Document ID: SEC-2018-1113-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Chicago Stock Exchange, Inc.
Posted Date: 2018-07-19T04:00Z

[Federal Register Volume 83, Number 139 (Thursday, July 19, 2018)]
[Notices]
[Pages 34182-34190]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-15370]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83635; File No. SR-CHX-2018-004]

Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing of Amendment Nos. 2 and 3 and Order Granting 
Accelerated Approval of a Proposed Rule Change, as Modified by 
Amendments Nos. 1, 2, and 3 Thereto, in Connection With a Proposed 
Transaction Involving CHX Holdings, Inc. and the Intercontinental 
Exchange, Inc.

July 13, 2018.

I. Introduction

    On May 8, 2018, the Chicago Stock Exchange, Inc. (``CHX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Exchange

[[Page 34183]]

Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change in 
connection with a transaction (``Transaction'') whereby a wholly-owned 
subsidiary of NYSE Group, Inc. (``NYSE Group'') would merge with and 
into the Exchange's parent, CHX Holdings, Inc. (``CHX Holdings''), with 
CHX Holdings continuing as the surviving corporation. Pursuant to the 
Transaction, the Exchange and CHX Holdings would become indirect 
subsidiaries of Intercontinental Exchange, Inc. (``ICE''). On May 17, 
2018, the Exchange filed Amendment No. 1 to the proposal.\3\ The 
proposed rule change, as modified by Amendment No. 1, was published for 
comment in the Federal Register on May 29, 2018.\4\ On June 11, 2018, 
the Exchange filed Amendment No. 2 to the proposal.\5\ On June 26, 
2018, the Exchange filed Amendment No. 3 to the proposal.\6\ The 
Commission received no comments on the proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange proposed to: (1) Add new 
CHX Article 22, Rule 28, relating to requirements for trading 
securities issued by ICE or its affiliates; and (2) amend proposed 
CHX Article 19, Rule 2(b), relating to certain requirements with 
respect to a wholly-owned subsidiary of NYSE Group that would act as 
an inbound router to the Exchange. Amendment No. 1 was reflected in 
the notice of filing of proposed rule change that was published in 
the Federal Register. See infra note 4.
    \4\ See Securities Exchange Act Release No. 83303 (May 22, 
2018), 83 FR 24517 (``Notice'').
    \5\ In Amendment No. 2, the Exchange proposed to amend Article 
FIFTH, Paragraph (g) of the CHX certificate of incorporation (``CHX 
Certificate'') and Article II, Section 6 of the CHX bylaws (``CHX 
Bylaws'') to provide that a vacancy in the CHX board of directors 
would be filled either by the remaining director(s) or stockholder 
action. Amendment No. 2 is available at: https://www.sec.gov/comments/sr-chx-2018-004/chx2018004-3818683-162751.pdf.
    \6\ In Amendment No. 3, the Exchange proposed technical changes 
to the CHX Certificate so that the date the original certificate of 
incorporation was filed and the original name of the Exchange appear 
in the preamble instead of Article FIRST, and to delete ``the'' from 
the title of the CHX Certificate. Amendment No. 3 is available at: 
https://www.sec.gov/comments/sr-chx-2018-004/chx2018004-3918683-166986.pdf.
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    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Exchange Act and the 
rules and regulations thereunder applicable to a national securities 
exchange.\7\ In particular, the Commission finds that the proposed rule 
change is consistent with Sections 6(b)(1) and (3) of the Exchange 
Act,\8\ 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 Exchange Act, and to enforce compliance by its 
members and persons associated with its members with the provisions of 
the Exchange Act, the rules and regulations thereunder, and the rules 
of 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 Exchange Act,\9\ 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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    \7\ 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).
    \8\ 15 U.S.C. 78f(b)(1) and (b)(3).
    \9\ 15 U.S.C. 78f(b)(5).
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II. Discussion

A. Current and Proposed Ownership of the Exchange

    Currently, the Exchange is a wholly-owned subsidiary of CHX 
Holdings, and CHX Holdings is beneficially owned by 197 firms or 
individuals, including Participants \10\ or affiliates of Participants.
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    \10\ A ``Participant'' is considered a ``member'' of the 
Exchange for purposes of the Exchange Act. See CHX Article 1, Rule 
1(s) (Definitions).
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    Pursuant to the terms of a Merger Agreement, dated April 4, 2018, 
by and among CHX Holdings, ICE, and Kondor Merger Sub, Inc., a wholly-
owned subsidiary of NYSE Group (``Merger Sub''), Merger Sub would merge 
with and into CHX Holdings, and CHX Holdings would be the entity 
surviving the merger. Current holders of the common and preferred stock 
of CHX Holdings would receive cash in exchange for their shares.
    Upon closing of the Transaction (``Closing''), NYSE Group would 
hold all of the outstanding and issued shares of CHX Holdings. NYSE 
Group is a wholly-owned subsidiary of NYSE Holdings, which is in turn 
wholly owned by ICE Holdings. ICE Holdings is wholly-owned by ICE 
(together, with NYSE Group, NYSE Holdings, and ICE, the ``ICE Holding 
Companies'').\11\ CHX Holdings would continue to be the record and 
beneficial owner of all of the issued and outstanding shares of capital 
stock of CHX and the sole member of the Exchange's affiliated routing 
broker dealer, CHXBD, LLC (``CHXBD''). Closing is subject to 
satisfaction of customary conditions for a transaction of this nature, 
including approval of this proposed rule change by the Commission.
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    \11\ ICE is a public company listed on the NYSE. ICE, ICE 
Holdings, and NYSE Group are Delaware corporations and NYSE Holdings 
is a Delaware limited liability corporation.
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    Following the Transaction, the Exchange would continue to be 
registered as a national securities exchange and as a separate self-
regulatory organization (``SRO''). As such, the Exchange would continue 
to have separate rules, membership rosters, and listings that would be 
distinct from the rules, membership rosters, and listings of the four 
other registered national securities exchanges and SROs owned by NYSE 
Group, namely, the New York Stock Exchange LLC (``NYSE''), NYSE 
American LLC (``NYSE American''), NYSE Arca, Inc. (``NYSE Arca''), and 
NYSE National, Inc. (``NYSE National'' and together with NYSE, NYSE 
American and NYSE Arca, the ``NYSE Exchanges'').

