[Federal Register Volume 78, Number 239 (Thursday, December 12, 2013)]
[Notices]
[Pages 75607-75619]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-29622]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71023; File No. SR-BATS-2013-059]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing of a Proposed Rule Change in Connection With the Proposed
Business Combination Involving BATS Global Markets, Inc. and Direct
Edge Holdings LLC
December 6, 2013.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on November 25, 2013, BATS Exchange, Inc. (the ``Exchange'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II and III below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange filed a proposed rule change (the ``Proposed Rule
Change'') in connection with the proposed business combination (the
``Combination''), as described in more detail below, involving its
parent company, BATS Global Markets, Inc. and Direct Edge Holdings LLC
(``DE Holdings''), the indirect parent company of EDGX Exchange, Inc.
(``EDGX'') and EDGA Exchange, Inc. (``EDGA''), each a national
securities exchange registered with the Commission.
Upon completion of the Combination (the ``Closing''), BATS Global
Markets, Inc. and DE Holdings will each become intermediate holding
companies, held under a single new holding company. The new holding
company, currently named ``BATS Global Markets Holdings, Inc.,'' will
at that time change its name to ``BATS Global Markets, Inc.'' In
addition, the current parent company of the Exchange, BATS Global
Markets, Inc., will at that time change its name to ``BATS Global
Markets Holdings, Inc.''
For ease of reference, this Proposed Rule Change will refer to the
current parent company of the Exchange as ``Current BGM'' when
referring to the entity prior to the Closing, and as ``BGM Holdings''
when referring to that entity after the Closing. The entity that will
become the new top-level holding company that will, after Closing, own
BGM Holdings and DE Holdings, will be referred to as ``New BGM.''
To effectuate the Combination, the Exchange seeks to obtain the
Commission's approval of (i) resolutions of Current BGM's board of
directors (the ``Resolutions'') making certain determinations regarding
New BGM and the impact of the Combination on the Exchange; (ii) the
proposed Amended and Restated Certificate of Incorporation of New BGM
(the ``New BGM Charter''); (iii) the proposed Amended and Restated
Bylaws of New BGM (the ``New BGM Bylaws''); (iv) the proposed
amendments to Current BGM's Second Amended and Restated Certificate of
Incorporation (the ``Current BGM Charter,'' and after such amendments,
the ``BGM Holdings Charter''); (v) the proposed amendments to the
Amended and Restated Bylaws of Current BGM (the ``Current BGM Bylaws,''
and after such amendments, the ``BGM Holdings Bylaws''); (vi) the
proposed amendments to the By-Laws of the Exchange (the ``Exchange
Bylaws''); (vii) the proposed amendments to Exchange Rule 2.3 to
reflect the affiliation between the Exchange and two additional
registered national securities exchanges; (viii) the proposed
amendments to Exchange Rule 2.12 to reflect the affiliation between the
Exchange and the routing broker for EDGA and EDGX; and (ix) the
indirect acquisition by an affiliate of the Exchange of a Member \3\ of
the Exchange and the resulting affiliation between the Exchange and the
Member of the Exchange, as required under Exchange Rule 2.10.
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\3\ The term ``Member'' is defined in Exchange Rule 1.5(n) as
any registered broker or dealer that has been admitted to membership
in the Exchange.
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The text of the proposed rule change is available at the Exchange's
Web site at http://www.batstrading.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Sections A, B, and C below, of
[[Page 75608]]
the most significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange submits this Proposed Rule Change to seek the
Commission's approval of various changes to the organizational and
governance documents of the Exchange and the Exchange's current and
proposed future parent companies, changes to Exchange Rules,\4\ and
related actions that are necessary in connection with the Closing of
the Combination, as described below.
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\4\ The term ``Exchange Rules'' refers to the rules of the
Exchange, including those for equities and options.
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Other than as described herein and set forth in the attached
Exhibits 5A through 5H, the Exchange will continue to conduct its
regulated activities (including operating and regulating its market and
Members) in the manner currently conducted, and will not make any
changes to its regulated activities in connection with the Combination.
Except as set forth in this Proposed Rule Change, the Exchange is not
proposing any amendments to its trading and regulatory rules at this
time. If the Exchange determines to make any such changes, it will seek
the approval of the Commission to the extent required by the Act, and
the Commission's rules thereunder, and the Rules of the Exchange.
1. Current Corporate Structures
The Exchange and BATS Y-Exchange, Inc. (``BYX'' and together with
the Exchange, the ``BATS Exchanges''), are each Delaware corporations
that are national securities exchanges registered with the Commission
pursuant to Section 6(a) of the Act.\5\ Each BATS Exchange is a direct,
wholly owned subsidiary of Current BGM, a Delaware corporation. Current
BGM also owns 100 percent of the equity interest in BATS Trading, Inc.,
a Delaware corporation (``BATS Trading'') that is a broker-dealer
registered with the Commission that provides routing services outbound
from and, in certain instances inbound to, each BATS Exchange. In
contemplation of the Combination, several new entities have been
formed: New BGM, a Delaware corporation, is currently a wholly owned
subsidiary of Current BGM, and is currently a shell company with no
material assets or operations. New BGM, in turn, owns 100 percent of
the equity interest in each of Blue Merger Sub Inc., a Delaware
corporation (``Blue Merger Sub''), and Delta Merger Sub LLC, a Delaware
limited liability company (``Delta Merger Sub''). Each of Blue Merger
Sub and Delta Merger Sub are currently shell companies with no material
assets or operations.
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\5\ 15 U.S.C. 78f(a).
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Current BGM is itself beneficially owned primarily by a consortium
of several unaffiliated firms, including Members or affiliates of
Members of the Exchange. No firm beneficially owns 20 percent or
greater of Current BGM, and the only firms beneficially owning ten
percent or greater of Current BGM are (i) GETCO Investments, LLC, an
affiliate of KCG Holdings, Inc., (ii) BGM Holding, L.P., a holding
company itself owned by entities affiliated with the Spectrum Equity
Investors and TA Associates Management private investment funds, and
(iii) Strategic Investments I, Inc., an affiliate of Morgan Stanley.\6\
Seven other firms each beneficially own five percent or greater but
less than ten percent of Current BGM, while seven other firms as well
as various individuals each beneficially own less than five percent of
Current BGM.
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\6\ For purposes of this Proposed Rule Change, references to the
beneficial ownership of a ``firm'' refers to the aggregate
beneficial ownership of the firm and its affiliated entities.
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DE Holdings, a Delaware limited liability company, owns 100 percent
of the equity interest in Direct Edge, Inc., a Delaware corporation
(``DEI''). DEI, in turn, owns 100 percent of the equity interest in two
registered national securities exchanges, EDGX and EDGA, each a
Delaware corporation (together, the ``DE Exchanges''). In addition, DE
Holdings owns 100 percent of the equity interest in Direct Edge ECN LLC
d/b/a DE Route, a Delaware limited liability company and the routing
broker-dealer for the DE Exchanges (``DE Route'').
As a limited liability company, ownership in DE Holdings is
represented by units held by ``LLC Members.'' Certain of the DE
Holdings LLC Members are Members or affiliates of Members of the
Exchange. The Exchange understands that International Securities
Exchange Holdings, Inc. (``ISE Holdings'') is the only LLC Member of DE
Holdings to beneficially own greater than 20 percent of the equity
interest in DE Holdings. Other than ISE Holdings, the only firms
beneficially owning ten percent or greater of DE Holdings (but in each
case less than 20 percent) are Citadel Securities LLC, The Goldman
Sachs Group, Inc., and an affiliate of KCG Holdings, Inc. No LLC Member
beneficially owns five percent or greater but less than ten percent of
DE Holdings. Five other firms as well as various individuals each
beneficially own less than five percent of DE Holdings.
2. The Combination
On August 23, 2013, an Agreement and Plan of Merger (the ``Merger
Agreement'') was entered into among Current BGM, New BGM, DE Holdings,
Blue Merger Sub, Delta Merger Sub, and Cole, Schotz, Meisel, Forman &
Leonard, P.A., solely in its capacity as representative of the LLC
Members. Pursuant to and subject to the terms of the Merger Agreement,
at the Closing, among other things:
(i) Blue Merger Sub will be merged with and into Current BGM,
whereupon the separate existence of Blue Merger Sub will cease and
Current BGM will be the surviving company (the ``BATS Merger'');
(ii) Delta Merger Sub will be merged with and into DE Holdings,
whereupon the separate existence of Delta Merger Sub will cease and DE
Holdings will be the surviving company (the ``Direct Edge Merger'');
(iii) by virtue of the BATS Merger and without any action required
on the part of Current BGM, New BGM, Blue Merger Sub or any holder of
Current BGM stock, each outstanding share of Current BGM stock issued
and outstanding will be converted into the right to receive shares of
New BGM stock, and each outstanding share of Blue Merger Sub issued and
outstanding will be converted into one share of Current BGM, such that
Current BGM will become a wholly owned subsidiary of New BGM; and
(iv) by virtue of the Direct Edge Merger and without any action
required on the part of DE Holdings, New BGM, Delta Merger Sub, or any
LLC Member, each LLC Member's membership interests in DE Holdings will
be converted into the right to receive shares of New BGM stock, and
each unit of ownership interest of Delta Merger Sub issued and
outstanding will be converted into one unit of ownership of DE
Holdings, such that DE Holdings will become a wholly owned subsidiary
of New BGM.
