Document ID: SEC-2016-1094-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC; ISE Gemini, LLC; ISE Mercury, LLC
Posted Date: 2016-06-27T04:00Z

[Federal Register Volume 81, Number 123 (Monday, June 27, 2016)]
[Notices]
[Pages 41611-41617]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-15067]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78119; File Nos. SR-ISE-2016-11; SR-ISE Gemini-2016-05; 
SR-ISE Mercury-2016-10]

Self-Regulatory Organizations; International Securities Exchange, 
LLC; ISE Gemini, LLC; ISE Mercury, LLC; Notice of Filing of Amendments 
No. 1 and Order Granting Accelerated Approval of Proposed Rule Changes, 
Each as Modified by Amendment No. 1 Thereto, Relating to a Corporate 
Transaction in Which Nasdaq, Inc. Will Become the Indirect Parent of 
ISE, ISE Gemini, and ISE Mercury

June 21, 2016.

I. Introduction

    On April 28, 2016, the International Securities Exchange, LLC 
(``ISE''), ISE Gemini, LLC (``ISE Gemini''), and ISE Mercury, LLC 
(``ISE Mercury'') (collectively, the ``Exchanges'') filed with the 
Securities and Exchange Commission (``Commission''), pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ 
and Rule 19b-4 thereunder,\2\ proposed rule changes in connection with 
the acquisition of the Exchanges' indirect parent company, U.S. 
Exchange Holdings, Inc. (``U.S. Exchange Holdings'') by Nasdaq, Inc. 
(``Nasdaq''). The proposed rule changes were published for comment in 
the Federal Register on May 16, 2016.\3\ On June 10, 2016, the 
Exchanges each filed Amendment No. 1 to their respective proposed rule 
changes.\4\ The Commission received no comment letters on the proposed 
rule changes. This order provides notice of filing of Amendment No. 1 
to each of the proposed rule changes and grants accelerated approval to 
the proposed rule changes, each as modified by Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release Nos. 77794 (May 10, 
2016), 81 FR 30351 (``ISE Notice''); 77795 (May 10, 2016), 81 FR 
30386 (May 16, 2016) (``ISE Gemini Notice''); and 77796 (May 10, 
2016), 81 FR 30403 (May 16, 2016) (``ISE Mercury Notice'').
    \4\ See infra Section V (discussing the changes proposed in 
Amendment No. 1). Amendment No. 1 has been placed in the public 
comment file for SR-ISE-2016-11, SR-ISE Gemini-2016-05, and ISE 
Mercury-2016-10 at https://www.sec.gov/comments/sr-ise-2016-11/ise201611-1.pdf, https://www.sec.gov/comments/sr-isegemini-2016-05/isegemini201605.shtml, and https://www.sec.gov/comments/sr-isemercury-2016-10/isemercury201610.shtml (see letters from Michael 
Simon, Secretary, General Counsel, and Chief Regulatory Officer, 
ISE, ISE Gemini, and ISE Mercury, to Brent J. Fields, Secretary, 
Commission, dated June 13, 2016).
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II. Background

    Currently, the Exchanges are wholly owned subsidiaries of 
International Securities Exchange Holdings, Inc. (``ISE Holdings''). 
ISE Holdings, in turn, is a wholly owned subsidiary of U.S. Exchange 
Holdings, which is wholly owned together by Deutsche B[ouml]rse AG 
(``Deutsche B[ouml]rse'') and Eurex Frankfurt AG (``Eurex 
Frankfurt'').\5\ On March 9, 2016, Deutsche B[ouml]rse and Eurex 
Frankfurt entered into an agreement with Nasdaq, pursuant to which 
Nasdaq would acquire all of the capital stock of U.S. Exchange Holdings 
(the ``Transaction'') and thereby indirectly all of the interests of 
the Exchanges.\6\ Nasdaq currently owns and operates three national 
securities exchanges, The NASDAQ Stock Market LLC (``NASDAQ 
Exchange''), NASDAQ PHLX LLC (``PHLX''), and NASDAQ BX, Inc. (``BX'').
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    \5\ Eurex Frankfurt holds an 85% interest in U.S. Exchange 
Holdings, and Deutsche B[ouml]rse holds the remaining 15%. In turn, 
Deutsche B[ouml]rse holds a 100% interest in Eurex Frankfurt. See 
ISE Notice, supra note 3 at 30352.
    \6\ See ISE Notice, supra note 3 at 30352; ISE Gemini Notice, 
supra note 3, at 30387; and ISE Mercury Notice, supra note 3, at 
30404.
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    Following the closing of the Transaction, Deutsche B[ouml]rse and 
Eurex Frankfurt will cease to be upstream owners of the Exchanges.\7\ 
The Exchanges will become indirect subsidiaries of Nasdaq, and Nasdaq 
will become the ultimate parent company of the Exchanges.\8\ The 
remaining upstream owners of the Exchanges, however, will remain the 
same. Namely, U.S. Exchange Holdings will remain the sole, direct owner 
of ISE Holdings, which, in turn, will continue to remain the sole, 
direct owner of the Exchanges.
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    \7\ See ISE Notice, supra note 3 at 30352; ISE Gemini Notice, 
supra note 3, at 30387; and ISE Mercury Notice, supra note 3, at 
30404. Upon completion of the Transaction, the Exchanges will also 
cease to have any non-U.S. upstream owners. See id.
    \8\ The Exchanges will also become affiliates of NASDAQ 
Exchange, PHLX, NASDAQ BX, Inc. BX, Boston Stock Exchange Clearing 
Corporation (``BSECC''), and Stock Clearing Corporation of 
Philadelphia (``SCCP'') through common, ultimate ownership by 
Nasdaq. See ISE Notice, supra note 3 at 30351; ISE Gemini Notice, 
supra note 3, at 30386; and ISE Mercury Notice, supra note 3, at 
30403. Upon closing of the Transaction, Nasdaq will be the sole 
owner of eight self-regulatory organizations: ISE, ISE Gemini, ISE 
Mercury, NASDAQ Exchange, PHLX, BX, BSECC, and SCCP.
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    In order to consummate the Transaction and reflect Nasdaq's 
proposed ownership of U.S. Exchange Holdings, the Exchanges propose, 
upon closing of the Transaction, to eliminate certain corporate 
resolutions of Deutsche B[ouml]rse and Eurex Frankfurt that were 
previously filed with the Commission as rules of the Exchanges and 
adopt Nasdaq's Amended and Restated Certificate of Incorporation 
(``Nasdaq COI'') and Bylaws (``Nasdaq Bylaws'', and together with the 
Nasdaq COI, the ``Nasdaq governing documents'') as rules of the 
Exchanges.\9\ The Exchanges also propose to amend certain provisions 
regarding ownership limits and voting limits of the Second Amended and 
Restated Certificate of Incorporation of ISE Holdings (``ISE Holdings 
COI'') and to amend the Third Amended and Restated Certificate of 
Incorporation of U.S. Exchange Holdings (``U.S. Exchange Holdings 
COI'') to reflect that Nasdaq will hold all, and have the rights to 
vote all, authorized shares of stock of U.S. Exchange Holdings.\10\ 
Additionally, the Exchanges propose to eliminate the Third Amended and 
Restated Trust Agreement (the ``Trust Agreement'') that exists among 
ISE Holdings, U.S. Exchange Holdings, and the Trustees (as defined 
therein), which was previously established as rules of the Exchanges,