B. Proposed Rule Changes

    Section 19(b) of the Exchange Act and Rule 19b-4 thereunder require 
an SRO to file proposed rule changes with the Commission. To effectuate 
the change in the ownership structure in connection with the proposed 
Transaction, the Exchange has proposed to amend the CHX Certificate, 
the CHX Bylaws, the CHX Holdings certificate of incorporation (``CHX 
Holdings Certificate''), CHX Holdings bylaws (``CHX Holdings Bylaws''), 
and the Exchange's rules. Although CHX Holdings, NYSE Group, NYSE 
Holdings, ICE Holdings, and ICE are not SROs, certain provisions of 
their proposed certificates of incorporation and bylaws, along with 
other corporate documents, are rules of the Exchange, if they are 
stated policies, practices, or interpretations, as defined in Rule 19b-
4 under the Exchange Act, and must be filed with the Commission 
pursuant to Section 19(b)(1) of the Exchange Act and Rule 19b-4 
thereunder.\12\ Accordingly, the Exchange has filed, and has proposed 
to adopt, as rules of the Exchange: (1) The certificate of 
incorporation of NYSE Group (``NYSE Group Certificate''); (2) the 
bylaws of NYSE Group (``NYSE Group Bylaws''); (3) the limited liability 
company agreement of NYSE Holdings LLC (``NYSE Holdings Agreement''); 
(4) the certificate of incorporation of ICE Holdings (``ICE Holdings 
Certificate''); (5) the bylaws of ICE Holdings (``ICE Holdings 
Bylaws''); (6) the certificate of

[[Page 34184]]

incorporation of ICE (``ICE Certificate''); (7) the bylaws of ICE 
(``ICE Bylaws''); and (8) the independence policy of the board of 
directors of ICE. In addition, the Exchange has filed with the 
Commission the text of a proposed resolution of CHX Holdings' board of 
directors to waive certain ownership and voting limitations to permit 
the Transaction.
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    \12\ See Section 3(a)(27) of the Exchange Act, 15 U.S.C. 
78c(a)(27).
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1. Proposed Rule Changes To Waive the Ownership and Voting Limitations
    The current CHX Holdings certificate of incorporation (``Current 
CHX Holdings Certificate'') provides that that no Person,\13\ either 
alone or together with its Related Persons,\14\ may, directly or 
indirectly: (1) Own shares of stock of CHX Holdings representing more 
than 40 percent of the then outstanding votes entitled to be cast on 
any matter; (2) if it is a Participant, own shares of stock of CHX 
Holdings representing more than 20 percent of the then outstanding 
votes entitled to be cast on any matter; or (3) pursuant to any voting 
trust, agreement, plan or other arrangement, vote or cause the voting 
of shares of the stock of CHX Holdings or give any consent or proxy 
with respect to shares representing more than 20 percent of the voting 
power of the then issued and outstanding capital stock of CHX Holdings; 
or enter into any agreement, plan or other arrangement 
(``Arrangement'') with any other Person, either alone or together with 
its Related Persons, under circumstances that would result in the 
subject shares of CHX Holdings not being voted on any matter or matters 
or any proxy relating thereto being withheld, where the effect of such 
Arrangement would be to enable any Person, either alone or together 
with its Related Persons, to vote, possess the right to vote or cause 
the voting of shares of CHX Holdings which would represent more than 20 
percent of such voting power.\15\
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    \13\ Current CHX Holdings Certificate, Article FIFTH, Paragraph 
(a)(i) defines ``Person'' as ``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.''
    \14\ Current CHX Holdings Certificate, Article FIFTH, Paragraph 
(a)(ii) defines ``Related Persons'' as ``(A) with respect to any 
Person, all `affiliates' and `associates' of such Person (as such 
terms are defined in Rule 12b-2 under the . . . Act . . .); (B) with 
respect to any Person that holds a permit issued by the . . . 
Exchange . . . to trade securities on the . . . Exchange (a 
`Participant'), any broker or dealer with which a Participant is 
associated; and (C) any two or more Persons that have any agreement, 
arrangement or understanding (whether or not in writing) to act 
together for the purpose of acquiring, voting, holding or disposing 
of shares of the capital stock of'' CHX Holdings.
    \15\ Article FIFTH, Paragraph (b)(ii) of the Current CHX 
Holdings Certificate. Article FIFTH includes provisions to address 
violations of the current ownership and voting limitations. See 
Article FIFTH, Paragraphs (d) and (e) of the Current CHX Holdings 
Certificate.
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    The CHX Holdings Certificate provides that the first and third 
ownership and voting limitations set forth above may be waived by the 
CHX Holdings board of directors by adopting an amendment to the bylaws, 
if, in connection with the adoption of such amendment, the board of 
directors also adopts certain resolutions.\16\ In addition, the CHX 
Holdings Certificate provides that, notwithstanding the first and 
second ownership and voting limitations, a proposed sale, assignment or 
transfer of CHX Holdings stock above the percentage limitations shall 
not become effective until the board of directors of CHX Holdings has 
determined, by resolution, that such purchaser and its Related Persons 
are not subject to any applicable statutory disqualification.\17\
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    \16\ Article FIFTH, Paragraph (b)(iii)(B) of the Current CHX 
Holdings Certificate, which provides that any such resolution must 
state that the board of director's determination is that such 
amendment (a) will not impair the ability of the Exchange to carry 
out its functions and responsibilities as an ``exchange'' under the 
Exchange Act, and the rules under the Exchange Act; (b) is otherwise 
in the best interests of CHX Holdings and its stockholders and the 
Exchange; (c) will not impair the ability of the Commission to 
enforce the Exchange Act, and (d) such amendment shall not be 
effective until approved by the Commission.
    \17\ See Article FIFTH, Paragraph (b)(iv) of the Current CHX 
Holdings Certificate, which provides that, notwithstanding the first 
and second ownership and voting limitations, ``in any case where a 
Person, either alone or together with its Related Persons, would own 
or vote more than the above percentage limitations upon consummation 
of any proposed sale, assignment or transfer of'' CHX Holdings' 
stock, ``such sale, assignment or transfer shall not become 
effective until the Board of Directors'' of CHX Holdings ``shall 
have determined, by resolution, that such Person and its Related 
Persons are not subject to any applicable `statutory 
disqualification' (within the meaning of Section 3(a)(39)'' of the 
Exchange Act.
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    Waiver of the ownership and voting limitations must be filed with 
and approved by the Commission pursuant to Section 19 of the Exchange 
Act.\18\ Furthermore, such Person seeking the waiver must deliver to 
the CHX Holdings board of directors not less than 45 days prior to any 
vote or acquisition, as appropriate, a notice of the intent to exceed 
the ownership and voting restrictions.\19\
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    \18\ See Article FIFTH, Paragraph (b)(v) of the Current CHX 
Holdings Certificate.
    \19\ Id.
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    Because NYSE Group's acquisition of all of the shares of CHX 
Holdings at Closing would violate these ownership and voting 
limitations, the CHX Holdings board of directors determined that in 
order to effect the Transaction, a waiver of the ownership and voting 
limitations with respect to the ICE Holding Companies would be 
required. To do so, the board of directors adopted resolutions 
(``Resolutions''), making certain determinations with respect to the 
ICE Holding Companies and the Transaction that are necessary to waive 
the ownership and voting limits. Specifically, the board of directors 
of CHX Holdings made the following determinations: (1) The acquisition 
of the proposed ownership by the ICE Holdings Companies will not impair 
the ability of the Exchange to carry out its functions and 
responsibilities as an ``exchange'' under the Exchange Act and the 
rules thereunder; are otherwise in the best interests of CHX Holdings 
and its stockholders and the Exchange; and will not impair the ability 
of the Commission to enforce the Exchange Act; and (2) none of the ICE 
Holding Companies, nor any of its Related Persons, is subject to 
``statutory disqualification'' within the meaning of Section 3(a)(39) 
of the Exchange Act.
    Article IV, Section 2(a) of the proposed CHX Holdings Certificate 
would ensure that any change in ownership of CHX Holdings would be 
subject to Commission approval, by providing that NYSE Group may not 
transfer or assign any stock unless such transfer or assignment is 
filed with and approved by the Commission under Section 19 of the 
Exchange Act.\20\ The governing documents of NYSE Group, NYSE Holdings, 
and ICE Holdings also provide that any transfer or assignment of stock 
must be filed with or approved by the Commission under Section 19 of 
the Exchange Act.\21\ Each of the NYSE Group Certificate, NYSE Holdings 
Agreement, and ICE Holdings Certificate provides that any changes to 
the provisions of such agreement must either be filed with and approved 
by the Commission pursuant to Section 19 of the Exchange Act or must be 
submitted to the Exchange's board of directors, and if the board so 
decides, the changes must be filed with and approved by the 
Commission.\22\
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    \20\ 15 U.S.C. 78s(b)(1).
    \21\ See NYSE Group Certificate Article IV, Section 4(a), NYSE 
Holdings Agreement Article VII, Section 7.2, and ICE Holdings 
Certificate Article IV.C.
    \22\ See NYSE Group Certificate Article XII, NYSE Holdings 
Agreement Article XVI, Section 16.1, and ICE Holdings Certificate 
Article X.
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    The Commission believes that it is consistent with the Exchange Act 
to allow the ICE Holding Companies to wholly-own and vote all of the 
outstanding common stock of CHX Holdings. The Commission notes that