Upon the Closing, each of Current BGM and New BGM will amend and
restate their respective certificates of incorporation to, among other
things, change their names such that New BGM will be renamed ``BATS
Global Markets, Inc.'' and Current BGM will be renamed ``BATS Global
Markets Holdings, Inc.''
[[Page 75609]]
3. Post-Closing Corporate Structure
As a result of the Combination, New BGM will own (i) 100 percent of
the equity interest in BGM Holdings (the entity previously referred to
as ``Current BGM''), and (ii) 100 percent of the LLC membership
interests in DE Holdings. BGM Holdings will continue to own 100 percent
of the equity interest in each BATS Exchange and BATS Trading. DE
Holdings will continue to own 100 percent of the equity interest in DE
Route \7\ and DEI. DEI will, in turn, continue to own 100 percent of
the equity interest in each DE Exchange. Each of the BATS Exchanges and
BATS Trading, on the one hand, and the DE Exchanges and DE Route, on
the other hand, will continue to operate separately.
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\7\ As described above, the Combination will result in a change
of ownership of both BATS Trading and DE Route, each of which is a
member of the Financial Industry Regulatory Authority, Inc.
(``FINRA''). The Exchange understands that, pursuant to NASD Rule
1017, each of BATS Trading and DE Route is seeking approval for this
change of ownership from FINRA.
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New BGM, as the new top-level holding company for the combined
businesses, will have widely dispersed ownership, divided among the
several firms and individuals that previously held equity interests in
each of Current BGM and DE Holdings. Of the firms and individuals that
are expected to hold equity interests in New BGM after the Closing,
none will beneficially own 20 percent or greater of New BGM and only an
affiliate of KCG Holdings, Inc. will beneficially own ten percent or
greater. Seven firms will beneficially own five percent or greater but
less than ten percent, while 12 other firms as well as various
individuals will each beneficially own less than five percent of New
BGM.\8\
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\8\ ISE Holdings, which will beneficially own greater than five
percent but less than ten percent of New BGM, will receive common
stock of New BGM designated as Class A Non-Voting Common Stock. As
set forth in the proposed New BGM Charter and described below,
shares of Class A Non-Voting Common Stock are generally non-voting,
except with respect to certain actions that would adversely affect
the preferences, rights or powers of the holders of Class A Non-
Voting Common Stock disproportionately relative to Voting Common
Stock or the Class B Non-Voting Common Stock. See New BGM Charter,
Art. FOURTH, para. (b)(ii). Pursuant to the New BGM Charter and the
Investor Rights Agreement expected to be entered into at Closing and
attached as Exhibit A to the New BGM Bylaws (the ``Investor Rights
Agreement''), ISE Holdings' shares of Class A Non-Voting Common
Stock may convert to Voting Common Stock (i) automatically with
respect to any shares transferred to persons other than Related
Persons of ISE Holdings; (ii) upon the termination of the Investor
Rights Agreement; and (iii) automatically with respect to any shares
of Class A Non-Voting Common Stock sold by ISE Holdings in any
public offering of the stock of New BGM. See New BGM Charter, Art.
FOURTH, para. (c); Investor Rights Agreement, Section 2.2(j).
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4. Voting and Ownership Limitations of Current BGM; Resolutions
The Current BGM Charter provides that (i) no person, either alone
or together with its ``Related Persons,'' \9\ may own, directly or
indirectly, of record or beneficially, shares constituting more than 40
percent of any class of its capital stock, and no Exchange Member,
either alone or together with its Related Persons, may own, directly or
indirectly, of record or beneficially, shares constituting more than 20
percent of any class of its capital stock (collectively, the ``BGM
Ownership Limitation''), and (ii) subject to certain exceptions, no
person, either alone or together with its Related Persons, at any time,
may, directly, indirectly or pursuant to any of various arrangements,
vote or cause the voting of shares or give any consent or proxy with
respect to shares representing more than 20 percent of the voting power
of its then issued and outstanding capital stock (the ``BGM Voting
Limitation'').\10\ Purported transfers that would result in a violation
of the BGM Ownership Limitation are not recognized by Current BGM to
the extent of any ownership in excess of the BGM Ownership Limitation,
and purported voting or voting arrangements in violation of the BGM
Voting Limitation are not honored by Current BGM to the extent of any
voting in excess of the limitation.\11\
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\9\ The Current BGM Charter generally defines a ``Related
Person'' as, with respect to any person, (i) any ``affiliate'' of
such person (as defined in Rule 12b-2 under the Act); (ii) any other
person with which such first person has 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 Current BGM (provided no person is deemed a Related
Person pursuant to clause (ii) solely as a result of such person's
being or becoming a party to the Investor Rights Agreement entered
into by and among Current BGM and the stockholders named therein on
January 1, 2008); (iii) in the case of a person that is a company,
corporation or similar entity, any executive officer (as defined
under Rule 3b-7 under the Act) or director of such person and, in
the case of a person that is a partnership or limited liability
company, any general partner, managing member or manager of such
person, as applicable; (iv) in the case of any person that is a
registered broker or dealer that has been admitted to membership in
either of the BATS Exchanges (for purposes of this definition of
``Related Person,'' each such national securities exchange shall be
referred to generally as an ``Exchange'' and any member of such
Exchange, an ``Exchange Member''), any person that is associated
with the Exchange Member (as determined using the definition of
``person associated with a member'' as defined under Section
3(a)(21) of the Act); (v) in the case of a person that is a natural
person and Exchange Member, any broker or dealer that is also an
Exchange Member with which such person is associated; (vi) in the
case of a person that is a natural person, any relative or spouse of
such person, or any relative of such spouse who has the same home as
such person or who is a director or officer of Current BGM or any of
its parents or subsidiaries; (vii) in the case of a person that is
an executive office (as defined under Rule 3b-7 under the Act) or a
director of a company, corporation or similar entity, such company,
corporation or entity, as applicable; and (viii) in the case of a
person that is a general partner, managing member or manager of a
partnership or limited liability company, such partnership or
limited liability company, as applicable. See Current BGM Charter,
Art. FIFTH, para. (a)(ii).
\10\ See Current BGM Charter, Art. FIFTH, para. (b).
\11\ See Current BGM Charter, Art. FIFTH, para. (d).
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However, the Current BGM Charter provides that each of the BGM
Ownership Limitation and the BGM Voting Limitation may be waived
(except with respect to Exchange Members and their Related Persons)
pursuant to a resolution duly adopted by the board of directors of
Current BGM if, in connection with taking such action, the board of
directors states in such resolution that it is the determination of the
board of directors that the waiver:
Will not impair the ability of each BATS Exchange to carry
out its functions and responsibilities as an ``exchange'' under the Act
and the rules and regulations promulgated thereunder;
is otherwise in the best interests of Current BGM, its
stockholders, and each BATS Exchange;
will not impair the ability of the Commission to enforce
the Act and the rules and regulations promulgated thereunder; and
shall not be effective until it is filed with and approved
by the Commission.\12\
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\12\ See Current BGM Charter, Art. FIFTH, para. (b)(ii)(B).
In granting such a waiver, the Current BGM board of directors has the
discretion to impose on the person and its Related Persons, such
conditions and restrictions that it deems necessary, appropriate or
desirable in furtherance of the objectives of the Act and the rules and
regulations promulgated thereunder, and the governance of each BATS
Exchange.\13\
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\13\ Id.
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In addition, notwithstanding the above, the Current BGM Charter
provides \14\ that in any case where a person, either alone or with its
Related Persons, would own or vote more than the BGM Ownership
Limitation or BGM Voting Limitation, respectively, upon consummation of
any proposed sale, assignment or transfer of Current BGM's capital
stock, such a transaction will not become effective until the Current
BGM board of directors determines, by resolution, that such person and
its
[[Page 75610]]
Related Persons are not subject to any ``statutory disqualification,''
as defined in Section 3(a)(39) of the Act.\15\
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\14\ See Current BGM Charter, Art. FIFTH, para. (b)(iii).
\15\ 15 U.S.C. 78c(a)(39).
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As described above, upon the Closing of the proposed Combination,
New BGM will become the sole owner of Current BGM (referred to as ``BGM
Holdings'' upon the Closing and thereafter). Additionally, as discussed
in more detail below, the Exchange is also seeking the Commission's
approval for Current BGM's proposal to, contemporaneously with the
Closing, amend and restate the Current BGM Charter as the BGM Holdings
Charter, and for New BGM to adopt the New BGM Charter. Unlike the
Current BGM Charter, as proposed to be amended, the BGM Holdings
Charter will not contain the BGM Ownership Limitation or the BGM Voting
Limitation.\16\ While the BGM Ownership Limitation and BGM Voting
Limitation will not be contained in the BGM Holdings Charter, the BGM
Holdings Charter specifies that BGM Holdings' sole stockholder will be
New BGM, and the New BGM Charter will contain substantively identical
ownership and voting limitation provisions, which will also become
effective contemporaneously with the Closing.\17\
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\16\ See infra text accompanying note 58.
\17\ See infra text accompanying notes 23 through 27.
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As a result, New BGM's acquisition of ownership and voting rights
in BGM Holdings upon Closing would not cause New BGM to contravene the
BGM Ownership Limitation or BGM Voting Limitation, because the Current
BGM Charter will be contemporaneously amended to eliminate the BGM
Ownership Limitation and the BGM Voting Limitation, and the New BGM
Charter will be contemporaneously amended with respect to New BGM's
stockholders.