[[Page 41612]]

and delete related references to the Trust Agreement in the ISE 
Holdings COI and U.S. Exchange Holdings COI.\11\ Finally, the Exchanges 
propose, as described below, to amend each of their existing rules 
limiting the affiliation between ISE, ISE Gemini, or ISE Mercury and 
their respective members.\12\
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    \9\ See infra Section III.A (Non-U.S. Upstream Owner Resolutions 
and Nasdaq Governing Documents).
    \10\ See infra Section III.B (Ownership Limits and Voting 
Limits).
    \11\ See infra Section III.C (Removal of Trust Agreement).
    \12\ See infra Section III.D (Member Ownership Restriction).
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
changes are consistent with the requirements of the Act and rules and 
regulations thereunder applicable to a national securities 
exchange.\13\ Specifically, the Commission finds that the proposals are 
consistent with Section 6(b)(1) of the Act,\14\ which requires that an 
exchange be organized and have the capacity to be able to carry out the 
purposes of the Act and to comply, and to enforce compliance by its 
members and persons associated with its members, with the provisions of 
the Act, the rules and regulations thereunder, and the rules of the 
exchange. In addition, the Commission finds that the proposed rule 
changes are consistent with Section 6(b)(5) of the Act,\15\ which 
requires, among other things, that the rules of a national securities 
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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    \13\ In approving the proposed rule changes, the Commission has 
considered their impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \14\ 15 U.S.C. 78s(b)(1).
    \15\ 15 U.S.C. 78f(b)(5).
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    Each of the Exchanges represents that it will continue to operate 
and conduct its regulated activities (including operating and 
regulating its market and members) in the manner currently conducted 
and will not make any changes to its regulated activities in connection 
with the Transaction.\16\ The Exchanges also state that they will 
continue to operate as separate self-regulatory organizations 
(``SROs'') that are registered as national securities exchanges, with 
separate rules, membership rosters, and listings, distinct from the 
rules, membership rosters, and listings of other national securities 
exchanges owned by Nasdaq.\17\ Further, as discussed in more detail 
below, the Commission believes that the proposed changes related to the 
Transaction will not impair the ability of the Commission or the 
Exchanges to discharge their respective responsibilities under the Act. 
Additionally, the Commission believes that the proposed rule changes 
will allow the Commission to continue to exercise its plenary 
regulatory authority over the Exchanges and continue to provide the 
Commission and the Exchanges with access to necessary information that 
will allow the Exchanges to comply, and enforce compliance, with the 
Act.\18\
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    \16\ See ISE Notice, supra note 3 at 30351-52; ISE Gemini 
Notice, supra note 3, at 30387; and ISE Mercury Notice, supra note 
3, at 30404.
    \17\ See ISE Notice, supra note 3 at 30352; ISE Gemini Notice, 
supra note 3, at 30387; and ISE Mercury Notice, supra note 3, at 
30404.
    \18\ Furthermore, the Commission does not believe that ownership 
by a single holding company of multiple SROs presents any burden on 
competition in violation of the Act. The Commission notes that, 
although the Transaction will result in Nasdaq owning six national 
securities exchanges that trade options, the Commission's approval 
of new option exchange registrations in recent years highlights that 
there continues to be competition among market centers that trade 
options. See, e.g., Securities Exchange Act Release Nos. 76998 
(January 29, 2016), 81 FR 6066 (February 4, 2016) (order approving 
application for exchange registration of ISE Mercury, LLC) (``ISE 
Mercury Exchange Registration''); 75650 (August 7, 2015), 80 FR 
48600 (August 13, 2015) (order approving rules governing the trading 
of options on the EDGX Options Market); 70050 (July 26, 2013), 78 FR 
46622 (August 1, 2013) (order approving application for exchange 
registration of Topaz Exchange, LLC (n/k/a ISE Gemini, LLC)) (``ISE 
Gemini Exchange Registration''); 68341 (December 3, 2012), 77 FR 
73065 (December 7, 2012) (order approving application for exchange 
registration of Miami International Securities Exchange, LLC); 61419 
(January 26, 2010), 75 FR 5157 (February 1, 2010) (order approving 
rules governing the trading of options on the BATS Options 
Exchange).
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A. Non-U.S. Upstream Owner Resolutions and Nasdaq Governing Documents

    Section 19(b) of the Act,\19\ and Rule 19b-4 thereunder,\20\ 
require an SRO to file proposed rule changes with the Commission. 
Although Deutsche B[ouml]rse and Eurex Frankfurt are not SROs, their 
activities with respect to the operation of the Exchanges are required 
to be consistent, and not interfere, with the self-regulatory 
obligations of the Exchanges under their control. Accordingly, when 
they became owners of the Exchanges, either through an acquisition or 
through new exchange registrations, Deutsche B[ouml]rse and Eurex 
Frankfurt each adopted resolutions (``Non-U.S. Upstream Owner 
Resolutions''), which were previously filed with and approved by the 
Commission as rules of the Exchanges, to incorporate provisions 
regarding ownership, jurisdiction, books and records, and other matters 
related to their control of the Exchanges, as well as provisions 
regarding board members, officers, employees, and agents' involvement 
in the activities of the Exchanges.\21\
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    \19\ 15 U.S.C. 78s(b).
    \20\ 17 CFR 240.19b-4.
    \21\ See Securities Exchange Act Release Nos. 56955 (December 
13, 2007), 72 FR 71979 (December 19, 2007) (SR-ISE-2007-101) (order 
approving acquisition of ISE Holdings by Eurex Frankfurt) (``Eurex 
Frankfurt Acquisition Order''). See also ISE Mercury Exchange 
Registration and ISE Gemini Exchange Registration, supra note 18. 
The Non-U.S. Upstream Owner Resolutions are rules of an exchange if 
they are stated policies, practices, or interpretations (as defined 
in Rule 19b-4 under the Act) of an exchange, and must therefore be 
filed with the Commission pursuant to section 19(b)(4) of the Act 
and Rule 19b-4 thereunder. See Section 3(a)(27) of the Act, 15 
U.S.C. 78c(a)(27).
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    Following the close of the Transaction, however, Deutsche 
B[ouml]rse and Eurex Frankfurt will both cease to be non-U.S. upstream 
owners of the Exchanges. Accordingly, the Exchanges propose to delete 
the Non-U.S. Upstream Owner Resolutions, such that, as of the closing 
date of the Transaction, they will no longer be rules of the Exchanges. 
The Commission finds the deletion to be consistent with the Act. The 
deletion of the Non-U.S. Upstream Owner Resolutions as rules of the 
Exchanges is necessary to reflect the change in the upstream ownership 
of the Exchanges after the consummation of the Transaction.
    Following the closing of the Transaction, Nasdaq will replace 
Deutsche B[ouml]rse and Eurex Frankfurt as the ultimate parent company 
of the Exchanges. Although Nasdaq will not carry out regulatory 
functions as an SRO, as with Deutsche B[ouml]rse and Eurex Frankfurt, 
its activities with respect to the operation of the Exchanges must be 
consistent with, and not interfere with, the Exchanges' self-regulatory 
obligations. As a result, following the closing of the Transaction, 
certain provisions of the Nasdaq governing documents will become stated 
policies, practices, or interpretations of the Exchanges, and must 
therefore be filed as rules with the Commission pursuant to Section 
19(b)(4) of the Act and Rule 19b-4 thereunder.\22\ Accordingly, the 
Exchanges propose that the Nasdaq governing documents become rules of 
the Exchanges as of the closing date of the Transaction.
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    \22\ See Section 3(a)(27) of the Act, 15 U.S.C. 78c(a)(27).
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    The Nasdaq governing documents include certain provisions that are 
designed to maintain the independence of each of its self-regulatory