[[Page 34185]]

ICE, the new top-level holding company for the Exchanges, currently 
owns other national securities exchanges and is subject to governance 
documents that restrict concentration of ownership and voting 
rights.\23\ As discussed below, CHX Holdings has also included in its 
corporate documents certain provisions designed to maintain the 
independence of the Exchange's regulatory functions.\24\ Accordingly, 
the Commission does not believe that the Transaction will impair the 
ability of the Exchange to carry out its functions and responsibilities 
as an ``exchange'' under the Exchange Act and the rules and regulations 
promulgated thereunder, or the ability of the Commission to enforce the 
Exchange Act and the rules and regulations promulgated thereunder.
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    \23\ See Article V of the ICE Certificate. See infra Section 
II.B.2.
    \24\ See Article XI of the proposed CHX Holdings Certificate and 
Article III of the proposed CHX Holdings Bylaws.
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2. Ownership and Voting Limitations
    In connection with the Transaction, upon Closing, ICE will become 
the indirect owner (through ICE Holdings, NYSE Holdings, NYSE Group, 
and CHX Holdings) of the Exchange.\25\ The ICE Certificate includes 
restrictions on the ability to own and vote shares of capital stock of 
ICE. These limitations are designed to prevent any stockholder from 
exercising undue control over the operation of the Exchange and to 
assure that the Exchange and the Commission are able to carry out their 
regulatory obligations under the Exchange Act.
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    \25\ Because the governing documents of CHX Holdings, NYSE 
Group, NYSE Holdings, and ICE Holdings provide that any transfer or 
assignment of stock must be filed with or approved by the Commission 
under Section 19 of the Exchange Act, any change in control of such 
ICE Holding Companies would be subject to Commission approval. See 
supra notes 19-22 and accompanying text.
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    Specifically, the ICE Certificate includes restrictions on the 
ability to vote and own shares of stock of ICE. For so long as ICE 
directly or indirectly controls a national securities exchange, the ICE 
Certificate provides that no person, either alone or together with its 
related persons, shall be: (1) Entitled to vote or cause the voting of 
more than 10 percent of the then outstanding votes entitled to be cast 
on a matter, or (2) permitted to own shares of stock of ICE 
representing in the aggregate more than 20 percent of the then 
outstanding votes entitled to be cast on any matter. The ICE 
Certificate provides that ICE will be required to disregard any votes 
purported to be cast in excess of the voting restriction. The ICE 
Certificate also provides that in the event that any person(s) exceeds 
the ownership restrictions, it will be obligated to sell promptly, and 
ICE will be obligated to purchase promptly, at a price equal to the par 
value of such shares and to the extent funds are legally available for 
such purchase, the number of shares of ICE necessary so that such 
person, together with its related persons, will beneficially own shares 
of ICE representing in the aggregate no more than 20 percent of the 
then outstanding votes entitled to be cast on any matter, after taking 
into account that such repurchased shares will become treasury shares 
and will no longer be deemed to be outstanding. The ICE board of 
directors may waive the ownership and voting restrictions if it makes 
certain determinations and expressly resolves to permit the ownership 
and voting that is subject to such restrictions, and such resolutions 
have been filed with, and approved by, the Commission under Section 
19(b) of the Exchange Act. The ICE Certificate further provides that 
the board of directors may not approve either voting or ownership 
rights in excess of a 20 percent threshold with respect to any person 
that is a member of an exchange controlled by ICE or who is subject to 
any statutory disqualification.
    The Commission believes that ICE's ownership and voting limitations 
are reasonably designed to prevent any stockholder from exercising 
undue control over the operation of ICE, and in turn, over the 
operation of the Exchange. The Commission also notes that these 
ownership and voting limitations have previously been approved by the 
Commission \26\ and are consistent with those approved by the 
Commission for other SROs \27\ and believes that they are reasonably 
designed to assure that the Exchange and the Commission are able to 
carry out their regulatory obligations under the Exchange Act and in 
administering and complying with the requirements of the Exchange Act. 
Moreover, the Commission believes that the ownership and voting limits 
are reasonably designed to eliminate the potential that the control of 
the Exchange by one or few stockholders would improperly interfere with 
or impair the ability of the Commission or the Exchange to effectively 
carry out their regulatory oversight responsibilities under the 
Exchange Act.
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    \26\ See, e.g., Securities Exchange Act Release No. 71721 (March 
13, 2014), 79 FR 15367 (March 19, 2014) (SR-NYSE-2014-04; SR-
NYSEMKT-2014-10; SR-NYSEArca-2014-08).
    \27\ See, e.g., Securities Exchange Act Release Nos. 79585 
(December 16, 2016), 81 FR 93988 (December 22, 2016) (SR-BatsBZX-
2016-68) (approving similar restrictions in connection with the 
merger of Bats Global Markets, Inc. and CBOE Holdings, Inc.) 
(``BATS-CBOE Approval Order''); 78119 (June 21, 2016), 81 FR 41611 
(June 27, 2016) (SR-ISE-2016-11, SR-ISE Gemini-2016-05, SR-ISE 
Mercury-2016-10) (approving similar restrictions proposed in 
connection with Nasdaq, Inc. becoming the indirect parent of 
International Securities Exchange, ISE Gemini, LLC, and ISE Mercury, 
LLC); 74270 (February 13, 2015), 80 FR 9286 (February 20, 2015) (SR-
NSX-2014-017) (approving similar restrictions in connection with 
National Stock Exchange, Inc. becoming a wholly-owned subsidiary of 
National Stock Exchange Holdings, Inc.); 71449 (January 30, 2014), 
79 FR 6961 (February 5, 2014) (SR-EDGA-2013-34; SR-EDGX-2013-43) 
(approving similar restrictions in connection with the merger of 
BATS Global Markets, Inc. and Direct Edge Holdings LLC); 71375 
(January 23, 2014), 79 FR 4771 (January 29, 2014) (SR-BATS-2013-059, 
SR-BYX-2013-039) (approving similar restrictions in connection with 
the merger of BATS Global Markets, Inc. and Direct Edge Holdings 
LLC); 70210 (August 15, 2013), 78 FR 62716 (August 13, 2010), 75 FR 
51295 (August 19, 2010) (File No. 10-198) (approving similar 
restrictions in connection with the registration Bats BYX Exchange, 
Inc. as a national securities exchange); 61698 (March 12, 2010), 75 
FR 13151 (March 18, 2010) (File Nos. 10-194 and 10-196) (approving 
similar restrictions in connection with the registrations of EDGX 
Exchange, Inc. and EDGA Exchange, Inc. as national securities 
exchanges); 58375 (August 18, 2008), 73 FR 49498 (August 21, 2008) 
(File No. 10-182) (approving similar restrictions in connection with 
the registration of BATS Exchange, Inc. as a national securities 
exchange); 56955 (December 13, 2007), 72 FR 71979, 71982-84 
(December 19, 2007) (SR-ISE-2007-101) (approving similar 
restrictions in connection with International Securities Exchange 
Holdings, Inc. becoming a wholly-owned indirect subsidiary of Eurex 
Frankfurt AG); 55293 (February 14, 2007); 53382 (February 27, 2006), 
71 FR 11251 (March 6, 2006) (SR-NYSE-2005-77) (approving similar 
restrictions in connection with the merger of New York Stock 
Exchange, Inc. and Archipelago); 53963 (June 8, 2006), 71 FR 34660 
(June 15, 2006) (File No. SR-NSX-2006-03) (approving similar 
restrictions in connection with the demutualization of the National 
Stock Exchange); 53128 (January 13, 2006), 71 FR 3550 (January 23, 
2006) (File No. 10-131) (approving similar restrictions in 
connection with the registration the Nasdaq Stock Market LLC as a 
national securities exchange); 51149 (February 8, 2005), 70 FR 7531 
(February 14, 2005) (SR-CHX-2004-26) (approving similar restrictions 
in connection with the demutualization of CHX); and 49098 (January 
16, 2004), 69 FR 3974 (January 27, 2004) (SR-Phlx-2003-73) 
(approving similar restrictions in connection with the 
demutualization of the Philadelphia Stock Exchange, Inc.).
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    In addition to being designed to eliminate the potential of any 
stockholder from exercising undue control over the Exchange, the 
Commission also notes that the restrictions applicable to members of an 
exchange are designed to address the conflicts of interests that might 
result from a member of a national securities exchange owning interests 
in the exchange. As the Commission has noted in the past, a member's 
interest in an exchange could become so large as to cast doubts on 
whether the exchange may fairly and objectively exercise its self-
regulatory responsibilities with

