81_FR_80366 81 FR 80146 - Self-Regulatory Organizations; Bats EDGA Exchange, Inc.; Notice of Filing of a Proposed Rule Change in Connection With the Proposed Corporate Transaction Involving Bats Global Markets, Inc. and CBOE Holdings, Inc.

81 FR 80146 - Self-Regulatory Organizations; Bats EDGA Exchange, Inc.; Notice of Filing of a Proposed Rule Change in Connection With the Proposed Corporate Transaction Involving Bats Global Markets, Inc. and CBOE Holdings, Inc.

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 220 (November 15, 2016)

Page Range80146-80154
FR Document2016-27370

Federal Register, Volume 81 Issue 220 (Tuesday, November 15, 2016)
[Federal Register Volume 81, Number 220 (Tuesday, November 15, 2016)]
[Notices]
[Pages 80146-80154]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-27370]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79265; File No. SR-BatsEDGA-2016-24]


Self-Regulatory Organizations; Bats EDGA Exchange, Inc.; Notice 
of Filing of a Proposed Rule Change in Connection With the Proposed 
Corporate Transaction Involving Bats Global Markets, Inc. and CBOE 
Holdings, Inc.

November 8, 2016.
    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 2, 2016, Bats EDGA Exchange, Inc. (the ``Exchange'' or 
``EDGA'') 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 corporate transaction (the 
``Transaction''), as described in more detail below, involving its 
ultimate parent company, Bats Global Markets, Inc. (``BGM''), CBOE 
Holdings, Inc. (``CBOE Holdings''), and two wholly owned subsidiaries 
of CBOE Holdings, CBOE Corporation and CBOE V, LLC (``CBOE V''). CBOE 
Holdings is the parent company of Chicago Board Options Exchange, 
Incorporated (``CBOE'') and C2 Options Exchange, Incorporated (``C2''), 
each a national securities exchange registered with the Commission 
pursuant to Section 6(a) of the Act,\3\ and CBOE Futures Exchange, LLC 
(``CBOE Futures,'' and together with CBOE and C2, the ``CBOE 
Exchanges''), a national securities exchange that lists or trades 
security-futures products notice-registered with the Commission 
pursuant to Section 6(g) of the Act.\4\
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    \3\ 15 U.S.C. 78f(a).
    \4\ 15 U.S.C. 78f(g).
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    Upon completion of the mergers described below that effectuate the 
Transaction (the ``Closing''), the business of BGM will be carried on 
by CBOE V. CBOE V, rather than BGM, will be the direct parent company 
of Direct Edge LLC (``Direct Edge''), which is the direct parent 
company of the Exchange. As a result, CBOE Holdings will become the 
ultimate parent company of Direct Edge and of the Exchange.
    To effectuate the Transaction, the Exchange seeks to obtain the 
Commission's approval of: (i) The resolutions of BGM's board of 
directors (the ``BGM Board'') waiving certain provisions of the Amended 
and Restated Certificate of Incorporation of BGM (the ``BGM Charter'') 
and making certain related determinations regarding CBOE Holdings and 
the impact of the Transaction on the Exchange (the ``Resolutions''); 
(ii) the CBOE Holdings Second Amended and Restated Certificate of 
Incorporation (the ``CBOE Holdings Charter'') and the CBOE Holdings 
Third Amended and Restated Bylaws (the ``CBOE Holdings Bylaws''); (iii) 
the Certificate of Formation of CBOE V (the ``CBOE V Certificate'') and 
the Limited Liability Company Operating Agreement of CBOE V (the ``CBOE 
V Operating Agreement''); (iv) the proposed amendments to the Amended 
and Restated Limited Liability Company Operating Agreement of Direct 
Edge (the ``Direct Edge Operating Agreement''); (v) the proposed 
amendments to the Fifth Amended and Restated Bylaws of the Exchange 
(the ``Exchange Bylaws''); and (vi) the proposed amendments to EDGA 
Rules 2.3, 2.10 and 2.12 (the ``Exchange Rules'').
    The text of the proposed rule change is available at the Exchange's 
Web site at 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 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 organizational and governance documents of 
the Exchange and its current and proposed future parent companies, and 
related actions that are necessary in connection with the Closing of 
the Transaction, as described below.
    Other than as described herein and set forth in 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 Transaction. 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, Bats BZX Exchange, Inc. (``BZX''), Bats BYX Exchange, 
Inc. (``BYX'') and Bats EDGX Exchange, Inc. (``EDGX,'' and together 
with the Exchange, BZX and BYX, 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\
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    \5\ 15 U.S.C. 78f(a).
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    The Exchange and EDGX are each direct, wholly owned subsidiaries of 
Direct Edge, a Delaware limited liability company that is a direct, 
wholly owned subsidiary of BGM. BZX and BYX are direct, wholly owned 
subsidiaries of Bats Global Markets Holdings, Inc. (``BGM Holdings''), 
a Delaware corporation that is a direct, wholly owned subsidiary of 
BGM. In addition

[[Page 80147]]

to certain other subsidiaries not registered with the Commission in any 
capacity, BGM Holdings also owns 100 percent of the equity interest in 
Bats Trading, Inc. (``Bats Trading''), a Delaware corporation that is a 
broker-dealer registered with the Commission that provides routing 
services outbound from, and in certain instances inbound to, each Bats 
Exchange. BGM, a Delaware corporation, is a publicly traded company 
listed on BZX.
    CBOE Holdings, a Delaware corporation, is a publicly traded company 
listed on The NASDAQ Stock Market. CBOE Holdings owns 100 percent of 
the equity interest in the CBOE Exchanges.
    In contemplation of the Transaction, CBOE Holdings formed two 
additional entities, CBOE Corporation, a Delaware corporation, and CBOE 
V, a Delaware limited liability company, each of which are direct, 
wholly owned subsidiaries of CBOE Holdings. Each of CBOE Corporation 
and CBOE V currently have no material assets or conduct any operations.
2. The Transaction
    On September 25, 2016, BGM, CBOE Holdings, CBOE Corporation and 
CBOE V entered into an Agreement and Plan of Merger (the ``Merger 
Agreement''). Pursuant to and subject to the terms of the Merger 
Agreement, at the Closing, among other things:
    (i) CBOE Corporation will be merged with and into BGM, whereupon 
the separate existence of CBOE Corporation will cease and BGM will be 
the surviving company (the ``Merger'');
    (ii) by virtue of the Merger and without any action required on the 
part of BGM, CBOE Corporation or any holder of BGM or CBOE Corporation 
stock, each share of BGM common stock (whether voting or non-voting) 
issued and outstanding (with the exception of shares owned by CBOE 
Holdings, BGM or any of their respective subsidiaries and certain 
shares held by persons that are entitled to and properly demand 
appraisal rights) will be converted into the right to receive a 
particular number of shares of CBOE Holdings and/or cash, at the 
election of the holder of such share of BGM common stock (the ``Merger 
Consideration''), and each share of CBOE Corporation issued and 
outstanding will be converted into one share of BGM, such that BGM will 
become a wholly owned subsidiary of CBOE Holdings; and
    (iii) immediately following the Merger, BGM will be merged with and 
into CBOE V, whereupon the separate existence of BGM will cease and 
CBOE V will be the surviving company (the ``Subsequent Merger'').
    Upon the Closing, the Direct Edge Operating Agreement, the Exchange 
Bylaws and the Exchange Rules will be amended to take into account the 
post-Closing corporate structure, described below.
3. Post-Closing Corporate Structure
    As a result of the Transaction, BGM will cease to exist and the 
business of BGM will be carried on by CBOE V, which is a wholly owned 
subsidiary of CBOE Holdings.\6\ CBOE V will own 100 percent of the 
equity interest in Direct Edge and BGM Holdings. Direct Edge will 
continue to own 100 percent of the equity interest in the Exchange and 
EDGX. BGM Holdings will continue to own 100 percent of the equity 
interest in BZX, BYX, Bats Trading, and certain other subsidiaries not 
registered with the Commission in any capacity.\7\
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    \6\ In connection with the Transaction, CBOE Holdings agreed in 
the Merger Agreement to take all requisite actions so, as of the 
Closing, the CBOE Holdings Board will include three individuals 
designated by BGM who (1) are serving as BGM directors immediately 
prior to the Closing and (2) comply with the policies (including 
clarifications of the policies provided to BGM) of the Nominating 
and Governance Committee of the CBOE Holdings Board as in effect on 
the date of the Merger Agreement and previously provided to BGM 
(each of whom will be appointed to the CBOE Holdings Board as of the 
Closing). The CBOE Holdings Board currently consists of 14 
directors. The Exchange expects three current CBOE Holdings 
directors to resign effective prior to the Closing and the remaining 
CBOE Holdings directors to fill those vacancies with the three BGM 
directors designated by BGM.
    \7\ As described above, the Transaction will result in a change 
of ownership of Bats Trading, which is a member of the Financial 
Industry Regulatory Authority, Inc. (``FINRA''). The Exchange 
understands that, pursuant to NASD Rule 1017, Bats Trading is 
seeking approval for this change of ownership from FINRA.
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4. Ownership and Voting Limitations of BGM; Resolutions
    The BGM Charter provides that (i) no Person,\8\ 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 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 BGM to the extent of any voting in excess 
of the limitation.\11\
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    \8\ The BGM Charter generally defines a ``Person'' as a natural 
person, partnership, corporation, limited liability company, entity, 
government, or political subdivision, agency or instrumentality of a 
government. See BGM Charter, Art. FIFTH, para. (a)(i).
    \9\ The 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 BGM; (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 any 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 BGM or 
any of its parents or subsidiaries; (vii) in the case of a Person 
that is an executive officer (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 BGM 
Charter, Art. FIFTH, para. (a)(ii).
    \10\ See BGM Charter, Art. FIFTH, para. (b).
    \11\ See BGM Charter, Art. FIFTH, para. (d).
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    However, the 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 BGM Board if, in connection with taking 
such action, the BGM Board states in such resolution that it is the 
determination of the BGM Board that the waiver:

[[Page 80148]]

     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 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 BGM Charter, Art. FIFTH, para. (b)(ii)(B).
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    In granting such a waiver, the BGM Board 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 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 BGM's capital stock, such a transaction 
will not become effective until the BGM Board determines, by 
resolution, that such Person and its 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 BGM Charter, Art. FIFTH, para. (b)(iii).
    \15\ 15 U.S.C. 78c(a)(39).
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    As described above, as a result of the Merger (and prior to its 
separate existence ceasing as a result of the Subsequent Merger), BGM 
will become a wholly owned subsidiary of CBOE Holdings, such that CBOE 
Holdings will possess ownership and voting rights in BGM in excess of 
the Ownership Limitation and the Voting Limitation. In addition, as a 
result of the Subsequent Merger, BGM will merge with and into CBOE V, 
terminating the BGM Charter and becoming an entity whose ownership and 
voting is held entirely by CBOE Holdings, in excess of the BGM 
Ownership Limitation and the BGM Voting Limitation that would otherwise 
apply.
    The BGM Board therefore determined that in order to effect the 
Transaction, a waiver of the BGM Ownership Limitation and the BGM 
Voting Limitation with respect to CBOE Holdings would be required. To 
do so, the BGM Board adopted the Resolutions, attached as Exhibit 5A, 
making certain determinations with respect to CBOE Holdings and the 
Transaction that are necessary to waive the BGM Ownership Limitation 
and BGM Voting Limitation. Specifically, the BGM Board determined that:
     The acquisition of the proposed ownership by CBOE Holdings 
in 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 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 CBOE Holdings in 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 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;
     neither CBOE Holdings nor any of its Related Persons is 
subject to ``statutory disqualification'' within the meaning of Section 
3(a)(39) of the Act; \16\ and
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    \16\ Id.
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     neither CBOE Holdings nor any of its Related Persons is an 
Exchange Member.\17\
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    \17\ In addition, the Resolutions contain a determination that 
the execution and delivery of the Merger Agreement by CBOE Holdings 
constituted notice of CBOE Holdings' 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 BGM Charter, Art. FIFTH, para. (b)(iv). 
The Exchange notes that Art. FIFTH, para. (c)(i) of the BGM Charter 
further requires that any Person that, either alone or together with 
its Related Persons, owns, directly or indirectly (whether by 
acquisition or by a change in the number of shares outstanding), of 
record or beneficially, five percent or more of the then outstanding 
shares of capital stock of BGM must immediately upon acquiring 
knowledge of its ownership of five percent or more give written 
notice of such ownership to the BGM Board. The Merger Agreement 
provides that the Merger Agreement constitutes such notice with 
respect to certain voting agreements entered into concurrently with 
the Merger Agreement. See Merger Agreement, Section 5.21.
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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 Transaction will not 
impair the ability of any 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 Transaction. 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 BGM Board that the Transaction and CBOE Holdings' 
resulting ownership and voting rights in BGM following the Merger, and 
CBOE V's ownership and voting rights following the Subsequent Merger, 
are otherwise in the best interests of BGM, its stockholders and the 
Bats Exchanges. The Bats Exchanges will be ultimately held by an 
entity, CBOE Holdings, that already owns other national securities 
exchanges and is subject to governance documents that similarly 
restrict concentration of ownership and voting rights.
    As described in more detail below, the Exchange is also requesting 
approval of the adoption of the CBOE Holdings Charter and the CBOE 
Holdings Bylaws. The CBOE Holdings Charter includes a number of 
provisions relating to the Commission's regulatory oversight that have 
a similar effect as those in the BGM Charter, including the BGM 
Ownership Limitation and the BGM Voting Limitation. Therefore, 
notwithstanding the Resolutions and the Transaction, provisions similar 
(and, in some cases, more stringent) to 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. This means that the Exchange ownership structure 
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 
companies, 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.