Nevertheless, because the Combination will result in a change of
ownership of Current BGM (in that New BGM will become the sole
stockholder of Current BGM), the Exchange and the board of directors of
Current BGM each believe that it is appropriate for the board of
directors of Current BGM to adopt the Resolutions, attached as Exhibit
5A, making certain determinations with respect to New BGM and the
Combination similar to those that would be necessary to waive the BGM
Ownership Limitation and BGM Voting Limitation. Specifically, the board
of directors of Current BGM determined that:
The acquisition of the proposed ownership by New BGM in
Current BGM will not impair the ability of each BATS Exchange to carry
out its functions and responsibilities as an ``exchange'' under the Act
and the rules and regulations promulgated thereunder, is otherwise in
the best interests of Current BGM, its stockholders and the BATS
Exchanges, and will not impair the ability of the Commission to enforce
the Act and the rules and regulations promulgated thereunder;
the acquisition or exercise of the proposed voting rights
by New BGM in Current BGM will not impair the ability of each BATS
Exchange to carry out its functions and responsibilities as an
``exchange'' under the Act and the rules and regulations promulgated
thereunder, that it is otherwise in the best interests of the Current
BGM, its stockholders and the BATS Exchanges, and that it will not
impair the ability of the Commission to enforce the Act and the rules
and regulations promulgated thereunder;
neither New BGM, nor any of its Related Persons, is
subject to ``statutory disqualification'' within the meaning of Section
3(a)(39) of the Act; \18\ and
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\18\ 15 U.S.C. 78c(a)(39).
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neither New BGM, nor any of its Related Persons (excluding
BATS Trading, an Exchange Member whose affiliation with the Exchanges
has been approved/permitted by the Commission pursuant to Rule 2.11 and
Rule 2.12 of each Exchange),\19\ is an Exchange Member.\20\
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\19\ As noted above, BATS Trading is a routing broker-dealer and
an Exchange Member that is affiliated with the Exchange, pursuant to
Exchange Rules 2.11 and 2.12, and a direct subsidiary of Current
BGM. The same structure will continue to be in place following the
Closing and BATS Trading will remain a direct subsidiary of BGM
Holdings.
\20\ In addition, the Resolutions contain a determination that
the execution and delivery of the Merger Agreement by New BGM
constituted notice of New BGM's intention to acquire ownership and
voting rights in excess of the BGM Ownership Limitation and BGM
Voting Limitation, respectively, in writing and not less than 45
days before the Closing. See Current BGM Charter, Art. FIFTH, para.
(b)(iv).
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The Exchange has reviewed such Resolutions and requests that the
Commission approve such Resolutions. The Exchange believes that the
Commission should approve the Resolutions, as the Combination will not
impair the ability of either BATS Exchange to carry out its functions
and responsibilities as an ``exchange'' under the Act and the rules and
regulations promulgated thereunder, or the ability of the Commission to
enforce the Act and the rules and regulations promulgated thereunder.
The BATS Exchanges will continue to operate and regulate their markets
and Members as they have done prior to the Combination. Thus, each BATS
Exchange will continue to enforce the Act, the Commission's rules
thereunder, and each Exchange's own rules, in the manner it does today.
Further, the Commission will continue to have plenary regulatory
authority over the BATS Exchanges, as is currently the case with these
entities.
The Exchange also notes that the Resolutions reflect the
determination by the Current BGM board of directors that the
Combination and New BGM's resulting ownership and voting rights in BGM
Holdings are otherwise in the best interests of Current BGM, its
stockholders, and the BATS Exchanges.
In addition, the Exchange notes that notwithstanding the
Resolutions and the Combination, the BGM Ownership Limitation and the
BGM Voting Limitation will remain in place with respect to potential
future transactions involving the ultimate parent company of the BATS
Exchanges. As described in more detail below, the Exchange is also
proposing the adoption of the New BGM Charter and the New BGM Bylaws,
which are modeled in large part on the Current BGM Charter and the
Current BGM Bylaws (and include provisions substantially identical to
the BGM Ownership Limitation and the BGM Voting Limitation), creating
an ownership structure that will continue to provide the Commission
with appropriate oversight tools to ensure that the Commission will
have the ability to enforce the Act with respect to the Exchange, its
direct and indirect parent entities, and its directors, officers,
employees and agents to the extent they are involved in the activities
of the Exchange, and protect the independence of the Exchange's self-
regulatory activities.
The Exchange therefore requests that the Commission approve the
Resolutions, attached as Exhibit 5A.
5. Adoption of New BGM Charter and New BGM Bylaws
New BGM was incorporated on August 22, 2013, under the name BATS
Global Markets Holdings, Inc., by filing a certificate of incorporation
with the Secretary of State of Delaware. Upon incorporation, New BGM
also adopted bylaws. New BGM is currently a shell company, with no
material assets or operations. Therefore, neither its certificate of
incorporation nor bylaws currently need or contain any provisions that
would be appropriate for an entity that has direct or indirect
ownership in a registered national securities exchange.
[[Page 75611]]
However, in connection with the Combination, upon the Closing, New
BGM will become (i) the indirect owner (through BGM Holdings) of each
of the BATS Exchanges and BATS Trading, (ii) the indirect owner
(through DE Holdings and DEI) of each of the DE Exchanges, and (iii)
the indirect owner (through DE Holdings) of DE Route. As a result, the
Exchange is proposing that in connection with New BGM's acquisition of
indirect ownership in the Exchange, New BGM would amend and restate
each of its certificate of incorporation and bylaws to adopt provisions
designed to protect and maintain the integrity of the self-regulatory
functions of the Exchange and to facilitate the ability of the Exchange
and the Commission to carry out their regulatory and oversight
obligations under the Act. Each of the New BGM Charter and the New BGM
Bylaws is modeled on, and substantially similar to, the Current BGM
Charter and Current BGM Bylaws, respectively, except with respect to
the differences described below.
a. New BGM Charter
The New BGM Charter is proposed to be adopted as the Amended and
Restated Certificate of Incorporation of BATS Global Markets Holdings,
Inc. However, the New BGM Charter will effect an amendment to the name
of the corporation upon Closing such that it will be renamed ``BATS
Global Markets, Inc.'' \21\ The change of name is intended to reflect
the fact that New BGM is succeeding to the business of Current BGM in
all respects, notwithstanding the technical change of corporate entity
that will result from the structure of the Combination.
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\21\ See New BGM Charter, Art. FIRST.
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The New BGM Charter, which is attached as Exhibit 5B, is
substantially similar to the Current BGM Charter, which the Commission
has previously found to be consistent with the Act.\22\ It contains
provisions imposing the BGM Ownership Limitation and the BGM Voting
Limitation on any owners or prospective owners of New BGM.\23\ In
addition, similar to the Current BGM Charter, the New BGM Charter
prohibits a Member of any of New BGM's registered national securities
exchange subsidiaries, either alone or together with such Member's
Related Persons,\24\ from owning, directly or indirectly, of record or
beneficially, more than 20 percent of shares of any class of capital
stock of New BGM.\25\ As in the Current BGM Charter, purported sales,
transfers, assignments, pledges or ownership that would result in a
violation of the BGM Ownership Limitation will not be recognized by New
BGM to the extent of any ownership in excess of the limitation, and New
BGM shall have the right to redeem the shares in excess of the
applicable ownership limit for their fair market value. In addition, in
contrast to the Current BGM Charter, the New BGM Charter would clarify
that these same non-recognition and redemption rights apply in the case
of a purported conversion of shares resulting in a violation of the BGM
Ownership Limitation, as apply to purported sales, transfers,
assignments, pledges or ownership that result in such a violation.\26\
Similarly, as in the Current BGM Charter, purported voting or voting
arrangements in violation of the BGM Voting Limitation will not be
honored by New BGM to the extent of any voting in excess of the
limitation.\27\
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\22\ See Securities Exchange Act Release No. 58375 (August 18,
2008), 73 FR 49498 (August 21, 2008).
\23\ See New BGM Charter, Art. FIFTH paras. (b)(i)(A) and (C).
\24\ The New BGM Charter defines ``Related Persons'' consistent
with the definition in the Current BGM Charter, see supra note 9,
except that (i) the definition of ``Exchange'' for purposes of such
definition is expanded to refer to any national securities exchange
that is a direct or indirect subsidiary of New BGM, and (ii) the
reference to the Investor Rights Agreement has been revised to refer
to the Investor Rights Agreement to be entered into upon Closing.
\25\ See New BGM Charter, Art. FIFTH para. (b)(i)(B).
\26\ See New BGM Charter, Art. FIFTH, paras. (d)-(e).
\27\ See New BGM Charter, Art. FIFTH, para. (d).
---------------------------------------------------------------------------
These provisions are designed to prevent any stockholder from
exercising undue control over the operation of the BATS Exchanges or
the DE Exchanges (together, the ``Exchange Subsidiaries''), each of
which New BGM will indirectly own following the Combination, and to
assure that each Exchange Subsidiary and the Commission are able to
carry out their regulatory obligations under the Act.
Further, consistent with the Current BGM Charter, the New BGM
Charter provides that, for so long as New BGM controls, directly or
indirectly, a registered national securities exchange, before any
amendment to the New BGM Charter may be effective, those changes must
be 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 Act,\28\ such change
shall not be effective until filed with, or filed with and approved by,
the Commission.\29\ The Exchange believes that these provisions will
assist the Exchange in fulfilling its self-regulatory obligations and
in administering and complying with the requirements of the Act.
---------------------------------------------------------------------------
\28\ 15 U.S.C. 78s(b).
\29\ See New BGM Charter, Art. TWELFTH.
