Industry Director.''
    \71\ The term ``Independent Director'' is defined in Article I, 
section 1.1, para. I of the Exchange A&R By-laws as ``a member of 
the [NSX] Board that the [NSX] Board has determined to have no 
material relationship with the Exchange or any affiliate of the 
Exchange, or any ETP Holder or any affiliate of any such ETP Holder, 
other than as a member of the Board.''
    \72\ The term ``ETP Holder Director'' is defined in Article I, 
section 1.1, para. E(2) of the Exchange A&R By-laws as ``a director 
who is an ETP Holder or a director, officer, managing member or 
partner of an entity that is, or is an affiliate of, an ETP 
Holder.''
    \73\ See Exchange A&R By-laws, Article III, section 3.2(b).
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    In connection with the Closing, the steps to transition the 
membership on the Exchange Board from the current directors to the 
post-Closing directors will conform to the requirements set forth in 
Article III, section 3.7 of the Exchange A&R By-laws. Furthermore, the 
Exchange A&R By-laws provides that any vacancy occurring in a committee 
shall be filled by the Chairman of the Board for the remainder of the 
term, with the approval of the Exchange Board.\74\ Each committee shall 
be comprised of at least three people and may include persons who are 
not members of the Board; provided, however, that such committee 
members who are not also members of the Board shall only participate in 
committee actions to the extent permitted by law.\75\
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    \74\ See Exchange A&R By-laws, Article V, section 5.2.
    \75\ See Exchange A&R By-laws, Article V, section 5.2.
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    The Commission finds that these provisions are consistent with the 
Act, and that they are intended to assist the Exchange in fulfilling 
its self-regulatory obligations and in administering and complying with 
the requirements of the Act.
4. Changes to the Exchange Organizational Documents
    In connection with the completion of the Transaction, the Exchange 
proposes certain amendments in the Exchange A&R Certificate and the 
Exchange A&R By-laws. In particular, the Exchange proposes to delete 
the language in Paragraph Fourth of the Exchange A&R Certificate that 
provides that the Exchange shall at all times be wholly owned by CBSX 
and replace that provision with one requiring that the Exchange at all 
times be wholly owned by NSX Holdings.\76\
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    \76\ See Notice, supra note 4, at 89.
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    In addition, with respect to the Exchange A&R By-laws, the Exchange 
proposes to replace all references to ``CBSX'' with references to ``NSX 
Holdings.'' \77\ Specifically, Article III, section 3.2(c) of the 
Exchange A&R By-laws will be amended to eliminate any requirements 
relating to CBSX and will provide that no two or more directors of the 
Exchange may be partners, officers or directors of the same person or 
be affiliated with the same person (or affiliated with the same 
person), unless such affiliation is with a national securities exchange 
or NSX Holdings.\78\ In addition, the Exchange proposes to replace 
references to CBSX with references to NSX Holdings in section 10.2 of 
the Exchange A&R By-laws. The provision would provide that no members 
of the Holdings Board who are not also members of the Exchange Board, 
or any officers, staff, counsel or advisors of NSX Holdings who are not 
also officers, staff, counsel or advisors of the Exchange (or any 
committees of the Exchange), shall be allowed to participate in any 
meetings of the Exchange Board or any Exchange committee pertaining to 
the self-regulatory function of the Exchange, including disciplinary 
matters.\79\ The Exchange states that these amendments are intended to 
prevent any undue influence or any perception of undue influence over 
the Exchange's self-regulatory functions by NSX Holdings.\80\
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    \77\ See Notice, supra note 4, at 89.
    \78\ See Notice, supra note 4, at 89.
    \79\ See Notice, supra note 4, at 90.
    \80\ See Notice, supra note 4, at 90.
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    In addition, the Exchange proposes to delete section 10.1(b) in the 
Exchange A&R By-laws, which requires that for so long as CBSX controls 
the Exchange, the Exchange shall promptly inform the CBSX board of 
directors, in writing, in the event that the Exchange has, or 
experiences, a deficiency related to its ability to carry out its 
obligations as a national securities exchange under the Act, including 
if the Exchange does not have or is not appropriately allocating such 
financial, technological, technical and personnel resources as may be 
necessary or appropriate for the Exchange to meet its obligations under 
the Act.\81\ According to the Exchange, upon the completion of the 
Transaction, such requirements will no longer apply because CBSX will 
have no ownership interest in the Exchange.\82\
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    \81\ See Notice, supra note 4, at 89.
    \82\ See Notice, supra note 4, at 89-90.
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    Finally, the Exchange is proposing certain clarifying amendments, 
and other non-substantive conforming amendments to the Exchange A&R By-
laws that are consistent with the changes described above.\83\
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    \83\ For a more detailed description of the non-substantive 
conforming amendments, see Notice, supra note 4, at 90 and Exhibit 
5D to SR-NSX-2014-017.
---------------------------------------------------------------------------

    The Commission believes that the proposed changes to the 
organizational documents of the Exchange are consistent with the Act, 
and that they are intended to align the Exchange's governance and 
organizational structure with the proposed ownership by NSX Holdings.

III. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with the Act and the rules and regulations 
thereunder applicable to a national securities exchange.
    It is therefore ordered, pursuant to section 19(b)(2) of the Act 
\84\ that the proposed rule change (SR-NSX-2014-017), be, and hereby 
is, approved.
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    \84\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\85\
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    \85\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-03515 Filed 2-19-15; 8:45 am]
BILLING CODE 8011-01-P