[[Page 80149]]

    The Exchange therefore requests that the Commission approve the 
Resolutions, attached as Exhibit 5A.
5. CBOE Holdings Charter and CBOE Holdings Bylaws
    CBOE Holdings currently holds a direct ownership interest in the 
CBOE Exchanges. The Commission has previously approved the CBOE 
Holdings Charter and the CBOE Holdings Bylaws (collectively, the ``CBOE 
Holdings Organizational Documents''), attached as Exhibits 5B and 5C, 
respectively.\18\
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    \18\ See Securities Exchange Act Release No. 62158 (May 24, 
2010), 75 FR 30082 (May 28, 2010) (SR-CBOE-2008-88). The CBOE 
Organizational Documents have been subsequently amended from time to 
time pursuant to proposed rule changes that were filed with the 
Commission for immediate effectiveness. See, e.g., Securities 
Exchange Act Release No. 76282 (October 27, 2015), 80 FR 67464 
(November 2, 2015) (SR-CBOE-2015-092).
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    In connection with the Transaction, upon the Closing, CBOE Holdings 
will become the indirect owner (through CBOE V and Direct Edge) of the 
Exchange and EDGX and the indirect owner (through CBOE V and BGM 
Holdings) of BZX, BYX and Bats Trading (and certain other subsidiaries 
not registered with the Commission in any capacity).
    The CBOE Holdings Organizational Documents include various 
provisions relating to any ``Regulated Securities Exchange 
Subsidiary,'' which is defined as any national securities exchange 
controlled, directly or indirectly, by CBOE Holdings. Upon the Closing, 
the Exchange will be covered by the definition of Regulated Securities 
Exchange Subsidiary for purposes of the CBOE Holdings Organizational 
Documents. As a result, no amendments to the CBOE Holdings 
Organizational Documents will be necessary to reflect CBOE Holdings' 
indirect ownership of the Exchange.
    The Exchange believes that the CBOE Holdings Organizational 
Documents will protect and maintain the integrity of the self-
regulatory functions of the Exchange and facilitate the ability of the 
Exchange and the Commission to carry out their regulatory and oversight 
obligations under the Act, as the CBOE Organizational Documents do with 
respect to the CBOE Exchanges.
    In addition, the CBOE Organizational Documents contain provisions, 
including those with respect to the following, that are similar to 
those contained in the BGM Charter and BGM's Amended and Restated 
Bylaws (the ``BGM Bylaws''), which the Commission has previously found 
to be consistent with the Act: \19\
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    \19\ See Securities Exchange Act Release No. 77464 (March 29, 
2016), 81 FR 19252 (April 4, 2016) (File Nos. SR-BATS-2016-10, SR-
BYX-2016-02, SR-EDGX-2016-04, and SR-EDGA-2016-01).
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     Ownership and Voting Limitations. Similar to the BGM 
Voting Limitation and the BGM Ownership Limitation contained in the BGM 
Charter, the CBOE Holdings Charter limits the extent of ownership and 
voting rights which certain persons may possess or exercise.\20\ Like 
the BGM Charter, the CBOE Holdings Charter similarly prohibits any 
Person,\21\ together with its Related Persons,\22\ from exercising 
voting rights with respect to more than 20 percent of the then 
outstanding votes entitled to be cast on such matter.\23\ However, with 
respect to ownership limitations, the CBOE Holdings Charter contains a 
more stringent threshold than contained in the BGM Charter. Under the 
CBOE Holdings Charter, no Person, together with its Related Persons, is 
permitted at any time to beneficially own directly or indirectly shares 
of stock of CBOE Holdings representing in the aggregate more than 20 
percent of the then outstanding shares of stock of CBOE Holdings.\24\ 
In contrast, the BGM Ownership Limitation only applies a 20 percent 
threshold to any Exchange Member together with its Related Persons, 
while applying a 40 percent threshold to any other Person together with 
its Related Persons. As a result, the CBOE Holdings Charter should be 
at least as effective as the BGM Charter at preventing any stockholder 
from exercising undue control over the operation of the Exchange.
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    \20\ Compare CBOE Holdings Charter, Art. SIXTH with BGM Charter, 
Art. FIFTH.
    \21\ ``Person'' mean an individual, partnership (general or 
limited), joint stock company, corporation, limited liability 
company, trust or unincorporated organization, or any governmental 
entity or agency or political subdivision thereof. See CBOE Holdings 
Charter, Art. FIFTH, para. (a)(iv).
    \22\ ``Related Person'' is defined in the CBOE Holdings Charter 
in a manner substantially the same as it is defined in the BGM 
Charter. See supra note 9; CBOE Holdings Charter, Art. FIFTH, para. 
(a)(vi).
    \23\ See CBOE Holdings Charter, Art. SIXTH, para. (a).
    \24\ See CBOE Holdings Charter, Art. SIXTH, para. (b).
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     Independence and Non-Interference. Similar to provisions 
contained in the BGM Bylaws, the CBOE Holdings Charter provides that 
for so long as CBOE Holdings controls, directly or indirectly, a 
Regulated Securities Exchange Subsidiary, each officer, director and 
employee of CBOE Holdings must give due regard to the preservation of 
the independence of the self-regulatory function of the Regulated 
Securities Exchange Subsidiaries and may not take any actions that he 
or she knows or reasonably should have known would interfere with the 
effectuation of any decisions by the board of directors of any 
Regulated Securities Exchange Subsidiary relating to such Regulated 
Securities Exchange Subsidiary's regulatory functions (including 
disciplinary matters) or that would adversely affect the ability of the 
Regulated Securities Exchange Subsidiary to carry out such Regulated 
Securities Exchange Subsidiary's responsibilities under the Act.\25\
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    \25\ Compare CBOE Holdings Charter, Art. SIXTEENTH, para. (c) 
with BGM Bylaws, Section 12.01.
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     Confidentiality. Similar to provisions contained in the 
BGM Bylaws, the CBOE Holdings Charter provides that, to the fullest 
extent permitted by applicable law, all confidential information 
pertaining to the self-regulatory function of Regulated Securities 
Exchange Subsidiaries contained in the books and records of any 
Regulated Securities Exchange Subsidiary that shall come into the 
possession of the CBOE Holdings must be retained in confidence by CBOE 
Holdings and its officers, directors, employees and agents and must not 
be used for any commercial purposes.\26\
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    \26\ Compare CBOE Holdings Charter, Art. FIFTEENTH with BGM 
Bylaws, Section 12.02.
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     Books and Records. Similar to provisions contained in the 
BGM Bylaws, the CBOE Holdings Charter provides that, for so long as 
CBOE Holdings directly or indirectly controls any Regulated Securities 
Exchange Subsidiary, the books, records, premises, officers, directors 
and employees of CBOE Holdings shall be deemed to be the books, 
records, premises, officers, directors and employees of the Regulated 
Securities Exchange Subsidiary for purposes of and subject to oversight 
pursuant to the Act, but only to the extent that such books, records, 
premises, officers, directors and employees of the Corporation relate 
to the business of such Regulated Securities Exchange Subsidiary.\27\
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    \27\ Compare CBOE Holdings Charter, Art. FIFTEENTH with BGM 
Bylaws, Section 12.03.
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     Compliance with Securities Laws; Cooperation with the 
Commission. Similar to provisions contained in the BGM Bylaws, the CBOE 
Holdings Charter provides that CBOE Holdings shall comply with the 
federal securities laws and the rules and regulations thereunder and 
shall cooperate with the Commission, and each Regulated Securities 
Exchange Subsidiary pursuant to and to the extent of its regulatory 
authority, and shall take reasonable steps necessary to cause its 
agents to cooperate with the Commission and, where applicable, the

[[Page 80150]]

Regulated Securities Exchange Subsidiaries pursuant to their regulatory 
authority, with respect to such agents' activities related to the 
Regulated Securities Exchange Subsidiaries.\28\
---------------------------------------------------------------------------

    \28\ Compare CBOE Holdings Charter, Art. SIXTEENTH, para. (a) 
with BGM Bylaws, Section 12.04.
---------------------------------------------------------------------------

     Consent to Jurisdiction. Similar to provisions contained 
in the BGM Bylaws, the CBOE Holdings Charter provides that CBOE 
Holdings, its directors, officers, agents and employees, irrevocably 
submit to the jurisdiction of the U.S. federal courts, the Commission, 
and the Regulated Securities Exchange Subsidiaries, for the purposes of 
any suit, action or proceeding pursuant to U.S. federal securities laws 
or the rules or regulations thereunder, commenced or initiated by the 
Commission arising out of, or relating to, the Regulated Securities 
Exchange Subsidiaries' activities.\29\
---------------------------------------------------------------------------

    \29\ Compare CBOE Holdings Charter, Art. FOURTEENTH with BGM 
Bylaws, Section 12.05.
---------------------------------------------------------------------------

     Amendments. Similar to provisions contained in the BGM 
Charter and BGM Bylaws, the CBOE Organizational Documents provide that 
for so long as CBOE Holdings controls, directly or indirectly, 
Regulated Securities Exchange, before any amendment to or repeal of the 
CBOE Holdings Charter or CBOE Holdings Bylaws may be effective, such 
amendment or repeal must be submitted to the board of directors of each 
such exchange, and if the amendment or repeal is required to be filed 
with, or filed with and approved by the Commission, then such change 
shall not be effective until filed with, or filed with and approved by, 
the Commission, as the case may be.\30\
---------------------------------------------------------------------------

    \30\ Compare CBOE Holdings Charter, Arts. ELEVENTH, TWELFTH and 
CBOE Holdings Bylaws, Section 10.2 with BGM Charter, Art. FOURTEENTH 
and BGM Bylaws, Article XI.
---------------------------------------------------------------------------

    As stated above, the Exchange believes that the foregoing 
provisions will assist the Exchange in fulfilling its self-regulatory 
obligations and in administering and complying with the requirements of 
the Act.
6. CBOE V Certificate and CBOE V Operating Agreement
    Effective as of the Closing of the Transaction, CBOE V will hold 
direct ownership of (i) Direct Edge, which will continue to hold direct 
ownership of the Exchange and EDGX and (ii) BGM Holdings, which will 
continue to hold direct ownership of BZX, BYX and Bats Trading (and 
certain other subsidiaries not registered with the Commission in any 
capacity). However, unlike BGM currently, CBOE V will not be the 
ultimate holding company under the post-Closing corporate structure, 
but rather will be an intermediate holding company owned by CBOE 
Holdings. The Exchange believes that the CBOE V Operating Agreement 
contains provisions relating to its indirect ownership of one or more 
national securities exchanges, including such exchanges' regulatory 
functions and Commission oversight, that are appropriate for an 
intermediate holding company in the ownership chain of a national 
securities exchange. Many of the provisions of the CBOE V Operating 
Agreement relating to these matters are similar to the organizational 
documents of Direct Edge, which currently is, and following the 
Subsequent Merger will be, similarly situated as an intermediate 
holding company of the Exchange. The Commission has previously found 
the Direct Edge organizational documents to be consistent with the 
Act.\31\
---------------------------------------------------------------------------

    \31\ See Securities Exchange Act Release No. 71449 (January 30, 
2014), 79 FR 6961 (February 5, 2014) (SR-EDGA-2013-34; SR-EDGX-2013-
43).
---------------------------------------------------------------------------

    Although CBOE V will not carry out any regulatory 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 CBOE V 
Operating Agreement therefore includes 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) \32\ and 19(g) \33\ of the Act, and 
facilitate the ability of each Bats Exchange and the Commission to 
fulfill their respective regulatory and oversight obligations under the 
Act.
---------------------------------------------------------------------------

    \32\ 15 U.S.C. 78f(b).
    \33\ 15 U.S.C. 78s(g).
---------------------------------------------------------------------------

a. CBOE V Certificate of Formation
    The CBOE V Certificate, attached as Exhibit 5D, includes the 
following provisions required under Delaware law: (i) the full name of 
CBOE V as ``CBOE V, LLC'', and (ii) the name and address of CBOE V's 
registered office in the State of Delaware and the name of CBOE V's 
registered agent at such address.\34\ In addition, the CBOE V 
Certificate contains a provision providing that CBOE V shall indemnify 
members of its board of directors and certain other persons, subject to 
certain conditions.
---------------------------------------------------------------------------

    \34\ Delaware Limited Liability Company Act Sec.  18-201.
---------------------------------------------------------------------------

    As the Exchange believes is customary for limited liability 
companies formed in the State of Delaware, other substantive provisions 
governing the ownership, operation and management of CBOE V are set 
forth in the CBOE V Operating Agreement, discussed below.
b. CBOE V Operating Agreement
    With respect to ownership and control of CBOE V, the CBOE V 
Operating Agreement, attached as Exhibit 5E, specifically provides that 
CBOE V's sole member is CBOE Holdings, until the CBOE V Operating 
Agreement is amended (subject to Commission approval, as described 
below).\35\ Further, for so long as CBOE V controls, directly or 
indirectly, a subsidiary that is registered with the Commission as a 
national securities exchange (an ``Exchange Subsidiary''), CBOE 
Holdings may not sell, assign, transfer, convey, gift, exchange or 
otherwise dispose of any or all of its member interest in CBOE V, 
except pursuant to an amendment to the CBOE V Operating Agreement that 
is filed with and approved by the Commission.\36\ These restrictions 
are designed to ensure that any change to the ownership or control of 
any Exchange Subsidiary, including without limitation the Bats 
Exchanges, may only occur through a change in the ownership or control 
of CBOE Holdings. As such, any purported change of such ownership or 
control (unless pursuant to a Commission-approved change of ownership 
of CBOE V) would need to comply with the CBOE Holdings Charter and CBOE 
Holdings Bylaws, including the ownership and voting limitations 
discussed above (or a Commission-approved waiver therefrom).
---------------------------------------------------------------------------

    \35\ CBOE V Operating Agreement, Section 1.1.
    \36\ CBOE V Operating Agreement, Section 5.1.
---------------------------------------------------------------------------

    The CBOE V Operating Agreement also contains several provisions 
designed to protect the independence of the self-regulatory functions 
of the Bats Exchanges. The CBOE V Operating Agreement requires that, 
for so long as CBOE V, directly or indirectly, controls any Exchange 
Subsidiary, CBOE Holdings, as the sole member of CBOE V, and officers, 
employees and agents of CBOE V must give due regard to the preservation 
of independence of the self-regulatory functions of such Exchange 
Subsidiary, as well as to its obligations to investors and the general 
public, and not interfere with the effectuation of any decisions by the 
board of directors of an Exchange Subsidiary relating to its regulatory 
functions (including disciplinary matters) or which would interfere 
with the ability of such Exchange Subsidiary

[[Page 80151]]

to carry out its responsibilities under the Act.\37\
---------------------------------------------------------------------------

    \37\ See CBOE V Operating Agreement, Section 10.1(a).
---------------------------------------------------------------------------

    The CBOE V Operating Agreement also would require that CBOE V 
comply with the U.S. federal securities laws and rules and regulations 
thereunder and cooperate with the Commission and each Exchange 
Subsidiary, as applicable, pursuant to and to the extent of their 
respective regulatory authority.\38\ Further, CBOE V's 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) cooperate with the Commission and each Exchange 
Subsidiary in respect of the Commission's oversight responsibilities 
regarding such Exchange Subsidiary and the self-regulatory functions 
and responsibilities of the Exchange Subsidiaries, and CBOE V will take 
reasonable steps to cause its officers, employees and agents to so 
cooperate.\39\
---------------------------------------------------------------------------

    \38\ See CBOE V Operating Agreement, Section 10.2(a).
    \39\ Id.
---------------------------------------------------------------------------

    Furthermore, to the fullest extent permitted by law, CBOE V 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 Exchange Subsidiary, 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 Subsidiary.\40\
---------------------------------------------------------------------------

    \40\ See CBOE V Operating Agreement, Section 10.3(a).
---------------------------------------------------------------------------

