80 FR 55395 - ISE Mercury, LLC; Order Granting Application for a Conditional Exemption Pursuant to Section 36(a) of the Exchange Act From Certain Requirements of Rules 6a-1 and 6a-2 Under the Exchange Act

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 178 (September 15, 2015)

[Federal Register Volume 80, Number 178 (Tuesday, September 15, 2015)]
[Notices]
[Pages 55395-55397]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-23106]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75867]


ISE Mercury, LLC; Order Granting Application for a Conditional 
Exemption Pursuant to Section 36(a) of the Exchange Act From Certain 
Requirements of Rules 6a-1 and 6a-2 Under the Exchange Act

September 9, 2015.

I. Introduction

    On September 29, 2014, ISE Mercury, LLC (``Applicant'') submitted 
to the Securities and Exchange Commission (``Commission'') an 
application on Form 1 under the Securities Exchange Act of 1934 
(``Exchange Act'') to register as a national securities exchange. In 
connection with this application, the Applicant, pursuant to Exchange 
Act Rule 0-12,\1\ has requested an exemption under Section 36(a)(1) of 
the Exchange Act \2\ from certain requirements of Exchange Act Rules 
6a-1(a) and 6a-2 (``Exemption Request'').\3\ This order grants the 
Applicant's request for exemptive relief, subject to the satisfaction 
of certain conditions, which are outlined below.
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    \1\ 17 CFR 240.0-12.
    \2\ 15 U.S.C. 78mm(a)(1).
    \3\ 17 CFR 240.6a-1(a) and 6a-2. See letter from Michael Simon, 
Secretary and General Counsel, ISE Mercury, LLC, to Brent J. Fields, 
Secretary, Commission, dated June 26, 2015.
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II. Application for Conditional Exemption from Certain Requirements of 
Exchange Act Rules 6a-1 and 6a-2

A. Filing Requirements Under Exchange Act Rule 6a-1(a)

    Exchange Act Rule 6a-1(a) requires an applicant for registration as 
a national securities exchange to file an application with the 
Commission on Form 1. Exhibit C to Form 1 requires the applicant to 
provide certain information with respect to each of its subsidiaries 
and affiliates.\4\ For purposes of Form 1, an ``affiliate'' is ``[a]ny 
person that, directly or indirectly, controls, is under common control 
with, or is controlled by, the national securities exchange . . . 
including any employees.'' \5\ Form 1 defines ``control'' as ``[t]he 
power, directly or indirectly, to direct the management or policies of 
a company, whether through ownership of securities, by contract, or 
otherwise . . . .'' \6\ Form 1 provides, further, that any person that 
directly or indirectly has the right to vote 25% or more of a class of 
voting securities, or has the power to sell or direct the sale of 25% 
or more of a class of voting securities, is presumed to control the 
entity.\7\
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    \4\ Specifically, Exhibit C requires the applicant to provide, 
for each subsidiary or affiliate, and for any entity with whom the 
applicant has a contractual or other agreement relating to the 
operation of an electronic trading system used to effect 
transactions on the exchange: (1) The name and address of the 
organization; (2) the form of organization; (3) the name of the 
state and statute citation under which it is organized, and the date 
of its incorporation in its present form; (4) a brief description of 
the nature and extent of the affiliation; (5) a brief description of 
the organization's business or functions; (6) a copy of the 
organization's constitution; (7) a copy of the organization's 
articles of incorporation or association, including all amendments; 
(8) a copy of the organization's by-laws or corresponding rules or 
instruments; (9) the name and title of the organization's present 
officers, governors, members of all standing committees, or persons 
performing similar functions; and (10) an indication of whether the 
business or organization ceased to be associated with the applicant 
during the previous year, and a brief statement of the reasons for 
termination of the association.
    \5\ Form 1 Instructions, Explanation of Terms, 17 CFR 249.1.
    \6\ Id.
    \7\ Id.
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    Exhibit D to Form 1 requires an applicant for registration as a 
national securities exchange to provide unconsolidated financial 
statements for the latest fiscal year for each subsidiary or affiliate. 
Exhibit D requires the financial statements to include, at a minimum, a 
balance sheet and an income statement with such footnotes and other 
disclosures as are necessary to avoid rendering the financial 
statements misleading. Exhibit D provides, in addition, that if any 
affiliate or subsidiary of the applicant is required by another 
Commission rule to submit annual financial statements, a statement to 
that effect, with a citation to the other Commission rule, may be 
provided in lieu of the financial statements required in Exhibit D.
    A Form 1 application is not considered filed until all necessary 
information, including financial statements and other required 
documents, have been furnished in the proper form.\8\
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    \8\ 17 CFR 202.3(b)(2). See also 17 CFR 240.0-3(a). Defective 
Form 1 applications ``may be returned with a request for correction 
or held until corrected before being accepted as a filing.'' See 17 
CFR 202.3(b)(2). See also Securities Exchange Act Release No. 40760 
(December 8, 1998), 63 FR 70844, 70881 (December 22, 1998) 
(``Regulation ATS Adopting Release'') at note 329 and accompanying 
text.
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B. Filing Requirements under Exchange Act Rule 6a-2