[[Page 41613]]

subsidiaries' \23\ self-regulatory functions, enable each of its self-
regulatory subsidiaries to operate in a manner that complies with the 
U.S. federal securities laws, including the objectives and requirements 
of Section 6(b) of the Act,\24\ and facilitate the ability of each of 
its self-regulatory subsidiaries and the Commission to fulfill their 
regulatory and oversight obligations under the Act.\25\ Upon closing of 
the Transaction, each of the Exchanges will be a self-regulatory 
subsidiary of Nasdaq. Accordingly, the provisions regarding the self-
regulatory subsidiaries in the Nasdaq governing documents will apply to 
the Exchanges when the Transaction is finalized.
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    \23\ Article I(f) of the Nasdaq Bylaws defines ``self-regulatory 
subsidiary'' to mean any subsidiary of Nasdaq that is a self-
regulatory organization as defined under Section 3(a)(26) of the 
Act.
    \24\ 15 U.S.C. 78f(b).
    \25\ See, e.g., Nasdaq Bylaws Article XII.
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    The Nasdaq governing documents provide the following provisions, 
which are designed to ensure that each self-regulatory subsidiary can 
carry out its self regulatory obligations. The Nasdaq Bylaws specify 
that Nasdaq and its officers, directors, and employees irrevocably 
submit to the jurisdiction of the United States federal courts, the 
Commission, and each self-regulatory subsidiary for the purposes of any 
suit, action, or proceeding pursuant to the United States federal 
securities laws, and the rules and regulations thereunder, arising out 
of, or relating to, the activities of any self-regulatory 
subsidiary.\26\ Nasdaq also agrees to provide the Commission with 
access to its books and records relating to the activities of each 
self-regulatory subsidiary.\27\ Further, Nasdaq (along with its 
respective board members, officers, and employees) agrees to keep 
confidential, to the fullest extent permitted by applicable law, all 
confidential information pertaining to the self-regulatory function of 
the self-regulatory subsidiaries, including, but not limited to, 
disciplinary matters, trading data, trading practices, and audit 
information, contained in the books and records of such subsidiaries 
and not use such information for any non-regulatory purposes.\28\ 
Additionally, the board of directors of Nasdaq (``Nasdaq Board''), as 
well as its officers and employees are required to give due regard to 
the preservation of the independence of each self-regulatory 
subsidiary's self-regulatory function,\29\ and the Nasdaq Board, when 
evaluating any issue, is required to take into account the potential 
impact on the integrity, continuity, and stability of the self-
regulatory subsidiaries.\30\ The Nasdaq Bylaws also require that any 
changes to the Nasdaq governing documents be submitted to the board of 
directors of each of its self-regulatory subsidiaries, and, if such 
amendment is required to be filed with the Commission pursuant to 
Section 19(b) of the Act, such change shall not be effective until 
filed with, or filed with and approved by, the Commission.\31\ The 
requirement to submit changes to the board of directors of each self-
regulatory subsidiary continues for so long as Nasdaq, directly or 
indirectly, controls any such subsidiary.\32\
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    \26\ See Nasdaq Bylaws Section 12.3 (Consent to Jurisdiction).
    \27\ See Nasdaq Bylaws Section 12.1(b). To the extent that they 
relate to the activities of the ISE, ISE Gemini, or ISE Mercury, all 
books, records, premises, officers, directors, and employees of 
Nasdaq would be deemed to be those of ISE, ISE Gemini, or ISE 
Mercury, as applicable. See Nasdaq Bylaws Section 12.1(c).
    \28\ See Nasdaq Bylaws Section 12.1(b).
    \29\ See Nasdaq Bylaws Section 12.1(a).
    \30\ See Nasdaq Bylaws Section 12.7 (Self-Regulatory 
Subsidiaries).
    Nasdaq must also comply with federal securities laws and the 
rules and regulations thereunder. Further, it agrees to cooperate 
with the Commission and each of the self-regulatory subsidiaries 
pursuant to, and to the extent of, their respective regulatory 
authority. Moreover, Nasdaq's officers, directors, and employees are 
deemed to agree to cooperate with the Commission and each self-
regulatory subsidiary in respect of the Commission's oversight 
responsibilities regarding Nasdaq's SROs and the self-regulatory 
functions and responsibilities of such SROs. See Nasdaq Bylaws 
Section 12.2. Further, Nasdaq will take reasonable steps necessary 
to cause its officers, directors, and employees to consent in 
writing to the applicability of provisions regarding books and 
records, confidentiality, jurisdiction, cooperation, and regulatory 
obligations, with respect to their activities related to any self-
regulatory subsidiary (see Nasdaq Bylaws Section 12.4), and will 
take reasonable steps necessary to cause its agents to cooperate 
with the Commission and, where applicable, the self-regulatory 
subsidiaries, pursuant to their regulatory authority (see Nasdaq 
Bylaws Section 12.2(a)).
    \31\ See Nasdaq Bylaws Sections 11.3 (Review by Self-Regulatory 
Subsidiaries) and 12.6 (Amendment to the Certificate of 
Incorporation).
    \32\ See Nasdaq Bylaws Section 12.6 (Amendment to the 
Certificate of Incorporation).
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    In addition, similar to the ISE Holdings COI,\33\ the Nasdaq COI 
imposes limits on direct and indirect changes in control, which are 
designed to prevent any shareholder from exercising undue control over 
the operation of its self-regulatory subsidiaries and to ensure that 
such subsidiaries and the Commission are able to carry out their 
regulatory obligations under the Act. Specifically, no person who 
beneficially owns shares of common stock or preferred stock of Nasdaq 
in excess of 5% of the then-outstanding securities generally entitled 
to vote may vote the shares in excess of 5%.\34\ This limitation 
mitigates the potential for any Nasdaq shareholder to exercise undue 
control over the operations of the Exchanges and facilitates the 
Exchanges' and the Commission's ability to carry out their regulatory 
obligations under the Act. The Nasdaq Board, however, may approve 
exemptions from the 5% voting limitation for any person that is not a 
registered broker or dealer, an affiliate of a registered broker or 
dealer, or a person subject to a statutory disqualification under 
Section 3(a)(39) of the Act,\35\ provided that the Nasdaq Board also 
determines that granting such exemption would be consistent with the 
self-regulatory obligations of its self-regulatory subsidiaries.\36\ 
Further, any such exemption from the 5% voting limitation would not be 
effective until such resolution has been filed with and approved by the 
Commission pursuant to Section 19 of the Act.\37\
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    \33\ See ISE Holdings COI, Article FOURTH, Section III.
    \34\ See Nasdaq COI, Article FOURTH, Section C.2.
    \35\ 15 U.S.C. 78c(a)(39).
    \36\ See Nasdaq COI, Article FOURTH, Section C.6. Specifically, 
the Nasdaq Board must determine that granting such exemption would 
(1) not reasonably be expected to diminish the quality of, or public 
confidence in, Nasdaq or its self-regulatory subsidiaries or the 
other operations of Nasdaq and its subsidiaries, on the ability to 
prevent fraudulent and manipulative acts and practices and on 
investors and the public, (2) promote just and equitable principles 
of trade, foster cooperation and coordination with persons engaged 
in regulating, clearing, settling, processing information with 
respect to and facilitating transactions in securities or assist in 
the removal of impediments to or perfection of the mechanisms for a 
free and open market and a national market system, and (3) among 
other things, promote the prompt and accurate clearance and 
settlement of securities transactions. See id.
    \37\ See Nasdaq COI, Article FOURTH, Section C.6 and Nasdaq 
Bylaws Section 12.5 (Board Action with Respect to Voting Limitations 
of the Certificate of Incorporation).
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    For the foregoing reasons, the Commission believes that the Nasdaq 
governing documents are reasonably designed to facilitate the 
Exchanges' ability to fulfill their self-regulatory obligations and 
are, therefore, consistent with the Act. Additionally, as discussed 
further below, the Commission also believes that the provisions in the 
Nasdaq governing documents should minimize the potential that a person 
could improperly interfere with, or restrict the ability of, the 
Commission or the Exchanges to effectively carry out their regulatory 
oversight responsibilities under the Act. In this regard, the 
Commission finds that the proposals are consistent with Section 6(b)(1) 
of the Act \38\ in particular, which requires, among other things, that 
an exchange be organized and have the