[[Page 34186]]

respect to such member.\28\ A member that is a controlling stockholder 
of an exchange could seek to exercise that controlling influence by 
directing the exchange to refrain from, or the exchange may hesitate 
to, diligently monitor and conduct surveillance of the member's conduct 
or diligently enforce the exchange's rules and the federal securities 
laws with respect to conduct by the member that violates such 
provisions. As such, these restrictions on Exchange members' ownership 
and voting of ICE stock are expected to minimize the potential that a 
person or entity can improperly interfere with or restrict the ability 
of CHX to effectively carry out its regulatory oversight 
responsibilities under the Exchange Act.
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    \28\ See, e.g., BATS-CBOE Order, supra note 27, at 93990.
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3. Jurisdiction; Books and Records; Due Regard
    As described above, following the Closing, ICE will remain the sole 
stockholder of ICE Holdings, ICE Holdings will remain the sole 
stockholder of NYSE Holdings, NYSE Holdings will remain the sole member 
of NYSE Group, NYSE Group will become the sole stockholder of CHX 
Holdings, and CHX Holdings will remain the sole stockholder of the 
Exchange. Although ICE, ICE Holdings, NYSE Holdings, NYSE Group, and 
CHX Holdings will not carry out any regulatory functions, their 
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 ICE Bylaws,\29\ ICE Holdings 
Bylaws,\30\ NYSE Holdings Agreement,\31\ NYSE Group Certificate,\32\ 
and CHX Holdings Certificate \33\ 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) \34\ and 19(g) \35\ of the Exchange Act, and facilitate 
the ability of the Exchange and the Commission to fulfill their 
regulatory and oversight obligations under the Exchange Act.
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    \29\ See Articles VII, VIII, IX, and IX of the ICE Bylaws.
    \30\ See Articles VII, VIII, IX, and XI of the ICE Holdings 
Bylaws.
    \31\ See Articles XII, XIII, XIV, and Article XVI, Section 16.1 
of the NYSE Holdings Agreement.
    \32\ See Articles IX, X, XI, and XII of the NYSE Group 
Certificate.
    \33\ See Articles IX, X, XI, and XII of the proposed CHX 
Holdings Certificate.
    \34\ 15 U.S.C. 78f(b).
    \35\ 15 U.S.C. 78s(g).
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    For example, under the CHX Holdings Certificate, CHX Holdings, its 
directors, officers, and employees, must give due regard to the 
preservation of the independence of the self-regulatory function of the 
Exchange (to the extent of the Exchange's self-regulatory function), as 
well as to its obligations to investors and the general public and must 
not take any actions that would interfere with the effectuation of any 
decisions by the board of directors of the Exchange relating to its 
regulatory functions (including disciplinary matters), or which would 
interfere with the ability of the Exchange to carry out its 
responsibilities under the Exchange Act.\36\
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    \36\ Article XI, Section 3 of the proposed CHX Holdings 
Certificate.
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    The CHX Holdings Certificate would further require that CHX 
Holdings complies with the U.S. federal securities laws and rules and 
regulations thereunder and shall cooperate with the Commission and the 
Exchange, pursuant to and to the extent of their respective regulatory 
authority, and shall take reasonable steps necessary to cause its 
agents to cooperate with the Commission and, where applicable, the 
Exchange, pursuant to their regulatory authority.\37\ The CHX Holdings 
Certificate also provides that CHX Holdings shall take reasonable steps 
necessary to cause its officers, directors and employees, prior to 
accepting their positions, to consent to the applicability of Section 7 
of Article V (``Considerations of the Board''), Article IX 
(``Jurisdiction''), Article X (``Confidential Information''), and 
Section 3 of Article XI of the CHX Holdings Certificate (relating to 
giving due regard to the independence of the self-regulatory function 
of the Exchange) with respect to their activities related to the 
Exchange.\38\ In addition, the CHX Holdings Certificate provides that 
in discharging his or her responsibilities as a member of the board or 
as an officer or employee of CHX Holdings, each such director, officer, 
or employee shall (1) comply with the federal securities laws and the 
rules and regulations thereunder, (2) cooperate with the Commission, 
and (3) cooperate with the Exchange pursuant to and to the extent of 
its regulatory authority.\39\ Furthermore, CHX Holdings, its directors 
and officers, and those of its employees whose principal place of 
business and residence is outside of the United States, shall be deemed 
to irrevocably submit to the jurisdiction of the United States federal 
courts and the Commission for the purposes of any suit, action, or 
proceeding pursuant to the United States federal securities laws and 
the rules and regulations thereunder, commenced or initiated by the 
Commission arising out of, or relating to, the activities of the 
Exchange.\40\
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    \37\ Article XI, Section 1 of the proposed CHX Holdings 
Certificate.
    \38\ Article XI, Section 2 of the proposed CHX Holdings 
Certificate.
    \39\ Article V, Section 7 of the proposed CHX Holdings 
Certificate.
    \40\ Article IX of the proposed CHX Holdings Certificate.
---------------------------------------------------------------------------