    Exchange Act Rule 6a-2(a)(2) requires a national securities 
exchange to update the information provided in Exhibit C within 10 days 
of any action that causes the information provided in Exhibit C to 
become inaccurate or incomplete. In addition, Exchange Act Rule 6a-
2(b)(1) requires a national securities exchange to file Exhibit D on or 
before June 30 of each year, and Exchange Act Rule 6a-2(c) requires a 
national securities exchange to file Exhibit C every three years.

C. Exemption Request

    On June 26, 2015, the Applicant requested that the Commission grant 
an exemption under Section 36 of the Exchange Act from the requirement 
under Exchange Act Rule 6a-1 to file the information requested of the 
Applicant in Exhibits C and D to Form 1 for the ``Foreign Indirect 
Affiliates,'' as defined below.\9\ In addition, the Applicant requested 
an exemption, subject to certain conditions, with respect to the 
Foreign Indirect Affiliates from the requirements under: (1) Exchange 
Act Rule 6a-2(a)(2) to amend Exhibit C within 10 days if the 
information in Exhibit C becomes inaccurate or incomplete; and (2) 
Exchange Act Rules 6a-2(b)(1) and (c) to

[[Page 55396]]

file periodic updates to Exhibits C and D.
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    \9\ See Exemption Request, supra note 3.
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    The Applicant is a wholly-owned subsidiary of International 
Securities Exchange Holdings, Inc. (``ISE Holdings'').\10\ ISE Holdings 
is a wholly-owned subsidiary of U.S. Exchange Holdings, Inc., which is 
15% owned by Deutsche B[ouml]rse AG (``Deutsche B[ouml]rse'') and 85% 
owned by a German stock corporation, Eurex Frankfurt AG (``Eurex 
Frankfurt''). Eurex Frankfurt is wholly-owned by Deutsche B[ouml]rse. 
According to the Applicant, the parent ownership structure of U.S. 
Exchange Holdings, Inc. is comprised entirely of foreign entities, 
Eurex Frankfurt and Deutsche B[ouml]rse (collectively, the ``Foreign 
Direct Affiliates''), which in turn hold ownership interests, either 
directly or indirectly, in excess of 25% in a large number of other 
foreign entities, some of which also own interests in other entities in 
excess of 25% as well (such Foreign Direct Affiliate-owned entities are 
referred to, collectively, as the ``Foreign Indirect Affiliates'').\11\
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    \10\ See Exemption Request, supra note 3, at 2.
    \11\ See id.
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    Because of the limited and indirect nature of its connection to the 
Foreign Indirect Affiliates, the Applicant believes that the corporate 
and financial information of the Foreign Indirect Affiliates required 
by Exhibits C and D of Form 1 would have little relevance to the 
Commission's review of the Applicant's Form 1 application or, if the 
Commission were to approve the Applicant's Form 1 application, as 
amended, to the Commission's ongoing oversight of the Applicant as a 
national securities exchange.\12\ In this regard, the Exemption Request 
states that the Foreign Indirect Affiliates have no ability to 
influence the management, policies, or finances of the Applicant and no 
obligation to provide funding to, or ability to materially affect the 
funding of, the Applicant.\13\ The Exemption Request also states that: 
(1) The Foreign Indirect Affiliates have no ownership interest in the 
Applicant or in any of the controlling shareholders of the Applicant; 
and (2) there are no commercial dealings between the Applicant and the 
Foreign Indirect Affiliates.\14\ Further, the Exemption Request states 
that obtaining detailed corporate and financial information with 
respect to the Foreign Indirect Affiliates (1) is unnecessary for the 
protection of investors and the public interest and (2) would be unduly 
burdensome and inefficient because these affiliates are located in 
foreign jurisdictions and the disclosure of such information could 
implicate foreign information sharing restrictions in such 
jurisdictions.\15\
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    \12\ See id. at 2-3.
    \13\ See Exemption Request, supra note 3, at 3.
    \14\ See id. The Applicant states that ``commercial dealings'' 
means any direct or indirect arrangement, agreement, or 
understanding or any other relationship including, but not limited 
to, the providing of hardware, software, technology services or any 
other goods or services that support the operation of ISE Mercury or 
any facility of ISE Mercury. See id., supra note 3, at 3 n. 5.
    \15\ See id. The Applicant also believes that providing the 
information required by Exhibits C and D with respect to the Foreign 
Indirect Affiliates could raise confidentiality concerns because 
many of the Foreign Indirect Affiliates are not public companies. 
Id.
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    As a condition to the granting of exemptive relief, the Applicant 
has agreed to provide: (i) A listing of the names of the Foreign 
Indirect Affiliates; (ii) an organizational chart setting forth the 
affiliation of the Foreign Indirect Affiliates and the Foreign Direct 
Affiliates and the Applicant; and (iii) in Exhibit C of the Applicant's 
Form 1 application, a description of the nature of the Foreign Indirect 
Affiliates' affiliation with the Foreign Direct Affiliates and the 
Applicant. In addition, as a condition to the granting of exemptive 
relief from the requirements of Exchange Act Rule 6a-2(a)(2), 6a-
2(b)(1), and 6a-2(c), as described above, the Applicant has agreed to 
provide amendments to the information required under conditions (i) 
through (iii) above on or before June 30th of each year. Further, the 
Applicant notes that it will provide the information required by 
Exhibits C and D for all of its affiliates other than the Foreign 
Indirect Affiliates, including the Foreign Direct Affiliates.\16\
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    \16\ See Exemption Request, supra note 3, at 3.
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III. Order Granting Conditional Section 36 Exemption

