[Federal Register Volume 77, Number 20 (Tuesday, January 31, 2012)]
[Notices]
[Pages 4845-4848]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-2021]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-66241]
Order Granting Application by BOX Options Exchange LLC for a
Conditional Exemption Pursuant to Section 36(a) of the Exchange Act
From Certain Requirements of Rules 6a-1 and 6a-2 Under the Exchange Act
January 26, 2012.
I. Introduction
On December 19, 2011, BOX Options Exchange LLC (the ``Applicant'')
submitted to the Securities and Exchange Commission (``Commission'') an
application on Form 1 under the Securities Exchange Act of 1934
(``Exchange Act'') to register as a national securities exchange.\1\ In
addition, the Applicant, pursuant to Rule 0-12 \2\ under the Exchange
Act, has requested an exemption under Section 36(a)(1) of the Exchange
Act \3\ from certain requirements of Rules 6a-1(a) and 6a-2 under the
Exchange Act.\4\ This order grants the Applicant's request for
exemptive relief, subject to the satisfaction of certain conditions,
which are outlined below.
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\1\ On December 28, 2011, the Applicant submitted Amendment No.
1 to its Form 1 application. Amendment No. 1, among other things,
provides the unconsolidated financial statements for certain
affiliates of the Applicant that are required in Exhibit D to Form 1
but were not included in the Applicant's initial Form 1 application.
In its initial Form 1 application, the Applicant only submitted
consolidated financials for certain of these affiliates. See
Securities Exchange Act Release No. 66242 (January 26, 2012)
(publishing for notice and comment the Applicant's Form 1
application, as amended, to register as a national securities
exchange).
\2\ 17 CFR 240.0-12.
\3\ 15 U.S.C. 78mm(a)(1).
\4\ 17 CFR 240.6a-1(a) and 6a-2. See letter from Lisa J. Fall,
General Counsel and Secretary, Boston Options Exchange Group LLC, to
Elizabeth Murphy, Secretary, Commission, dated December 16, 2011
(``Exemption Request'').
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[[Page 4846]]
II. Application for Conditional Exemption From Certain Requirements of
Exchange Act Rules 6a-1 and 6a-2
A. Filing Requirements Under Exchange Act Rule 6a-1(a)
Exchange Act Rule 6a-1(a) requires an applicant for registration as
a national securities exchange to file an application with the
Commission on Form 1. Exhibit C to Form 1 requires the applicant to
provide certain information with respect to each of its subsidiaries
and affiliates.\5\ For purposes of Form 1, an ``affiliate'' is ``[a]ny
person that, directly or indirectly, controls, is under common control
with, or is controlled by, the national securities exchange * * *
including any employees.'' \6\ Form 1 defines ``control'' as ``[t]he
power, directly or indirectly, to direct the management or policies of
a company, whether through ownership of securities, by contract, or
otherwise * * * .'' \7\ Form 1 provides, further, that any person that
directly or indirectly has the right to vote 25% or more of a class of
voting securities, or has the power to sell or direct the sale of 25%
or more of a class of voting securities, is presumed to control the
entity.\8\
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\5\ Specifically, Exhibit C requires the applicant to provide,
for each subsidiary or affiliate, and for any entity that operates
an electronic trading system used to effect transactions on the
exchange: (1) The name and address of the organization; (2) the form
of organization; (3) the name of the state and statute citation
under which it is organized, and the date of its incorporation in
its present form; (4) a brief description of the nature and extent
of the affiliation; (5) a brief description of the organization's
business or function; (6) a copy of the organization's constitution;
(7) a copy of the organization's articles of incorporation or
association, including all amendments; (8) a copy of the
organization's by-laws or corresponding rules or instruments; (9)
the name and title of the organization's present officers,
governors, members of all standing committees, or persons performing
similar functions; and (10) an indication of whether the business or
organization ceased to be associated with the applicant during the
previous year, and a brief statement of the reasons for termination
of the association.
\6\ Form 1 Instructions, Explanation of Terms, 17 CFR 249.1.
\7\ Id.
\8\ Id.
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Exhibit D to Form 1 requires an applicant for exchange registration
to provide unconsolidated financial statements for the latest fiscal
year for each subsidiary or affiliate. Exhibit D requires the financial
statements to include, at a minimum, a balance sheet and an income
statement with such footnotes and other disclosures as are necessary to
avoid rendering the financial statements misleading. Exhibit D
provides, in addition, that if any affiliate or subsidiary of the
applicant is required by another Commission Rule to submit annual
financial statements, a statement to that effect, with a citation to
the other Commission rule, may be provided in lieu of the financial
statements required in Exhibit D.
