[Federal Register Volume 77, Number 188 (Thursday, September 27, 2012)]
[Notices]
[Pages 59423-59425]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-23763]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67902; File No. SR-NYSEMKT-2012-23]
Self-Regulatory Organizations; NYSE MKT LLC; Order Granting
Approval of a Proposed Rule Change Amending the Members' Schedule of
NYSE Amex Options LLC in Order To Reflect Changes to the Capital
Structure of the Company
September 21, 2012.
I. Introduction
On July 25, 2012, NYSE MKT LLC (``NYSE MKT'' or ``Exchange'') filed
with the Securities and Exchange Commission (``Commission''), pursuant
to Section 19(b)(1) of the Securities Exchange Act of 1934 (the
``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
amend the Members' Schedule (as defined herein) of NYSE Amex Options
LLC to reflect changes to the capital structure of the company. The
proposed rule change was published for comment in the Federal Register
on August 7, 2012.\3\ The Commission received no comments on the
proposal. This order approves the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 67569 (August 1,
2012), 77 FR 47138.
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II. Description of the Proposal
NYSE Amex Options LLC (``Company'') was formed as a joint venture
between NYSE MKT \4\ and its corporate parent NYSE Euronext, and seven
firms, for the purpose of operating an options platform as a facility
of NYSE MKT. The seven firms, which are referred to in the joint
venture's operating documents as ``Founding Firms,'' are: Banc of
America Strategic Investments Corporation (``BAML''), Barclays
Electronic Commerce Holdings Inc. (``Barclays''), Citadel Securities
LLC (``Citadel''), Citigroup Financial Strategies, Inc.
(``Citigroup''), Goldman, Sachs & Co. (``Goldman Sachs''), Datek Online
Management Corp. (``TD Ameritrade'') and UBS Americas Inc. (``UBS'').
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\4\ At the time it entered into the joint venture, NYSE MKT was
referred to as NYSE Amex LLC. On May 14, 2012, NYSE Amex LLC filed a
proposed rule change under Section 19(b)(3)(A) of the Act, 15 U.S.C.
78s(b)(3)(A), to change its name to NYSE MKT LLC. See Securities
Exchange Act Release No. 67037 (May 21, 2012), 77 FR 31415 (May 25,
2012) (SR-NYSEAmex-2012-32).
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Collectively, NYSE MKT and the Founding Firms are ``Members'' of
the Company. Their respective ownership interests are set forth in a
schedule (``Members' Schedule'') to the Company's LLC Agreement, dated
as of June 29, 2011.\5\ The amount of each Member's ownership is
represented by limited liability interests in the Company (``Common
Interests''). The LLC Agreement designates two types of Member, Class A
Member and Class B Member, and the different classes of Members hold
corresponding classes of Interests, i.e., Class A Common Interests and
Class B Common Interests. Although both classes of Common Interests
entitle Members to some measure of voting and economic entitlements,
the two classes of Common Interests are not fungible. Members' voting
and economic entitlements are determined by reference to: (1) Each
Member's holdings of Common Interests, and (2) the aggregate economic
and voting power of the Class A Members relative to the Class B
Members.
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\5\ In addition to the LLC Agreement, the Company is governed by
an agreement among the Members, the Company and NYSE Euronext
(``Members Agreement''), also dated as of June 29, 2011.
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Under the Members' Schedule attached to the LLC Agreement dated as
of June 29, 2011, NYSE MKT was the only Class A Member and therefore
the only Member that held Class A Common Interests. The Founding Firms
were designated Class B Members, each
[[Page 59424]]
holding Class B Common Interests. According to this schedule, NYSE MKT
owned Class A Common Interests amounting to an equity interest of
47.20% in the Company, while the Founding Firms collectively owned
Class B Common Interests amounting to an equity interest of the
remaining 52.80% in the Company.
