[Federal Register Volume 79, Number 246 (Tuesday, December 23, 2014)]
[Notices]
[Pages 77064-77066]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-29964]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73861; File No. SR-ISEGemini-2014-24]
Self-Regulatory Organizations; ISE Gemini, LLC; Order Granting
Approval of Proposed Rule Change, as Modified by Amendment No. 1
Thereto, Relating to a Corporate Transaction Involving Its Indirect
Parent
December 17, 2014
I. Introduction
On October 22, 2014, the ISE Gemini, LLC (the ``Exchange'' or the
``ISE Gemini'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) \1\ of the Securities
Exchange Act of 1934 (``Act''),\2\ and Rule 19b-4 thereunder,\3\ a
proposed rule change to make certain amendments to its corporate
governance documents and those of certain of its upstream owners, in
order to effectuate changes to its indirect, non-U.S. upstream
ownership structure (the ``Transactions'') \4\ and to amend the Amended
and Restated Limited Liability Company Agreement of ISE Gemini (``ISE
Gemini LLC Agreement'') with respect to distributions of its assets. On
October 31, 2014, the Exchange filed Amendment No. 1 to the proposed
rule change. The proposed rule change, as modified by Amendment No. 1,
was published for comment in the Federal Register on November 12,
2014.\5\ The Commission received no comments on the proposed rule
change. This order approves the proposed rule change, as modified by
Amendment No. 1.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
\4\ The amendments also update certain of the corporate
governance documents to reflect prior transactions.
\5\ See Securities Exchange Act Release No. 73531 (November 5,
2014), 79 FR 67215 (``Notice'').
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II. Description of the Proposed Rule Change
The Exchange proposes to make certain changes to its indirect, non-
U.S. upstream ownership structure.\6\ Currently, the Exchange is a
wholly owned subsidiary of International Securities Exchange Holdings,
Inc. (``ISE Holdings''). ISE Holdings, in turn, is a wholly owned
subsidiary of U.S. Exchange Holdings, Inc. (``U.S. Exchange
Holdings''), which is wholly owned by Eurex Frankfurt AG (``Eurex
Frankfurt''). Eurex Frankfurt is a wholly owned subsidiary of a Swiss
stock corporation, Eurex Z[uuml]rich AG (``Eurex Z[uuml]rich''), which,
in turn, is jointly owned by Deutsche B[ouml]rse AG (``Deutsche
B[ouml]rse'') and Eurex Global Derivatives AG (``EGD,'' and together
with Eurex Z[uuml]rich, the ``Swiss companies''). EGD is a wholly-
owned, direct subsidiary of Deutsche B[ouml]rse.\7\
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\6\ For a more detailed description of the anticipated steps to
effectuate the Transactions, see Notice, supra note 5, at 67216.
\7\ Each of Deutsche B[ouml]rse, Eurex Frankfurt, Eurex
Z[uuml]rich, and EGD is referred to as a ``Non-U.S. Upstream Owner''
and collectively as the ``Non-U.S. Upstream Owners.''
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As a result of the Transactions, the Swiss companies will cease to
be Non-U.S. Upstream Owners of the Exchange, as Deutsche B[ouml]rse
will become the sole, direct owner of Eurex Frankfurt, which will
directly own 85% of U.S. Exchange Holdings. Deutsche B[ouml]rse will
directly own the remaining 15% of U.S. Exchange Holdings. Also in
connection with the Transactions, the Series A Preferred Stock of ISE
Holdings (``ISE Holdings Preferred'') will be converted to shares of
ISE Holdings common stock
[[Page 77065]]
(the ``Conversion'').\8\ Upon consummation of the Transactions, U.S.
Exchange Holdings will remain the sole, direct owner of ISE Holdings,
which, in turn, will also remain the sole, direct owner of the
Exchange.\9\ In order to consummate the Transactions, including the
Conversion, the Exchange proposes to amend certain of its, and its
upstream owners', corporate governance documents as described below.
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\8\ Upon consummation of the Transactions, all of the common
stock of ISE Holdings will continue to be held by U.S. Exchange
Holdings. See Notice, supra note 5, at 67216.