A Form 1 application is not considered filed until all necessary
information, including financial statements and other required
documents, have been furnished in the proper form.\9\
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\9\ 17 CFR 202.3(b)(2). See also 17 CFR 240.0-3(a). Defective
Form 1 applications ``may be returned with a request for correction
or held until corrected before being accepted as a filing.'' See 17
CFR 202.3(b)(2). See also Securities Exchange Act Release No. 40760
(Dec. 8, 1998), 63 FR 70844, 70881 (Dec. 22, 1998) (``Regulation ATS
Adopting Release'').
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B. Filing Requirements Under Exchange Act Rule 6a-2
Exchange Act Rule 6a-2(a)(2) requires a national securities
exchange to update the information provided in Exhibit C within 10 days
of any action that causes the information provided in Exhibit C to
become inaccurate or incomplete. In addition, Exchange Act Rule 6a-
2(b)(1) requires a national securities exchange to file Exhibit D on or
before June 30 of each year, and Exchange Act Rule 6a-2(c) requires a
national securities exchange to file Exhibit C every three years.
C. Exemption Request
On December 19, 2011, the Applicant requested that the Commission
grant an exemption under Section 36 of the Exchange Act, subject to the
conditions set forth below, from the requirement under Exchange Act
Rule 6a-1 to file the information requested in Exhibits C and D to Form
1 for the ``Foreign Indirect Affiliates,'' as defined below, of the
Applicant.\10\ In addition, the Applicant requested an exemption,
subject to certain conditions, with respect to the Foreign Indirect
Affiliates from the requirements under: (1) Exchange Act Rule 6a-
2(a)(2) to amend Exhibit C within 10 days if the information in Exhibit
C becomes inaccurate or incomplete; and (2) Exchange Act Rule 6a-
2(b)(1) and (c) to file periodic updates to Exhibits C and D.
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\10\ See Exemption Request, supra note 4.
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MX US 2, Inc., a Delaware corporation, would hold a 20% voting
interest and a 40% equity interest in the Applicant. MX US 2, Inc. also
would hold a 53.83% interest in BOX Holdings LLC, which would be the
100% owner of BOX Market, which would own and operate the Boston
Options Exchange options trading platform as a facility of the
Applicant.\11\ MX US 2, Inc. is a wholly owned subsidiary of MX US 1,
Inc., a Delaware corporation. MX US 1, Inc. is a wholly owned
subsidiary of Bourse de Montreal, Inc., a Canadian corporation. Bourse
de Montreal, Inc. is a wholly owned subsidiary of TMX Group, Inc., a
Canadian corporation. According to the Applicant, the parent ownership
structure of MX US 1, Inc. is comprised entirely of foreign entities,
Bourse de Montreal, Inc. and TMX Group, Inc. (the ``Foreign Direct
Affiliates''), which in turn own interests, either directly or
indirectly, of 25 percent or more in a number of other foreign entities
(the ``Foreign Indirect Affiliates'').\12\
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\11\ MX US 2, Inc. currently holds a 53.83% interest in the
Boston Options Exchange Group, LLC, a facility of NASDAQ OMX BX,
Inc.
\12\ See Exemption Request, supra note 4, at 3-4.
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Because of the limited and indirect nature of its connection to the
Foreign Indirect Affiliates, the Applicant believes that the corporate
and financial information of the Foreign Indirect Affiliates required
by Exhibits C and D of Form 1 would have little relevance to the
Commission's review of the Applicant's Form 1 application or to the
Commission's ongoing oversight of the Applicant as a national
securities exchange if the Commission were to approve the Applicant's
Form 1 application.\13\ In this regard, the Exemption Request states
that the Foreign Indirect Affiliates have no ability to influence the
management, policies, or finances of the Applicant and no obligation to
provide funding to, or ability to materially affect the funding of, the
Applicant.\14\ The Exemption Request also states that (1) the Foreign
Indirect Affiliates have no ownership interest in the Applicant or in
any of the controlling shareholders of the Applicant; and (2) there are
no commercial dealings between the Applicant and the Foreign Indirect
Affiliates.\15\ Further, the Exemption Request states that obtaining
detailed corporate and financial information with respect to the
Foreign Indirect Affiliates (1) is unnecessary for the protection of
investors and the public interest and (2) would be unduly burdensome
and inefficient because these affiliates are located in foreign
jurisdictions and the disclosure of such information could implicate
foreign information sharing restrictions in such jurisdictions.\16\
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\13\ Id. at 4.
\14\ Id.
\15\ Id.
\16\ Id. The Applicant also believes that providing the
information required by Exhibits C and D with respect to the Foreign
Indirect Affiliates could raise confidentiality concerns because
many of the Foreign Indirect Affiliates are not public companies.