    The proposed CBOE V Operating Agreement also contains a number of 
provisions designed to ensure that the Exchange will have sufficient 
access to the books and records of CBOE V as they relate to any 
Exchange Subsidiary. Pursuant to the CBOE V Operating Agreement, to the 
extent they are related to the operation or administration of an 
Exchange Subsidiary, the books, records, premises, officers, agents, 
and employees of CBOE V are deemed to be the books, records, premises, 
officers, agents and employees of such Exchange Subsidiary for the 
purposes of, and subject to oversight pursuant to, the Act.\41\ In 
addition, for as long as CBOE V controls, directly or indirectly, an 
Exchange Subsidiary, CBOE V's books and records shall be subject at all 
times to inspection and copying by the Commission and the applicable 
Exchange Subsidiary, provided that such books and records are related 
to the operation or administration of an Exchange Subsidiary.\42\
---------------------------------------------------------------------------

    \41\ See CBOE V Operating Agreement, Section 8.4(b).
    \42\ Id.
---------------------------------------------------------------------------

    The proposed CBOE V Operating Agreement also provides that, to the 
fullest extent permitted by law, all books and records of any Exchange 
Subsidiary reflecting confidential information pertaining to the self-
regulatory function of such Exchange Subsidiary (including disciplinary 
matters, trading data, trading practices and audit information) that 
comes into the possession of CBOE V, shall be retained in confidence by 
CBOE V, CBOE V's officers, employees and agents and CBOE Holdings, and 
not used for any non-regulatory purposes.\43\ The proposed CBOE V 
Operating Agreement provides, however, that the foregoing shall not 
limit or impede the rights of the Commission or an Exchange Subsidiary 
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 CBOE Holdings or any of CBOE V's 
officers, employees or agents to disclose such confidential information 
to the Commission or an Exchange Subsidiary.\44\
---------------------------------------------------------------------------

    \43\ See CBOE V Operating Agreement, Section 8.4(a).
    \44\ Id.
---------------------------------------------------------------------------

    In addition, the CBOE V Operating Agreement provides that for so 
long as CBOE V controls, directly or indirectly, any Exchange 
Subsidiary, before any amendment to or repeal of any provision of the 
CBOE V Operating Agreement will be effective, those changes must be 
submitted to the board of directors of each Exchange Subsidiary, 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 \45\ 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.\46\
---------------------------------------------------------------------------

    \45\ 15 U.S.C. 78s.
    \46\ See CBOE V Operating Agreement, Section 11.2.
---------------------------------------------------------------------------

7. Direct Edge Operating Agreement
    The Direct Edge Operating Agreement currently provides that the 
sole member of Direct Edge is BGM. However, as a result of the 
Transaction, CBOE V will become the sole member of Direct Edge. The 
Exchange proposes to amend the Direct Edge Operating Agreement to 
reflect this change, as set forth in Exhibit 5F.
8. Bylaws of the Exchange
    In connection with the Transaction, the Exchange proposes to amend 
and restate its Fifth Amended and Restated Bylaws and adopt the amended 
Exchange Bylaws as its Sixth Amended and Restated Bylaws, attached as 
Exhibit 5G. Specifically, the Exchange proposes to (i) expand the 
prohibition contained in Section 2 of Article XI of the Exchange Bylaws 
and (ii) add a definition of ``Trading Permit Holder'' to Article I.
    Currently, Section 2 of Article XI of the Exchange Bylaws prohibits 
directors of BGM or Direct Edge 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). This provision refers to BGM and 
Direct Edge because they are currently the only direct and indirect 
owners of the Exchange. However, following the Transaction, the 
Exchange will be owned indirectly by CBOE V and CBOE Holdings (in 
addition to its direct ownership by Direct Edge). Therefore, the 
Exchange is proposing to remove the reference to BGM and insert 
references to CBOE V and CBOE Holdings, so that CBOE V and CBOE 
Holdings will both be covered by this prohibition. The Exchange 
believes that this amendment will protect the independence of the 
Exchange's self-regulatory activities.
    In addition, as noted above, the CBOE Holdings Charter currently 
prohibits certain persons from owning or exercising voting rights over 
certain percentages of ownership of CBOE Holdings. The CBOE Holdings 
Charter permits the board of directors of CBOE Holdings to waive the 
limitation on the exercise of voting rights in excess of 20 percent of 
the then outstanding votes entitled to be cast on such matter only if, 
among other things, ``for so long as [CBOE Holdings] directly or 
indirectly controls any Regulated Securities Exchange Subsidiary, 
neither such Person nor any of its Related Persons is a `Trading Permit 
Holder' (as defined in the Bylaws of any Regulated Securities Exchange 
Subsidiary as they may be amended from time to time).'' \47\
---------------------------------------------------------------------------

    \47\ See CBOE Holdings Charter, Art. SIXTH, para. (a)(ii)(C).
---------------------------------------------------------------------------

    The Exchange does not issue ``trading permits,'' but admits 
members. The Exchange believes the provisions of the CBOE Holdings 
Charter that refer to Trading Permit Holders of its Regulated 
Securities Exchange Subsidiaries should apply equally to members of the

[[Page 80152]]

Exchange once it becomes a Regulated Securities Exchange Subsidiary of 
CBOE Holdings. As a result, the Exchange proposes to add clause (ff) to 
Article I of the Exchange Bylaws, providing that ```Trading Permit 
Holder' shall have the same meaning as Exchange Member.'' This will 
ensure that the Exchange's members will be considered Trading Permit 
Holders of a Regulated Securities Exchange Subsidiary for purposes of 
the CBOE Holdings Charter.
9. Exchange Rules
a. 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 currently 
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 exchanges, BZX, BYX or EDGX, 
is not sufficient for purposes of eligibility for Exchange membership. 
The Exchange adopted this because the Bats Exchanges have historically 
not functioned as the designated examining authority for any of its 
members, and the Exchange wanted to be sure that any member would be 
appropriately supervised by another national securities association or 
national securities exchange that has the capacity to function as the 
member's designated examining authority.
    As a result of the Transaction, the Exchange will additionally 
become affiliated with the CBOE Exchanges. As with the Bats Exchanges, 
C2 does not currently serve as the designated examination authority for 
any of its members. CBOE, however, does act as the designated examining 
authority for certain of its members. Therefore, the Exchange proposes 
to amend Exchange Rule 2.3 to specify that a registered broker or 
dealer will be eligible for membership only if it is a member of a 
national securities association or national securities exchange other 
than or in addition to the following affiliates of the Exchange: BZX, 
BYX, EDGX and C2.
    In addition, to ensure there is no confusion with respect to the 
possibility that a broker or dealer could qualify for membership in the 
Exchange based solely on membership in CBOE Futures or any other 
national securities exchange notice-registered with the Commission 
pursuant to Section 6(g) of the Act \48\ that lists or trades security-
futures products, the Exchange proposes to also specify that 
eligibility for membership requires membership in a national securities 
association registered pursuant to Section 15A of the Act or a national 
securities exchange registered with the Commission pursuant to Section 
6(a) of the Act, so as to exclude a national securities exchange 
registered solely under Section 6(g) of the Act. The proposed 
amendments to Exchange Rule 2.3 are set forth in Exhibit 5H.
---------------------------------------------------------------------------

    \48\ 15 U.S.C. 78f(g).
---------------------------------------------------------------------------

b. Exchange Rule 2.10--Affiliation Between Exchange and a Member
    Exchange Rule 2.10 provides that, without prior approval of the 
Commission, neither the Exchange, nor any of its affiliates, shall 
directly or indirectly acquire or maintain an ownership interest in a 
member of the Exchange. This restriction is intended to address 
potential conflicts of interest that could result from affiliation 
between the Exchange and a member. Notwithstanding this general 
restriction, Exchange Rule 2.10 provides that it does not prohibit a 
member or its affiliate from acquiring or holding an equity interest in 
BGM that is permitted by the ownership and voting limitations contained 
in the BGM Charter and the BGM Bylaws. In addition, Exchange Rule 2.10 
states that it does not prohibit a member from being or becoming an 
affiliate of the Exchange, or an affiliate of any affiliate of the 
Exchange, solely by reason of such member or any officer, director, 
manager, managing member, partner or affiliate of such member being or 
becoming either (a) a director of the Exchange pursuant to the Bylaws 
of the Exchange, or (b) a director of the Exchange serving on the board 
of directors of BGM. The Exchange proposes to replace the references to 
BGM in Rule 2.10 with references to CBOE Holdings to reflect the fact 
that following the Transaction, CBOE Holdings will replace BGM as the 
ultimate parent holding company of the Exchange.
    Exchange Rule 2.10 also clarifies that it does not prohibit the 
Exchange from being an affiliate of its routing broker-dealer Direct 
Edge ECN LLC d/b/a DE Route (``DE Route'') or of EDGX, BZX, BYX, or 
Bats Trading, each of which are affiliated with the Exchange. The 
Exchange proposes to remove the reference to DE Route to reflect the 
fact that Bats Trading previously replaced DE Route as the Exchange's 
routing broker-dealer.\49\ The Exchange also proposes to add references 
to the CBOE Exchanges, as the CBOE Exchanges will become new affiliated 
exchanges following the Transaction. The proposed amendments to 
Exchange Rule 2.10 are set forth in Exhibit 5H.
---------------------------------------------------------------------------

    \49\ See Securities Exchange Act Release No. 71449 (January 30, 
2014), 79 FR 6961 (February 5, 2014) (SR-EDGA-2013-34; SR-EDGX-2013-
43).
---------------------------------------------------------------------------

c. Exchange Rule 2.12--Bats Trading, Inc. as Inbound Router
    Exchange Rule 2.12 provides that the Exchange, on behalf of BGM, 
shall establish and maintain procedures and internal controls 
reasonably designed to ensure that Bats Trading does not develop or 
implement changes to its systems on the basis of nonpublic information 
obtained as a result of its affiliation with the Exchange until such 
information is available generally to similarly situated members of the 
Exchange in connection with the provision of inbound order routing to 
the Exchange. The Exchange proposes to replace the reference to BGM 
with a reference to ``the holding company indirectly owning the 
Exchange and Bats Trading.'' This change would reflect the fact that 
BGM would no longer be the ultimate holding company of the Exchange 
following the Transaction and would also make this language consistent 
with the language used in Rule 2.12 of the BZX and BYX rulebooks. The 
proposed amendments to Exchange Rule 2.12 are set forth in Exhibit 5H.
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.\50\ In 
particular, the proposal is consistent with Section 6(b)(1) of the Act 
\51\ 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.
---------------------------------------------------------------------------

    \50\ 15 U.S.C. 78f(b).
    \51\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------

    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 
CBOE Holdings Charter and CBOE Holdings Bylaws, like the BGM Charter 
and BGM Bylaws, various provisions intended to protect and maintain the 
integrity of the self-

[[Page 80153]]

regulatory functions of the Exchange upon Closing. For example, the 
CBOE Holdings Charter, as described above, is drafted to preserve the 
independence of the Exchange's self-regulatory function and carry out 
its regulatory responsibilities under the Act. In addition, the CBOE 
Holdings Charter imposes limitations similar to the BGM Ownership 
Limitation 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.
    Moreover, notwithstanding the Proposed Rule Change, including the 
change to the indirect ownership 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 parent companies with respect to activities related to the 
Exchange.\52\ 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 companies and their directors, officers, employees and agents to 
the extent they are involved in the activities of the Exchange.
---------------------------------------------------------------------------

    \52\ See, e.g., CBOE Holdings Charter, Art. FOURTEENTH; CBOE V 
Operating Agreement, Section 10.3; Direct Edge Operating Agreement, 
Section 10.3.
---------------------------------------------------------------------------

    The Exchange also believes that the Proposed Rule Change furthers 
the objectives of Section 6(b)(5) of the Act \53\ 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.
---------------------------------------------------------------------------

    \53\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In addition, as discussed further in the Exchange's Statement on 
Burden on Competition below, the Exchange expects that the Transaction 
will foster further innovation while facilitating efficient, 
transparent and well-regulated markets for issuers and investors, 
removing impediments to, and perfecting the mechanism of a free and 
open market and a national market system. The Transaction will benefit 
investors and the securities market as a whole by, among other things, 
enhancing competition among securities venues and reducing 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 that the Exchange is 
proposing to the Exchange Rules are designed to reflect the prospective 
affiliation with CBOE Holdings and the CBOE Exchanges. The Exchange 
believes that the proposed change to its Rules is consistent with the 
requirements of the Act and the rules and regulations thereunder.

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 trading venues, as the Exchange believes that the 
Transaction will result in various synergies and efficiencies. For 
example, the Transaction will allow the Bats Exchanges and the CBOE 
Exchanges to utilize a single technology platform, which the Exchange 
expects will reduce Bats Exchanges' and the CBOE Exchanges' combined 
costs, creating the opportunity to further reduce costs to their 
respective members and other constituents. The potential use of a 
single technology platform may also reduce investors' costs of 
connecting to and using the Bats Exchanges and the CBOE Exchanges, 
including through the combination of data centers and market data 
services. Combining the expertise of the CBOE Exchanges' personnel with 
the expertise of the Bats Exchanges' personnel will also facilitate 
ongoing innovation, including through new product creation and platform 
improvements.
    The Exchange notes that the Bats Exchanges and the CBOE Exchanges 
generally operate with different business models, target different 
customer bases and primarily focus on different asset classes, limiting 
any concern that the Transaction could burden competition. Therefore, 
the Exchange expects that the Transaction will benefit investors, 
issuers, shareholders and the market as a whole. 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. These efficiencies will pass through to the benefit of 
investors and issuers, promoting further efficiencies, competition and 
capital formation, placing no burden on competition not necessary or 
appropriate in furtherance of the Act.
    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.\54\
---------------------------------------------------------------------------

    \54\ See, e.g., Securities Exchange Act Release Nos. 71375 
(January 23, 2014), 79 FR 4771 (January 29, 2014) (SR-BATS-2013-059; 
SR-BYX-2013-039); 66071 (December 29, 2011), 77 FR 521 (January 5, 
2012) (SR-CBOE-2011-107 and SR-NSX-2011-14); 58324 (August 7, 2008), 
73 FR 46936 (August 12, 2008) (SR-BSE-2008-02; SR-BSE-2008-23; SR-
BSE-2008-25; SR-BSECC-2008-01); 53382 (February 27, 2006), 71 FR 
11251 (March 6, 2006) (SR-NYSE-2005-77).
---------------------------------------------------------------------------

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

    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 Exchange consents, the Commission will: (a) by order approve 
or disapprove such 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:

[[Page 80154]]

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-BatsEDGA-2016-24 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-BatsEDGA-2016-24. 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-BatsEDGA-2016-24, and should 
be submitted on or before December 6, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\55\
---------------------------------------------------------------------------