[[Page 41614]]

capacity to be able to carry out the purposes of the Act and to comply, 
and to enforce compliance by its members and persons associated with 
its members, with the provisions of the Act, the rules and regulations 
thereunder, and the rules of the exchange.
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    \38\ 15 U.S.C. 78s(b)(1).
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    The Commission also notes that, even in the absence of the 
governance provisions described above, under Section 20(a) of the Act, 
any person with a controlling interest in one of the Exchanges would be 
jointly and severally liable with and to the same extent that the 
respective 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.\39\ In addition, Section 20(e) of the Act 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.\40\ Further, Section 21C of the Act 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.\41\ These provisions are applicable to all 
entities' dealings with the Exchanges, including Nasdaq.
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    \39\ 15 U.S.C. 78t(a).
    \40\ 15 U.S.C. 78t(e).
    \41\ 15 U.S.C. 78u-3.
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B. Ownership Limits and Voting Limits

    The Exchanges propose to amend the U.S. Exchange Holdings COI to 
recognize that, following the closing of the Transaction, Nasdaq will 
own all of the capital stock (whether common stock or preferred stock) 
of U.S. Exchange Holdings. The Exchanges also propose to amend the ISE 
Holdings COI to replace its current ownership limitations and voting 
limitations with a new restriction that will reinforce ISE Holdings' 
current ownership by U.S. Exchanges Holdings and will require U.S. 
Exchange Holdings to own all of the capital stock of ISE Holdings.
    Currently, pursuant to the limited liability company agreements of 
ISE, ISE Gemini, and ISE Mercury, ISE Holdings is the sole member of 
each of the Exchanges.\42\ Although ISE Holdings may assign its 
interest in any of the Exchanges, such assignment is subject to prior 
approval by the Commission pursuant to the rule filing procedure under 
Section 19 of the Act.\43\
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    \42\ See Section 2.1 of the Third Amended and Restated Limited 
Liability Company Agreement of ISE (``ISE LLC Agreement''), the 
Second Amended and Restated Limited Liability Company Agreement of 
ISE Gemini (``ISE Gemini LLC Agreement''), and the Limited Liability 
Company Agreement of ISE Mercury (``ISE Mercury LLC Agreement'').
    \43\ See Section 7.1 of the ISE LLC Agreement, the ISE Gemini 
LLC Agreement, and the ISE Mercury LLC Agreement.
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    In turn, the current ISE Holdings COI contains certain ownership 
limits (``Ownership Limits'') and voting limits (``Voting Limits'') 
with respect to the outstanding capital stock of ISE Holdings.\44\ 
These provisions are designed to prevent any shareholder (or 
shareholders acting together) from exercising undue control over the 
operation of the Exchanges and to help ensure that the Exchanges and 
the Commission are able to carry out their regulatory 
responsibilities.\45\ Specifically, the ISE Holdings COI Ownership 
Limits prohibit any person, either alone or together with its Related 
Persons,\46\ from directly or indirectly owning of record or 
beneficially more than 40% of the outstanding capital stock of ISE 
Holdings that have the right by their terms to vote in the election of 
members of the board of directors or on other matters which may require 
the approval of the holders of voting shares of ISE Holdings (other 
than matters affecting the rights, preferences or privileges of a 
particular class of capital stock) (``Voting Shares'') (or in the case 
of any Exchange member, acting alone or together with its Related 
Persons, from directly or indirectly owning of record or beneficially 
more than 20% of the then-outstanding Voting Shares).\47\ Further, the 
ISE Holdings COI's Voting Limits prohibit any person, either alone or 
together with its Related Persons, from voting or causing the voting of 
Voting Shares representing more than 20% of the voting power of the 
then-outstanding Voting Shares.\48\ If a person exceeds the Ownership 
Limits or Voting Limits, a majority of Voting Shares then-outstanding 
automatically is transferred pro rata from the holders thereof to a 
Delaware statutory trust (``ISE Trust'') (as described below), which is 
operated pursuant to the Trust Agreement.\49\ However, the ISE Holdings 
COI allows the board of directors of ISE Holdings (``ISE Holdings 
Board'') to waive the Ownership Limits or Voting Limits for persons 
other than Exchange members pursuant to an amendment to the ISE 
Holdings Bylaws, provided that the ISE Holdings Board makes certain 
determinations.\50\ Such amendment, however, needs to be filed with and 
approved by the Commission under Section 19(b) of the Act.\51\
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    \44\ See ISE Holdings COI, Article FOURTH, Section III.
    \45\ See, e.g., Securities Exchange Release No. 51029 (April 23, 
2008), 70 FR 3233, 3239-40 (January 12, 2005) (SR-ISE-2004-29).
    \46\ As used in the ISE Holdings COI, the term ``Related 
Persons'' means (1) with respect to any Person, any executive 
officer (as such term is defined in Rule 3b-7 under the Act), 
director, general partner, manager or managing member, as 
applicable, and all ``affiliates'' and ``associates'' of such Person 
(as such terms are defined in Rule 12b-2 under the Act). The term 
``Person'' means an individual, partnership (general or limited), 
joint stock company, corporation, limited liability company, trust 
or unincorporated organization, or any governmental entity or agency 