The Exchange proposes to amend the Members' Schedule to reflect
changes to the capital structure of the Company based on three
transactions that have occurred or will occur since the Commission
approved the Exchange's proposal relating to the formation of the
Company.\6\ The first transaction relates to the admission of NYSE
Market, Inc. (``NYSE Market''), an affiliate of NYSE MKT, on September
19, 2011, as a Member with an equity ownership interest in the Company.
The second transaction relates to the issuance of additional Common
Interests to Class B Members of the Company on February 29, 2012,
pursuant to an annual incentive program as set forth in the Members
Agreement. The third transaction relates to the expected transfer of
Common Interests on or around September 25, 2012, from the Founding
Firms to NYSE Market. These transactions are described in greater
detail below.
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\6\ See Securities Exchange Act Release No. 64742 (June 24,
2011), 76 FR 38436 (June 30, 2011).
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Admission of NYSE Market as a Member
Each Founding Firm has the right, pursuant to Section 3.2 of the
Members Agreement and subject to certain conditions and limitations, to
cause NYSE MKT (or an affiliate designated by NYSE MKT) to purchase a
portion of the Founding Firm's Common Interests. All of the Founding
Firms exercised this right on September 19, 2011, thereby causing an
aggregate equity interest of 5.28% in the Company to be transferred
from the Founding Firms to NYSE Market, the NYSE MKT affiliate that
NYSE MKT designated to receive the ownership interest. As a result of
the transaction, NYSE MKT continued to own an equity interest of 47.20%
in the Company, NYSE Market owned an equity interest of 5.28% in the
Company, and the Founding Firms collectively owned the remaining equity
interest of 47.52% in the Company.
Several provisions of the LLC Agreement impact the terms of this
transfer. Because NYSE Market is an affiliate of NYSE MKT, pursuant to
Section 11.2(c) of the LLC Agreement, Common Interests transferred from
Founding Firms to NYSE Market automatically convert from Class B Common
Interests to Class A Common Interests. Also, under Sections 10.4 and
11.1, upon receiving the transfer of Common Interests and satisfying
certain other conditions, and subject to amendment of the Member's
Schedule, NYSE Market became a Class A Member of the Company.
NYSE MKT represented that, notwithstanding the transfer of Common
Interests to NYSE Market, the Company's governance structure did not
change. NYSE MKT continues to appoint a majority (7 of 13) of the
Company's Board of Directors, and NYSE Market has no right to appoint a
separate director. According to NYSE MKT, this transaction was
structured as a transfer of Common Interests to NYSE Market, rather
than NYSE MKT, for non-substantive business reasons relating to the
corporate structure of NYSE MKT. NYSE MKT also noted that, as a Member,
NYSE Market is bound by all of the provisions of the LLC Agreement and
the Members Agreement.
Issuance of Annual Incentive Shares
The Members Agreement provides that each year, until 2015, unless
extended by the Company's Board of Directors, the Company must issue a
specified amount of Annual Incentive Shares to be allocated among
eligible Class B Members. Pursuant to Section 2.1 of the Members
Agreement, the Company must issue a number of Class B Common Interests
equal to 30% of the then-outstanding Class B Common Interests as Annual
Incentive Shares, and such shares are to be allocated among Class B
Members based on each Class B Member's contribution to the volume of
the Exchange relative to volume targets specified for the Members.
While the issuance of Annual Incentive Shares may change the relative
economic and voting rights of and among Class B Members, by its terms
it cannot impact the aggregate economic and voting rights of Class B
Members in relation to Class A Members.
On February 29, 2012, the Company issued a total of 14.2560 Annual
Incentive Shares to the Founding Firms. Because each Founding Firm
achieved or exceeded its specified volume target, each Founding Firm's
economic and voting interests remained the same in relation to the
other Class B Members. The Exchange proposes to amend the Members'
Schedule to reflect this issuance of Class B Common Interests.