    \55\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2016-27370 Filed 11-14-16; 8:45 am]
 BILLING CODE 8011-01-P



                                                  80146                      Federal Register / Vol. 81, No. 220 / Tuesday, November 15, 2016 / Notices

                                                  submissions. You should submit only                     Commission pursuant to Section 6(a) of                  concerning the purpose of and basis for
                                                  information that you wish to make                       the Act,3 and CBOE Futures Exchange,                    the proposed rule change and discussed
                                                  available publicly. All submissions                     LLC (‘‘CBOE Futures,’’ and together                     any comments it received on the
                                                  should refer to File Number SR–                         with CBOE and C2, the ‘‘CBOE                            proposed rule change. The text of these
                                                  NASDAQ–2016–148, and should be                          Exchanges’’), a national securities                     statements may be examined at the
                                                  submitted on or before December 6,                      exchange that lists or trades security-                 places specified in Item IV below. The
                                                  2016.                                                   futures products notice-registered with                 Exchange has prepared summaries, set
                                                    For the Commission, by the Division of                the Commission pursuant to Section                      forth in Sections A, B, and C below, of
                                                  Trading and Markets, pursuant to delegated              6(g) of the Act.4                                       the most significant parts of such
                                                  authority.46                                               Upon completion of the mergers                       statements.
                                                  Brent J. Fields,                                        described below that effectuate the
                                                                                                          Transaction (the ‘‘Closing’’), the                      A. Self-Regulatory Organization’s
                                                  Secretary.                                                                                                      Statement of the Purpose of, and the
                                                  [FR Doc. 2016–27364 Filed 11–14–16; 8:45 am]
                                                                                                          business of BGM will be carried on by
                                                                                                          CBOE V. CBOE V, rather than BGM, will                   Statutory Basis for, the Proposed Rule
                                                  BILLING CODE 8011–01–P
                                                                                                          be the direct parent company of Direct                  Change
                                                                                                          Edge LLC (‘‘Direct Edge’’), which is the                1. Purpose
                                                  SECURITIES AND EXCHANGE                                 direct parent company of the Exchange.
                                                                                                          As a result, CBOE Holdings will become                    The Exchange submits this Proposed
                                                  COMMISSION                                                                                                      Rule Change to seek the Commission’s
                                                                                                          the ultimate parent company of Direct
                                                  [Release No. 34–79265; File No. SR–                     Edge and of the Exchange.                               approval of the organizational and
                                                  BatsEDGA–2016–24]                                          To effectuate the Transaction, the                   governance documents of the Exchange
                                                                                                          Exchange seeks to obtain the                            and its current and proposed future
                                                  Self-Regulatory Organizations; Bats                     Commission’s approval of: (i) The                       parent companies, and related actions
                                                  EDGA Exchange, Inc.; Notice of Filing                   resolutions of BGM’s board of directors                 that are necessary in connection with
                                                  of a Proposed Rule Change in                            (the ‘‘BGM Board’’) waiving certain                     the Closing of the Transaction, as
                                                  Connection With the Proposed                            provisions of the Amended and Restated                  described below.
                                                  Corporate Transaction Involving Bats                    Certificate of Incorporation of BGM (the                  Other than as described herein and set
                                                  Global Markets, Inc. and CBOE                                                                                   forth in Exhibits 5A through 5H, the
                                                                                                          ‘‘BGM Charter’’) and making certain
                                                  Holdings, Inc.                                                                                                  Exchange will continue to conduct its
                                                                                                          related determinations regarding CBOE
                                                  November 8, 2016.                                       Holdings and the impact of the                          regulated activities (including operating
                                                     Pursuant to Section 19(b)(1) of the                  Transaction on the Exchange (the                        and regulating its market and members)
                                                  Securities Exchange Act of 1934 (the                    ‘‘Resolutions’’); (ii) the CBOE Holdings                in the manner currently conducted, and
                                                  ‘‘Act’’),1 and Rule 19b–4 thereunder,2                  Second Amended and Restated                             will not make any changes to its
                                                  notice is hereby given that on November                 Certificate of Incorporation (the ‘‘CBOE                regulated activities in connection with
                                                  2, 2016, Bats EDGA Exchange, Inc. (the                  Holdings Charter’’) and the CBOE                        the Transaction. Except as set forth in
                                                  ‘‘Exchange’’ or ‘‘EDGA’’) filed with the                Holdings Third Amended and Restated                     this Proposed Rule Change, the
                                                  Securities and Exchange Commission                      Bylaws (the ‘‘CBOE Holdings Bylaws’’);                  Exchange is not proposing any
                                                  (‘‘Commission’’) the proposed rule                      (iii) the Certificate of Formation of                   amendments to its trading and
                                                  change as described in Items I, II and III              CBOE V (the ‘‘CBOE V Certificate’’) and                 regulatory rules at this time. If the
                                                  below, which Items have been prepared                   the Limited Liability Company                           Exchange determines to make any such
                                                  by the Exchange. The Commission is                      Operating Agreement of CBOE V (the                      changes, it will seek the approval of the
                                                  publishing this notice to solicit                       ‘‘CBOE V Operating Agreement’’); (iv)                   Commission to the extent required by
                                                  comments on the proposed rule change                    the proposed amendments to the                          the Act, and the Commission’s rules
                                                  from interested persons.                                Amended and Restated Limited                            thereunder, and the Rules of the
                                                                                                          Liability Company Operating Agreement                   Exchange.
                                                  I. Self-Regulatory Organization’s
                                                                                                          of Direct Edge (the ‘‘Direct Edge                       1. Current Corporate Structures
                                                  Statement of the Terms of Substance of
                                                                                                          Operating Agreement’’); (v) the
                                                  the Proposed Rule Change                                                                                           The Exchange, Bats BZX Exchange,
                                                                                                          proposed amendments to the Fifth
                                                     The Exchange filed a proposed rule                   Amended and Restated Bylaws of the                      Inc. (‘‘BZX’’), Bats BYX Exchange, Inc.
                                                  change (the ‘‘Proposed Rule Change’’) in                Exchange (the ‘‘Exchange Bylaws’’); and                 (‘‘BYX’’) and Bats EDGX Exchange, Inc.
                                                  connection with the proposed corporate                  (vi) the proposed amendments to EDGA                    (‘‘EDGX,’’ and together with the
                                                  transaction (the ‘‘Transaction’’), as                   Rules 2.3, 2.10 and 2.12 (the ‘‘Exchange                Exchange, BZX and BYX, the ‘‘Bats
                                                  described in more detail below,                         Rules’’).                                               Exchanges’’) are each Delaware
                                                  involving its ultimate parent company,                     The text of the proposed rule change                 corporations that are national securities
                                                  Bats Global Markets, Inc. (‘‘BGM’’),                    is available at the Exchange’s Web site                 exchanges registered with the
                                                  CBOE Holdings, Inc. (‘‘CBOE                             at www.batstrading.com, at the                          Commission pursuant to Section 6(a) of
                                                  Holdings’’), and two wholly owned                       principal office of the Exchange, and at                the Act.5
                                                  subsidiaries of CBOE Holdings, CBOE                     the Commission’s Public Reference                          The Exchange and EDGX are each
                                                  Corporation and CBOE V, LLC (‘‘CBOE                     Room.                                                   direct, wholly owned subsidiaries of
                                                  V’’). CBOE Holdings is the parent                                                                               Direct Edge, a Delaware limited liability
                                                  company of Chicago Board Options                        II. Self-Regulatory Organization’s                      company that is a direct, wholly owned
                                                                                                          Statement of the Purpose of, and
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                                                  Exchange, Incorporated (‘‘CBOE’’) and                                                                           subsidiary of BGM. BZX and BYX are
                                                  C2 Options Exchange, Incorporated                       Statutory Basis for, the Proposed Rule                  direct, wholly owned subsidiaries of
                                                  (‘‘C2’’), each a national securities                    Change                                                  Bats Global Markets Holdings, Inc.
                                                  exchange registered with the                               In its filing with the Commission, the               (‘‘BGM Holdings’’), a Delaware
                                                                                                          Exchange included statements                            corporation that is a direct, wholly
                                                    46 17 CFR 200.30–3(a)(12).                                                                                    owned subsidiary of BGM. In addition
                                                    1 15 U.S.C. 78S(b)(1).                                  3 15   U.S.C. 78f(a).
                                                    2 17 CFR 240.19b–4.                                     4 15   U.S.C. 78f(g).                                   5 15   U.S.C. 78f(a).



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                                                                             Federal Register / Vol. 81, No. 220 / Tuesday, November 15, 2016 / Notices                                                       80147

                                                  to certain other subsidiaries not                       V will be the surviving company (the                     indirectly, of record or beneficially,
                                                  registered with the Commission in any                   ‘‘Subsequent Merger’’).                                  shares constituting more than 40
                                                  capacity, BGM Holdings also owns 100                       Upon the Closing, the Direct Edge                     percent of any class of its capital stock,
                                                  percent of the equity interest in Bats                  Operating Agreement, the Exchange                        and no Exchange Member, either alone
                                                  Trading, Inc. (‘‘Bats Trading’’), a                     Bylaws and the Exchange Rules will be                    or together with its Related Persons,
                                                  Delaware corporation that is a broker-                  amended to take into account the post-                   may own, directly or indirectly, of
                                                  dealer registered with the Commission                   Closing corporate structure, described                   record or beneficially, shares
                                                  that provides routing services outbound                 below.                                                   constituting more than 20 percent of any
                                                  from, and in certain instances inbound                  3. Post-Closing Corporate Structure                      class of its capital stock (collectively,
                                                  to, each Bats Exchange. BGM, a                                                                                   the ‘‘BGM Ownership Limitation’’); and
                                                  Delaware corporation, is a publicly                        As a result of the Transaction, BGM                   (ii) subject to certain exceptions, no
                                                  traded company listed on BZX.                           will cease to exist and the business of                  Person, either alone or together with its
                                                     CBOE Holdings, a Delaware                            BGM will be carried on by CBOE V,                        Related Persons, at any time, may,
                                                  corporation, is a publicly traded                       which is a wholly owned subsidiary of                    directly, indirectly or pursuant to any of
                                                  company listed on The NASDAQ Stock                      CBOE Holdings.6 CBOE V will own 100                      various arrangements, vote or cause the
                                                  Market. CBOE Holdings owns 100                          percent of the equity interest in Direct                 voting of shares or give any consent or
                                                  percent of the equity interest in the                   Edge and BGM Holdings. Direct Edge                       proxy with respect to shares
                                                                                                          will continue to own 100 percent of the                  representing more than 20 percent of the
                                                  CBOE Exchanges.
                                                                                                          equity interest in the Exchange and                      voting power of its then issued and
                                                     In contemplation of the Transaction,
                                                                                                          EDGX. BGM Holdings will continue to                      outstanding capital stock (the ‘‘BGM
                                                  CBOE Holdings formed two additional
                                                                                                          own 100 percent of the equity interest                   Voting Limitation’’).10 Purported
                                                  entities, CBOE Corporation, a Delaware
                                                                                                          in BZX, BYX, Bats Trading, and certain                   transfers that would result in a violation
                                                  corporation, and CBOE V, a Delaware                     other subsidiaries not registered with
                                                  limited liability company, each of                                                                               of the BGM Ownership Limitation are
                                                                                                          the Commission in any capacity.7
                                                  which are direct, wholly owned                                                                                   not recognized by BGM to the extent of
                                                  subsidiaries of CBOE Holdings. Each of                  4. Ownership and Voting Limitations of                   any ownership in excess of the BGM
                                                  CBOE Corporation and CBOE V                             BGM; Resolutions                                         Ownership Limitation, and purported
                                                  currently have no material assets or                       The BGM Charter provides that (i) no                  voting or voting arrangements in
                                                  conduct any operations.                                 Person,8 either alone or together with its               violation of the BGM Voting Limitation
                                                                                                          Related Persons,9 may own, directly or                   are not honored by BGM to the extent
                                                  2. The Transaction                                                                                               of any voting in excess of the
                                                     On September 25, 2016, BGM, CBOE                        6 In connection with the Transaction, CBOE            limitation.11
                                                  Holdings, CBOE Corporation and CBOE                     Holdings agreed in the Merger Agreement to take             However, the BGM Charter provides
                                                  V entered into an Agreement and Plan                    all requisite actions so, as of the Closing, the CBOE    that each of the BGM Ownership
                                                                                                          Holdings Board will include three individuals
                                                  of Merger (the ‘‘Merger Agreement’’).                   designated by BGM who (1) are serving as BGM
                                                                                                                                                                   Limitation and the BGM Voting
                                                  Pursuant to and subject to the terms of                 directors immediately prior to the Closing and (2)       Limitation may be waived (except with
                                                  the Merger Agreement, at the Closing,                   comply with the policies (including clarifications of    respect to Exchange Members and their
                                                  among other things:                                     the policies provided to BGM) of the Nominating          Related Persons) pursuant to a
                                                                                                          and Governance Committee of the CBOE Holdings
                                                     (i) CBOE Corporation will be merged                  Board as in effect on the date of the Merger
                                                                                                                                                                   resolution duly adopted by the BGM
                                                  with and into BGM, whereupon the                        Agreement and previously provided to BGM (each           Board if, in connection with taking such
                                                  separate existence of CBOE Corporation                  of whom will be appointed to the CBOE Holdings           action, the BGM Board states in such
                                                                                                          Board as of the Closing). The CBOE Holdings Board        resolution that it is the determination of
                                                  will cease and BGM will be the                          currently consists of 14 directors. The Exchange
                                                  surviving company (the ‘‘Merger’’);                     expects three current CBOE Holdings directors to         the BGM Board that the waiver:
                                                     (ii) by virtue of the Merger and                     resign effective prior to the Closing and the
                                                  without any action required on the part                 remaining CBOE Holdings directors to fill those          case of any Person that is a registered broker or
                                                                                                          vacancies with the three BGM directors designated        dealer that has been admitted to membership in any
                                                  of BGM, CBOE Corporation or any                         by BGM.                                                  of the Bats Exchanges (for purposes of this
                                                  holder of BGM or CBOE Corporation                          7 As described above, the Transaction will result     definition of ‘‘Related Person,’’ each such national
                                                  stock, each share of BGM common stock                   in a change of ownership of Bats Trading, which is       securities exchange shall be referred to generally as
                                                  (whether voting or non-voting) issued                   a member of the Financial Industry Regulatory            an ‘‘Exchange’’ and any member of such Exchange,
                                                                                                          Authority, Inc. (‘‘FINRA’’). The Exchange                an ‘‘Exchange Member’’), any Person that is
                                                  and outstanding (with the exception of                  understands that, pursuant to NASD Rule 1017,            associated with the Exchange Member (as
                                                  shares owned by CBOE Holdings, BGM                      Bats Trading is seeking approval for this change of      determined using the definition of ‘‘person
                                                  or any of their respective subsidiaries                 ownership from FINRA.                                    associated with a member’’ as defined under
                                                  and certain shares held by persons that                    8 The BGM Charter generally defines a ‘‘Person’’      Section 3(a)(21) of the Act); (v) in the case of a
                                                                                                          as a natural person, partnership, corporation,           Person that is a natural person and Exchange
                                                  are entitled to and properly demand                                                                              Member, any broker or dealer that is also an
                                                                                                          limited liability company, entity, government, or
                                                  appraisal rights) will be converted into                political subdivision, agency or instrumentality of      Exchange Member with which such Person is
                                                  the right to receive a particular number                a government. See BGM Charter, Art. FIFTH, para.         associated; (vi) in the case of a Person that is a
                                                  of shares of CBOE Holdings and/or cash,                 (a)(i).                                                  natural person, any relative or spouse of such
                                                                                                             9 The BGM Charter generally defines a ‘‘Related       Person, or any relative of such spouse who has the
                                                  at the election of the holder of such                                                                            same home as such Person or who is a director or
                                                                                                          Person’’ as, with respect to any Person, (i) any
                                                  share of BGM common stock (the                          ‘‘affiliate’’ of such Person (as defined in Rule 12b–    officer of BGM or any of its parents or subsidiaries;
                                                  ‘‘Merger Consideration’’), and each                     2 under the Act); (ii) any other Person with which       (vii) in the case of a Person that is an executive
                                                  share of CBOE Corporation issued and                    such first Person has any agreement, arrangement         officer (as defined under Rule 3b–7 under the Act)
                                                                                                          or understanding (whether or not in writing) to act      or a director of a company, corporation or similar
                                                  outstanding will be converted into one
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                                                                                                          together for the purpose of acquiring, voting,           entity, such company, corporation or entity, as
                                                  share of BGM, such that BGM will                        holding or disposing of shares of the capital stock      applicable; and (viii) in the case of a Person that
                                                  become a wholly owned subsidiary of                     of BGM; (iii) in the case of a Person that is a          is a general partner, managing member or manager
                                                  CBOE Holdings; and                                      company, corporation or similar entity, any              of a partnership or limited liability company, such
                                                                                                          executive officer (as defined under Rule 3b–7 under      partnership or limited liability company, as
                                                     (iii) immediately following the                                                                               applicable. See BGM Charter, Art. FIFTH, para.
                                                                                                          the Act) or director of such Person and, in the case
                                                  Merger, BGM will be merged with and                     of a Person that is a partnership or limited liability   (a)(ii).
                                                  into CBOE V, whereupon the separate                     company, any general partner, managing member or            10 See BGM Charter, Art. FIFTH, para. (b).