or political subdivision thereof. See ISE Holdings COI, Article 
FOURTH, Section III.
    \47\ See ISE Holdings COI, Article FOURTH, Section III.(a)(i).
    \48\ See ISE Holdings COI, Article FOURTH, Section III.(b). The 
Voting Limits also prohibit Persons, either alone or together with 
its Related Persons, from giving any consent or proxy with respect 
to Voting Shares representing more than 20% of the voting power of 
the then-outstanding Voting Shares; or from entering into certain 
agreements, plans or other arrangements with respect to Voting 
Shares. Id.
    \49\ See ISE Holdings COI, Article FOURTH, Section III.(c). See 
also supra note 11 and accompanying text (describing the Trust 
Agreement).
    \50\ See ISE Holdings COI, Article FOURTH, Sections 
III.(a)(i)(A), III.(a)(i)(B) and III.(b)(i). Specifically, the ISE 
Holdings Board must make a determination that waiver of the current 
Ownership Limits or Voting Limits (1) would not impair the ability 
of ISE Holdings or its self-regulatory subsidiaries (including the 
Exchanges), or a facility thereof, to carry out its functions and 
responsibilities under the Act and the rules thereunder; (2) is 
otherwise in the best interests of ISE Holdings, its stockholders, 
and its self-regulatory subsidiaries (including the Exchanges), or a 
facility thereof; and (3) would not impair the ability of the 
Commission to enforce the Act. See ISE Holdings COI, Article FOURTH, 
Sections III.(a)(i)(A) and III.(b)(i). However, the ISE Holdings 
Board may not waive the current Voting Limits as they apply to 
Exchange members. See ISE Holdings COI, Article FOURTH, Section 
III.(b)(i). Furthermore, the ISE Holdings Board may not waive the 
current Ownership Limits or Voting Limits if such waiver would 
result in a person subject to ``statutory disqualification'' (within 
the meaning of Section 3(a)(39) of the Act) owning or voting shares 
above the Ownership Limits or Voting Limits. See ISE Holdings COI, 
Article FOURTH, Sections III.(a)(i)(B).
    \51\ See ISE Holdings COI, Article FOURTH, Sections III(a)(i)(A) 
and III(b)(i). In connection with the acquisition of U.S. Exchange 
Holdings by Nasdaq, the Exchanges propose to amend the ISE Holdings 
Bylaws to waive the Ownership Limits and Voting Limits in order to 
permit Nasdaq to indirectly own 100% of the outstanding capital 
stock of ISE Holdings following the closing of the Transaction. See 
proposed ISE Holdings Bylaws Section 11.3 (Waiver of Ownership 
Limits and Voting Limits to Permit Transaction). Each of the 
Exchanges represents that the ISE Holdings Board has made the 
necessary determinations pursuant to the ISE Holdings COI and 
approved the waiver of the current Ownership Limits and Voting 
Limits as applied to Nasdaq. See ISE Notice, supra note 3 at 30356-
7; ISE Gemini Notice, supra note 3, at 30392; and ISE Mercury 
Notice, supra note 3, at 30409. For the reasons discussed herein, 
the Commission finds the waiver of the current Ownership Limits and 
Voting Limits for Nasdaq to effect the Transaction consistent with 
the Act.

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[[Page 41615]]

    To facilitate compliance with the Ownership Limits and Voting 
Limits, the U.S. Exchange Holdings COI also provides that U.S. Exchange 
Holdings shall take reasonable steps necessary to cause ISE Holdings to 
be in compliance with the Ownership Limits and Voting Limits.\52\ 
Further, the U.S. Exchange Holdings COI requires U.S. Exchange Holdings 
to notify the Exchanges' board of directors and the ISE Trust if any 
person, either alone or together with its related persons, acquires 
10%, 15%, 20%, 25%, 30%, 35%, or 40% or more of the then-outstanding 
shares of stock of U.S. Exchange Holdings (``U.S. Exchange Holdings 
Acquisition Notice Requirement'').\53\
---------------------------------------------------------------------------

    \52\ See U.S. Exchange Holdings COI, Article THIRTEENTH.
    \53\ See id.
---------------------------------------------------------------------------

    As proposed, Nasdaq would acquire all of the capital stock of U.S. 
Exchange Holdings. In turn, U.S. Exchange Holdings would be required to 
continue to hold 100% of the capital stock of ISE Holdings. To reflect 
this revised ownership structure, the Exchanges propose to amend 
Article THIRTEENTH of the U.S. Exchange Holdings COI to provide that, 
for so long as U.S. Exchange Holdings controls, directly or indirectly, 
one or more national securities exchanges, including, but not limited 
to, the Exchanges (each, a ``Controlled National Securities Exchange'') 
or a facility thereof, all authorized shares of stock of U.S. Exchange 
Holdings that are issued and outstanding will be held by Nasdaq.\54\ 
Further, Nasdaq may not transfer or assign any shares of stock of U.S. 
Exchange Holdings, in whole or in part, to any Person,\55\ unless such 
transfer or assignment is filed with, or filed with and approved by, 
the Commission, under Section 19 of the Act and the rules promulgated 
thereunder.\56\
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    \54\ See proposed U.S. Exchange Holdings COI, Article 
THIRTEENTH(ii). The Exchanges propose to renumber the existing text 
of Article THIRTEENTH as Article THIRTEENTH(i).
    \55\ As used in the U.S. Exchange Holdings COI, the term 
``Person'' means an individual, partnership (general or limited), 
joint stock company, corporation, limited liability company, trust 
or unincorporated organization, or any governmental entity or agency 
or political subdivision thereof. See U.S. Exchange Holdings COI, 
Article EIGHTH.
    \56\ See proposed U.S. Exchange Holdings COI, Article 
THIRTEENTH(ii).
---------------------------------------------------------------------------