    The CHX Holdings Certificate also provides that as long as CHX 
Holdings directly or indirectly controls any national securities 
exchange, the books, records, premises, officers, directors, and 
employees of CHX Holdings shall be deemed to be the books, records, 
premises, officers, directors, and employees of the Exchange for 
purposes of and subject to oversight pursuant to the Exchange Act.\41\
---------------------------------------------------------------------------

    \41\ Article X of the proposed CHX Holdings Certificate.
---------------------------------------------------------------------------

    The CHX Holdings Certificate also provides that all confidential 
information pertaining to the self-regulatory function of the Exchange 
(including but not limited to disciplinary matters, trading data, 
trading practices, and audit information) contained in the books and 
records of the Exchange that shall come into the possession of CHX 
Holdings, shall not be made available to any persons other than to 
those officers, directors, employees, and agents of CHX Holdings, that 
have a reasonable need to know the contents thereof, and shall be 
retained in confidence by CHX Holdings, and the officers, directors, 
employees, and agents of CHX Holdings, and not used for any commercial 
purposes.\42\ The CHX Holdings Certificate, however, specifies that the 
CHX Holdings Certificate (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 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 CHX Holdings to disclose 
such confidential information to the Commission or the Exchange.\43\ In 
addition, the CHX Holdings Certificate provides that CHX Holdings' 
books and records shall be subject at all times to inspection and

[[Page 34187]]

copying by the Commission and the Exchange.\44\
---------------------------------------------------------------------------

    \42\ Article X of the proposed CHX Holdings Certificate.
    \43\ Article X of the proposed CHX Holdings Certificate.
    \44\ Article X of the proposed CHX Holdings Certificate.
---------------------------------------------------------------------------

    The CHX Holdings Certificate and CHX Holdings Bylaws provide that 
as long as CHX Holdings controls, directly or indirectly, a registered 
national securities exchange, before any amendment to, or repeal of, 
any provision of the CHX Holdings Certificate and CHX Holdings Bylaws, 
as the case may be, may be effective, those changes must be either 
filed with or filed with and approved by the Commission under Section 
19 of the Exchange Act and the rules promulgated thereunder or 
submitted to the board of directors of each such exchange, 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 Exchange Act, such 
change shall not be effective until filed with, or filed with and 
approved by, the Commission.\45\
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    \45\ Article XII of the proposed CHX Holdings Certificate and 
Section 7.9(b) of the proposed CHX Holdings Bylaws.
---------------------------------------------------------------------------

    The Commission finds that these provisions are consistent with the 
Exchange 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 Exchange Act. The Commission 
also notes that, even in the absence of these provisions, under Section 
20(a) of the Exchange Act,\46\ any person with a controlling interest 
in the Exchange shall be jointly and severally liable with and to the 
same extent that the Exchange is liable under any provision of the 
Exchange 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 
Exchange Act \47\ creates aiding and abetting liability for any person 
who knowingly provides substantial assistance to another person in 
violation of any provision of the Exchange Act or rule thereunder. 
Further, Section 21C of the Exchange Act \48\ 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 Exchange Act through an 
act or omission that the person knew or should have known would 
contribute to the violation.
---------------------------------------------------------------------------

    \46\ 15 U.S.C. 78t(a).
    \47\ 15 U.S.C. 78t(e).
    \48\ 15 U.S.C. 78u-3.
---------------------------------------------------------------------------

4. CHX Board of Directors
    As noted above, the Exchange will become part of a corporate family 
including five separate registered national securities exchanges 
following consummation of the Transaction. The Exchange represented 
that it is important for each of such exchanges to have a consistent 
approach to corporate governance in certain matters; therefore, to 
simplify complexity and create greater consistency among the NYSE 
Exchanges, CHX proposed to revise the provisions of the CHX Bylaws and 
CHX Certificate to mirror the comparable provisions in the certain of 
the NYSE Exchanges.\49\ Specifically, as discussed below, the Exchange 
proposed to make the number, composition, term of office and 
qualifications of the Exchange board of directors (``Board'') 
consistent with the make-up of the boards of directors of the NYSE 
Exchanges.
---------------------------------------------------------------------------

    \49\ See Notice, supra note 4, at 24520.
---------------------------------------------------------------------------

