[Federal Register Volume 79, Number 248 (Monday, December 29, 2014)]
[Notices]
[Pages 78122-78125]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-30274]
[[Page 78122]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73893; File No. SR-EDGX-2014-34]
Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Convert
Direct Edge, Inc., the Parent Company of EDGX Exchange, Inc., From a
Delaware Corporation to a Delaware Limited Liability Company
December 19, 2014.
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 December 12, 2014, EDGX Exchange, Inc. (the ``Exchange'' or
``EDGX'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the Exchange. The Exchange
has designated this proposal as a ``non-controversial'' proposed rule
change pursuant to section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6)(iii) thereunder,\4\ which renders it effective upon filing with
the Commission. 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.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange filed a proposal to: (i) Convert Direct Edge, Inc.
(``DE'') from a Delaware corporation to a Delaware limited liability
company (the ``Conversion''), and, in connection therewith, change the
name of DE from ``Direct Edge, Inc.'' to ``Direct Edge LLC,'' and (ii)
amend the Third Amended and Restated Bylaws of the Exchange (the
``Exchange Bylaws'') to reflect the name change of DE as the Exchange's
sole stockholder.
The text of the proposed rule change is available at the Exchange's
Web site at http://www.directedge.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 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 the Conversion, the adoption of the
Organizational Documents, and the Amended Exchange Bylaws. The
Conversion is proposed as a means to simplify the administration
associated with the Exchange's overall corporate structure. The name
change from ``Direct Edge, Inc.'' to ``Direct Edge LLC'' reflected in
the Amended Exchange Bylaws is a non-substantive change. Other than
converting DE from a corporation to a limited liability company and
changing the name of DE from ``Direct Edge, Inc.'' to ``Direct Edge
LLC'' in the Amended Exchange Bylaws, no changes to the ownership or
structure of the Exchange, DE Holdings, or the other entities included
in the Exchange's overall corporate structure are proposed.\5\ The
proposed Organizational Documents are consistent in form and scope with
the most recent governing documents that were approved by the
Commission.\6\
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\5\ The Exchange notes that the Third Amended and Restated
Bylaws of EDGA Exchange, Inc. will also be amended and restated to
reflect the name change of DE as the sole stockholder of EDGA
Exchange, Inc.
\6\ See Securities Exchange Act Release Nos. 60651 (September
11, 2009), 74 FR 47827 (Notice of Filing of Applications, as
Amended, for Registration as National Securities Exchanges under
section 6 of the Securities Exchange Act of 1934) (including the
EDGX and EDGA Form 1 Applications and Exhibits); and 61698 (March
12, 2010), 75 FR 13151 (March 18, 2010) (In the Matter of the
Applications of EDGX Exchange, Inc. and EDGA Exchange, Inc. for
Registration as National Securities Exchanges); and Securities
Exchange Act Release No. 71449 (January 30, 2014), 79 FR 6961
(February 5, 2014) (SR-EDGA-2013-34; SR-EDGX-2013-43).
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There are no new regulatory issues implicated in this proposal.
Other than as described herein and set forth in the attached Exhibits
5A through 5C, the Exchange will continue to conduct its regulated
activities (including operating and regulating its market and Members
\7\) in the manner currently conducted, and will not make any changes
to its regulated activities in connection with the Conversion. 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.
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\7\ The term ``Member'' is defined as ``any registered broker or
dealer, or any person associated with a registered broker or dealer,
that has been admitted to the membership in the Exchange. A Member
will have the status of a ``member'' of the Exchange as that term is
defined in section 3(a)(3) of the Act.'' See Exchange Rule 1.5(n).
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1. Current Corporate Structures
The Exchange and EDGA Exchange, Inc. (``EDGA'', and together with
the Exchange, the ``DE Exchanges''), are each Delaware corporations
that are national securities exchanges registered with the Commission
pursuant to section 6(a) of the Act.\8\ Each DE Exchange is a direct,
wholly owned subsidiary of DE, a Delaware corporation. DE, originally
formed as a Delaware corporation on July 22, 2010, is a direct, wholly
owned subsidiary of DE Holdings. 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. BATS Global Markets, Inc., a Delaware corporation
(``BGM''), owns 100 percent of the equity interest in DE Holdings, and
is the ultimate parent entity in the Exchange's overall corporate
structure.
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\8\ 15 U.S.C. 78f(a).
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2. The Conversion
On December 9, 2014, the Board of Directors of DE approved the
Conversion and Organizational Documents on December 9, 2014, and DE
Holdings approved the Conversion and Organizational Documents of DE on
December 9, 2014. Pursuant to the Conversion, DE would be converted
from a Delaware corporation to a Delaware limited liability company.