    The Exchanges also propose that, for so long as U.S. Exchange 
Holdings controls, directly or indirectly, one or more Controlled 
National Securities Exchange or a facility thereof, Nasdaq will be 
entitled to vote or cause the voting of all authorized shares of stock 
of U.S. Exchange Holdings that are issued and outstanding.\57\ Nasdaq 
also may not transfer or assign any voting rights with respect to the 
stock of U.S. Exchange Holdings, in whole or in part, to any Person, 
unless such transfer or assignment is filed with, or filed with and 
approved by, the Commission, under Section 19(b) of the Act and the 
rules promulgated thereunder.\58\
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    \57\ See proposed U.S. Exchange Holdings COI, Article 
THIRTEENTH(iii).
    \58\ See id.
---------------------------------------------------------------------------

    The Exchanges also propose to delete certain provisions in the U.S. 
Exchange Holdings COI that are no longer applicable as a result of the 
above changes. Specifically, the Exchanges propose to delete the U.S. 
Exchange Holdings Acquisition Notice Requirement because it would no 
longer be relevant, given that any change in ownership of U.S. Exchange 
Holdings would be subject to a Commission rule filing and approval 
pursuant to Section 19 of the Act and the rules thereunder.\59\
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    \59\ The Commission notes that other provisions in U.S. Exchange 
Holdings COI that are designed to maintain the independence of the 
self-regulatory function of the Exchanges would not be amended. See, 
e.g., proposed U.S. Exchange Holdings COI, Articles TENTH, ELEVENTH, 
TWELFTH, FOURTEENTH, and FIFTEENTH; ISE Mercury Exchange 
Registration, supra note 18, at 6071-6072 (discussing these 
provisions).
---------------------------------------------------------------------------

    Additionally, the Exchanges propose to eliminate the current 
Ownership Limits and Voting Limits in Section III(a) and (b) of Article 
FOURTH of the ISE Holdings COI. In place of these restrictions, the 
Exchanges propose to adopt new restrictions on the transfer or 
assignment of any shares of capital stock of ISE Holdings. 
Specifically, the Exchanges propose to amend Article FOURTH, Section 
III(a)(i) to provide that, for so long as ISE Holdings shall control, 
directly or indirectly, one or more Controlled National Securities 
Exchange, or a facility thereof, all authorized shares of capital stock 
of ISE Holdings that are issued and outstanding shall be held by U.S. 
Exchange Holdings. Additionally, U.S. Exchange Holdings may not 
transfer or assign any shares of capital stock of ISE Holdings, in 
whole or in part, to any Person,\60\ unless such transfer or assignment 
is filed with, or filed with and approved by, the Commission, under 
Section 19 of the Act and the rules promulgated thereunder.\61\
---------------------------------------------------------------------------

    \60\ See supra note 46.
    \61\ See proposed ISE Holdings COI, Article FOURTH, Section 
III(a)(i).
---------------------------------------------------------------------------

    Furthermore, for so long as ISE Holdings shall control, directly or 
indirectly, one or more Controlled National Securities Exchanges or a 
facility thereof, U.S. Exchange Holdings shall be entitled to vote or 
cause the voting of all authorized shares of capital stock of ISE 
Holdings that are issued and outstanding.\62\ U.S. Exchange Holdings 
may not transfer or assign any voting rights with respect to the shares 
of capital stock of ISE Holdings, in whole or in part, to any Person, 
unless such transfer or assignment is filed with, or filed with and 
approved by, the Commission, under Section 19(b) of the Act and the 
rules promulgated thereunder.\63\ The Exchanges also propose to delete 
the rule text provisions in the ISE Holdings COI that are no longer 
applicable as a result of the proposed amendments to the Ownership 
Limits and Voting Limits.\64\
---------------------------------------------------------------------------

    \62\ See proposed ISE Holdings COI, Article FOURTH, Section 
III(b)(i).
    \63\ See proposed ISE Holdings COI, Article FOURTH, Section 
III(b)(i).
    \64\ The Exchanges propose to delete the descriptions of the 
Ownership Limits and Voting Limits in Section III(a)(i)(x) and (y), 
and Section III(b)(i) of Article FOURTH of the ISE Holdings COI. The 
Exchange also proposes the following, related deletions from Article 
FOURTH of the ISE Holdings COI: (i) Section III(a)(ii) and (iii), 
which will cease to be relevant given the proposed replacement of 
the Ownership Limits; (ii) the references to ``Ownership 
Percentage'' from current Section III(a)(i)(B), (D) and (E), given 
the proposed requirement that all issued and outstanding shares of 
capital stock of ISE Holdings be held by U.S. Exchange Holdings; 
(iii) the references to ``Voting Control Percentage'' from Section 
III(b)(i) and (iii), which will cease to be relevant given the 
proposed requirement that U.S. Exchange Holdings shall be entitled 
to vote or cause the voting of all authorized shares of capital 
stock of ISE Holdings that are issued and outstanding; and (iv) 
Section III(c), which will cease to be relevant given that the 
concept of ``Excess Shares'' will no longer exist. The Exchanges 
also propose to renumber current Section III(d) of Article FOURTH of 
the ISE Holdings COI as Section III(c) of Article FOURTH. Finally, 
the Exchanges proposes to relocate the current definition of 
``Voting Shares,'' from current Section III(a)(i) of Article FOURTH 
to the introductory paragraph of Section III of Article FOURTH.
---------------------------------------------------------------------------

    The Commission previously approved the existing Ownership Limits 
and Voting Limits to enable the Exchanges to carry out their self-
regulatory responsibilities, and to enable the Commission to fulfill 
its responsibilities under the Act.\65\ After the closing of the 
Transaction, these goals would be achieved by the proposed new 
restrictions on the transfer or assignment of U.S. Exchange Holdings 
and ISE Holdings capital stock. Moreover, as discussed above, the 
Nasdaq COI currently includes restrictions on any person voting shares 
in excess of 5%.\66\ Further, the Nasdaq Bylaws requires the Nasdaq 
Board, prior to approving an exemption from the 5% voting limitation, 
to determine that