    Section 6 of the Exchange Act \17\ sets forth a procedure for an 
exchange to register as a national securities exchange.\18\ Exchange 
Act Rule 6a-1(a) \19\ requires an application for registration as a 
national securities exchange to be filed on Form 1 in accordance with 
the instructions in Form 1. A Form 1 application is not considered 
filed until all necessary information, including financial statements 
and other required documents, has been furnished in the proper 
form.\20\ Exchange Act Rule 6a-2 establishes ongoing requirements to 
file certain amendments to Form 1.
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    \17\ 15 U.S.C. 78f.
    \18\ Specifically, Section 6(a) of the Exchange Act states that 
``[a]n exchange may be registered as a national securities exchange 
. . . by filing with the Commission an application for registration 
in such form as the Commission, by rule, may prescribe containing 
the rules of the exchange and such other information and documents 
as the Commission, by rule, may prescribe as necessary or 
appropriate in the public interest or for the protection of 
investors.'' Section 6 of the Exchange Act also sets forth various 
requirements to which a national securities exchange is subject.
    \19\ 17 CFR 240.6a-1(a).
    \20\ 17 CFR 202.3(b)(2). See also supra note 8.
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    Section 36(a)(1) of the Exchange Act provides that ``the 
Commission, by rule, regulation, or order, may conditionally or 
unconditionally exempt any person, security, or transaction, or any 
class or classes of persons, securities, or transactions, from any 
provision or provisions of [the Exchange Act] or of any rule or 
regulation thereunder, to the extent that such exemption is necessary 
or appropriate in the public interest, and is consistent with the 
protection of investors.'' \21\ For the reasons discussed below, the 
Commission believes that it is appropriate in the public interest and 
consistent with the protection of investors to exempt the Applicant 
from the requirement under Exchange Act Rule 6a-1 to provide the 
information required in Exhibits C and D to Form 1 with respect to the 
Foreign Indirect Affiliates, subject to the following conditions:
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    \21\ 15 U.S.C. 78mm(a)(1).
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    (1) The Applicant must provide a list of the names of the Foreign 
Indirect Affiliates;
    (2) the Applicant must provide an organizational chart setting 
forth the affiliation of the Foreign Indirect Affiliates and the 
Foreign Direct Affiliates and the Applicant; and
    (3) as part of Exhibit C to the Applicant's Form 1 Application, the 
Applicant must provide a description of the nature of the affiliation 
between the Foreign Indirect Affiliates and the Foreign Direct 
Affiliates and the Applicant.
    The Commission believes, further, that it is appropriate in the 
public interest and consistent with the protection of investors to 
exempt the Applicant, with respect to the Foreign Indirect Affiliates, 
from the requirements under: (a) Exchange Act Rule 6a-2(a)(2) to amend 
Exhibit C within 10 days of any action that renders the information in 
Exhibit C inaccurate or incomplete; (b) Exchange Act Rules 6a-2(c) to 
provide periodic updates of Exhibit C; and (c) Exchange Act Rules 6a-
2(b)(1) to provide periodic updates of Exhibit D, subject to the 
condition that the Applicant provide amendments to the information 
required under conditions (1) through (3) above on or before June 30th 
of each year.
    As part of an application for exchange registration, the 
information included in

[[Page 55397]]