\9\ According to the Exchange, the Transactions will not result
in any additional person or entity acquiring direct or indirect
ownership in the Exchange. See Notice, supra note 5, at 67216.
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A. Certificate of Designations of Series A Preferred Stock of ISE
Holdings
The Exchange proposes to amend and restate the Certificate of
Designations of Series A Preferred Stock of ISE Holdings (the ``COD'').
In particular, the Exchange proposes to amend Section 6(b) of the COD,
which currently provides that the ISE Holdings Preferred is not
convertible, to state that each share of ISE Holdings Preferred may, at
the option of the holder thereof, be converted into one fully paid and
non-assessable share of ISE Holdings common stock (``ISE Holdings
Common'') on the date on which such holder delivers a duly executed
notice of conversion to ISE Holdings substantially in the form of a new
Annex A attached to the COD.\10\
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\10\ The Exchange also proposes to retitle the COD as the
``Amended and Restated'' Certificate of Designations of Series A
Preferred Stock of ISE Holdings.
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B. Amended and Restated Certificate of Incorporation of ISE Holding
The Exchange proposes to amend and restate the Amended and Restated
Certificate of Incorporation of ISE Holdings (the ``COI'') by
increasing the number of authorized shares of ISE Holdings Common from
1,000 shares to 101,000 shares in order to account for the increase in
the authorized number of ISE Holdings Common that will result from the
Conversion.\11\ As such, the total number of authorized ISE Holdings
Common and ISE Holdings Preferred will increase from 101,000 shares to
201,000 shares.\12\
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\11\ The Exchange also proposes to retitle the COI as the
``Second'' Amended and Restated Certificate of Incorporation of ISE
Holdings and update the date thereof.
\12\ The Exchange will maintain the total number of authorized
ISE Holdings Preferred Stock at 100,000 shares.
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C. Trust Agreement
The Exchange proposes to amend and restate the Second Amended and
Restated Trust Agreement (the ``Trust Agreement'') that exists among
ISE Holdings, U.S. Exchange Holdings, and the Trustees (as defined
therein) in connection with the Transactions. Specifically, the
Exchange proposes to: (i) Update the recitals of the Trust Agreement
with respect to the Transactions; (ii) remove references to the Swiss
companies from the definition of ``Affected Affiliate'' in section 1.1
of the Trust Agreement; (iii) remove outdated references to EDGA
Exchange, Inc. (``EDGA'') and EDGX Exchange, Inc. (``EDGX'') from the
definition of ``Controlled National Securities Exchange'' in section
1.1 and update the recitals of the Trust Agreement accordingly; \13\
and (iv) remove EGD's address from the notices provision in section 8.8
of the Trust Agreement.\14\
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\13\ EDGA and EDGX previously were Controlled National
Securities Exchanges, but ceased to be so as a result of a business
combination whereby BATS Global Markets, Inc. became the ultimate
parent company for each. See Securities Exchange Act Release No.
71449 (January 30, 2014), 79 FR 6961 (February 5, 2014) (SR-EDGA-
2014-34; SR-EDGX-2014-43). See also Notice, supra note 5, at 67217
n.22.
\14\ The Exchange also proposes to retitle the Trust Agreement
as the ``Third'' Amended and Restated Trust Agreement and update the
date thereof.
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D. Certain Resolutions and Agreements
The Exchange proposes to delete certain corporate resolutions and
agreements that were previously adopted by the Swiss companies that
will cease to be indirect, upstream owners of ISE Gemini after the
Transactions. In particular, each of the Non-U.S. Upstream Owners
previously adopted resolutions, which were approved by the Commission,
to incorporate measures regarding ownership, jurisdiction, books and
records, and other issues related to their control of the Exchange,
with respect to the Non-U.S. Upstream Owners, as well as its board
members, officers, employees, and agents (as applicable), to the extent
that they are involved in the activities of the Exchange.\15\ In
addition to these resolutions, the Swiss companies previously entered
into an ``Agreement and Consent,'' in which EGD agreed to provide
certain information related to the activities of the Exchange,
including books and records of EGD related to the activities of the
Exchange, to the Commission, through Eurex Z[uuml]rich. As the Swiss
companies will cease to be Non-U.S. Upstream Owners of the Exchange
following the consummation of the Transactions, the Exchange proposes
to delete the resolutions of these entities, as referenced above, along
with the Agreement and Consent, such that they will no longer be rules
of the Exchange as of a date in December 2014 that corresponds to the
effective closing date of the applicable step in the Transactions.