BGM will continue to own 100 percent of the equity interests in DE
Holdings, and DE Holdings will continue to own 100 percent of the
equity interest in DE, which in turn, will continue to own 100 percent
of the equity interest in each DE Exchange.
3. Adoption of Certificate and Operating Agreement
The Exchange proposes that DE adopt a new Certificate and Operating
Agreement to replace the existing Restated Certificate of Incorporation
of DE and the existing Amended and
[[Page 78123]]
Restated Bylaws of DE. Each of the proposed Certificate and Operating
Agreement are modeled on, and are substantially similar to, the current
certificate of formation and operating agreement, respectively, of DE
Holdings, which is similarly situated as an intermediate holding
company. The Commission has previously found the DE Holdings
certificate of formation and operating agreement to be consistent with
the Act.\9\ Each of the regulatory provisions described below, which
the Exchange proposes to adopt within the Operating Agreement of DE,
are also consistent with current provisions set forth in the existing
Restated Certificate of Incorporation of DE and the existing Amended
and Restated Bylaws of DE.
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\9\ See supra note 6.
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Although DE will not carry out any regulatory functions, the
Exchange notes that its activities with respect to the operation of the
DE Exchanges must be consistent with, and must not interfere with, the
self-regulatory obligations of each DE Exchange. As further described
below, the Operating Agreement therefore will include provisions that
are designed to maintain the independence of the Exchange's self-
regulatory functions, enable the Exchange to operate in a manner that
complies with the federal securities laws, including the objectives of
sections 6(b) \10\ and 19(g) \11\ of the Act, and facilitate the
ability of the Exchange and the Commission to fulfill their regulatory
and oversight obligations under the Act.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78s(g).
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a. Certificate of Formation
In connection with the Conversion, the Exchange proposes that DE
adopt a new Certificate, as set forth in Exhibit 5A, to replace the
existing Restated Certificate of Incorporation of DE. The proposed
Certificate includes the following provisions required under Delaware
law:
The full legal name of DE as ``Direct Edge LLC''; and
The name and address of DE's registered office in the
State of Delaware.
b. Operating Agreement
In connection with the Conversion, the Exchange proposes that DE
adopt a new Operating Agreement, as set forth in Exhibit 5B, to replace
the existing Amended and Restated Bylaws of DE. The proposed Operating
Agreement contains several provisions designed to protect the
independence of the self-regulatory functions of the DE Exchanges.
The Operating Agreement would require DE Holdings and DE's
officers, employees and agents to give due regard to the preservation
of the independence of the self-regulatory function of the Exchange, as
well as to its obligations to investors and the general public, and not
interfere with the effectuation of any decisions by the Exchange Board
of Directors relating to its regulatory functions (including
disciplinary matters) or which would interfere with the ability of the
Exchange to carry out its responsibilities under the Act. The Operating
Agreement would require that DE comply with the U.S. federal securities
laws and rules and regulations thereunder and cooperate with the
Commission and the Exchange pursuant to and to the extent of their
respective regulatory authority. Pursuant to the Operating Agreement,
DE's officers, employees and agents, by virtue of their acceptance of
such positions, shall be deemed to agree to (i) comply with the U.S.
federal securities laws and the rules and regulations thereunder; and
(ii) cooperate with the Commission and the Exchange in respect of the
Commission's oversight responsibilities regarding the Exchange and its
self-regulatory functions, and DE will take reasonable steps to cause
its officers, employees and agents to so cooperate.
Furthermore, DE 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 DE Exchange, as applicable,
for the purposes of any suit, action, or proceeding pursuant to the
U.S. federal securities laws or the rules or regulations thereunder
relating to or arising out of the activities of a DE Exchange.
The Operating Agreement would also contain a number of provisions
designed to ensure that the Exchange has sufficient access to the books
and records of DE. Pursuant to the Operating Agreement, the books,
records, premises, officers, agents, and employees of DE are deemed to
be the books, records, premises, officers, agents and employees of the
Exchange to the extent they are related to the operation or
administration of the Exchange. In addition, for as long as DE controls
the Exchange, DE's books and records shall be subject at all times to
inspection and copying by the Commission and the Exchange, provided
that such books and records are related to the operation or
administration of the Exchange.
The Operating Agreement also would provide that, to the fullest
extent permitted by applicable law, all confidential information
pertaining to the self-regulatory functions of the Exchange (including
but not limited to disciplinary matters, trading data, trading
practices and audit information) contained in the books and records of
the Exchanges that shall come into the possession of DE shall (i) be
retained in confidence by DE Holdings, DE, and DE's officers, employees
and agents, and (ii) not be used for any non-regulatory purposes. The
Operating Agreement provides, however, that the foregoing shall not
limit or impede the rights of the Commission or the Exchange to access
and examine such confidential information pursuant to the U.S. federal
securities laws and the rules and regulations thereunder, or limit or
impede the ability of DE Holdings or DE's officers, employees or agents
to disclose such confidential information to the Commission or the
Exchange.