Exhibits C and D is designed to help the Commission make the 
determinations required under Sections 6(b) and 19(a) of the Exchange 
Act \22\ with respect to the application. The updated Exhibit C and D 
information required under Exchange Act Rule 6a-2 is designed to help 
the Commission exercise its oversight responsibilities with respect to 
national securities exchanges. Specifically, Exhibit D is designed to 
provide the Commission with information concerning the financial status 
of an exchange and its affiliates and subsidiaries,\23\ and Exhibit C 
is designed to provide the Commission with the names and organizational 
documents of these affiliates and subsidiaries.\24\ Such information is 
designed to help the Commission determine whether an applicant for 
exchange registration would have, and a national securities exchange 
continues to have, the ability to carry out its obligations under the 
Exchange Act.
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    \22\ 15 U.S.C. 78f(b) and 78s(a).
    \23\ See Securities Exchange Act Release No. 18843 (June 25, 
1982), 47 FR 29259 (July 6, 1982) (proposing amendments to Form 1); 
see also Form 1, 17 CFR 249.1, and supra Section II.A.
    \24\ Form 1, 17 CFR 249.1. See also supra note 4.
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    Since the most recent amendments to Form 1 in 1998,\25\ many 
national securities exchanges that previously were member-owned 
organizations with few affiliated entities have demutualized. Some of 
these demutualized exchanges have consolidated under holding companies 
with numerous affiliates that, in some cases, have only a limited and 
indirect connection to the national securities exchange, with no 
ability to influence the management or policies of the registered 
exchange, and no obligation to fund, or to materially affect the 
funding of, the registered exchange. The Commission believes that, for 
these affiliated entities, the information required under Exhibits C 
and D would have limited relevance to the Commission's review of an 
application for exchange registration or to its oversight of a 
registered exchange.
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    \25\ See Regulation ATS Adopting Release, supra note 8, at 
Section IV.C.
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    Based on the Applicant's representations, the indirect nature of 
the relationship between the Applicant and the Foreign Indirect 
Affiliates, and the information that the Applicant will provide with 
respect to the Foreign Direct Affiliates and the Foreign Indirect 
Affiliates, the Commission believes that it will have sufficient 
information to review the Applicant's Form 1 application and to make 
the determinations required under Sections 6(b) and 19(a) of the 
Exchange Act with respect to its application for registration as a 
national securities exchange.\26\ The Commission believes, further, 
that if the Commission were to approve the Applicant's Form 1 
application, it will have the information necessary to oversee the 
Applicant's activities as a national securities exchange. In 
particular, the Commission notes that the Applicant has represented 
that it would have no direct connection to the Foreign Indirect 
Affiliates, that the Foreign Indirect Affiliates would have no ability 
to influence the management or policies of the Applicant, and that the 
Foreign Indirect Affiliates would have no obligation to fund, or 
ability to materially affect the funding of, the Applicant. In 
addition, the Commission notes that the Applicant has represented that: 