    Currently, the CHX Bylaws generally provide that the Board shall be 
composed of between 10 and 16 directors, the exact number to be 
determined by the Board; the CHX Bylaws also set forth the 
compositional requirements for the Board. The Exchange proposed to 
amend the CHX Bylaws to provide that the number of directors would be 
determined from time to time by the stockholders subject to the 
compositional requirements for the Board, which require that at least 
50 percent of the directors on the Exchange's Board be persons from the 
public and not be, or be affiliated with, a broker-dealer in securities 
or employed by, or involved in any material business relationship with, 
the Exchange or its affiliates (``Public Directors''); and at least 20 
percent of the directors consist of individuals nominated by the 
trading permit holders who are permitted to trade on the Exchange's 
facilities for the trading of equities that are securities as covered 
by the Exchange Act (collectively, ``Permit Holders'') (such directors, 
the ``STP Participant Directors'').\50\ The Exchange also proposed that 
for purposes of calculating the minimum number of STP Participant 
Directors, if 20 percent of the directors is not a whole number, such 
number of directors to be nominated and selected by the Permit Holders 
be rounded up to the next whole number, and that the term of office of 
a director not be affected by any decrease in the authorized number of 
directors.\51\ The revised provisions also would require the nominees 
for a director position to provide to the Secretary of the Exchange 
such information as is reasonably necessary to serve as the basis for a 
determination of the nominee's qualifications as a director, and that 
the Secretary make such determination concerning the nominee's 
qualifications.\52\
---------------------------------------------------------------------------

    \50\ See proposed CHX Bylaws, Article II, Section 2(a).
    \51\ Id.
    \52\ See proposed CHX Bylaws, Article II, Section 2(b). The 
Exchange noted that proposed Article II, Sections 2(a) and (b) would 
be consistent with the NYSE National Bylaws and NYSE Arca Bylaws. 
See Notice, supra note 4, at 24521.
---------------------------------------------------------------------------

    The Exchange also proposed to amend Article II, Section 2(c) of the 
CHX Bylaws, which sets forth the structure of the Board. Currently, the 
Board is divided into three classes serving three-year terms, with the 
term of office of one class expiring each year, and directors continue 
in office after the expiration of their terms until their successors 
are elected or appointed and qualified, except in the event of early 
resignation, removal, or disqualification. The Exchange proposed to 
replace this provision to provide that at each annual meeting of the 
stockholders, the stockholders will elect directors to serve until the 
next annual meeting or until their successors are elected and 
qualified.\53\ The Exchange also proposed that the Board shall appoint 
the Chairman of the Board by majority vote, and that each director 
shall hold office for a term that expires at the annual meeting of the 
stockholders next following his or her election, provided that if he or 
she is not re-elected and his or her successor is not elected and 
qualified at the meeting and there remains a vacancy on the Board, he 
or she shall continue to serve until his or her successor is elected 
and qualified or until his or her earlier death, resignation, or 
removal.\54\ The CHX Bylaws also would provide that a director may 
serve for any number of terms, consecutive or otherwise.\55\ The 
Exchange represented that the change from a three-class board with 
staggered terms to a board with one class of directors elected annually 
would make the organization of the Board consistent with those of all 
of the NYSE Exchanges.\56\
---------------------------------------------------------------------------

    \53\ See proposed CHX Bylaws, Article II, Section 2(c).
    \54\ See proposed CHX Bylaws, Article II, Section 2(d).
    \55\ Id.
    \56\ See Notice, supra note 4, at 24522.
---------------------------------------------------------------------------

    The Exchange proposed that except as otherwise provided in the CHX 
Bylaws or the Exchange's rules, the shareholder shall nominate 
directors for election at the annual meeting of the shareholder, which 
nominations shall comply with

[[Page 34188]]

the Exchange's rules and the CHX Bylaws.\57\
---------------------------------------------------------------------------

    \57\ See proposed CHX Bylaws, Article II, Section 2(f). 
According to the Exchange, this provision would be consistent with 
the NYSE National Bylaws and NYSE Arca Bylaws. See Notice, supra 
note 4, at 24522.
---------------------------------------------------------------------------

    The Exchange also proposed to amend the CHX Bylaw provisions 
relating to the nomination and election of the Board to make these 
provisions similar to the provisions in the NYSE Arca and NYSE National 
Bylaws, subject to certain terms specific to the Exchange.\58\ 
Currently, the Nominating and Governance Committee (``NGC'') of the 
Exchange consists of two Public Directors and two Original STP 
Participant Directors, one of whom must not be a representative of a 
firm that is a holder of Series A Preferred Stock of CHX Holdings. The 
NGC also is currently appointed by the Board. The Exchange proposed 
that the Nominating Committee be composed solely of STP Participant 
Directors and/or Permit Holder representatives, and proposed to rename 
the NGC to the ``Nominating Committee.'' \59\
---------------------------------------------------------------------------

    \58\ See Notice, supra note 4, at 24522.
    \59\ See proposed CHX Bylaws, Article II, Section 3(a).
---------------------------------------------------------------------------

    The Exchange also proposed to amend the provisions relating to the 
process for nominating candidates to the Board. Currently, the Bylaws 
provide that each year the NGC shall nominate persons who will qualify 
as Participant Directors pursuant to the procedures set forth in the 
Bylaws. The Exchange proposed to adopt a new process for nominating 
nominees to the Board. Specifically, pursuant to Article II, Section 
3(b) of the CHX Bylaws, CHX proposed that the Nominating Committee 
shall publish the name(s) of one or more Participants as its nominee(s) 
for STP Participant Directors of the Board. The Nominating Committee 
would name sufficient nominees so that at least 20 percent of the 
directors consist of STP Participant Directors, and the names of the 
nominees shall be published on a date in each year sufficient to 
accommodate the process described (``Announcement Date''). After the 
name of the proposed nominee(s) is published, the CHX Bylaws allow 
Permit Holders in good standing to submit a petition to the Exchange in 
writing to nominate additional eligible candidate(s) to fill STP 
Participant Director position(s) during the next term. If a written 
petition of at least 10 percent of Permit Holders in good standing is 
submitted to the Nominating Committee within two weeks after the 
Announcement Date, such person(s) would also be nominated by the 
Nominating Committee, provided, however, that no Permit Holder, either 
alone or together with other Permit Holders that are deemed its 
affiliates, may account for more than 50 percent of the signatories to 
the petition endorsing a particular petition nominee for the STP 
Participant Director position(s) on the Board. Article 2, Section 3(b) 
of the CHX Bylaws would stipulate that each petition for a petition 
candidate must include a completed questionnaire used to gather 
information concerning director candidates, with the form of the 
questionnaire provided by the Exchange upon the request of any Permit 
Holder. The same provision also provides that, notwithstanding anything 
to the contrary, the Nominating Committee shall determine whether any 
petition candidate is eligible to serve on the Board (including whether 
such person is free of any statutory disqualification), and such 
determination shall be final and conclusive.
    In Article II, Section 3(c) of the CHX Bylaws, the Exchange also 
proposed a petition election process in the event that the number of 
nominees exceeds the number of available seats. In this case, the 
Nominating Committee shall submit the contested nomination to the 
Permit Holders for selection. Permit Holders would be afforded a 
confidential voting procedure and be given no less than 20 calendar 
days to submit their votes. A Permit Holder in good standing may select 
one nominee for the contested seat on the Board; provided, however that 
no Permit Holder, either alone or together with other Permit Holders 
who are deemed its affiliates, may account for more than 20 percent of 
the votes cast for a particular nominee for the STP Participant 
Director position(s) on the Board. With respect to the contested 
position, the Exchange proposed that the nominee for the Board 
receiving the most votes of Permit Holders shall be submitted by the 
Nominating Committee to the Board and that the Nominating Committee 
shall also submit uncontested nominees to the Board, and tie votes 
shall be decided by the Board at its first meeting following the 
election. Finally, the Exchange proposed that the Board shall appoint 
the Nominating Committee.\60\
---------------------------------------------------------------------------