---------------------------------------------------------------------------
The provisions of the New BGM Charter differ from those of the
Current BGM Charter in certain limited respects:
The total number of shares of common stock that New BGM
will have authority to issue is 75,000,000, divided between 55,000,000
shares designated as Voting Common Stock, 10,000,000 shares designated
as Class A Non-Voting Common Stock, and 10,000,000 shares designated as
Class B Non-Voting Common Stock.\30\ This represents an increase from
the 25,000,000 shares that Current BGM is authorized to issue (divided
between 24,500,000 shares designated as Voting Common Stock and 500,000
shares designated as Non-Voting Common Stock). The increase in
authorized shares is due to the greater number of stockholders that New
BGM will have following the Combination, as compared to Current BGM, as
well as to provide an adequate number of authorized shares to allow for
potential future issuances. The rights and preferences of the Class A
Non-Voting Common Stock and Class B Non-Voting Common Stock are
identical in all respects, except for conversion rights. Class A Non-
Voting Common Stock converts into Voting Common Stock automatically
upon transfer to a person other than a Related Person of such holder,
upon termination of the Investor Rights Agreement, and may be converted
into Voting Common Stock at any time at the option of the holder.\31\
Class B Non-Voting Common Stock, however, may only be converted into
Voting Common Stock following a ``Qualified Transfer.'' \32\ The term
[[Page 75612]]
``Qualified Transfer'' means a sale or other transfer of Class B Non-
Voting Common Stock by a holder of such shares: (a) In a widely
distributed public offering registered pursuant to the Securities Act
of 1933; \33\ (b) in a private sale or transfer in which the relevant
transferee (together with its Affiliates, as defined below, and other
transferees acting in concert with it) acquires no more than two
percent of any class of voting shares (as defined in 12 CFR 225.2(q)(3)
and determined by giving effect to any such permitted conversion of
transferred shares of Class B Non-Voting Common Stock upon such
transfer pursuant to Article FOURTH of the New BGM Charter), (c) to a
transferee that (together with its Affiliates and other transferees
acting in concert with it) owns or controls more than 50 percent of any
class of voting shares (as defined in 12 CFR 225.2(q)(3)) of New BGM
without regard to any transfer of shares from the transferring holder
of shares of Class B Non-Voting Common Stock, or (d) to New BGM. As
used above, the term ``Affiliate'' means, with respect to any person,
any other person directly or indirectly controlling, controlled by or
under common control with such person, and ``control'' (including, with
correlative meanings, the terms ``controlled by'' and ``under common
control with'') has the meaning set forth in 12 CFR 225.2(e)(1).\34\
The Exchange understands that certain persons that will become
stockholders of New BGM as of the Closing may be, or may become,
subject to restrictions under the Bank Holding Company Act of 1956 \35\
on the extent to which they are permitted to own voting stock of New
BGM or certain types of non-voting stock convertible into voting stock
of New BGM. The Exchange understands that New BGM's Class B Non-Voting
Common Stock is designed to permit a stockholder that may be subject to
such restrictions to maintain an economic interest in New BGM, through
ownership of Class B Non-Voting Common Stock, in excess of its voting
interest and in compliance with such restrictions, for purposes of the
Bank Holding Company Act of 1956.
---------------------------------------------------------------------------
\30\ See New BGM Charter, Art. FOURTH, para. (a).
\31\ See New BGM Charter, Art. FOURTH, para. (c). In addition,
Class A Non-Voting Common Stock held by ISE Holdings will convert
automatically if ISE Holdings includes any such shares in any public
offering of stock of New BGM.
\32\ The Exchange notes that, notwithstanding the conversion
features, neither Class A Non-Voting Common Stock nor Class B Non-
Voting Common Stock may convert into Voting Common Stock if such a
conversion would cause the stockholder to own, alone or with its
Related Persons, directly or indirectly, of record or beneficially
(i) more than 40% of any class of capital stock of New BGM in
contravention of the BGM Ownership Limitation (unless a waiver is
granted by the board of directors of New BGM and approved by the
Commission), or (ii) in the case of an Exchange Member stockholder,
more than 20% of any class of capital stock of New BGM. See New BGM
Charter, Art. FIFTH, para. (b)(i)(A) and (B). In addition, to the
extent that any Class A Non-Voting Common Stock or Class B Non-
Voting Common Stock is converted into Voting Common Stock, the
stockholder owning the converted Voting Common Stock would be
subject to the BGM Voting Limitation and not permitted, either alone
or together with its Related Persons, at any time, directly,
indirectly or pursuant to any of various arrangements, to vote or
cause the voting of shares 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 New BGM (unless a
waiver is granted by the board of directors of New BGM and approved
by the Commission). See New BGM Charter, Art. FIFTH, para.
(b)(i)(C).
\33\ 15 U.S.C. 77a.
\34\ See New BGM Charter, Art. FOURTH, para. (d)(i).
\35\ 12 U.S.C. 1841 et seq.
---------------------------------------------------------------------------
The term ``Exchange,'' as used in the New BGM Charter, is
defined to refer to ``any national securities exchange registered under
Section 6 of the Act with the [Commission] that is a direct or indirect
subsidiary'' of New BGM.\36\ The term ``Exchange'' is used throughout
the New BGM Charter to refer to subsidiaries of New BGM that are
registered as national securities exchanges. This definition differs
from the definition contained in the Current BGM Charter, which defines
``Exchange'' by specific reference to the names of the BATS Exchanges.
Because, following the Combination, the DE Exchanges will also become
indirect subsidiaries of New BGM, the definition in the New BGM Charter
has been expanded so as to capture the DE Exchanges in addition to the
BATS Exchanges.
---------------------------------------------------------------------------
\36\ See New BGM Charter, Art. FIFTH, para. (a)(ii).
---------------------------------------------------------------------------
The New BGM Charter reflects certain non-substantive
differences and typographical corrections, including conforming the
spelling of ``Bylaws'' throughout the organizational documents of New
BGM and its proposed subsidiaries.
b. New BGM Bylaws
As with the New BGM Charter, the New BGM Bylaws, which are set
forth in Exhibit 5C, contain provisions substantially similar to those
of the Current BGM Bylaws, which the Commission has previously found to
be consistent with the Act.\37\ This includes provisions that are
designed to maintain the independence of the self-regulatory functions
of the Exchange Subsidiaries. Consistent with the Current BGM Bylaws,
the New BGM Bylaws provide that New BGM and its officers, directors,
employees and agents submit to the Commission's jurisdiction with
respect to activities relating to any of the Exchange Subsidiaries,\38\
and, for so long as New BGM controls, directly or indirectly, such
Exchange Subsidiary, New BGM agrees to provide the Commission and each
Exchange Subsidiary with access to its books and records that are
related to the operation or administration of the Exchange
Subsidiary.\39\ In addition, to the extent they are related to the
operation or administration of an Exchange Subsidiary, the books,
records, premises, officers, directors, agents, and employees of New
BGM shall be deemed to be the books, records, premises, officers,
directors, agents, and employees of the Exchange Subsidiary for
purposes of, and subject to oversight pursuant to, the Act.\40\
---------------------------------------------------------------------------
\37\ See Securities Exchange Act Release No. 58375 (August 18,
2008), 73 FR 49498 (August 21, 2008).
\38\ See New BGM Bylaws, Section 14.05.
\39\ See New BGM Bylaws, Section 14.03.
\40\ Id.
---------------------------------------------------------------------------
The New BGM Bylaws also provide that all books and records of an
Exchange Subsidiary reflecting confidential information pertaining to
the self-regulatory function of the Exchange Subsidiary (including but
not limited to disciplinary matters, trading data, trading practices
and audit information) that shall come into the possession of New BGM
shall not be made available other than to those officers, directors,
employees and agents of New BGM that have a reasonable need to know the
contents thereof, and shall be retained in confidence by New BGM, the
members of its board of directors, its officers, employees and agents,
and not used for any non-regulatory purposes.\41\ The New BGM Bylaws,
however, specify that the New BGM Bylaws (including these
confidentiality provisions) shall not be interpreted so as to limit or
impede the rights of the Commission or an Exchange Subsidiary 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 New BGM to disclose such confidential information to the Commission
or an Exchange Subsidiary.\42\
---------------------------------------------------------------------------
\41\ See New BGM Bylaws, Section 14.02.
\42\ See id.
---------------------------------------------------------------------------
In addition, for so long as New BGM controls, directly or
indirectly, an Exchange Subsidiary, the directors, officers, employees
and agents of New BGM are required to give due regard to the
preservation of the independence of each Exchange Subsidiary's self-
regulatory functions, and to its obligations to investors and the
general public, and not take any actions which would interfere with the
effectuation of decisions by the board of directors of such Exchange
Subsidiary relating to regulatory functions (including disciplinary
matters) or which would interfere with such Exchange Subsidiary's
ability to carry out its responsibilities under the Act.\43\ Further,
the New BGM Bylaws require that, for so long as New BGM controls,
directly or indirectly, an Exchange Subsidiary, before any amendment to
or repeal of any provision of the New BGM Bylaws may be effective,
those changes must be submitted to the board of directors of each
Exchange Subsidiary, and, if such amendment is required to be filed
with, or filed with and
[[Page 75613]]
approved by, the Commission before the changes may be effective under
Section 19 of the Act and the rules promulgated thereunder, then the
proposed changes shall not be effective until filed with, or filed with
and approved by, the Commission, as the case may be.\44\ The Exchange
believes that these provisions will assist the Exchange in fulfilling
its self-regulatory obligations and in administering and complying with
the requirements of the Act.