Id.
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[[Page 4847]]
As a condition to the granting of exemptive relief, the Applicant
has agreed to provide: (i) A listing of the names of the Foreign
Indirect Affiliates; (ii) an organizational chart setting forth the
affiliation of the Foreign Indirect Affiliates and the Foreign Direct
Affiliates and the Applicant; and (iii) in Exhibit C of the Applicant's
Form 1 application, a description of the nature of the Foreign Indirect
Affiliates' affiliation with the Foreign Direct Affiliates and the
Applicant. In addition, as a condition to the granting of exemptive
relief from the requirements of Exchange Act Rule 6a-2(a)(2), 6a-
2(b)(1), and 6a-2(c), as described above, the Applicant has agreed to
provide amendments to the information required under conditions (i)
through (iii) above on or before June 30th of each year. Further, the
Applicant notes that it will provide the information required by
Exhibits C and D for all of its affiliates other than the Foreign
Indirect Affiliates, including the Foreign Direct Affiliates.\17\
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\17\ See Exemption Request, supra note 4, at 4.
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III. Order Granting Conditional Section 36 Exemption
Section 6 of the Exchange Act \18\ sets forth a procedure for an
exchange to register as a national securities exchange.\19\ Exchange
Act Rule 6a-1(a)\20\ requires an application for registration as a
national securities exchange to be filed on Form 1 in accordance with
the instructions in Form 1. A Form 1 application is not considered
filed until all necessary information, including financial statements
and other required documents, have been furnished in the proper
form.\21\ Exchange Act Rule 6a-2 establishes ongoing requirements to
file certain amendments to Form 1.
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\18\ 15 U.S.C. 78f.
\19\ Specifically, Section 6(a) of the Exchange Act states that
``[a]n exchange may be registered as a national securities exchange
* * * by filing with the Commission an application for registration
in such form as the Commission, by rule, may prescribe containing
the rules of the exchange and such other information and documents
as the Commission, by rule, may prescribe as necessary or
appropriate in the public interest or for the protection of
investors.'' Section 6 of the Exchange Act also sets forth various
requirements to which a national securities exchange is subject.
\20\ 17 CFR 240.6a-1(a).
\21\ 17 CFR 202.3(b)(2). See also supra note 9.
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Section 36(a)(1) of the Exchange Act provides that ``the
Commission, by rule, regulation, or order, may conditionally or
unconditionally exempt any person, security, or transaction, or any
class or classes of persons, securities, or transactions, from any
provision or provisions of [the Exchange Act] or of any Rule or
regulation thereunder, to the extent that such exemption is necessary
or appropriate in the public interest, and is consistent with the
protection of investors.''\22\
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\22\ 15 U.S.C. 78mm(a)(1).
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For the reasons discussed below, the Commission believes that it is
appropriate in the public interest and consistent with the protection
of investors to exempt the Applicant from the requirement under
Exchange Act Rule 6a-1 to provide the information required in Exhibits
C and D to Form 1 with respect to the Foreign Indirect Affiliates,
subject to the following conditions:
(1) The Applicant must provide a list of the names of the Foreign
Indirect Affiliates;
(2) The Applicant must provide an organizational chart setting
forth the affiliation of the Foreign Indirect Affiliates and the
Foreign Direct Affiliates and the Applicant; and
(3) As part of Exhibit C to the Applicant's Form 1 Application, the
Applicant must provide a description of the nature of the affiliation
between the Foreign Indirect Affiliates and the Foreign Direct
Affiliates and the Applicant.
The Commission believes, further, that it is appropriate in the
public interest and consistent with the protection of investors to
exempt the Applicant, with respect to the Foreign Indirect Affiliates,
from the requirements under: (a) Exchange Act Rule 6a-2(a)(2) to amend
Exhibit C within 10 days of any action that renders the information in
Exhibit C inaccurate or incomplete; (b) Exchange Act Rules 6a-2(c) to
provide periodic updates of Exhibit C; and (c) Exchange Act Rules 6a-
2(b)(1) to provide periodic updates of Exhibit D, subject to the
condition that the Applicant provides amendments to the information
required under conditions (1) through (3) above on or before June 30th
of each year.
As part of an application for exchange registration, the
information included in Exhibits C and D is designed to help the
Commission make the determinations required under Sections 6(b) and
19(a) of the Exchange Act with respect to the application. The updated
Exhibit C and D information required under Exchange Act Rule 6a-2 is
designed to help the Commission exercise its oversight responsibilities
with respect to registered national securities exchanges.