    \60\ See proposed CHX Bylaws, Article II, Section 3(d).
---------------------------------------------------------------------------

    The Exchange also proposed to amend Article II, Section 6 of the 
current CHX Bylaws, which addresses how vacancies on the Board shall be 
filled. Currently, this provision provides that any vacancy on the 
Board due to ``the death, retirement, resignation, disqualification or 
removal of a director'' or to an increase in the number of directors 
between annual meetings ``shall be filled only with a person nominated 
by the Chairman and Vice Chairman of the Corporation and elected by a 
majority of the directors then in office, though less than a quorum or 
by a sole remaining director,'' with the caveat that, when stockholders 
remove a director from office for cause, the stockholders may fill the 
vacancy at the same meeting.
    The Exchange proposed to revise this provision to also provide that 
vacancies also may be filled by action taken by the stockholders of the 
Exchange.\61\ Therefore, pursuant to the CHX Bylaws, vacancies on the 
Board may be filled (i) with a person nominated by the Chairman and 
Vice Chairman of the Exchange and elected by a majority of the 
directors then in office, though less than a quorum or by a sole 
remaining director, or (ii) by action taken by the stockholders of the 
Exchange. As a result, CHX Holdings, as the stockholder of the 
Exchange, would be able to fill vacancies on the Board, include any 
that exist following the Transaction. The Exchange represented that 
this provision would be consistent with the bylaws of NYSE Arca and 
NYSE National, as well as the bylaws of other SROs, such as CBOE 
Exchange, Inc. and CBOE BYX Exchange, Inc.\62\
---------------------------------------------------------------------------

    \61\ See Amendment No. 2, supra note 5, at 4.
    \62\ See Amendment No. 2, supra note 5, at 3.
---------------------------------------------------------------------------

    Finally, the Exchange proposed to restructure and amend Article 
FIFTH of the CHX Certificate governing the composition, nomination and 
election of its Board to more closely align with the proposed amended 
CHX Bylaws and the relevant provisions of the other NYSE Exchanges, to 
make certain administrative and conforming changes.\63\
---------------------------------------------------------------------------

    \63\ See Notice, supra note 4, at 24523-24.
---------------------------------------------------------------------------

    In addition, the Exchange has proposed to amend CHX Article 2, 
Rules 2, 3, 4, and 11, to conform with proposed changes to the CHX 
Bylaws and CHX Certificate related to the Exchange Board, which are 
discussed above, and to reduce the minimum size of the Board's 
Executive, Finance, and Regulatory Oversight Committees to three 
members, conforming the committee size to the governing documents of 
the NYSE Exchanges, all of which provide that their respective 
regulatory oversight committees consist of three directors.
    The Commission believes that the proposed changes to the CHX Bylaws 
and CHX Certificate related to the number, composition, term of office, 
and qualifications of the Board are

[[Page 34189]]

consistent with Section 6(b)(3) of the Exchange Act in that they assure 
the fair representation of CHX members on the CHX Board, 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. In particular, the Commission finds that the requirements 
that at least 20 percent of the Board be comprised of STP Participant 
Directors and 50 percent of the Board be comprised of Public Directors 
are consistent with the requirements of Section 6(b)(3). In addition, 
the Commission finds that the proposed provisions of the CHX Bylaws and 
CHX Certificate relating to the number, term of office, and 
qualifications of the Board are consistent with Section 6(b)(1) of the 
Exchange Act in that they are designed to assist the Exchange in 
fulfilling its self-regulatory obligations and administering and 
complying with the requirements of the Exchange Act.
5. Miscellaneous Changes to Organizational Document
    The Exchange has proposed to make non-substantive technical and 
conforming changes throughout the CHX Certificate and CHX Bylaws to 
reflect the Exchange's new ownership, including updating corporate 
names, defined terms, and cross-references. In addition, the Exchange 
has proposed to amend the ICE Independence Policy to reflect the change 
in ownership of the Exchange and to provide similar protections to the 
Exchange as are currently provided to the NYSE Exchanges by the policy. 
In addition, the Exchange has proposed to remove outdated or obsolete 
references.
    The Commission believes that these amendments are consistent with 
the Exchange Act as they are technical in nature. They do not alter any 
of the restrictions contained in CHX Certificate or CHX Bylaws. The 
amendments merely update such governing documents to reflect the new 
ownership of the Exchange.
6. Inbound Router
    The Exchange states that upon Closing, Archipelago Securities, LLC 
(``ArcaSec''), a Participant of the Exchange and wholly-owned 
subsidiary of NYSE Group, will become an affiliate of the Exchange. CHX 
Article 3, Rule 20 provides that a Participant shall not be or become 
an affiliate of the Exchange, or an affiliate of any affiliate of the 
Exchange, in the absence of an effective filing under Section 19(b) of 
the Exchange Act.\64\ The Exchange represents that the Exchange and 
ArcaSec will each operate in essentially the same manner upon Closing 
as it operates today, and that therefore, upon the Closing, ArcaSec 
will not operate as a ``facility'' of the Exchange, as defined under 
Section 3(a)(2) of the Exchange Act,\65\ and will continue to act, and 
be regulated by the Exchange, as a Participant on the same terms as any 
other Participant, apart from CHXBD.
---------------------------------------------------------------------------

    \64\ 15 U.S.C. 78s(b).
    \65\ 15 U.S.C. 78c(a)(2).
---------------------------------------------------------------------------