[[Page 41616]]

granting such exemption would be consistent with the Exchanges' self-
regulatory obligations.\67\
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    \65\ See Securities Exchange Act Release No. 53705 (April 21, 
2006), 71 FR 25260, 25263 (April 28, 2006) (SR-ISE-2006-04) 
(reorganization of ISE into a holding company structure).
    \66\ See Nasdaq COI, Article FOURTH, Section C.2.
    \67\ See Nasdaq Bylaws Section 12.5 (Board Action with Respect 
to Voting Limitations of the Certificate of Incorporation).
---------------------------------------------------------------------------

    Accordingly, the Commission finds that the elimination of the 
Ownership Limits and Voting Limits and the adoption of new controls on 
the ownership, transfer, assignment, and voting of the capital stock of 
U.S. Exchange Holdings and ISE Holdings, together with the voting 
limitations in Nasdaq's governing documents, are reasonably designed to 
prevent any shareholder from exercising undue control over the 
operation of the Exchanges. The Commission also believes that the 
proposed rule changes are reasonably designed to ensure that the 
Exchanges and the Commission are able to carry out their regulatory 
obligations under the Act and thereby should minimize the potential 
that a person could improperly interfere with or restrict the ability 
of the Commission or the Exchanges to effectively carry out their 
respective regulatory oversight responsibilities under the Act.\68\
---------------------------------------------------------------------------

    \68\ The Commission notes that it made similar findings in 
connection with its approval of the substantially similar ownership 
structures, and related protections, of the NASDAQ Exchange, Phlx, 
and BX. See Securities Exchange Act Release No. 53128 (January 13, 
2006), 71 FR 3550, 3552 (January 23, 2006) (order approving 
application for exchange registration of the NASDAQ Exchange); Phlx 
Acquisition Order, supra note 45, at 42877; and Securities Exchange 
Act Release No. 58324 (August 7, 2008), 73 FR 46936, 46943 (August 
12, 2008) (File Nos. SR-BSE-2008-02; SR-BSE-2008-23; SR-BSE-2008-25; 
SR-BSECC-2008-01) (order approving the acquisition of the Boston 
Stock Exchange, Inc. by The NASDAQ OMX Group, Inc.) (``BX 
Acquisition Order'').
---------------------------------------------------------------------------

C. Removal of Trust Agreement

    As described above, Section 19(b) of the Act and Rule 19b-4 
thereunder require an SRO to file proposed rule changes with the 
Commission. Although the ISE Trust is not an SRO, because the 
provisions of the Trust Agreement, pursuant to which the ISE Trust 
operates, are stated policies, practice, or interpretations of the 
Exchanges, they are rules of the Exchanges, as defined in Rule 19b-4 
under the Act.\69\ Accordingly, the Exchanges previously filed the 
Trust Agreement with the Commission pursuant to Section 19(b)(4) of the 
Act \70\ and Rule 19b-4 thereunder.\71\
---------------------------------------------------------------------------

    \69\ 17 CFR 240.19b-4.
    \70\ 15 U.S.C. 78s(b).
    \71\ See Eurex Frankfurt Acquisition Notice, supra note 21. See 
also ISE Notice, supra note 3 at 30354; ISE Gemini Notice, supra 
note 3, at 30389; and ISE Mercury Notice, supra note 3, at 30406. 
See also supra note 21.
---------------------------------------------------------------------------

    The Trust Agreement was entered into in 2007 to provide for an 
automatic transfer of ISE Holdings shares to the ISE Trust if a Person 
\72\ were to obtain, through ownership of one of the non-U.S. upstream 
owners without prior Commission approval, an ownership or voting 
interest in ISE Holdings in excess of the Ownership Limits and Voting 
Limits.\73\ The ISE Trust, and the Trust Agreement that governs the 
Trust, has since served as the mechanism by which the Ownership Limits 
and Voting Limits would be enforced in the event of a violation of 
those limitations.\74\
---------------------------------------------------------------------------

    \72\ Under the Trust Agreement, the term ``Person'' means any 
individual, corporation (including not-for-profit), general or 
limited partnership, limited liability company, joint venture, 
estate, trust, association, organization, government or any agency 
or political subdivision thereof, or any other entity of any kind or 
nature. See Trust Agreement, Section 1.1.
    \73\ See ISE Notice, supra note 3 at 30354; ISE Gemini Notice, 
supra note 3, at 30389; and ISE Mercury Notice, supra note 3, at 
30406.
    \74\ For a more detailed description of the operation of the 
Trust Agreement, see ISE Notice, supra note 3 at 30354; ISE Gemini 
Notice, supra note 3, at 30389; and ISE Mercury Notice, supra note 
3, at 30406. See also supra note 21. See also Eurex Frankfurt 
Acquisition Order, supra note 21, at 71984.
---------------------------------------------------------------------------

    The purpose for which the ISE Trust was formed will no longer be 
relevant after the closing of the Transaction. As described above, the 
Exchanges propose to remove the Ownership Limits and Voting Limits in 
the ISE Holdings COI and instead propose a new requirement that Nasdaq 
be the holder of 100% of the capital stock of U.S. Exchange Holdings, 
which in turn, must hold 100% of the capital stock of ISE Holdings, 
unless approved by the Commission.\75\ Accordingly, as of closing date 
of the Transaction, the Exchanges propose to delete the Trust Agreement 
as rules of the Exchanges.\76\ In connection with the repeal of the 
Trust Agreement, the Exchanges also propose to remove provisions 
relating to the Trust Agreement and the ISE Trust from the ISE Holdings 
COI.\77\ Similarly, the Exchanges also propose to remove references to 
the Trust Agreement in Article THIRTEENTH of the U.S. Exchange Holdings 
COI.\78\ The Commission believes that these proposed changes are 
consistent with the Act because they provide greater clarity and remove 
uncertainty regarding the application of the Trust Agreement to ISE 
Holdings and U.S. Exchange Holdings.
---------------------------------------------------------------------------

    \75\ See Amendment No. 1, supra note 4.
    \76\ The Exchange also proposes that, as of the closing of the 
Transaction, the parties to the Trust Agreement would be permitted 
to take the corporate steps necessary to repeal the Trust Agreement 
and dissolve the ISE Trust.
    \77\ The Exchanges also propose to retitle the U.S. Exchange 
Holdings COI as the ``Third'' Amended and Restated Certificate of 
Incorporation of ISE Holdings.
    \78\ The Exchanges also propose to (i) retitle the U.S. Exchange 
Holdings COI as the ``Fourth'' Amended and Restated Certificate of 
Incorporation of U.S. Exchange Holdings, (ii) update the effective 
date thereof, and (iii) update references to the U.S. Exchange 
Holdings COI as the ``Restated Certificate,'' which is a defined 
term therein.
---------------------------------------------------------------------------

    The Commission believes that repealing the Trust Agreement and 
removing related provisions from the ISE Holdings and U.S. Exchange 
Holdings COIs is appropriate given the adoption of new controls on the 
ownership, transfer, assignment, and voting of U.S. Exchange Holdings 
and ISE Holdings capital stock, together with the voting limitations in 
the Nasdaq governing documents, discussed above.