                                                  existence of BGM will cease and CBOE                    manager of such Person, as applicable; (iv) in the          11 See BGM Charter, Art. FIFTH, para. (d).




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                                                  80148                          Federal Register / Vol. 81, No. 220 / Tuesday, November 15, 2016 / Notices

                                                     • will not impair the ability of each                    Resolutions, attached as Exhibit 5A,                    impair the ability of any Bats Exchange
                                                  Bats Exchange to carry out its functions                    making certain determinations with                      to carry out its functions and
                                                  and responsibilities as an ‘‘exchange’’                     respect to CBOE Holdings and the                        responsibilities as an ‘‘exchange’’ under
                                                  under the Act and the rules and                             Transaction that are necessary to waive                 the Act and the rules and regulations
                                                  regulations promulgated thereunder;                         the BGM Ownership Limitation and                        promulgated thereunder, or the ability
                                                     • is otherwise in the best interests of                  BGM Voting Limitation. Specifically,                    of the Commission to enforce the Act
                                                  BGM, its stockholders, and each Bats                        the BGM Board determined that:                          and the rules and regulations
                                                  Exchange;                                                      • The acquisition of the proposed                    promulgated thereunder. The Bats
                                                     • will not impair the ability of the                     ownership by CBOE Holdings in BGM                       Exchanges will continue to operate and
                                                  Commission to enforce the Act and the                       will not impair the ability of each Bats                regulate their markets and members as
                                                  rules and regulations promulgated                           Exchange to carry out its functions and                 they have done prior to the Transaction.
                                                  thereunder; and                                             responsibilities as an ‘‘exchange’’ under               Thus, each Bats Exchange will continue
                                                     • shall not be effective until it is filed               the Act and the rules and regulations                   to enforce the Act, the Commission’s
                                                  with and approved by the                                    promulgated thereunder, is otherwise in                 rules thereunder, and each Exchange’s
                                                  Commission.12                                               the best interests of BGM, its                          own rules, in the manner it does today.
                                                     In granting such a waiver, the BGM                       stockholders and the Bats Exchanges,                    Further, the Commission will continue
                                                  Board has the discretion to impose on                       and will not impair the ability of the                  to have plenary regulatory authority
                                                  the Person and its Related Persons, such                    Commission to enforce the Act and the                   over the Bats Exchanges, as is currently
                                                  conditions and restrictions that it deems                   rules and regulations promulgated                       the case with these entities.
                                                  necessary, appropriate or desirable in                      thereunder;
                                                  furtherance of the objectives of the Act                                                                               The Exchange also notes that the
                                                                                                                 • the acquisition or exercise of the
                                                  and the rules and regulations                                                                                       Resolutions reflect the determination by
                                                                                                              proposed voting rights by CBOE
                                                  promulgated thereunder, and the                                                                                     the BGM Board that the Transaction and
                                                                                                              Holdings in BGM will not impair the
                                                  governance of each Bats Exchange.13                                                                                 CBOE Holdings’ resulting ownership
                                                                                                              ability of each Bats Exchange to carry
                                                     In addition, notwithstanding the                                                                                 and voting rights in BGM following the
                                                                                                              out its functions and responsibilities as
                                                  above, the BGM Charter provides 14 that                     an ‘‘exchange’’ under the Act and the                   Merger, and CBOE V’s ownership and
                                                  in any case where a Person, either alone                    rules and regulations promulgated                       voting rights following the Subsequent
                                                  or with its Related Persons, would own                      thereunder, is otherwise in the best                    Merger, are otherwise in the best
                                                  or vote more than the BGM Ownership                         interests of BGM, its stockholders and                  interests of BGM, its stockholders and
                                                  Limitation or BGM Voting Limitation,                        the Bats Exchanges, and will not impair                 the Bats Exchanges. The Bats Exchanges
                                                  respectively, upon consummation of                          the ability of the Commission to enforce                will be ultimately held by an entity,
                                                  any proposed sale, assignment or                            the Act and the rules and regulations                   CBOE Holdings, that already owns other
                                                  transfer of BGM’s capital stock, such a                     promulgated thereunder;                                 national securities exchanges and is
                                                  transaction will not become effective                          • neither CBOE Holdings nor any of                   subject to governance documents that
                                                  until the BGM Board determines, by                          its Related Persons is subject to                       similarly restrict concentration of
                                                  resolution, that such Person and its                        ‘‘statutory disqualification’’ within the               ownership and voting rights.
                                                  Related Persons are not subject to any                      meaning of Section 3(a)(39) of the Act; 16                 As described in more detail below,
                                                  ‘‘statutory disqualification,’’ as defined                  and                                                     the Exchange is also requesting approval
                                                  in Section 3(a)(39) of the Act.15                              • neither CBOE Holdings nor any of                   of the adoption of the CBOE Holdings
                                                     As described above, as a result of the                   its Related Persons is an Exchange                      Charter and the CBOE Holdings Bylaws.
                                                  Merger (and prior to its separate                           Member.17                                               The CBOE Holdings Charter includes a
                                                  existence ceasing as a result of the                           The Exchange has reviewed such                       number of provisions relating to the
                                                  Subsequent Merger), BGM will become                         Resolutions and requests that the                       Commission’s regulatory oversight that
                                                  a wholly owned subsidiary of CBOE                           Commission approve such Resolutions.                    have a similar effect as those in the
                                                  Holdings, such that CBOE Holdings will                      The Exchange believes that the                          BGM Charter, including the BGM
                                                  possess ownership and voting rights in                      Commission should approve the                           Ownership Limitation and the BGM
                                                  BGM in excess of the Ownership                              Resolutions, as the Transaction will not                Voting Limitation. Therefore,
                                                  Limitation and the Voting Limitation. In
                                                                                                                                                                      notwithstanding the Resolutions and the
                                                  addition, as a result of the Subsequent                       16 Id.
                                                                                                                                                                      Transaction, provisions similar (and, in
                                                  Merger, BGM will merge with and into                          17 In addition, the Resolutions contain a
                                                                                                                                                                      some cases, more stringent) to the BGM
                                                  CBOE V, terminating the BGM Charter                         determination that the execution and delivery of the
                                                                                                              Merger Agreement by CBOE Holdings constituted           Ownership Limitation and the BGM
                                                  and becoming an entity whose
                                                                                                              notice of CBOE Holdings’ intention to acquire           Voting Limitation will remain in place
                                                  ownership and voting is held entirely by                    ownership and voting rights in excess of the BGM        with respect to potential future
                                                  CBOE Holdings, in excess of the BGM                         Ownership Limitation and BGM Voting Limitation,         transactions involving the ultimate
                                                  Ownership Limitation and the BGM                            respectively, in writing and not less than 45 days
                                                                                                              before the Closing. See BGM Charter, Art. FIFTH,        parent company of the Bats Exchanges.
                                                  Voting Limitation that would otherwise
                                                                                                              para. (b)(iv). The Exchange notes that Art. FIFTH,      This means that the Exchange
                                                  apply.                                                      para. (c)(i) of the BGM Charter further requires that
                                                     The BGM Board therefore determined                                                                               ownership structure will continue to
                                                                                                              any Person that, either alone or together with its
                                                  that in order to effect the Transaction,                    Related Persons, owns, directly or indirectly
                                                                                                                                                                      provide the Commission with
                                                  a waiver of the BGM Ownership                               (whether by acquisition or by a change in the           appropriate oversight tools to ensure
                                                  Limitation and the BGM Voting                               number of shares outstanding), of record or             that the Commission will have the
                                                                                                              beneficially, five percent or more of the then          ability to enforce the Act with respect to
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                                                  Limitation with respect to CBOE                             outstanding shares of capital stock of BGM must
                                                  Holdings would be required. To do so,                       immediately upon acquiring knowledge of its
                                                                                                                                                                      the Exchange, its direct and indirect
                                                  the BGM Board adopted the                                   ownership of five percent or more give written          parent companies, and its directors,
                                                                                                              notice of such ownership to the BGM Board. The          officers, employees and agents to the
                                                    12 See
                                                                                                              Merger Agreement provides that the Merger               extent they are involved in the activities
                                                              BGM Charter, Art. FIFTH, para. (b)(ii)(B).      Agreement constitutes such notice with respect to
                                                    13 Id.
                                                                                                              certain voting agreements entered into concurrently
                                                                                                                                                                      of the Exchange, and protect the
                                                    14 See    BGM Charter, Art. FIFTH, para. (b)(iii).        with the Merger Agreement. See Merger Agreement,        independence of the Exchange’s self-
                                                    15 15    U.S.C. 78c(a)(39).                               Section 5.21.                                           regulatory activities.


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                                                                             Federal Register / Vol. 81, No. 220 / Tuesday, November 15, 2016 / Notices                                                   80149