    The Exchange has proposed to add a new subparagraph (b) to CHX 
Article 19, Rule 2 to provide that ArcaSec may act as an inbound 
router, and to impose certain limitations and conditions to ArcaSec's 
affiliation with the Exchange to permit the Exchange to accept inbound 
orders that ArcaSec routes. Specifically, proposed Rule 2(b)(1) would 
provide that, for so long as the Exchange is affiliated with the NYSE 
Exchanges and ArcaSec, in its capacity as a facility of the NYSE 
Exchanges, is utilized for the routing of any approved types of orders 
from those exchanges to the Exchange (such function of ArcaSec is 
referred to as the ``Inbound Router''), each of the Exchange and 
ArcaSec shall undertake as follows: (1) The Exchange shall maintain an 
agreement pursuant to Rule 17d-2 under the Exchange Act (``Rule 17d-2 
Plan'') with a non-affiliated SRO to relieve the Exchange of regulatory 
responsibilities for ArcaSec with respect to rules that are common 
rules between the Exchange and the non-affiliated SRO; \66\ (2) the 
Exchange shall maintain a regulatory services agreement (``RSA'') with 
a non-affiliated SRO to perform regulatory responsibilities for ArcaSec 
for unique Exchange rules; (3) the RSA shall require the Exchange and 
the non-affiliated SRO to monitor ArcaSec for compliance with the 
Exchange's trading rules, and collect and maintain, in an easily 
accessible manner, all alerts, complaints, investigations and 
enforcement actions (collectively ``Exceptions'') in which ArcaSec (in 
routing orders to the Exchange) is identified as a participant that has 
potentially violated applicable Exchange or Commission rules. The RSA 
shall require that the non-affiliated SRO provide a report, at least 
quarterly, to the Chief Regulatory Officer of the Exchange quantifying 
all Exceptions; (4) the Exchange, on behalf of the holding company 
owning both the Exchange and ArcaSec, shall establish and maintain 
procedures and internal controls reasonably designed to prevent ArcaSec 
from receiving any benefit, taking any action or engaging in any 
activity based on non-public information regarding planned changes to 
Exchange systems, obtained as a result of its affiliation with the 
Exchange, until such information is available generally to similarly 
situated Participants of the Exchange in connection with the provision 
of inbound order routing to the Exchange; and (5) the Exchange may 
furnish to ArcaSec the same information on the same terms that the 
Exchange makes available in the normal course of business to any other 
Participant. Proposed Rule 2(b)(2) would state that, provided the above 
conditions are complied with, ArcaSec may provide inbound routing 
services to the Exchange from the NYSE Exchanges.\67\
---------------------------------------------------------------------------

    \66\ ``Common rules'' would be defined in the Rule 17d-2 Plan.
    \67\ The Exchange will ensure a Rule 17d-2 Plan is in place and 
comply with the other listed conditions prior to ArcaSec acting as 
an Inbound Router of the Exchange.
---------------------------------------------------------------------------

    In the past, the Commission has expressed concern that the 
affiliation of an exchange with one of its members raises potential 
conflicts of interest and the potential for unfair competitive 
advantage.\68\ Although the Commission continues to be concerned about 
potential unfair competition and conflicts of interest between an 
exchange's self-regulatory obligations and its commercial interest when 
the exchange is affiliated with one of its members, the Commission 
believes that it is consistent with the Exchange Act to permit ArcaSec, 
in its capacity as a facility of each of the NYSE Exchanges, to route 
orders inbound to the Exchange, subject to the limitations and 
conditions described above.\69\ The Commission believes that the 
limitations and conditions in CHX Article 19, Rule 2(b) will mitigate 
its concerns about potential conflicts of interest and unfair 
competitive advantage. In particular, the

[[Page 34190]]

Commission believes that the Rule 17d-2 Plan, RSA, and Exception 
reporting requirements, procedures, and internal controls would help 
protect the independence of the Exchange's self-regulatory function 
with respect to ArcaSec. The Commission also believes that the proposed 
rule is designed to prevent ArcaSec from acting on non-public 
information obtained as a result of its affiliation with the Exchange, 
and that the proposed changes are consistent with the Exchange Act.
---------------------------------------------------------------------------

    \68\ See, e.g., Securities Exchange Act Release Nos. 53382 
(February 27, 2006), 71 FR 11251 (March 6, 2006) (SR-NYSE-2005-77) 
(order approving the combination of the New York Stock Exchange, 
Inc. and Archipelago Holdings, Inc.); 58673 (September 29, 2008), 73 
FR 57707 (October 3, 2008) (SR-Amex-2008-62 and SR-NYSE-2008-60) 
(order approving the combination of NYSE Euronext and the American 
Stock Exchange LLC); 59281 (January 22, 2009), 74 FR 5014 (January 
28, 2009) (SR-NYSE-2008-120) (order approving a joint venture 
between NYSE and BIDS Holdings L.P.); 61698 (March 12, 2010), 75 FR 
13151 (March 18, 2010) (File Nos. 10-194 and 10-196) (order granting 
the exchange registration of EDGX Exchange, Inc. and EDGA Exchange, 
Inc.); and 62716 (August 13, 2010), 75 FR 51295 (August 19, 2010) 
(File No. 10-198) (order granting the exchange registration of BATS-
Y Exchange, Inc.).
    \69\ The Commission notes that the proposed conditions are 
similar to those of other NYSE Exchanges. See NYSE Arca Rule 7.45-
E(c), NYSE Rule 17(c)(2), and NYSE American Rule 7.45E(c).
---------------------------------------------------------------------------

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the Amendment 
Nos. 2 and 3 to the proposed rule change is consistent with the 
Exchange 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 [email protected]. Please include 
File Number SR-CHX-2018-004 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 Number SR-CHX-2018-004. 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 website (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 website 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 Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CHX-2018-004, and should be submitted on 
or before August 9, 2018.

IV. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment Nos. 1, 2, and 3

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment Nos. 1, 2, and 3 prior to the 30th day 
after the date of publication of notice of Amendments Nos. 2 and 3 in 
the Federal Register. As noted above, Amendment Nos. 2 and 3 do not 
change the structure or purpose of the proposed rule change as it was 
previously published for notice and comment.\70\ The Commission 
believes that an additional notice and comment period for Amendment 
Nos. 2 and 3 before approval of the proposed rule change would not be 
in furtherance of the public interest or the protection of investors. 
Accordingly, the Commission finds good cause, pursuant to Section 
19(b)(2) of the Exchange Act,\71\ to approve the proposed rule change, 
as modified by Amendment Nos. 1, 2, and 3, on an accelerated basis.
---------------------------------------------------------------------------

    \70\ See supra notes 5 and 6.
    \71\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

V. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendments Nos. 1, 2, and 3 is consistent 
with the Exchange 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 
Exchange Act \72\ that the proposed rule change (SR-CHX-2018-004), as 
modified by Amendments Nos. 1, 2, and 3, be, and hereby is, approved on 
an accelerated basis.
---------------------------------------------------------------------------

    \72\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\73\
---------------------------------------------------------------------------

    \73\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-15370 Filed 7-18-18; 8:45 am]
BILLING CODE 8011-01-P