(1) The Foreign Indirect Affiliates have no ownership interest in the 
Applicant or in any of the controlling equity holders of the Applicant; 
and (2) there are no commercial dealings between the Applicant and the 
Foreign Indirect Affiliates.\27\
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    \26\ 15 U.S.C. 78f(b) and 78s(a). Section 6(b) of the Exchange 
Act enumerates certain determinations that the Commission must make 
with respect to an exchange before granting the registration of the 
exchange as a national securities exchange. The Commission will not 
grant an exchange registration as a national securities exchange 
unless the Commission determines that the exchange meets these 
requirements. See Regulation ATS Adopting Release, supra note 8, at 
Section IV.B.
    \27\ See Exemption Request, supra note 3, at 3; supra note 15.
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    Given the limited and indirect relationship between the Applicant 
and the Foreign Indirect Affiliates, as described above, the Commission 
believes that the detailed corporate and financial information required 
in Exhibits C and D with respect to the Foreign Indirect Affiliates is 
unnecessary for the Commission's review of the Applicant's Form 1 
application and would be unnecessary for the Commission's oversight of 
the Applicant as a registered national securities exchange following 
any Commission approval of its Form 1 application.
    For the reasons discussed above, the Commission finds that the 
conditional exemptive relief requested by the Applicant is appropriate 
in the public interest and is consistent with the protection of 
investors.
    The Commission may modify by order the terms, scope or conditions 
of this exemption if it determines that such modification is necessary 
or appropriate in the public interest, or is consistent with the 
protection of investors. Furthermore, the Commission may limit, 
suspend, or revoke this exemption if it finds that the Applicant has 
failed to comply with, or is unable to comply with, any of the 
conditions set forth in this order, if such action is necessary or 
appropriate in the public interest, or is consistent with the 
protection of investors.
    It is ordered, pursuant to Section 36 of the Exchange Act,\28\ that 
the Applicant is exempt from the requirements to: (1) Include in its 
Form 1 application the information required in Exhibits C and D to Form 
1 with respect to the Foreign Indirect Affiliates; and (2) with respect 
to the Foreign Indirect Affiliates, update the information in Exhibits 
C and D to Form 1 as required by Exchange Act Rules 6a-2(a)(2), 6a-
2(b)(1), and 6a-2(c) subject to the following conditions:
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    \28\ 15 U.S.C. 78mm.
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    (i) The Applicant must provide a list of the names of the Foreign 
Indirect Affiliates;
    (ii) the Applicant must provide an organizational chart setting 
forth the affiliation of the Foreign Indirect Affiliates and the 
Foreign Direct Affiliates and the Applicant; and
    (iii) as part of Exhibit C to the Applicant's Form 1 Application, 
the Applicant must provide a description of the nature of the 
affiliation between the Foreign Indirect Affiliates and the Foreign 
Direct Affiliates and the Applicant.
    In addition, the Applicant must provide amendments to the 
information required under conditions (i) through (iii) above on or 
before June 30th of each year.

    By the Commission.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-23106 Filed 9-14-15; 8:45 am]
BILLING CODE 8011-01-P