                                                    The Exchange therefore requests that                    • Ownership and Voting Limitations.                    effectuation of any decisions by the
                                                  the Commission approve the                              Similar to the BGM Voting Limitation                     board of directors of any Regulated
                                                  Resolutions, attached as Exhibit 5A.                    and the BGM Ownership Limitation                         Securities Exchange Subsidiary relating
                                                                                                          contained in the BGM Charter, the                        to such Regulated Securities Exchange
                                                  5. CBOE Holdings Charter and CBOE
                                                                                                          CBOE Holdings Charter limits the extent                  Subsidiary’s regulatory functions
                                                  Holdings Bylaws
                                                                                                          of ownership and voting rights which                     (including disciplinary matters) or that
                                                     CBOE Holdings currently holds a                      certain persons may possess or                           would adversely affect the ability of the
                                                  direct ownership interest in the CBOE                   exercise.20 Like the BGM Charter, the                    Regulated Securities Exchange
                                                  Exchanges. The Commission has                           CBOE Holdings Charter similarly                          Subsidiary to carry out such Regulated
                                                  previously approved the CBOE Holdings                   prohibits any Person,21 together with its                Securities Exchange Subsidiary’s
                                                  Charter and the CBOE Holdings Bylaws                    Related Persons,22 from exercising                       responsibilities under the Act.25
                                                  (collectively, the ‘‘CBOE Holdings                      voting rights with respect to more than                     • Confidentiality. Similar to
                                                  Organizational Documents’’), attached                   20 percent of the then outstanding votes                 provisions contained in the BGM
                                                  as Exhibits 5B and 5C, respectively.18                  entitled to be cast on such matter.23                    Bylaws, the CBOE Holdings Charter
                                                     In connection with the Transaction,                  However, with respect to ownership                       provides that, to the fullest extent
                                                  upon the Closing, CBOE Holdings will                    limitations, the CBOE Holdings Charter                   permitted by applicable law, all
                                                  become the indirect owner (through                      contains a more stringent threshold than                 confidential information pertaining to
                                                  CBOE V and Direct Edge) of the                          contained in the BGM Charter. Under                      the self-regulatory function of Regulated
                                                  Exchange and EDGX and the indirect                      the CBOE Holdings Charter, no Person,                    Securities Exchange Subsidiaries
                                                  owner (through CBOE V and BGM                           together with its Related Persons, is                    contained in the books and records of
                                                  Holdings) of BZX, BYX and Bats                          permitted at any time to beneficially                    any Regulated Securities Exchange
                                                  Trading (and certain other subsidiaries                 own directly or indirectly shares of                     Subsidiary that shall come into the
                                                  not registered with the Commission in                   stock of CBOE Holdings representing in                   possession of the CBOE Holdings must
                                                  any capacity).                                          the aggregate more than 20 percent of                    be retained in confidence by CBOE
                                                     The CBOE Holdings Organizational                     the then outstanding shares of stock of                  Holdings and its officers, directors,
                                                  Documents include various provisions                    CBOE Holdings.24 In contrast, the BGM                    employees and agents and must not be
                                                  relating to any ‘‘Regulated Securities                  Ownership Limitation only applies a 20                   used for any commercial purposes.26
                                                  Exchange Subsidiary,’’ which is defined                 percent threshold to any Exchange                           • Books and Records. Similar to
                                                  as any national securities exchange                     Member together with its Related                         provisions contained in the BGM
                                                  controlled, directly or indirectly, by                  Persons, while applying a 40 percent                     Bylaws, the CBOE Holdings Charter
                                                  CBOE Holdings. Upon the Closing, the                    threshold to any other Person together                   provides that, for so long as CBOE
                                                  Exchange will be covered by the                         with its Related Persons. As a result, the               Holdings directly or indirectly controls
                                                  definition of Regulated Securities                      CBOE Holdings Charter should be at                       any Regulated Securities Exchange
                                                  Exchange Subsidiary for purposes of the                 least as effective as the BGM Charter at                 Subsidiary, the books, records,
                                                  CBOE Holdings Organizational                            preventing any stockholder from                          premises, officers, directors and
                                                  Documents. As a result, no amendments                   exercising undue control over the                        employees of CBOE Holdings shall be
                                                  to the CBOE Holdings Organizational                     operation of the Exchange.                               deemed to be the books, records,
                                                  Documents will be necessary to reflect                    • Independence and Non-                                premises, officers, directors and
                                                  CBOE Holdings’ indirect ownership of                    Interference. Similar to provisions                      employees of the Regulated Securities
                                                  the Exchange.                                           contained in the BGM Bylaws, the                         Exchange Subsidiary for purposes of
                                                     The Exchange believes that the CBOE                  CBOE Holdings Charter provides that                      and subject to oversight pursuant to the
                                                  Holdings Organizational Documents                       for so long as CBOE Holdings controls,                   Act, but only to the extent that such
                                                  will protect and maintain the integrity                 directly or indirectly, a Regulated                      books, records, premises, officers,
                                                  of the self-regulatory functions of the                 Securities Exchange Subsidiary, each                     directors and employees of the
                                                  Exchange and facilitate the ability of the              officer, director and employee of CBOE                   Corporation relate to the business of
                                                  Exchange and the Commission to carry                    Holdings must give due regard to the                     such Regulated Securities Exchange
                                                  out their regulatory and oversight                      preservation of the independence of the                  Subsidiary.27
                                                  obligations under the Act, as the CBOE                  self-regulatory function of the Regulated                   • Compliance with Securities Laws;
                                                  Organizational Documents do with                        Securities Exchange Subsidiaries and                     Cooperation with the Commission.
                                                  respect to the CBOE Exchanges.                          may not take any actions that he or she                  Similar to provisions contained in the
                                                     In addition, the CBOE Organizational                 knows or reasonably should have                          BGM Bylaws, the CBOE Holdings
                                                  Documents contain provisions,                           known would interfere with the                           Charter provides that CBOE Holdings
                                                  including those with respect to the                                                                              shall comply with the federal securities
                                                  following, that are similar to those                    Nos. SR–BATS–2016–10, SR–BYX–2016–02, SR–                laws and the rules and regulations
                                                  contained in the BGM Charter and                        EDGX–2016–04, and SR–EDGA–2016–01).                      thereunder and shall cooperate with the
                                                                                                             20 Compare CBOE Holdings Charter, Art. SIXTH
                                                  BGM’s Amended and Restated Bylaws                                                                                Commission, and each Regulated
                                                                                                          with BGM Charter, Art. FIFTH.
                                                  (the ‘‘BGM Bylaws’’), which the                            21 ‘‘Person’’ mean an individual, partnership
                                                                                                                                                                   Securities Exchange Subsidiary
                                                  Commission has previously found to be                   (general or limited), joint stock company,               pursuant to and to the extent of its
                                                  consistent with the Act: 19                             corporation, limited liability company, trust or         regulatory authority, and shall take
                                                                                                          unincorporated organization, or any governmental         reasonable steps necessary to cause its
                                                     18 See Securities Exchange Act Release No. 62158     entity or agency or political subdivision thereof. See
                                                                                                          CBOE Holdings Charter, Art. FIFTH, para. (a)(iv).
                                                                                                                                                                   agents to cooperate with the
                                                  (May 24, 2010), 75 FR 30082 (May 28, 2010) (SR–
                                                                                                                                                                   Commission and, where applicable, the
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                                                                                                             22 ‘‘Related Person’’ is defined in the CBOE
                                                  CBOE–2008–88). The CBOE Organizational
                                                  Documents have been subsequently amended from           Holdings Charter in a manner substantially the
                                                  time to time pursuant to proposed rule changes that     same as it is defined in the BGM Charter. See supra        25 Compare CBOE Holdings Charter, Art.

                                                  were filed with the Commission for immediate            note 9; CBOE Holdings Charter, Art. FIFTH, para.         SIXTEENTH, para. (c) with BGM Bylaws, Section
                                                  effectiveness. See, e.g., Securities Exchange Act       (a)(vi).                                                 12.01.
                                                  Release No. 76282 (October 27, 2015), 80 FR 67464          23 See CBOE Holdings Charter, Art. SIXTH, para.         26 Compare CBOE Holdings Charter, Art.

                                                  (November 2, 2015) (SR–CBOE–2015–092).                  (a).                                                     FIFTEENTH with BGM Bylaws, Section 12.02.
                                                     19 See Securities Exchange Act Release No. 77464        24 See CBOE Holdings Charter, Art. SIXTH, para.         27 Compare CBOE Holdings Charter, Art.

                                                  (March 29, 2016), 81 FR 19252 (April 4, 2016) (File     (b).                                                     FIFTEENTH with BGM Bylaws, Section 12.03.



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                                                  80150                      Federal Register / Vol. 81, No. 220 / Tuesday, November 15, 2016 / Notices

                                                  Regulated Securities Exchange                           ultimate holding company under the                    companies formed in the State of
                                                  Subsidiaries pursuant to their regulatory               post-Closing corporate structure, but                 Delaware, other substantive provisions
                                                  authority, with respect to such agents’                 rather will be an intermediate holding                governing the ownership, operation and
                                                  activities related to the Regulated                     company owned by CBOE Holdings.                       management of CBOE V are set forth in
                                                  Securities Exchange Subsidiaries.28                     The Exchange believes that the CBOE V                 the CBOE V Operating Agreement,
                                                    • Consent to Jurisdiction. Similar to                 Operating Agreement contains                          discussed below.
                                                  provisions contained in the BGM                         provisions relating to its indirect
                                                                                                                                                                b. CBOE V Operating Agreement
                                                  Bylaws, the CBOE Holdings Charter                       ownership of one or more national
                                                  provides that CBOE Holdings, its                        securities exchanges, including such                     With respect to ownership and
                                                  directors, officers, agents and                         exchanges’ regulatory functions and                   control of CBOE V, the CBOE V
                                                  employees, irrevocably submit to the                    Commission oversight, that are                        Operating Agreement, attached as
                                                  jurisdiction of the U.S. federal courts,                appropriate for an intermediate holding               Exhibit 5E, specifically provides that
                                                  the Commission, and the Regulated                       company in the ownership chain of a                   CBOE V’s sole member is CBOE
                                                  Securities Exchange Subsidiaries, for                   national securities exchange. Many of                 Holdings, until the CBOE V Operating
                                                  the purposes of any suit, action or                     the provisions of the CBOE V Operating                Agreement is amended (subject to
                                                  proceeding pursuant to U.S. federal                     Agreement relating to these matters are               Commission approval, as described
                                                  securities laws or the rules or                         similar to the organizational documents               below).35 Further, for so long as CBOE
                                                  regulations thereunder, commenced or                    of Direct Edge, which currently is, and               V controls, directly or indirectly, a
                                                  initiated by the Commission arising out                 following the Subsequent Merger will                  subsidiary that is registered with the
                                                  of, or relating to, the Regulated                       be, similarly situated as an intermediate             Commission as a national securities
                                                  Securities Exchange Subsidiaries’                       holding company of the Exchange. The                  exchange (an ‘‘Exchange Subsidiary’’),
                                                  activities.29                                           Commission has previously found the                   CBOE Holdings may not sell, assign,
                                                    • Amendments. Similar to provisions                   Direct Edge organizational documents to               transfer, convey, gift, exchange or
                                                  contained in the BGM Charter and BGM                    be consistent with the Act.31                         otherwise dispose of any or all of its
                                                  Bylaws, the CBOE Organizational                           Although CBOE V will not carry out                  member interest in CBOE V, except
                                                  Documents provide that for so long as                   any regulatory functions, the Exchange                pursuant to an amendment to the CBOE
                                                  CBOE Holdings controls, directly or                     notes that its activities with respect to             V Operating Agreement that is filed
                                                  indirectly, Regulated Securities                        the operation of the Bats Exchanges                   with and approved by the
                                                  Exchange, before any amendment to or                    must be consistent with, and must not                 Commission.36 These restrictions are
                                                  repeal of the CBOE Holdings Charter or                  interfere with, the self-regulatory                   designed to ensure that any change to
                                                  CBOE Holdings Bylaws may be                             obligations of each Bats Exchange. The                the ownership or control of any
                                                  effective, such amendment or repeal                     CBOE V Operating Agreement therefore                  Exchange Subsidiary, including without
                                                  must be submitted to the board of                       includes certain provisions that are                  limitation the Bats Exchanges, may only
                                                  directors of each such exchange, and if                 designed to maintain the independence                 occur through a change in the
                                                  the amendment or repeal is required to                  of the Bats Exchanges’ self-regulatory                ownership or control of CBOE Holdings.
                                                  be filed with, or filed with and                        functions, enable the Bats Exchanges to               As such, any purported change of such
                                                  approved by the Commission, then such                   operate in a manner that complies with                ownership or control (unless pursuant
                                                  change shall not be effective until filed               the federal securities laws, including the            to a Commission-approved change of
                                                  with, or filed with and approved by, the                objectives of Sections 6(b) 32 and 19(g) 33           ownership of CBOE V) would need to
                                                  Commission, as the case may be.30                       of the Act, and facilitate the ability of             comply with the CBOE Holdings Charter
                                                    As stated above, the Exchange                         each Bats Exchange and the                            and CBOE Holdings Bylaws, including
                                                  believes that the foregoing provisions                  Commission to fulfill their respective                the ownership and voting limitations
                                                  will assist the Exchange in fulfilling its              regulatory and oversight obligations                  discussed above (or a Commission-
                                                  self-regulatory obligations and in                      under the Act.                                        approved waiver therefrom).
                                                                                                                                                                   The CBOE V Operating Agreement
                                                  administering and complying with the                    a. CBOE V Certificate of Formation                    also contains several provisions
                                                  requirements of the Act.
                                                                                                             The CBOE V Certificate, attached as                designed to protect the independence of
                                                  6. CBOE V Certificate and CBOE V                        Exhibit 5D, includes the following                    the self-regulatory functions of the Bats
                                                  Operating Agreement                                     provisions required under Delaware                    Exchanges. The CBOE V Operating
                                                     Effective as of the Closing of the                   law: (i) the full name of CBOE V as                   Agreement requires that, for so long as
                                                  Transaction, CBOE V will hold direct                    ‘‘CBOE V, LLC’’, and (ii) the name and                CBOE V, directly or indirectly, controls
                                                  ownership of (i) Direct Edge, which will                address of CBOE V’s registered office in              any Exchange Subsidiary, CBOE
                                                  continue to hold direct ownership of the                the State of Delaware and the name of                 Holdings, as the sole member of CBOE
                                                  Exchange and EDGX and (ii) BGM                          CBOE V’s registered agent at such                     V, and officers, employees and agents of
                                                  Holdings, which will continue to hold                   address.34 In addition, the CBOE V                    CBOE V must give due regard to the
                                                  direct ownership of BZX, BYX and Bats                   Certificate contains a provision                      preservation of independence of the
                                                  Trading (and certain other subsidiaries                 providing that CBOE V shall indemnify                 self-regulatory functions of such
                                                  not registered with the Commission in                   members of its board of directors and                 Exchange Subsidiary, as well as to its
                                                  any capacity). However, unlike BGM                      certain other persons, subject to certain             obligations to investors and the general
                                                  currently, CBOE V will not be the                       conditions.                                           public, and not interfere with the
                                                                                                             As the Exchange believes is                        effectuation of any decisions by the
                                                                                                          customary for limited liability
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                                                    28 Compare CBOE Holdings Charter, Art.                                                                      board of directors of an Exchange
                                                  SIXTEENTH, para. (a) with BGM Bylaws, Section                                                                 Subsidiary relating to its regulatory
                                                                                                             31 See Securities Exchange Act Release No. 71449
                                                  12.04.                                                                                                        functions (including disciplinary
                                                    29 Compare CBOE Holdings Charter, Art.                (January 30, 2014), 79 FR 6961 (February 5, 2014)
                                                                                                          (SR–EDGA–2013–34; SR–EDGX–2013–43).                   matters) or which would interfere with
                                                  FOURTEENTH with BGM Bylaws, Section 12.05.
                                                    30 Compare CBOE Holdings Charter, Arts.                  32 15 U.S.C. 78f(b).                               the ability of such Exchange Subsidiary
                                                                                                             33 15 U.S.C. 78s(g).
                                                  ELEVENTH, TWELFTH and CBOE Holdings
                                                                                                                                                                  35 CBOE   V Operating Agreement, Section 1.1.
                                                  Bylaws, Section 10.2 with BGM Charter, Art.                34 Delaware Limited Liability Company Act § 18–

                                                  FOURTEENTH and BGM Bylaws, Article XI.                  201.                                                    36 CBOE   V Operating Agreement, Section 5.1.