Specifically, Exhibit D is designed to provide the Commission with
information concerning the financial status of an exchange and its
affiliates and subsidiaries,\23\ and Exhibit C provides the Commission
with the names and organizational documents of these affiliates and
subsidiaries.\24\ Such information is designed to help the Commission
determine whether an applicant for exchange registration would have the
ability to carry out its obligations under the Exchange Act, and
whether a registered national securities exchange continues to have the
ability to carry out its obligations under the Exchange Act.
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\23\ See Securities Exchange Act Release No. 18843 (June 25,
1982), 47 FR 29259 (July 6, 1982) (proposing amendments to Form 1);
see also Form 1, 17 CFR 249.1, and supra Section II.A.
\24\ Form 1, 17 CFR 249.1. See also supra note 5.
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Since the most recent amendments to Form 1 in 1998,\25\ many
registered national securities exchanges that previously were member-
owned organizations with few affiliated entities have demutualized.
Some of these demutualized exchanges have been consolidated under
holding companies with numerous affiliates that, in some cases, have
only a limited and indirect connection to the registered national
securities exchange, with no ability to influence the management or
policies of the registered exchange and no obligation to fund, or to
materially affect the funding of, the registered exchange. The
Commission believes that, for these affiliated entities, the
information required under Exhibits C and D would have limited
relevance to the Commission's review of an application for exchange
registration or to its oversight of a registered exchange.
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\25\ See Regulation ATS Adopting Release, supra note 9.
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Based on the Applicant's representations, the indirect nature of
the relationship between the Applicant and the Foreign Indirect
Affiliates, and the information that the Applicant will provide with
respect to the Foreign Direct Affiliates and the Foreign Indirect
Affiliates, the Commission believes that it will have sufficient
information to review the Applicant's Form 1 application and to make
the determinations required under Sections 6(b) and 19(a) of the
Exchange Act with respect to its application for registration as a
national securities exchange.\26\ The Commission believes, further,
that it would have the information necessary
[[Page 4848]]
to oversee the Applicant's activities as a national securities exchange
if the Commission were to approve the Applicant's Form 1 application.
In particular, the Commission notes that the Applicant has represented
that it would have no direct connection to the Foreign Indirect
Affiliates, that the Foreign Indirect Affiliates would have no ability
to influence the management or policies of the Applicant, and that the
Foreign Indirect Affiliates would have no obligation to fund, or
ability to materially affect the funding of, the Applicant. In
addition, the Commission notes that the Applicant represented that: (1)
The Foreign Indirect Affiliates have no ownership interest in the
Applicant or in any of the controlling equity holders of the Applicant;
and (2) there are no commercial dealings between the Applicant and the
Foreign Indirect Affiliates.\27\ The Commission also believes that,
based on the Applicant's representations, it could be burdensome for
the Applicant to obtain detailed corporate and financial information
with respect to the Foreign Indirect Affiliates because these
affiliates are located in foreign jurisdictions and the disclosure of
such information could implicate foreign information sharing
restrictions in such jurisdictions.\28\
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\26\ 15 U.S.C. 78f(b) and 78s(a). Section 6(b) of the Exchange
Act enumerates certain determinations that the Commission must make
with respect to an exchange before registering the exchange as a
national securities exchange. The Commission will not register an
exchange as a national securities exchange unless it is satisfied
that the exchange meets these requirements. See Regulation ATS
Adopting Release, supra note 9, at IV.B.
\27\ See Exemption Request, supra note 4, at 4.
\28\ See id.
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Given the limited and indirect relationship between the Applicant
and the Foreign Indirect Affiliates and the location of the Foreign
Indirect Affiliates in foreign jurisdictions, as described above, the
Commission believes that the detailed corporate and financial
information required in Exhibits C and D with respect to the Foreign
Indirect Affiliates is unnecessary for the Commission's review of the
Applicant's Form 1 application and would be unnecessary for the
Commission's oversight of the Applicant as a registered national
securities exchange following any Commission approval of its Form 1
application.
For the reasons discussed above, the Commission finds that the
conditional exemptive relief requested by the Applicant is appropriate
in the public interest and is consistent with the protection of
investors.
It is ordered, pursuant to Section 36 of the Exchange Act,\29\ and
subject to the conditions described above, that the Applicant is exempt
from the requirements to: (1) include in its Form 1 application the
information required in Exhibits C and D to Form 1 with respect to the
Foreign Indirect Affiliates; and (2) with respect to the Foreign
Indirect Affiliates, update the information in Exhibits C and D to Form
1 as required by Exchange Act Rules 6a-2(a)(2), 6a-2(b)(1), and 6a-
2(c).
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\29\ 15 U.S.C. 78mm.
By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012-2021 Filed 1-30-12; 8:45 am]
BILLING CODE 8011-01-P