D. Member Ownership Restriction

    Each of the Exchanges also proposes to amend its rules to prohibit 
its members or persons associated with such members from beneficially 
owning, directly or indirectly, greater than 20% of the (i) then-
outstanding voting Limited Liability Company Interest of ISE, ISE 
Gemini, or ISE Mercury, as applicable, or (ii) then-outstanding voting 
securities of Nasdaq (the ``Member Ownership Restrictions'').\79\ The 
proposed 20% limitation on ownership of each of the Exchanges by its 
members replaces a similar provision being deleted in current Section 
III(a)(i)(y) of Article FOURTH of the ISE Holdings COI.
---------------------------------------------------------------------------

    \79\ See proposed ISE Rule 312, proposed ISE Gemini Rule 309, 
and proposed ISE Mercury Rule 309. For purposes of the amended 
rules, each of the Exchanges also proposes to include language 
stating that any calculation of the voting Limited Liability Company 
Interest of each of the Exchanges or the voting securities of Nasdaq 
outstanding at any particular time shall be made in accordance with 
the last sentence of Commission Rule 13d-3(d)(1)(i)(D) and the term 
``beneficially owned,'' including all derivative or similar words, 
shall have the meaning set forth in the Nasdaq COI. Each of the 
Exchanges also proposes to delete obsolete language in the amended 
rule that provides that nothing in the rule shall prohibit a member 
(and, in the case of proposed ISE Rule 312, or non-member owner) 
from acquiring or holding any equity interest in ISE Holdings that 
is permitted by the ISE Holdings COI given the modifications to the 
ownership structure of ISE Holdings discussed in Section III.B 
(Ownership Limits and Voting Limits).
---------------------------------------------------------------------------

    As the Commission has noted in the past, a member's interest in an 
exchange could rise to a level as to cast doubt on whether the exchange 
can fairly and objectively exercise its self-regulatory 
responsibilities with respect to that member.\80\ A member that is a 
controlling shareholder of an exchange or an exchange's holding company 
might be tempted to exercise that controlling influence by pressuring 
or directing the exchange to refrain from,

[[Page 41617]]

or the exchange otherwise may hesitate to, diligently monitor and 
surveil the member's conduct or diligently enforce its rules and the 
federal securities laws with respect to conduct by the member that 
violates such provisions.\81\ The Commission finds that the proposed 
Member Ownership Restrictions, combined with the voting limitations in 
Nasdaq's governing documents as discussed above, are consistent with 
the Act, including Sections 6(b)(1) and 6(b)(5) of the Act. The 
Commission believes that the proposed Member Ownership Restrictions are 
reasonably designed to reduce the potential for an Exchanges' member to 
improperly interfere with or restrict the ability of the Commission or 
the Exchanges to effectively carry out their respective regulatory 
oversight responsibilities under the Act.
---------------------------------------------------------------------------

    \80\ See, e.g., BX Acquisition Order, supra note 68, at 46942.
    \81\ See id.
---------------------------------------------------------------------------

IV. Solicitation of Comments on Amendment No. 1

    Interested persons are invited to submit written data, views, and 
arguments concerning: Amendment No. 1 to File Nos. SR-ISE-2016-11, SR-
ISE Gemini-2016-05, and SR-ISE Mercury-2016-10, including whether 
Amendment No. 1 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 email to rule-comments@sec.gov. Please include 
File Number SR-ISE-2016-11, SR-ISE Gemini-2016-05, or SR-ISE Mercury-
2016-10, as applicable, on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
    All submissions should refer to File Numbers SR-ISE-2016-11, SR-ISE 
Gemini-2016-05, SR-ISE Mercury-2016-10, as applicable. This file number 
should be included on the subject line if email 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 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the ISE, ISE Gemini, or ISE 
Mercury, as applicable. 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 Numbers 
SR-ISE-2016-11, SR-ISE Gemini-2016-05, or SR-ISE Mercury-2016-10, as 
applicable, and should be submitted on or before July 18, 2016.

V. Accelerated Approval of Proposed Rule Changes, as Modified by Their 
Respective Amendment No. 1

    The Commission, pursuant to Section 19(b)(2) of the Act,\82\ finds 
good cause for approving the proposed rule changes, as modified by 
their respective Amendment No. 1 prior to the thirtieth day after the 
date of publication of notice of filing of Amendment No. 1 in the 
Federal Register. In Amendment No. 1, the Exchanges propose to amend 
the ISE Holdings COI and U.S. Exchange Holdings COI to remove the 
Ownership Limits and Voting Limits and adopt new controls on the 
ownership, transfer, assignment, and voting of the capital stock of 
U.S. Exchange Holdings and ISE Holdings.\83\ Amendment No. 1 also made 
certain conforming changes to the ISE Holdings COI and U.S. Exchange 
Holdings COI in connection with the removal of the Ownership Limits and 
Voting Limits.\84\ In addition, each of the Exchanges proposes to amend 
one of their existing rules limiting the affiliation between ISE, ISE 
Gemini, or ISE Mercury and their respective members by adopting the 
Member Ownership Restrictions.\85\ As discussed more fully above, the 
Commission believes that the amended Ownership Limits and Voting 
Limits, along with the ancillary modifications related thereto, are 
reasonably designed to prevent any shareholder from exercising undue 
control over the operation of each of the Exchanges. Furthermore, as 
stated above, the Commission believes that the proposed Membership 
Ownership Restrictions are reasonably designed to reduce the potential 
for an Exchanges' member to improperly interfere with or restrict the 
ability of the Commission or the Exchanges to effectively carry out 
their respective regulatory oversight responsibilities under the Act. 
Accordingly, the Commission finds good cause for approving the proposed 
rule changes, as modified by their respective Amendment No. 1, on an 
accelerated basis, pursuant to Section 19(b)(2) of the Act.
---------------------------------------------------------------------------

    \82\ 15 U.S.C. 78s(b)(2).
    \83\ See supra Section III.B (Ownership Limits and Voting 
Limits).
    \84\ See supra notes 54 and 64.
    \85\ See supra Section III.D (Member Ownership Restriction).
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VI. Conclusion

    IT IS THEREFORE ORDERED, pursuant to Section 19(b)(2) of the Act 
\86\ that the proposed rule changes (SR-ISE-2016-11; SR-ISE Gemini-
2016-05; SR-ISE Mercury-2016-10), as modified by their respective 
Amendment No. 1, be, and hereby are, approved on an accelerated basis.
---------------------------------------------------------------------------

    \86\ 15 U.S.C. 78f(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\87\
---------------------------------------------------------------------------

    \87\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2016-15067 Filed 6-24-16; 8:45 am]
 BILLING CODE 8011-01-P