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                                                                             Federal Register / Vol. 81, No. 220 / Tuesday, November 15, 2016 / Notices                                                   80151

                                                  to carry out its responsibilities under                 Exchange Subsidiary, provided that                    8. Bylaws of the Exchange
                                                  the Act.37                                              such books and records are related to                    In connection with the Transaction,
                                                     The CBOE V Operating Agreement                       the operation or administration of an                 the Exchange proposes to amend and
                                                  also would require that CBOE V comply                   Exchange Subsidiary.42                                restate its Fifth Amended and Restated
                                                  with the U.S. federal securities laws and                  The proposed CBOE V Operating                      Bylaws and adopt the amended
                                                  rules and regulations thereunder and                    Agreement also provides that, to the                  Exchange Bylaws as its Sixth Amended
                                                  cooperate with the Commission and                       fullest extent permitted by law, all                  and Restated Bylaws, attached as
                                                  each Exchange Subsidiary, as                            books and records of any Exchange                     Exhibit 5G. Specifically, the Exchange
                                                  applicable, pursuant to and to the extent               Subsidiary reflecting confidential                    proposes to (i) expand the prohibition
                                                  of their respective regulatory                          information pertaining to the self-                   contained in Section 2 of Article XI of
                                                  authority.38 Further, CBOE V’s officers,                regulatory function of such Exchange                  the Exchange Bylaws and (ii) add a
                                                  directors, employees and agents shall be                Subsidiary (including disciplinary                    definition of ‘‘Trading Permit Holder’’ to
                                                  deemed to agree to (i) comply with the                  matters, trading data, trading practices              Article I.
                                                  U.S. federal securities laws and the                    and audit information) that comes into                   Currently, Section 2 of Article XI of
                                                  rules and regulations thereunder; and                   the possession of CBOE V, shall be                    the Exchange Bylaws prohibits directors
                                                  (ii) cooperate with the Commission and                  retained in confidence by CBOE V,                     of BGM or Direct Edge who are not also
                                                  each Exchange Subsidiary in respect of                  CBOE V’s officers, employees and                      directors, officers, staff, counsel or
                                                  the Commission’s oversight                              agents and CBOE Holdings, and not                     advisors of the Exchange from
                                                  responsibilities regarding such                         used for any non-regulatory purposes.43               participating in any meetings of the
                                                  Exchange Subsidiary and the self-                       The proposed CBOE V Operating                         Exchange’s board of directors (or any
                                                  regulatory functions and responsibilities               Agreement provides, however, that the                 committee thereof) pertaining to the
                                                  of the Exchange Subsidiaries, and CBOE                  foregoing shall not limit or impede the               self-regulatory function of the Exchange
                                                  V will take reasonable steps to cause its               rights of the Commission or an                        (including disciplinary matters). This
                                                  officers, employees and agents to so                    Exchange Subsidiary to access and                     provision refers to BGM and Direct Edge
                                                  cooperate.39                                            examine such confidential information                 because they are currently the only
                                                     Furthermore, to the fullest extent                   pursuant to the U.S. federal securities               direct and indirect owners of the
                                                  permitted by law, CBOE V and its                        laws and the rules and regulations                    Exchange. However, following the
                                                  officers, directors, employees and agents               thereunder, or limit or impede the                    Transaction, the Exchange will be
                                                  will be deemed to irrevocably submit to                 ability of CBOE Holdings or any of                    owned indirectly by CBOE V and CBOE
                                                  the jurisdiction of the U.S. federal                    CBOE V’s officers, employees or agents                Holdings (in addition to its direct
                                                  courts, the Commission, and each                        to disclose such confidential                         ownership by Direct Edge). Therefore,
                                                  Exchange Subsidiary, as applicable, for                 information to the Commission or an                   the Exchange is proposing to remove the
                                                  purposes of any suit, action, or                        Exchange Subsidiary.44                                reference to BGM and insert references
                                                  proceeding pursuant to the U.S. federal                    In addition, the CBOE V Operating                  to CBOE V and CBOE Holdings, so that
                                                  securities laws or the rules or                         Agreement provides that for so long as                CBOE V and CBOE Holdings will both
                                                  regulations thereunder arising out of, or               CBOE V controls, directly or indirectly,              be covered by this prohibition. The
                                                  relating to, the activities of such                     any Exchange Subsidiary, before any                   Exchange believes that this amendment
                                                  Exchange Subsidiary.40                                  amendment to or repeal of any                         will protect the independence of the
                                                     The proposed CBOE V Operating                        provision of the CBOE V Operating                     Exchange’s self-regulatory activities.
                                                  Agreement also contains a number of                     Agreement will be effective, those                       In addition, as noted above, the CBOE
                                                  provisions designed to ensure that the                  changes must be submitted to the board                Holdings Charter currently prohibits
                                                  Exchange will have sufficient access to                 of directors of each Exchange                         certain persons from owning or
                                                  the books and records of CBOE V as                      Subsidiary, and if the same must be                   exercising voting rights over certain
                                                  they relate to any Exchange Subsidiary.                 filed with, or filed with and approved                percentages of ownership of CBOE
                                                  Pursuant to the CBOE V Operating                        by, the Commission before the changes                 Holdings. The CBOE Holdings Charter
                                                  Agreement, to the extent they are related               may be effective under Section 19 of the              permits the board of directors of CBOE
                                                  to the operation or administration of an                Act 45 and the rules promulgated                      Holdings to waive the limitation on the
                                                  Exchange Subsidiary, the books,                         thereunder, then the proposed changes                 exercise of voting rights in excess of 20
                                                  records, premises, officers, agents, and                shall not be effective until filed with, or           percent of the then outstanding votes
                                                  employees of CBOE V are deemed to be                    filed with and approved by, the                       entitled to be cast on such matter only
                                                  the books, records, premises, officers,                 Commission, as the case may be.46                     if, among other things, ‘‘for so long as
                                                  agents and employees of such Exchange                   7. Direct Edge Operating Agreement                    [CBOE Holdings] directly or indirectly
                                                  Subsidiary for the purposes of, and                                                                           controls any Regulated Securities
                                                  subject to oversight pursuant to, the                      The Direct Edge Operating Agreement
                                                                                                                                                                Exchange Subsidiary, neither such
                                                  Act.41 In addition, for as long as CBOE                 currently provides that the sole member
                                                                                                                                                                Person nor any of its Related Persons is
                                                  V controls, directly or indirectly, an                  of Direct Edge is BGM. However, as a
                                                                                                                                                                a ‘Trading Permit Holder’ (as defined in
                                                  Exchange Subsidiary, CBOE V’s books                     result of the Transaction, CBOE V will
                                                                                                                                                                the Bylaws of any Regulated Securities
                                                  and records shall be subject at all times               become the sole member of Direct Edge.
                                                                                                                                                                Exchange Subsidiary as they may be
                                                  to inspection and copying by the                        The Exchange proposes to amend the
                                                                                                                                                                amended from time to time).’’ 47
                                                  Commission and the applicable                           Direct Edge Operating Agreement to                       The Exchange does not issue ‘‘trading
                                                                                                          reflect this change, as set forth in                  permits,’’ but admits members. The
                                                                                                          Exhibit 5F.
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                                                    37 See CBOE V Operating Agreement, Section
                                                                                                                                                                Exchange believes the provisions of the
                                                  10.1(a).                                                                                                      CBOE Holdings Charter that refer to
                                                    38 See CBOE V Operating Agreement, Section              42 Id.

                                                  10.2(a).                                                  43 See CBOE V Operating Agreement, Section
                                                                                                                                                                Trading Permit Holders of its Regulated
                                                    39 Id.                                                8.4(a).                                               Securities Exchange Subsidiaries should
                                                    40 See CBOE V Operating Agreement, Section              44 Id.                                              apply equally to members of the
                                                  10.3(a).                                                  45 15 U.S.C. 78s.
                                                    41 See CBOE V Operating Agreement, Section              46 See CBOE V Operating Agreement, Section             47 See CBOE Holdings Charter, Art. SIXTH, para.

                                                  8.4(b).                                                 11.2.                                                 (a)(ii)(C).



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                                                  80152                         Federal Register / Vol. 81, No. 220 / Tuesday, November 15, 2016 / Notices

                                                  Exchange once it becomes a Regulated                       to also specify that eligibility for                  become new affiliated exchanges
                                                  Securities Exchange Subsidiary of CBOE                     membership requires membership in a                   following the Transaction. The
                                                  Holdings. As a result, the Exchange                        national securities association registered            proposed amendments to Exchange Rule
                                                  proposes to add clause (ff) to Article I                   pursuant to Section 15A of the Act or                 2.10 are set forth in Exhibit 5H.
                                                  of the Exchange Bylaws, providing that                     a national securities exchange registered
                                                                                                                                                                   c. Exchange Rule 2.12—Bats Trading,
                                                  ‘‘‘Trading Permit Holder’ shall have the                   with the Commission pursuant to
                                                                                                                                                                   Inc. as Inbound Router
                                                  same meaning as Exchange Member.’’                         Section 6(a) of the Act, so as to exclude
                                                  This will ensure that the Exchange’s                       a national securities exchange registered                Exchange Rule 2.12 provides that the
                                                  members will be considered Trading                         solely under Section 6(g) of the Act. The             Exchange, on behalf of BGM, shall
                                                  Permit Holders of a Regulated Securities                   proposed amendments to Exchange Rule                  establish and maintain procedures and
                                                  Exchange Subsidiary for purposes of the                    2.3 are set forth in Exhibit 5H.                      internal controls reasonably designed to
                                                  CBOE Holdings Charter.                                                                                           ensure that Bats Trading does not
                                                                                                             b. Exchange Rule 2.10—Affiliation                     develop or implement changes to its
                                                  9. Exchange Rules                                          Between Exchange and a Member                         systems on the basis of nonpublic
                                                  a. Exchange Rule 2.3—Member                                   Exchange Rule 2.10 provides that,                  information obtained as a result of its
                                                  Eligibility                                                without prior approval of the                         affiliation with the Exchange until such
                                                                                                             Commission, neither the Exchange, nor                 information is available generally to
                                                     Pursuant to Exchange Rule 2.3, in                       any of its affiliates, shall directly or              similarly situated members of the
                                                  order to be eligible for membership in                     indirectly acquire or maintain an                     Exchange in connection with the
                                                  the Exchange, a registered broker or                       ownership interest in a member of the                 provision of inbound order routing to
                                                  dealer is currently required to be a                       Exchange. This restriction is intended to             the Exchange. The Exchange proposes to
                                                  member of at least one other national                      address potential conflicts of interest               replace the reference to BGM with a
                                                  securities association or national                         that could result from affiliation                    reference to ‘‘the holding company
                                                  securities exchange. However,                              between the Exchange and a member.                    indirectly owning the Exchange and
                                                  membership in the Exchange’s affiliated                    Notwithstanding this general restriction,             Bats Trading.’’ This change would
                                                  national securities exchanges, BZX,                        Exchange Rule 2.10 provides that it does              reflect the fact that BGM would no
                                                  BYX or EDGX, is not sufficient for                         not prohibit a member or its affiliate                longer be the ultimate holding company
                                                  purposes of eligibility for Exchange                       from acquiring or holding an equity                   of the Exchange following the
                                                  membership. The Exchange adopted                           interest in BGM that is permitted by the              Transaction and would also make this
                                                  this because the Bats Exchanges have                       ownership and voting limitations                      language consistent with the language
                                                  historically not functioned as the                         contained in the BGM Charter and the                  used in Rule 2.12 of the BZX and BYX
                                                  designated examining authority for any                     BGM Bylaws. In addition, Exchange                     rulebooks. The proposed amendments
                                                  of its members, and the Exchange                           Rule 2.10 states that it does not prohibit            to Exchange Rule 2.12 are set forth in
                                                  wanted to be sure that any member                          a member from being or becoming an                    Exhibit 5H.
                                                  would be appropriately supervised by                       affiliate of the Exchange, or an affiliate
                                                  another national securities association                                                                          2. Statutory Basis
                                                                                                             of any affiliate of the Exchange, solely
                                                  or national securities exchange that has                   by reason of such member or any officer,                 The Exchange believes that the
                                                  the capacity to function as the member’s                   director, manager, managing member,                   Proposed Rule Change is consistent
                                                  designated examining authority.                            partner or affiliate of such member                   with the requirements of the Act and the
                                                     As a result of the Transaction, the                     being or becoming either (a) a director               rules and regulations thereunder that
                                                  Exchange will additionally become                          of the Exchange pursuant to the Bylaws                are applicable to a national securities
                                                  affiliated with the CBOE Exchanges. As                     of the Exchange, or (b) a director of the             exchange, and, in particular, with the
                                                  with the Bats Exchanges, C2 does not                       Exchange serving on the board of                      requirements of Section 6(b) of the
                                                  currently serve as the designated                          directors of BGM. The Exchange                        Act.50 In particular, the proposal is
                                                  examination authority for any of its                       proposes to replace the references to                 consistent with Section 6(b)(1) of the
                                                  members. CBOE, however, does act as                        BGM in Rule 2.10 with references to                   Act 51 in that it enables the Exchange to
                                                  the designated examining authority for                     CBOE Holdings to reflect the fact that                be so organized as to have the capacity
                                                  certain of its members. Therefore, the                     following the Transaction, CBOE                       to be able to carry out the purposes of
                                                  Exchange proposes to amend Exchange                        Holdings will replace BGM as the                      the Act and to comply, and to enforce
                                                  Rule 2.3 to specify that a registered                      ultimate parent holding company of the                compliance by its members and persons
                                                  broker or dealer will be eligible for                      Exchange.                                             associated with its members, with the
                                                  membership only if it is a member of a                        Exchange Rule 2.10 also clarifies that             provisions of the Act, the rules and
                                                  national securities association or                         it does not prohibit the Exchange from                regulations thereunder, and the Rules of
                                                  national securities exchange other than                    being an affiliate of its routing broker-             the Exchange.
                                                  or in addition to the following affiliates                 dealer Direct Edge ECN LLC d/b/a DE                      The Proposed Rule Change is
                                                  of the Exchange: BZX, BYX, EDGX and                        Route (‘‘DE Route’’) or of EDGX, BZX,                 designed to enable the Exchange to
                                                  C2.                                                        BYX, or Bats Trading, each of which are               continue to have the authority and
                                                     In addition, to ensure there is no                      affiliated with the Exchange. The                     ability to effectively fulfill its self-
                                                  confusion with respect to the possibility                  Exchange proposes to remove the                       regulatory duties pursuant to the Act
                                                  that a broker or dealer could qualify for                  reference to DE Route to reflect the fact             and the rules promulgated thereunder.
                                                  membership in the Exchange based                           that Bats Trading previously replaced                 In particular, the Proposed Rule Change
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                                                  solely on membership in CBOE Futures                       DE Route as the Exchange’s routing                    includes in the CBOE Holdings Charter
                                                  or any other national securities                           broker-dealer.49 The Exchange also                    and CBOE Holdings Bylaws, like the
                                                  exchange notice-registered with the                        proposes to add references to the CBOE                BGM Charter and BGM Bylaws, various
                                                  Commission pursuant to Section 6(g) of                     Exchanges, as the CBOE Exchanges will                 provisions intended to protect and
                                                  the Act 48 that lists or trades security-                                                                        maintain the integrity of the self-
                                                  futures products, the Exchange proposes                       49 See Securities Exchange Act Release No. 71449
                                                                                                                                                                     50 15   U.S.C. 78f(b).
                                                                                                             (January 30, 2014), 79 FR 6961 (February 5, 2014)
                                                    48 15   U.S.C. 78f(g).                                   (SR–EDGA–2013–34; SR–EDGX–2013–43).                     51 15   U.S.C. 78f(b)(1).