---------------------------------------------------------------------------
\43\ See New BGM Bylaws, Section 14.01.
\44\ See New BGM Bylaws, Art. XII.
---------------------------------------------------------------------------
The provisions of the New BGM Bylaws differ from those of the
Current BGM Bylaws in certain limited respects:
The New BGM Bylaws provide for two separate corporate
officer positions, one known as the Chief Executive Officer and another
known as the President. The Current BGM Bylaws, in contrast, provide
for a combined position known as the President and Chief Executive
Officer.\45\ Under the New BGM Bylaws, the Chief Executive Officer will
be the chief executive officer of New BGM and subject to the control of
the board of directors of New BGM, has general supervision, direction
and control of the business and affairs of New BGM,\46\ while the
President will be a senior executive officer with certain designated
powers, among other things, to serve as the chief executive officer in
the absence or disability of the Chief Executive Officer.\47\
References to corporate officers throughout the New BGM Bylaws reflect
this difference. The difference in corporate officer designations is
intended to facilitate the anticipated executive leadership of New BGM
following the Combination. It is anticipated that, following the
Combination, the current President and Chief Executive Officer of
Current BGM will become the Chief Executive Officer of New BGM, while
the current Chief Executive Officer of DE Holdings will become the
President of New BGM.
---------------------------------------------------------------------------
\45\ Compare New BGM Bylaws, Sections 4.01 and 4.02 with Current
BGM Bylaws, Sections 4.01 and 4.02(c) and (d).
\46\ See New BGM Bylaws, Section 4.02(c).
\47\ See New BGM Bylaws, Section 4.02(d).
---------------------------------------------------------------------------
The New BGM Bylaws provide for a board of directors
consisting of 15 members, or such other number of members as the board
of directors determines from time to time. The Current BGM Bylaws
provide that the board of directors will consist of one or more
members, as determined by resolution of the board of directors.\48\ The
size of the New BGM board is proposed to be initially set at 15 in
order to reflect the anticipated initial membership of the board of
directors of New BGM. The Current BGM board of directors currently has
13 members. After the Closing, it is anticipated that the New BGM board
of directors will consist of the same members as the Current BGM board,
except that the New BGM board will be expanded by two members, to
include representatives of two additional firms that are currently LLC
Members of DE Holdings but will, by virtue of the Combination, become
stockholders of New BGM.
---------------------------------------------------------------------------
\48\ Compare New BGM Bylaws, Section 3.01 with Current BGM
Bylaws, Section 3.01.
---------------------------------------------------------------------------
Section 5.02(a) of the Current BGM Bylaws sets forth the
process for representatives of Current BGM to attend meetings of, and
vote the shares of, any corporation, partnership or other entity
(including each BATS Exchange) in which Current BGM may hold stock,
partnership, or other equity interests. This provision parenthetically
refers to the BATS Exchanges to reflect the fact that Current BGM is
the direct owner of each of the BATS Exchanges. However, following the
Combination, New BGM will instead be the direct owner of each of BGM
Holdings and DE Holdings. The corresponding provision in the New BGM
Bylaws therefore contains a similar parenthetical reference to its
ownership of BGM Holdings and DE Holdings, rather than the BATS
Exchanges.\49\ In addition, the New BGM Bylaws include a reference to
meetings of ``members'' of any ``limited liability company'' in which
New BGM holds equity interests, which terms are not included in the
corresponding provision in the Current BGM Bylaws.\50\ This is intended
to reflect the fact that New BGM will, following the Closing, be the
sole member of DE Holdings, a limited liability company, while Current
BGM does not hold equity in any limited liability companies.\51\ In
addition, the Current BGM Bylaws contain provisions that relate to
Current BGM's voting of shares in the election of directors, and
Members of the Member Nominating Committees, of the BATS Exchanges.\52\
These provisions will not be applicable to New BGM and are not included
in the New BGM Bylaws, as the BATS Exchanges will be directly owned by
BGM Holdings, rather than New BGM.\53\
---------------------------------------------------------------------------
\49\ See New BGM Bylaws, Section 5.02.
\50\ Id.
\51\ Compare New BGM Bylaws, Section 5.02 with Current BGM
Bylaws, Section 5.02.
\52\ See Current BGM Bylaws, Sections 5.02(b) and (c).
\53\ Substantially identical provisions are instead included in
the BGM Holdings Bylaws. See infra text accompanying note 70.
---------------------------------------------------------------------------
The term ``Exchange,'' as used in the New BGM Bylaws, is
defined to refer to ``any national securities exchange registered with
the [Commission] under Section 6 of the [Act] that is a direct or
indirect subsidiary'' of New BGM.\54\ The term ``Exchange'' is used
throughout the New BGM Bylaws to refer to subsidiaries of New BGM that
are registered as national securities exchanges. The Current BGM Bylaws
either refer to each BATS Exchange by name or define ``Exchange'' by
specific reference to the BATS Exchanges. Because, following the
Combination, the DE Exchanges will also become indirect subsidiaries of
New BGM, the definition in the New BGM Bylaws has been expanded so as
to capture the DE Exchanges in addition to the BATS Exchanges.
---------------------------------------------------------------------------
\54\ See New BGM Bylaws, Section 10.02.
---------------------------------------------------------------------------
The New BGM Bylaws reflect certain non-substantive updates
to dates of agreements and cross-references, as well as typographical
corrections, including conforming the spelling of ``Bylaws'' throughout
the organizational documents of New BGM and its proposed subsidiaries.
6. Adoption of BGM Holdings Charter and BGM Holdings Bylaws
Effective as of the Closing of the Combination, BGM Holdings
(previously referred to as Current BGM) will continue to hold direct
ownership of the BATS Exchanges and BATS Trading, but will no longer be
the ultimate holding company of the corporate structure, itself being a
wholly owned subsidiary of New BGM. As a result, provisions of the
Current BGM Charter and Current BGM Bylaws, which contemplate an entity
that was the ultimate holding company in the corporate structure, will
no longer be appropriate. The Exchange is therefore proposing the
amendment and restatement of each of the Current BGM Charter (as
amended, referred to as the ``BGM Holdings Charter'') and the Current
BGM Bylaws (as amended, referred to as the ``BGM Holdings Bylaws'').
Each of the proposed BGM Holdings Charter and the BGM Holdings Bylaws
are modeled on, and substantially similar to, the current certificate
of incorporation and bylaws, respectively, of DEI, which is similarly
situated as an intermediate holding company between DE Holdings and the
DE Exchanges. The Commission has previously found the DEI certificate
of incorporation and bylaws to be consistent with the Act.\55\
---------------------------------------------------------------------------
\55\ See Securities Exchange Act Release No. 62515 (July 16,
2010), 75 FR 43584 (July 26, 2010) (SR-EDGX-2010-02).
---------------------------------------------------------------------------
Following the Closing, BGM Holdings will be the sole stockholder of
the BATS Exchanges. Although BGM Holdings will not carry out any
regulatory
[[Page 75614]]
functions, the Exchange notes that its activities with respect to the
operation of the BATS Exchanges must be consistent with, and must not
interfere with, the self-regulatory obligations of each BATS Exchange.
The BGM Holdings Charter and the BGM Holdings Bylaws therefore include
certain provisions that are designed to maintain the independence of
the BATS Exchanges' self-regulatory functions, enable the BATS
Exchanges to operate in a manner that complies with the federal
securities laws, including the objectives of Sections 6(b) \56\ and
19(g) \57\ of the Act, and facilitate the ability of each BATS Exchange
and the Commission to fulfill their regulatory and oversight
obligations under the Act.
---------------------------------------------------------------------------
\56\ 15 U.S.C. 78f(b).
\57\ 15 U.S.C. 78s(g).
---------------------------------------------------------------------------
a. BGM Holdings Charter
With respect to ownership and control of BGM Holdings, the proposed
BGM Holdings Charter, attached as Exhibit 5D, specifically provides
that BGM Holdings' sole stockholder will be New BGM.\58\ This
restriction is designed to assure that any change to the ownership or
control of the BATS Exchanges may only occur through a change in the
ownership or control of New BGM. As such, any purported change of such
ownership or control would need to comply with the New BGM Charter and
New BGM Bylaws, including the BGM Ownership Limitation and the BGM
Voting Limitation (or a Commission-approved waiver therefrom).
---------------------------------------------------------------------------
\58\ See BGM Holdings Charter, Art. SEVENTH, para. 4.
---------------------------------------------------------------------------
The proposed BGM Holdings Charter further specifies that nothing
contained therein or in the BGM Holdings Bylaws shall be applicable
where the application of the provision would interfere with the
effectuation of any and all decisions relating to the regulatory
functions of the BATS Exchanges (including disciplinary matters) or the
structure of the market that each BATS Exchange regulates, or would
interfere with the ability of each BATS Exchange to carry out its
responsibilities under the Act or oversee the market that each
regulates.\59\
---------------------------------------------------------------------------
\59\ See BGM Holdings Charter, Art. FIFTH, para. 2.
---------------------------------------------------------------------------
In addition, the proposed BGM Holdings Charter provides that for so
long as BGM Holdings controls, directly or indirectly, a registered
national securities exchange, before any amendment to or repeal of any
provision of the BGM Holdings Charter may be effective, those changes
shall be submitted to the board of directors of each such exchange, and
if the same must be filed with, or filed with and approved by, the
Commission before the changes may be effective under Section 19 of the
Act \60\ and the rules promulgated thereunder, then such proposed
changes shall not be effective until filed with, or filed with and
approved by, the Commission, as the case may be.\61\
---------------------------------------------------------------------------
\60\ 15 U.S.C. 78s(b).