Expected Transfer From Founding Firms to NYSE Market
Article XI of the LLC Agreement and Section 3.1 of the Members
Agreement provide that a Member may transfer Common Interests to
another Member or to a third party in accordance with the conditions
and limitations set forth therein. In its proposal, NYSE MKT noted that
the Founding Firms collectively intend to transfer an aggregate equity
interest of 5.28% in the Company to NYSE Market. As with the first
transaction noted above, the Founding Firms' Class B Common Interests
will automatically convert to Class A Common Interests upon their
transfer to NYSE Market. As a result of this transfer, NYSE MKT will
continue to own an equity interest of 47.20% in the Company, NYSE
Market will own an equity interest of 10.56% in the Company, and the
Founding Firms, collectively, will own the remaining equity interest of
42.24% in the Company. The Exchange proposes, upon consummation of this
transfer by the Founding Firms, to amend the Members' Schedule to
reflect this transfer.
III. Discussion and Commission Findings
After careful consideration, the Commission finds that the proposed
rule change is consistent with the requirements of the Act and the
rules and regulations thereunder applicable to a national securities
exchange.\7\ In particular, the Commission finds that the proposed rule
change is consistent with Section 6(b)(1) of the Act,\8\ which
requires, among other things, that a national securities exchange be so
organized and have the capacity 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 promulgated thereunder, and the rules of the Exchange.
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\7\ In approving the proposal, the Commission has considered the
proposed rule's impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\8\ 15 U.S.C. 78(f)(b)(1).
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The Commission also finds that the proposed rule change is
consistent with Section 6(b)(5) of the Act,\9\ which requires, among
other things, that the rules of a national securities exchange be
designed to prevent fraudulent and manipulative acts and practices; to
promote just and equitable principles of trade; to foster cooperation
and coordination with persons engaged in
[[Page 59425]]
regulating, clearing, settling, and processing information with respect
to, and facilitating transactions in securities; 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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\9\ 15 U.S.C. 78(f)(b)(5).
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As the Commission noted when it approved the Exchange's proposal
relating to the formation of the Company, while the Company does not
carry out any regulatory functions, all of its activities must be
consistent with the Act.\10\ The Company's LLC Agreement and Members
Agreement must be reasonably designed to enable the Company to operate
in a manner that is consistent with the principle that the Company is
not solely a commercial enterprise, but rather an integral part of an
SRO that is registered pursuant to the Act and therefore subject to
obligations imposed by the Act.\11\ In addition, under Section 4.9 of
the LLC Agreement, because the transactions described in the proposal
result in NYSE Market, a ``Permitted Transferee'' of NYSE MKT,\12\
together with NYSE MKT, owning more than 19.9% of outstanding Common
Interests, the transfer and corresponding amendment to the Member's
Schedule are subject to receipt of Commission approval pursuant to the
rule filing process under Section 19(b) of the Exchange Act.
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\10\ See supra note 6, 76 FR at 38439.
\11\ See id.
\12\ ``Permitted Transferee'' is defined in Sections 1.1 and
11.4(a) of the LLC Agreement.
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The Commission notes that the addition of NYSE Market as a Member
of the Company, and the proposed amendments to the Members' Schedule to
reflect the changes in ownership interest percentages as a result of
the three transactions described above, do not significantly alter the
governance structure of the Company. The result of the three
transactions is to increase the equity ownership interest in the
Company of NYSE MKT, together with its affiliate NYSE Market, from
47.20% of the Company to 57.76% of the Company and add NYSE Market as a
Member of the Company. The Commission notes that, NYSE Market, as a new
Member of the Company, is subject to, and bound by, all provisions of
the LLC Agreement and Members Agreement. The Commission notes further
that the provisions in the LLC Agreement and Members Agreement that are
designed to preserve the independence of the Exchange's regulatory
functions and its ability to fulfill the Exchange's regulatory
oversight obligations are unaffected by the proposed rule change.
For the reasons discussed above, the Commission finds that the
proposed rule change is consistent with the Act.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\13\ that the proposed rule change (SR-NYSEMKT-2012-23) be, and
hereby is, approved.
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\13\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-23763 Filed 9-26-12; 8:45 am]
BILLING CODE 8011-01-P