In addition, the Operating Agreement would provide that for so long
as DE directly or indirectly controls a registered national securities
exchange, before any amendment to or repeal of any provision of the
Operating Agreement may be effective, the changes must be submitted to
the Board of Directors of each such exchange, and if the change is
required to be filed with or filed with and approved by the Commission
before the change may be effective under Section 19 of the Act and the
rules promulgated thereunder,\12\ then such proposed change shall not
be effective until filed with or filed with and approved by the
Commission, as the case may be.
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\12\ 15 U.S.C. 78s(b).
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The Operating Agreement identifies DE Holdings as the sole Member
of DE.\13\ The identification of the sole Member of DE is designed to
assure that any change to the indirect ownership or control of the DE
Exchanges occurs through a change in the ownership or control of DE
Holdings, or in accordance with the rule filing process described
above. If the change of control occurs through a change in the
ownership or control of DE Holdings, any purported change of such
ownership or control would need to comply with DE Holdings'
organizational documents.
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\13\ See Operating Agreement, Art. II, section 2.01.
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4. Amended Exchange Bylaws
The Exchange proposes to amend the Exchange Bylaws, as set forth in
Exhibit 5C, to change the name of its sole stockholder from ``Direct
Edge, Inc.'' to ``Direct Edge LLC''. The name change from ``Direct
Edge, Inc.'' to ``Direct Edge LLC'' as reflected in the Amended
[[Page 78124]]
Exchange Bylaws is a non-substantive change. No other changes to the
ownership or structure of the Exchange have taken place.
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.\14\ In
particular, the proposal is consistent with section 6(b)(1) of the Act
\15\ 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 effect the Conversion while ensuring that the Exchange will
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
Operating Agreement various provisions intended to protect and maintain
the integrity of the self-regulatory functions of the Exchange. For
example, the Operating Agreement, as described above, is 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. Moreover, with the Proposed Rule
Change, the Commission will continue to have regulatory authority \16\
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. 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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\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(1).
\16\ See, e.g., Operating Agreement, Article X, section 10.03.
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The Exchange also believes that the Proposed Rule Change furthers
the objectives of section 6(b)(5) of the Act \17\ 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. Furthermore, the Exchange is
not proposing any changes to its regulated activities in connection
with the Conversion; the Exchange will operate and regulate its Members
in the same manner upon consummation of the Conversion as it does
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.
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\17\ 15 U.S.C. 78f(b)(5).
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In addition, the Proposed Rule Change provides transparency and
certainty, and promotes efficiency, with respect to the governance and
corporate structure of the Exchange and its direct and indirect parent
companies. The Exchange believes that these additional changes, among
other things, will remove administrative impediments to the governance
of the Exchange. By simplifying the governance structure in this way,
the Proposed Rule Change promotes the maintenance of a fair and orderly
market, the protection of investors and the protection of the public
interest.
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, as amended. 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 proposed
Conversion is not a competitive proposal, but rather is intended to add
efficiency with respect to the governance process for the Exchange and
its affiliates.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has not solicited or received written comments on the
Proposed Rule Change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (1)
Significantly affect the protection of investors or the public
interest; (2) impose any significant burden on competition; and (3) by
its terms does not become operative for 30 days after the date of this
filing, or such shorter time as the Commission may designate if
consistent with the protection of investors and the public interest,
the proposed rule change has become effective pursuant to section
19(b)(3)(A) of the Act \18\ and Rule 19b-4(f)(6) thereunder.\19\
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\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to provide the Commission
with written notice of its intent to file the proposed rule change,
along with a brief description and text of the proposed rule change,
at least five business days prior to the date of filing of the
proposed rule change, or such shorter time as designated by the
Commission. The Exchange has met this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative for 30 days after the date of filing. However,
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter
time if such action is consistent with the protection of investors and
the public interest. The Exchange has asked the Commission to waive the
30-day operative delay so that the proposal may become operative
immediately upon filing. The Commission believes that waiving the 30-
day operative delay is consistent with the protection of investors and
the public interest as it will allow the Exchange to effect the
Conversion upon filing with the Secretary of State of the State of
Delaware and, according to the Exchange, simplify the administration
associated with the Exchange's overall corporate structure
immediately.\20\ Accordingly, the Commission hereby grants the
Exchange's request and designates the proposal operative upon filing.
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\20\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if
[[Page 78125]]
it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act..
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-EDGX-2014-34 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-EDGX-2014-34. 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-EDGX-2014-34, and should be
submitted on or before January 20, 2015.
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\21\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
Brent J. Fields,
Secretary.
[FR Doc. 2014-30274 Filed 12-24-14; 8:45 am]
BILLING CODE 8011-01-P