\61\ See BGM Holdings Charter, Art. SEVENTH, para. 3.
---------------------------------------------------------------------------
b. BGM Holdings Bylaws
The proposed BGM Holdings Bylaws, attached as Exhibit 5E, contain
several provisions designed to protect the independence of the self-
regulatory functions of the BATS Exchanges. The proposed BGM Holdings
Bylaws require that, for so long as BGM Holdings, directly or
indirectly, controls a BATS Exchange, BGM Holdings' board of directors,
officers, employees and agents must give due regard to the preservation
of independence of the self-regulatory functions of each BATS Exchange
and not interfere with the effectuation of any decisions by either of
the BATS Exchange boards of directors relating to its regulatory
functions (including disciplinary matters) or which would interfere
with the ability of such exchange to carry out its responsibilities
under the Act.\62\ The BGM Holdings Bylaws would further require that
BGM Holdings comply with the U.S. federal securities laws and rules and
regulations thereunder and shall cooperate with the Commission and each
BATS Exchange, as applicable, pursuant to and to the extent of their
respective regulatory authority.\63\ Pursuant to the BGM Holdings
Bylaws, BGM Holdings' officers, directors, employees and agents shall
be deemed to agree to (i) comply with the U.S. federal securities laws
and the rules and regulations thereunder; and (ii) to cooperate with
the Commission and each BATS Exchange in respect of the Commission's
oversight responsibilities regarding the BATS Exchanges and their self-
regulatory functions and responsibilities of the BATS Exchanges, and
BGM Holdings will take reasonable steps to cause its officers,
directors, employees and agents to so cooperate.\64\
---------------------------------------------------------------------------
\62\ See BGM Holdings Bylaws, Section 7.1.
\63\ See BGM Holdings Bylaws, Section 7.2.
\64\ Id.
---------------------------------------------------------------------------
Furthermore, BGM Holdings and its officers, directors, employees
and agents will be deemed to irrevocably submit to the jurisdiction of
the U.S. federal courts, the Commission, and each BATS Exchange, as
applicable, for purposes of any suit, action, or proceeding pursuant to
the U.S. federal securities laws or the rules or regulations thereunder
arising out of, or relating to, the activities of such exchange.\65\
---------------------------------------------------------------------------
\65\ See BGM Holdings Bylaws, Section 7.3.
---------------------------------------------------------------------------
The proposed BGM Holdings Bylaws also contain a number of
provisions designed to ensure that the BATS Exchanges have sufficient
access to the books and records of BGM Holdings. Pursuant to the BGM
Holdings Bylaws, the books, records, premises, officers, directors,
agents, and employees of BGM Holdings are deemed to be the books,
records, premises, officers, directors, agents and employees of the
BATS Exchanges to the extent they are related to the operation or
administration of such exchange.\66\ In addition, for as long as BGM
Holdings controls, directly or indirectly, the BATS Exchanges, BGM
Holdings' books and records shall be subject at all times to inspection
and copying by the Commission and the BATS Exchanges, provided that
such books and records are related to the operation or administration
of the BATS Exchanges.\67\
---------------------------------------------------------------------------
\66\ See BGM Holdings Bylaws, Section 5.8(b).
\67\ Id.
---------------------------------------------------------------------------
The proposed BGM Holdings Bylaws also provide that, to the fullest
extent permitted by law, all books and records of the BATS Exchanges
reflecting confidential information pertaining to the self-regulatory
function of such exchange (including disciplinary matters, trading
data, trading practices and audit information) that comes into the
possession of BGM Holdings, shall be retained in confidence by BGM
Holdings and its stockholders, board of directors, officers, employees
and agents, and not be used for any non-regulatory purposes.\68\ The
proposed BGM Holdings Bylaws provide, however, that the foregoing shall
not limit or impede the rights of the Commission or the BATS Exchanges
to access and examine such confidential information pursuant to the
federal securities laws and the rules and regulations thereunder, or
limit or impede the ability of any BGM Holdings stockholders, officers,
directors, employees or agents to disclose such confidential
information to the Commission or either BATS Exchange.\69\
---------------------------------------------------------------------------
\68\ See BGM Holdings Bylaws, Section 5.8(a).
\69\ Id.
---------------------------------------------------------------------------
With respect to the election of directors of the BATS Exchanges,
Current BGM is currently the sole and direct stockholder of each of the
BATS Exchanges. As noted above, while
[[Page 75615]]
Current BGM will become BGM Holdings, it will continue to hold the
direct ownership interest and voting rights in the BATS Exchanges.
Therefore, the BGM Holdings Bylaws are proposed to maintain provisions
relating to its voting of its interests in the BATS Exchanges that are
substantially identical to those contained in the Current BGM
Bylaws.\70\ In particular, the proposed BGM Holdings Bylaws would
continue to provide that at any meeting of the stockholders of either
BATS Exchange held for the purpose of electing directors and members of
such exchange's Member Nominating Committee, or in the event written
consents are solicited or otherwise sought from the stockholders of
such BATS Exchange with respect thereto, BGM Holdings will cause all
outstanding shares of the BATS Exchange owned by BGM Holdings to be
voted in favor of only those Member Representative Directors and
nominees for the Member Nominating Committee nominated in accordance
with such exchange's bylaws, and, with respect to any written consents,
BGM Holdings will only cause to be validly executed written consents
electing such directors and members of the Member Nominating
Committee.\71\ The Exchange believes that this requirement will ensure
that BGM Holdings effectuates the election of directors and members of
the Exchange's Member Nominating Committee in the manner contemplated
by the Exchange's Bylaws, ensuring the fair representation of members
in the selection of directors and the administration of the Exchange as
required by Section 6(b)(3) of the Act.\72\
---------------------------------------------------------------------------
\70\ Compare BGM Holdings Bylaws, Sections 2.15(b) and (c) with
Current BGM Bylaws, Sections 5.02(b) and (c).
\71\ See BGM Holdings Bylaws, Sections 2.15(b) and (c).
\72\ 15 U.S.C. 78f(b)(3).
---------------------------------------------------------------------------
Similar to the proposed BGM Holdings Charter, the proposed BGM
Holdings Bylaws provide that for so long as BGM Holdings controls
either BATS Exchange, before any amendment to or repeal of any
provision of the BGM Holdings Bylaws will be effective, those changes
must be submitted to the board of directors of each BATS Exchange, and
if the same must be filed with, or filed with and approved by, the
Commission before the changes may be effective under Section 19 of the
Act,\73\ and the rules promulgated thereunder, then the proposed
changes shall not be effective until filed with, or filed with and
approved by, the Commission, as the case may be.\74\
---------------------------------------------------------------------------
\73\ 15 U.S.C. 78s.
\74\ See BGM Holdings Bylaws, Section 6.4.
---------------------------------------------------------------------------
Lastly, while as noted above, the BGM Holdings Bylaws are modeled
on the current bylaws of DEI (the ``DEI Bylaws''), in contrast with the
current DEI Bylaws, the proposed BGM Holdings Bylaws do not contain a
provision relating to BGM Holdings' handling of funds derived from the
regulatory operations of its exchange subsidiaries (such as regulatory
fees, fines and penalties). The Exchange Bylaws and the bylaws of BYX
each prohibit the Exchange and BYX, respectively, from distributing any
such funds to its stockholder, instead requiring that such funds only
be applied to fund the legal and regulatory operations of the
respective exchange or pay restitution and disgorgement of funds
intended for customers.\75\ As a result, BGM Holdings will not be
permitted to come into possession of regulatory funds, as they will
remain at the respective exchange and used only for permitted purposes.
The Exchange therefore believes that including a provision in the BGM
Holdings Bylaws relating to the handling by BGM Holdings of such funds
is unnecessary and potentially confusing. The Exchange understands that
the DE Exchanges are each proposing to amend DEI's bylaws to eliminate
the corresponding provision.\76\
---------------------------------------------------------------------------
\75\ See e.g., Exchange Bylaws, Art. X, Section 4.
\76\ See DEI Bylaws, Section 4.6(b).
---------------------------------------------------------------------------
7. Bylaws of the Exchange
In connection with the Combination, the Exchange proposes to amend
and restate its Second Amended and Restated By-Laws and adopt the
amended Exchange Bylaws as its Third Amended and Restated Bylaws,
attached as Exhibit 5F. The Exchange proposes making the following
amendments to the Exchange Bylaws:
Amending Article I, paragraph (cc) of the Exchange Bylaws
to reflect the change of name of the Exchange's stockholder from
Current BGM to BGM Holdings. This amendment is intended to reflect the
change in the Exchange's corporate holding structure and corporate name
changes described above as well as prevent any change of ownership of
the Exchange other than in accordance with the requirements set forth
in the organizational documents of the Exchange's parent and indirect
parent companies.