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\15\ In this regard, the Exchange also proposes to delete the
form of agreement and consent to be entered into by relevant
officers and employees of the Swiss companies. See SR-ISEGemini-
2014-24, Exhibit 5G, proposing to delete in its entirety the ``Form
of Agreement and Consent (Swiss Entities).''
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E. ISE Gemini LLC Agreement
In addition to the changes described above, the Exchange proposes
to amend and restate the ISE Gemini LLC Agreement by deleting the first
sentence of section 3.3 which provides that distributions may not be
made to ISE Holdings except: (i) Pursuant to section 3.4 (Tax
Characterization; Returns; Distributions in Respect of Taxes) of the
ISE Gemini LLC Agreement; or (ii) upon liquidation of the Exchange.\16\
The Exchange also proposes to clarify in section 3.3 that Regulatory
Funds shall not be used for non-regulatory purposes.\17\
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\16\ The Exchange states that this deletion would not impact the
current practice of distributions from the Exchange to ISE Holdings.
See Notice, supra note 5, at 67218.
\17\ As amended, section 3.3 of the ISE Gemini LLC Agreement
will provide that, notwithstanding any provision to the contrary in
the ISE Gemini LLC Agreement, (i) the Exchange would not be required
to make a distribution to ISE Holdings if such distribution would
violate the Delaware Limited Liability Company Act, any other
applicable law, or is otherwise required to fulfill the regulatory
functions or responsibilities of the Exchange, and (ii) Regulatory
Funds will not be used for non-regulatory purposes, but rather shall
be used to fund the legal. The Exchange also proposes to retitle the
ISE Gemini LLC Agreement as the ``Second'' Amended and Restated
Limited Liability Company Agreement, update the date thereof, and
update the table of contents.
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U.S. Exchange Holdings Certificate of Incorporation
Lastly, the Exchange proposes to make several administrative
amendments to the Second Amended and Restated Certificate of
Incorporation of U.S. Exchange Holdings (``U.S. Exchange Holdings
COI'') to update references therein to the Trust Agreement.
Specifically, Article THIRTEENTH of the U.S. Exchange Holdings COI
contains outdated references to (i) the ``Amended and Restated'' Trust
Agreement, which is currently the ``Second Amended and Restated'' Trust
Agreement and will become the ``Third Amended and Restated'' Trust
Agreement; and (ii) the effective date of the Trust Agreement, which
will be changed to a date in December 2014 that corresponds to the
[[Page 77066]]
effective closing date of the applicable step in the Transactions. The
Exchange also proposes to add language in Article THIRTEENTH specifying
that the Trust Agreement may be amended, restated, or replaced from
time to time and remove references to EDGA Exchange and EDGX Exchange
from the definition of ``Controlled National Securities Exchange'' in
Article TENTH.\18\
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\18\ The Exchange also proposes to retitle the U.S. Exchange
Holdings COI as the ``Third'' Amended and Restated Certificate of
Incorporation of U.S. Exchange Holdings, and update the effective
date thereof.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and rules and
regulations thereunder applicable to a national securities
exchange.\19\ Specifically, the Commission finds that the proposal is
consistent with section 6(b)(1) of the Act,\20\ which requires that an
exchange be organized and have the capacity to be able to carry out the
purposes of the Act and to comply, and to enforce compliance by its
members and persons associated with its members, with the provisions of
the Act, the rules and regulations thereunder, and the rules of the
Exchange.
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\19\ In approving the proposed rule changes, the Commission has
considered their impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\20\ 15 U.S.C. 78s(b)(1).