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                                                                             Federal Register / Vol. 81, No. 220 / Tuesday, November 15, 2016 / Notices                                                   80153

                                                  regulatory functions of the Exchange                    open market and a national market                     Exchange expects that the Transaction
                                                  upon Closing. For example, the CBOE                     system. The Transaction will benefit                  will benefit investors, issuers,
                                                  Holdings Charter, as described above, is                investors and the securities market as a              shareholders and the market as a whole.
                                                  drafted to preserve the independence of                 whole by, among other things,                         The Exchange will continue to conduct
                                                  the Exchange’s self-regulatory function                 enhancing competition among securities                regulated activities (including operating
                                                  and carry out its regulatory                            venues and reducing costs.                            and regulating its market and members)
                                                  responsibilities under the Act. In                         Furthermore, the Exchange is not                   of the type it currently conducts, but
                                                  addition, the CBOE Holdings Charter                     proposing any significant changes to its              will be able to do so in a more efficient
                                                  imposes limitations similar to the BGM                  existing operational and trading                      manner to the benefit of its members.
                                                  Ownership Limitation and BGM Voting                     structure in connection with the change               These efficiencies will pass through to
                                                  Limitation to preclude undue influence                  in ownership; the Exchange will operate               the benefit of investors and issuers,
                                                  over or interference with the Exchange’s                in essentially the same manner upon                   promoting further efficiencies,
                                                  self-regulatory functions and fulfillment               Closing as it operates today. Therefore,              competition and capital formation,
                                                  of its regulatory duties under the Act.                 the Exchange believes that it will                    placing no burden on competition not
                                                     Moreover, notwithstanding the                        continue to satisfy the requirements of               necessary or appropriate in furtherance
                                                  Proposed Rule Change, including the                     the Act and the rules and regulations                 of the Act.
                                                  change to the indirect ownership of the                 thereunder that are applicable to a                     Furthermore, the Exchange’s
                                                  Exchange, the Commission will                           national securities exchange. The                     conclusion that the Proposed Rule
                                                  continue to have regulatory authority                   changes that the Exchange is proposing                Change would not result in any burden
                                                  over the Exchange, as is currently the                  to the Exchange Rules are designed to                 on competition that is not necessary or
                                                  case, as well as jurisdiction over the                  reflect the prospective affiliation with              appropriate in furtherance of the
                                                  Exchange’s direct and indirect parent                   CBOE Holdings and the CBOE                            purposes of the Act is consistent with
                                                  companies with respect to activities                    Exchanges. The Exchange believes that                 the Commission’s prior conclusions
                                                  related to the Exchange.52 As a result,                 the proposed change to its Rules is                   about similar combinations involving
                                                  the Proposed Rule Change will facilitate                consistent with the requirements of the               multiple exchanges in a single corporate
                                                  an ownership structure that will provide                Act and the rules and regulations                     family.54
                                                  the Commission with appropriate                         thereunder.
                                                                                                                                                                C. Self-Regulatory Organization’s
                                                  oversight tools to ensure that the                      B. Self-Regulatory Organization’s                     Statement on Comments on the
                                                  Commission will have the ability to                     Statement on Burden on Competition                    Proposed Rule Change Received From
                                                  enforce the Act with respect to the                                                                           Members, Participants, or Others
                                                                                                            The Exchange does not believe that
                                                  Exchange, its direct and indirect parent                the Proposed Rule Change would result                   The Exchange has not solicited or
                                                  companies and their directors, officers,                in any burden on competition that is not              received written comments on the
                                                  employees and agents to the extent they                 necessary or appropriate in furtherance               Proposed Rule Change.
                                                  are involved in the activities of the                   of the purposes of the Act. Indeed, the
                                                  Exchange.                                                                                                     III. Date of Effectiveness of the
                                                                                                          Exchange believes that the Proposed
                                                     The Exchange also believes that the                                                                        Proposed Rule Change and Timing for
                                                                                                          Rule Change will enhance competition
                                                  Proposed Rule Change furthers the                                                                             Commission Action
                                                                                                          among trading venues, as the Exchange
                                                  objectives of Section 6(b)(5) of the Act 53             believes that the Transaction will result                Within 45 days of the date of
                                                  because the Proposed Rule Change                        in various synergies and efficiencies.                publication of this notice in the Federal
                                                  would be consistent with and facilitate                 For example, the Transaction will allow               Register or within such longer period (i)
                                                  a governance and regulatory structure                   the Bats Exchanges and the CBOE                       as the Commission may designate up to
                                                  that is designed to prevent fraudulent                  Exchanges to utilize a single technology              90 days of such date if it finds such
                                                  and manipulative acts and practices, to                 platform, which the Exchange expects                  longer period to be appropriate and
                                                  promote just and equitable principles of                will reduce Bats Exchanges’ and the                   publishes its reasons for so finding or
                                                  trade, to foster cooperation and                        CBOE Exchanges’ combined costs,                       (ii) as to which the Exchange consents,
                                                  coordination with persons engaged in                    creating the opportunity to further                   the Commission will: (a) by order
                                                  regulating, clearing, settling, processing              reduce costs to their respective members              approve or disapprove such proposed
                                                  information with respect to, and                        and other constituents. The potential                 rule change, or (b) institute proceedings
                                                  facilitating transactions in securities, to             use of a single technology platform may               to determine whether the proposed rule
                                                  remove impediments to, and perfect the                  also reduce investors’ costs of                       change should be disapproved.
                                                  mechanism of a free and open market                     connecting to and using the Bats
                                                  and a national market system and, in                                                                          IV. Solicitation of Comments
                                                                                                          Exchanges and the CBOE Exchanges,
                                                  general, to protect investors and the                   including through the combination of                    Interested persons are invited to
                                                  public interest.                                        data centers and market data services.                submit written data, views, and
                                                     In addition, as discussed further in                 Combining the expertise of the CBOE                   arguments concerning the foregoing,
                                                  the Exchange’s Statement on Burden on                   Exchanges’ personnel with the expertise               including whether the proposed rule
                                                  Competition below, the Exchange                         of the Bats Exchanges’ personnel will                 change is consistent with the Act.
                                                  expects that the Transaction will foster                also facilitate ongoing innovation,                   Comments may be submitted by any of
                                                  further innovation while facilitating                   including through new product creation                the following methods:
                                                  efficient, transparent and well-regulated               and platform improvements.
                                                  markets for issuers and investors,                        The Exchange notes that the Bats                      54 See, e.g., Securities Exchange Act Release Nos.
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                                                  removing impediments to, and                                                                                  71375 (January 23, 2014), 79 FR 4771 (January 29,
                                                                                                          Exchanges and the CBOE Exchanges                      2014) (SR–BATS–2013–059; SR–BYX–2013–039);
                                                  perfecting the mechanism of a free and                  generally operate with different                      66071 (December 29, 2011), 77 FR 521 (January 5,
                                                                                                          business models, target different                     2012) (SR–CBOE–2011–107 and SR–NSX–2011–14);
                                                    52 See, e.g., CBOE Holdings Charter, Art.
                                                                                                          customer bases and primarily focus on                 58324 (August 7, 2008), 73 FR 46936 (August 12,
                                                  FOURTEENTH; CBOE V Operating Agreement,                                                                       2008) (SR–BSE–2008–02; SR–BSE–2008–23; SR–
                                                  Section 10.3; Direct Edge Operating Agreement,          different asset classes, limiting any                 BSE–2008–25; SR–BSECC–2008–01); 53382
                                                  Section 10.3.                                           concern that the Transaction could                    (February 27, 2006), 71 FR 11251 (March 6, 2006)
                                                    53 15 U.S.C. 78f(b)(5).                               burden competition. Therefore, the                    (SR–NYSE–2005–77).



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                                                  80154                        Federal Register / Vol. 81, No. 220 / Tuesday, November 15, 2016 / Notices

                                                  Electronic Comments                                       SECURITIES AND EXCHANGE                                Non-Displayed Orders, and Post-Only
                                                                                                            COMMISSION                                             Orders that are entered through the
                                                    • Use the Commission’s Internet                                                                                OUCH or FLITE protocols in Test Group
                                                  comment form (http://www.sec.gov/                         [Release No. 34–79263; File No. SR–                    Three securities shall be as follows:
                                                  rules/sro.shtml); or                                      NASDAQ–2016–151]                                          Following entry, and if market
                                                    • Send an email to rule-comments@                       Self-Regulatory Organizations; The                     conditions allow, a Price to Comply
                                                  sec.gov. Please include File Number SR–                   NASDAQ Stock Market LLC; Notice of                     Order in a Test Group Three Pilot
                                                  BatsEDGA–2016–24 on the subject line.                     Filing and Immediate Effectiveness of                  Security will be adjusted repeatedly in
                                                                                                            Proposed Rule Change To Amend                          accordance with changes to the NBBO
                                                  Paper Comments                                                                                                   until such time as the Price to Comply
                                                                                                            Commentary .14 to Rule 4770
                                                                                                                                                                   Order is able to be ranked and displayed
                                                    • Send paper comments in triplicate                     (Compliance With Regulation NMS
                                                                                                                                                                   at its original entered limit price.
                                                  to Secretary, Securities and Exchange                     Plan To Implement a Tick Size Pilot)
                                                                                                                                                                      Following entry, and if market
                                                  Commission, 100 F Street NE.,                             November 8, 2016.                                      conditions allow, a Price to Display
                                                  Washington, DC 20549–1090.                                                                                       Order in a Test Group Three Pilot
                                                                                                               Pursuant to Section 19(b)(1) of the
                                                  All submissions should refer to File                      Securities Exchange Act of 1934                        Security will be adjusted repeatedly in
                                                  Number SR–BatsEDGA–2016–24. This                          (‘‘Act’’),1 and Rule 19b–4 thereunder,2                accordance with changes to the NBBO
                                                  file number should be included on the                     notice is hereby given that on October                 until such time as the Price to Display
                                                  subject line if email is used. To help the                31, 2016, The NASDAQ Stock Market                      Order is able to be ranked and displayed
                                                  Commission process and review your                        LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed                 at its original entered limit price.
                                                                                                            with the Securities and Exchange                          Following entry, and if market
                                                  comments more efficiently, please use
                                                                                                            Commission (‘‘SEC’’ or ‘‘Commission’’)                 conditions allow, a Non-Displayed
                                                  only one method. The Commission will
                                                                                                            the proposed rule change as described                  Order in a Test Group Three Pilot
                                                  post all comments on the Commission’s                                                                            Security will be adjusted repeatedly in
                                                  Internet Web site (http://www.sec.gov/                    in Items I and II, below, which Items
                                                                                                            have been prepared by the Exchange.                    accordance with changes to the NBBO
                                                  rules/sro.shtml). Copies of the                                                                                  up (down) to the Order’s limit price.
                                                  submission, all subsequent                                The Commission is publishing this
                                                                                                            notice to solicit comments on the                         Following entry, and if market
                                                  amendments, all written statements                                                                               conditions allow, the Post-Only Order
                                                                                                            proposed rule change from interested
                                                  with respect to the proposed rule                                                                                in a Test Group Three Pilot Security
                                                                                                            persons.
                                                  change that are filed with the                                                                                   will be adjusted repeatedly in
                                                  Commission, and all written                               I. Self-Regulatory Organization’s                      accordance with changes to the NBBO
                                                  communications relating to the                            Statement of the Terms of Substance of                 or the best price on the Nasdaq Book, as
                                                  proposed rule change between the                          the Proposed Rule Change                               applicable until such time as the Post-
                                                  Commission and any person, other than                        The Exchange proposes to amend                      Only Order is able to be ranked and
                                                  those that may be withheld from the                       Commentary .14 to Rule 4770                            displayed at its original entered limit
                                                  public in accordance with the                             (Compliance with Regulation NMS Plan                   price.
                                                  provisions of 5 U.S.C. 552, will be                       to Implement a Tick Size Pilot) to                     *      *     *     *    *
                                                  available for Web site viewing and                        provide the SEC with notice of its efforts
                                                                                                                                                                   II. Self-Regulatory Organization’s
                                                  printing in the Commission’s Public                       to re-program its systems to eliminate a
                                                                                                                                                                   Statement of the Purpose of, and
                                                  Reference Room, 100 F Street NE.,                         re-pricing functionality for certain
                                                                                                                                                                   Statutory Basis for, the Proposed Rule
                                                  Washington, DC 20549, on official                         orders in Test Group Three securities in
                                                                                                                                                                   Change
                                                  business days between the hours of                        connection with the Regulation NMS
                                                  10:00 a.m. and 3:00 p.m. Copies of the                    Plan to Implement a Tick Size Pilot                       In its filing with the Commission, the
                                                  filing also will be available for                         Program (‘‘Plan’’ or ‘‘Pilot’’).3                      Exchange included statements
                                                  inspection and copying at the principal                      The text of the proposed rule change                concerning the purpose of and basis for
                                                                                                            is set forth below. Proposed new                       the proposed rule change and discussed
                                                  office of the Exchange. All comments
                                                                                                            language is underlined; deleted text is                any comments it received on the
                                                  received will be posted without change;
                                                                                                            in brackets.                                           proposed rule change. The text of these
                                                  the Commission does not edit personal
                                                                                                            *      *     *    *     *                              statements may be examined at the
                                                  identifying information from                                                                                     places specified in Item IV below. The
                                                  submissions. You should submit only                       The NASDAQ Stock Market Rules                          Exchange has prepared summaries, set
                                                  information that you wish to make                                                                                forth in sections A, B, and C below, of
                                                                                                            *          *   *      *       *
                                                  available publicly. All submissions                                                                              the most significant aspects of such
                                                  should refer to File Number SR–                           4770. Compliance With Regulation                       statements.
                                                  BatsEDGA–2016–24, and should be                           NMS Plan To Implement a Tick Size
                                                  submitted on or before December 6,                        Pilot                                                  A. Self-Regulatory Organization’s
                                                  2016.                                                                                                            Statement of the Purpose of, and
                                                                                                                (a) through (d) No Change.                         Statutory Basis for, the Proposed Rule
                                                    For the Commission, by the Division of                                                                         Change
                                                                                                            Commentary
                                                  Trading and Markets, pursuant to delegated
                                                  authority.55                                                .01–.13 No change.                                   1. Purpose
                                                                                                              .14 Until [October 31, 2016]November                    On September 7, 2016, The Nasdaq
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                                                  Brent J. Fields,
                                                                                                            14, 2016, the treatment of Price to                    Stock Market LLC (‘‘Nasdaq’’ or
                                                  Secretary.
                                                                                                            Comply Orders, Price to Display Orders,                ‘‘Exchange’’) filed with the Securities
                                                  [FR Doc. 2016–27370 Filed 11–14–16; 8:45 am]
                                                                                                                                                                   and Exchange Commission (‘‘SEC’’ or
                                                  BILLING CODE 8011–01–P                                        1 15U.S.C. 78s(b)(1).
                                                                                                                2 17
                                                                                                                                                                   ‘‘Commission’’) a proposed rule change
                                                                                                                    CFR 240.19b–4.
                                                                                                               3 See Securities Exchange Act Release No. 74892     (‘‘Proposal’’) to adopt paragraph (d) and
                                                                                                            (May 6, 2015), 80 FR 27513 (May 13, 2015)              Commentary .12 to Exchange Rule 4770
                                                    55 17   CFR 200.30–3(a)(12).                            (‘‘Approval Order’’).                                  to describe changes to system


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Document Created: 2016-11-15 00:48:03
Document Modified: 2016-11-15 00:48:03
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation81 FR 80146 

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