Amending Section 2(b) and Section 3(b) of Article III of
the Exchange Bylaws to clarify that the Chief Executive Officer of the
Exchange is considered to be an Industry Director, but is excluded from
being designated as a member of one of the three classes of directors
for purposes of the Board's staggered three-year terms. This amendment
is meant to clarify, rather than change, current practice. The Exchange
Bylaws require that the Board of Directors be composed of one Director
who is the Chief Executive Officer of the Exchange, and a sufficient
number of Non-Industry Directors (including Independent Directors),
Industry Directors and Member Representative Directors such that (i)
the number of Non-Industry Directors, including at least one
Independent Director, equals or exceeds the sum of the number of
Industry Directors and Member Representative Directors, and (ii) the
number of Member Representative Directors equals at least 20 percent of
the Board of Directors (the ``Exchange Board Composition
Requirements'').\77\ Because the definition of ``Industry Director''
includes a Director that has an employment relationship with the
Exchange,\78\ the Chief Executive Officer of the Exchange will always
meet the definition of ``Industry Director.'' Consistent with this
definition, and in order to effectuate the Exchange Board Composition
Requirements, the Exchange considers the Chief Executive Officer to be
an Industry Director. Were the Chief Executive Officer to not be
considered for purposes of determining composition of the board, the
total number of persons affiliated with the securities industry
(including Industry Directors, Member Representative Directors and the
Chief Executive Officer) could potentially exceed the number of Non-
Industry Directors--a result that the Exchange believes the Exchange
Board Composition Requirements were intended to prevent. The Exchange
therefore proposes to amend Section 2(b) of Article III of the Exchange
Bylaws to explicitly clarify that the Chief Executive Officer shall be
considered to be an Industry Director. The Exchange Bylaws separately
provide that each of the Non-Industry Directors and Industry Directors
are divided into one of three classes to serve staggered three-year
terms.\79\ Unlike other Industry Directors, rather than serving a
three-year term, the Chief Executive Officer of the Exchange serves on
the Board of Directors until he or she ceases to be Chief Executive
Officer.\80\
[[Page 75616]]
The Exchange is therefore proposing to amend Section 3(b) of Article
III of the Exchange Bylaws to explicitly clarify that the reference to
each Industry Director serving a staggered three-year term excludes the
Chief Executive Officer.
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\77\ See Exchange Bylaws, Art. III, Section 2(b).
\78\ See Exchange Bylaws, Art. I, para. (o)(vi).
\79\ See Exchange Bylaws, Art. III, Section 3(b).
\80\ See Exchange Bylaws, Art. III, Section 3(a).
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Amending Section 4(a), Section 4(c) and Section 4(e) of
Article III of the Exchange Bylaws to permit the Director nomination
and election process (including the Member Representative Director
nomination and election process conducted by the Member Nominating
Committee) to be conducted through either an annual or special meeting
of stockholders, rather than solely through an annual meeting of
stockholders. Under the current Exchange Bylaws, should one or more
vacancies on the Board of Directors occur, the vacancies would continue
until they can be filled at an annual meeting. As a result, vacancies
that arise soon after an annual meeting could remain for close to a
full year. The Exchange therefore proposes to amend the Exchange Bylaws
to add flexibility to the governance process around the nomination and
election of a Director position that may become vacant at a time that
does not coincide with the Exchange's annual director election process,
by permitting the process to occur at any time via a special meeting of
stockholders.
Amending Section 2(a) of Article V of the Exchange Bylaws
to clarify that the Chairman, with the approval of the Board, not only
appoints the members of all committees of the Board, but also the chair
of each committee. This amendment is intended to reflect the current
committee and committee Chair appointment processes utilized by the
Exchange.
Amending Section 6(c) of Article V of the Exchange Bylaws
to clarify that the Regulatory Oversight Committee responsibilities
include (i) those with regard to each of the Exchange's facilities, as
defined in Section 3(a)(2) of the Act,\81\ (ii) assessing the
Exchange's regulatory performance, (iii) assisting the Board and
committees of the Board in reviewing the regulatory plan and the
overall effectiveness of the Exchange's regulatory functions, and (iii)
in consultation with the Chief Executive Officer of the Exchange,
establishing the goals, assessing the performance, and fixing the
compensation of the Chief Regulatory Officer of the Company. These
amendments are intended to reflect the current responsibilities of the
Regulatory Oversight Committee.
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\81\ 15 U.S.C. 78c(a)(2).
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Deleting as outdated Section 1 of Article XI of the
Exchange Bylaws, relating to the interpretation of the Exchange Bylaws
prior to the Exchange's commencement of business as a national
securities exchange, and renumbering the remaining sections within
Article XI accordingly.
Expanding the prohibition contained in Section 3 of
Article XI of the Exchange Bylaws (to be renumbered as Section 2).
Currently, Section 3 of Article XI prohibits Current BGM's directors,
officers, staff, counsel and advisors who are not also directors,
officers, staff, counsel or advisors of the Exchange from participating
in any meetings of the Exchange's Board of Directors (or any committee
thereof) pertaining to the self-regulatory function of the Exchange
(including disciplinary matters). Because, following the Combination,
the Exchange will be owned directly by BGM Holdings and indirectly by
New BGM, instead of only directly by Current BGM, the Exchange is
proposing to expand this prohibition to cover both its direct and
indirect parent companies. The Exchange believes that this amendment
will protect the independence of the Exchange's self-regulatory
activities.
Correcting certain typographical errors, including
conforming the spelling of ``Bylaws'' throughout the organizational
documents of the Exchange and its parent companies.
8. Exchange Rule 2.3--Member Eligibility
Pursuant to Exchange Rule 2.3, in order to be eligible for
membership in the Exchange, a registered broker or dealer is required
to be a member of at least one other national securities association or
national securities exchange. However, membership in the Exchange's
affiliated national securities exchange, BYX, is not sufficient for
purposes of eligibility for Exchange membership. As a result of the
Combination, the Exchange will additionally become affiliated with the
DE Exchanges. The Exchange continues to believe that it is appropriate
to limit its membership to registered broker-dealers that are members
of at least one national securities association or national securities
exchange that is not affiliated with the Exchange. Therefore, the
Exchange proposes to amend Exchange Rule 2.3 to specify that a
registered broker-dealer will be eligible for membership only if it is
a member of a national securities association or national securities
exchange other than BYX, EDGA or EDGX. The proposed amendments to
Exchange Rule 2.3 are set forth in Exhibit 5G.
9. Exchange Rule 2.12--DE Route as Inbound Router
BATS Trading provides Members of the Exchange and BYX with optional
routing services to other market centers. Thus, in certain
circumstances, BATS Trading provides inbound routing from BYX to the
Exchange. Exchange Rule 2.12 governs this inbound routing of orders by
BATS Trading to the Exchange in BATS Trading's capacity as a facility
of BYX. Recognizing that the Commission has previously expressed
concern regarding the potential for conflicts of interest in instances
where a member firm is affiliated with an exchange to which it is
routing orders, the Exchange has implemented limitations and conditions
on BATS Trading's affiliation with the Exchange in order to permit the
Exchange to accept inbound orders that BATS Trading routes in its
capacity as a facility of BYX. These conditions and limitations, set
forth in Exchange Rule 2.12, require that:
(1) The Exchange must enter into (a) a plan pursuant to Rule 17d-2
under the Act with a non-affiliated self-regulatory organization
(``SRO'') to relieve the Exchange of regulatory responsibilities for
BATS Trading with respect to rules that are common rules between the
Exchange and the non-affiliated SRO, and (b) a regulatory services
contract (``Regulatory Contract'') with a non-affiliated SRO to perform
regulatory responsibilities for BATS Trading for unique Exchange rules.
(2) The Regulatory Contract must require the Exchange to provide
the non-affiliated SRO with information, in an easily accessible
manner, regarding all exception reports, alerts, complaints, trading
errors, cancellations, investigations, and enforcement matters
(collectively ``Exceptions'') in which BATS Trading is identified as a
participant that has potentially violated Exchange or Commission Rules,
and requires that the non-affiliated SRO provide a report, at least
quarterly, to the Exchange quantifying all Exceptions in which BATS
Trading is identified as a participant that has potentially violated
Exchange or Commission rules.
(3) The Exchange, on behalf of its parent company, must establish
and maintain procedures and internal controls reasonably designed to
ensure that BATS Trading does not develop or implement changes to its
system based on non-public information obtained as a result of its
affiliation with the Exchange, until such information is available
generally to similarly situated Members of the Exchange.
[[Page 75617]]
(4) The Exchange may furnish to BATS Trading only the same
information and on the same terms as the Exchange makes available in
the normal course of business to other users.\82\
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\82\ See Securities Exchange Act Release No. 66571 (March 12,
2012), 77 FR 15153 (March 14, 2012) (SR-BATS-2012-013).
---------------------------------------------------------------------------
Similar to the role of BATS Trading with respect to the BATS
Exchanges, the Exchange understands that DE Route provides members of
the DE Exchanges with optional routing services to other market
centers, which may include routing from a DE Exchange to the Exchange.
Following the Combination, it is expected that DE Route will continue
to provide these routing services, which may involve routing to the
Exchange. Because, following the Combination, DE Route will be
affiliated with and potentially routing to the Exchange, the Exchange
believes that the potential conflict of interest currently addressed by
Exchange Rule 2.12 with respect to BATS Trading must also be addressed
with respect to DE Route.
The Exchange is therefore proposing to amend and expand Exchange
Rule 2.12 such that substantially the same conditions and limitations
that currently apply to the inbound routing of orders by BATS Trading
apply to the inbound routing of orders by DE Route. The proposed
amendments to Exchange Rule 2.12, as set forth in Exhibit 5H, would
provide that, in order for the Exchange to accept inbound routed orders
from DE Route, the conditions and limitations currently set forth in
Exchange Rule 2.12 with respect to BATS Trading must also be satisfied
with respect to DE Route.
The Exchange believes that these proposed amendments will
adequately manage the potential for a conflict of interest that could
arise from DE Route routing orders to the Exchange. The Exchange
expects to arrange that these conditions be met prior to the Closing so
as to allow DE Route to continue routing to the Exchange following the
Closing without interruption.\83\
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\83\ If such conditions and limitations are not satisfied by
Closing, the Exchange will not accept inbound orders from DE Route
until such conditions and limitations are satisfied.