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The Exchange represents that it will continue to operate and
regulate its market and members in the same manner following the
Transactions as it operates today.\21\ The Exchange further states that
the proposed rule change will facilitate an ownership structure that
will continue to provide the Commission with appropriate oversight
tools to allow the Commission to enforce the provisions of the Act with
respect to the Exchange and its direct and indirect Non-U.S. Upstream
Owners, including each of their directors, officers, employees, and
agents, to the extent they are involved in the activities of the
Exchange.\22\ The Commission notes that as a result of the
Transactions, the Swiss companies will no longer be indirect, upstream
owners of the Exchange, but that the upstream ownership of the Exchange
otherwise remains substantially the same.\23\ The Commission also notes
that the Exchange has represented that it is not proposing any changes
to the Exchange's operational or trading structure in connection with
the Transactions.\24\ The Exchange further stated that no changes will
be made to other aspects of the Exchange's corporate governance
documents that were previously approved by the Commission.\25\
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\21\ See Notice, supra note 5 at 67227.
\22\ See id. at 67228.
\23\ Although prior to the Transactions Deutsche B[ouml]rse's
interest in U.S. Exchange Holdings was held solely through its 100%
indirect ownership in Eurex Frankfurt, upon consummation of the
transactions it will instead directly own Eurex Frankfurt and will
hold a direct 15% interest in U.S. Exchange Holdings. The remaining
85% interest in U.S. Exchange Holdings will continue to be directly
held by Eurex Frankfurt.
\24\ See id.
\25\ See id.
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The Commission believes that the proposed changes related to the
Transactions will not impact provisions of the Exchange's, or its
upstream owners, corporate governance documents that were designed to
enable the ISE Gemini to operate in a manner that complies with the
federal securities laws, and were intended to assist the ISE Gemini in
fulfilling its self-regulatory obligations and administering and
complying with the requirements of the Act.\26\ The Commission also
believes that the proposed rule change will allow the Commission to
continue to exercise its plenary regulatory authority over the Exchange
and continue to provide the Commission and the Exchange with access to
necessary information that will allow the Exchange to comply, and
enforce compliance, with the Act. As the Exchanges notes, the proposed
administrative amendments will continue to preserve the independence of
the Exchange's self-regulatory functions and ensure that it will be
able to obtain any information it needs in order to address fraudulent
and manipulative acts in its marketplace and carry out its regulatory
responsibilities under the Act.\27\
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\26\ See e.g., Securities Exchange Act Release No. 70050 (July
26, 2013), 78 FR 46622 (August 1, 2013) (approving the application
for registration as a national securities exchange of Topaz
Exchange, LLC).
\27\ See id.
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The Commission also believes that the proposed amendments to the
ISE Gemini LLC Agreement related to distributions are consistent with
the Act. The Commission notes, as discussed above, that the Exchange
states that the proposed changes will not impact the current practice
of distributions from the Exchange to ISE Holdings, and would continue
to ensure that any distributions by the Exchange to ISE Holdings, and
subsequently to its indirect upstream owners, would not be made in
violation of the Exchange's legal and regulatory responsibilities or
with Regulatory Funds.\28\ The Commission believes that the proposed
rule change is designed to facilitate the ability of ISE Gemini to
fulfill its regulatory obligations under the Act and will help ensure
the independence of its regulatory function from its market operations
and other commercial interests.\29\
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\28\ See Notice, supra note 5, at 67218.
\29\ The Commission notes that, as amended, the provision in ISE
Gemini's LLC Agreement governing distributions will be consistent
with similar provisions the Commission has previously approved for
other self-regulatory organizations. See, e.g., Securities Exchange
Act Release No. 68341 (December 3, 2012), 77 FR 73065 (December 7,
2012) (approving the application for registration as a national
securities exchange of Miami International Securities Exchange,
LLC).
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IV. Conclusion
It is therefore ordered, pursuant to section 19(b)(2) of the Act
\30\ that the proposed rule change (SR-ISEGemini-2014-24), as modified
by Amendment No. 1, be, and hereby is, approved.
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\30\ 15 U.S.C. 78f(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
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\31\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-29964 Filed 12-22-14; 8:45 am]
BILLING CODE 8011-01-P