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In addition, the language in Exchange Rule 2.12 leading into the
four conditions described above incorrectly refers to the conditions
being undertaken by ``each of the Exchange and BATS Trading.'' However,
by their terms, the conditions contained in Exchange Rule 2.12 are
undertaken only by the Exchange and, in one case, the Exchange on
behalf of its parent company. The Exchange therefore proposes to delete
the incorrect reference to BATS Trading.
10. Exchange Rule 2.10--Affiliation With DE Route
Exchange Rule 2.10 provides that, subject to certain exceptions,
without the prior approval of the Commission, (i) the Exchange or any
entity with which the Exchange is affiliated (as defined in Rule 12b-2
under the Act), may not directly or indirectly acquire or maintain an
ownership interest in a Member of the Exchange, and (ii) a Member of
the Exchange may not be or become an affiliate of the Exchange, or an
affiliate of any affiliate of the Exchange.
DE Route is currently a Member of the Exchange. As a result of the
Combination, (i) New BGM, an entity affiliated with the Exchange, will
acquire and maintain an indirect ownership interest in DE Route, and
(ii) DE Route will become an affiliate of the Exchange. Pursuant to
Exchange Rule 2.10, the Exchange is seeking the Commission's prior
approval to permit this affiliation.
The Exchange notes that the purpose of Exchange Rule 2.10 is to
prevent or manage potential conflicts of interest that could arise from
the Exchange or its affiliates having an ownership interest in an
Exchange Member, particularly with respect to the Exchange's obligation
under Section 19(g) of the Act to enforce its Members' compliance with
the Act, the Commission's rules thereunder, and Exchange Rules.\84\
---------------------------------------------------------------------------
\84\ 15 U.S.C. 78s(g).
---------------------------------------------------------------------------
The Exchange believes that it should be permitted to become
affiliated with DE Route, notwithstanding DE Route's Exchange
membership. As described above, as a result of the proposed amendments
to Exchange Rule 2.12, the Exchange intends on addressing the potential
conflicts of interests arising from its expected affiliation with DE
Route by, among other things, entering into (i) a plan pursuant to Rule
17d-2 under the Act with a non-affiliated SRO to relieve the Exchange
of regulatory responsibilities for DE Route with respect to rules that
are common rules between the Exchange and the non-affiliated SRO, and
(ii) a Regulatory Contract with a non-affiliated SRO to perform
regulatory responsibilities for DE Route for unique Exchange rules. The
Exchange believes that any potential conflict of interest that would
arise as a result of its affiliation with DE Route will be mitigated by
the same procedures that the Exchange anticipates adopting to satisfy
the proposed amendments to Exchange Rule 2.12. The Exchange therefore
requests that, pursuant to Exchange Rule 2.10, the Commission approve
the indirect acquisition of DE Route by an affiliate of the Exchange
and the resulting affiliation between the Exchange and DE Route, so
long as the requirements under Exchange Rule 2.12, as proposed to be
amended, are satisfied.
2. Statutory Basis
The Exchange believes that the Proposed Rule Change is consistent
with the requirements of the Act and the rules and regulations
thereunder that are applicable to a national securities exchange, and,
in particular, with the requirements of Section 6(b) of the Act.\85\ In
particular, the proposal is consistent with Section 6(b)(1) of the Act
\86\ in that it enables the Exchange to be so organized as to have the
capacity to be able to carry out the purposes of the Act and to comply,
and to enforce compliance by its Members and persons associated with
its Members, with the provisions of the Act, the rules and regulations
thereunder, and the Rules of the Exchange. The Proposed Rule Change is
designed to enable the Exchange to continue to have the authority and
ability to effectively fulfill its self-regulatory duties pursuant to
the Act and the rules promulgated thereunder. In particular, the
Proposed Rule Change includes in the New BGM Charter and New BGM
Bylaws, like the Current BGM Charter and Current BGM Bylaws, various
provisions intended to protect and maintain the integrity of the self-
regulatory functions of the Exchange upon Closing. For example, the New
BGM Bylaws, as described above, are drafted to preserve the
independence of the Exchange's self-regulatory function and ensure that
the Exchange is able to obtain information it needs from the specified
parties to detect and deter any fraudulent and manipulative acts in its
marketplace and carry out their regulatory responsibilities under the
Act. In addition, the New BGM Charter and New BGM Bylaws are drafted to
make sure that the Exchange's Board of Directors receives notice of any
amendment to the New BGM Charter and New BGM Bylaws so that the
Exchange's Board of Directors may review and approve, and the Exchange
may make any filings with the Commission necessary for the Exchange to
fulfill its regulatory duties under the Act. The New BGM Charter also
imposes the BGM Ownership Limitation
[[Page 75618]]
and BGM Voting Limitation to preclude undue influence over or
interference with the Exchange's self-regulatory functions and
fulfillment of its regulatory duties under the Act.
---------------------------------------------------------------------------
\85\ 15 U.S.C. 78f(b).
\86\ 15 U.S.C. 78f(b)(1).
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Moreover, notwithstanding the Proposed Rule Change, including the
change to the ownership structure of the Exchange, the Commission will
continue to have regulatory authority over the Exchange, as is
currently the case, as well as jurisdiction over the Exchange's direct
and indirect parents with respect to activities related to the
Exchange.\87\ As a result, the Proposed Rule Change will facilitate an
ownership structure that will provide the Commission with appropriate
oversight tools to ensure that the Commission will have the ability to
enforce the Act with respect to the Exchange, its direct and indirect
parent entities and their directors, officers, employees and agents to
the extent they are involved in the activities of the Exchange.
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\87\ See, e.g., New BGM Bylaws, Section 14.05; BGM Holdings
Bylaws, Section 7.3.
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The Exchange also believes that the Proposed Rule Change furthers
the objectives of Section 6(b)(5) of the Act \88\ because the Proposed
Rule Change would be consistent with and facilitate a governance and
regulatory structure that is 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 regulating, clearing, settling, 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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\88\ 15 U.S.C. 78f(b)(5).
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In addition, the Exchange expects that the Combination will
facilitate efficiencies and innovation for clients and efficient,
transparent and well-regulated markets for issuers and clients, thus
removing impediments to, and perfecting the mechanism of a free and
open market and a national market system. The Combination will benefit
investors, the market as a whole, and shareholders by, among other
things, enhancing competition among securities venues and reducing
costs. In particular, the Combination will result in a third major
exchange operator which will have more streamlined and efficient
operations, including the transition of the DE Exchanges to a
technology platform in common with the BATS Exchanges, thereby
intensifying competition for transaction order flow with other exchange
and non-exchange trading centers, as well as potentially in other areas
where the two major exchange operators lead, such as proprietary market
data products and listings. This enhanced level of competition among
trading centers will benefit investors through new or more competitive
product offerings and, ultimately, lower costs.
Furthermore, the Exchange is not proposing any significant changes
to its existing operational and trading structure in connection with
the change in ownership; the Exchange will operate in essentially the
same manner upon Closing as it operates today. Therefore, the Exchange
believes that it will continue to satisfy the requirements of the Act
and the rules and regulations thereunder that are applicable to a
national securities exchange. The changes the Exchange is proposing to
Exchange Rules 2.3 are designed to extend the membership eligibility
criteria in a way that is consistent with the current rule, taking into
account the prospective affiliation with the DE Exchanges. The proposed
change to Exchange Rule 2.12 is designed to address the potential for
conflicts of interest due to the prospective affiliation between the
Exchange and DE Route. The Exchange believes that the proposed change
to its Rules is consistent with the requirements of the Act and the
rules and regulations thereunder. The Exchange believes that the rule
change promotes the maintenance of a fair and orderly market, the
protection of investors and the public interest, and is in the best
interests of the Exchange and its Members as it would continue to allow
routing of orders between the four affiliated exchanges.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the Proposed Rule Change would
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act. Indeed, the
Exchange believes that the Proposed Rule Change will enhance
competition among intermarket trading venues, as the Exchange believes
that the Combination will produce a stronger and more efficient entity
that will have an improved ability to provide innovative products and
services. Moreover, the Exchange will continue to conduct regulated
activities (including operating and regulating its market and Members)
of the type it currently conducts, but will be able to do so in a more
efficient manner to the benefit of its Members. Furthermore, the
Exchange's conclusion that the Proposed Rule Change would not result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act is consistent with the
Commission's prior conclusions about similar combinations involving
multiple exchanges in a single corporate family.\89\
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\89\ See, e.g., Securities Exchange Act Release No. 66071
(December 29, 2011), 77 FR 521 (January 05, 2012) (SR-CBOE-2011-107
and SR-NSX-2011-14); Securities Exchange Act Release No. 58324 (Aug.
7, 2008), 73 FR 46936 (August 12, 2008) (SR-BSE-2008-02; SR-BSE-
2008-23; SR-BSE-2008-25; SR-BSECC-2008-01); Securities Exchange Act
Release No. 53382 (Feb. 27, 2006), 71 FR 11251 (March 06, 2006) (SR-
NYSE-2005-77).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-BATS-2013-059 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
[[Page 75619]]
All submissions should refer to File Number SR-BATS-2013-059. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-BATS-2013-059, and should be
submitted on or before January 2, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\90\
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\90\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-29622 Filed 12-11-13; 8:45 am]
BILLING CODE 8011-01-P