
[Federal Register: March 10, 2009 (Volume 74, Number 45)]
[Notices]               
[Page 10322-10324]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10mr09-111]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59492; File No. SR-ISE-2009-08]

 
Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change, as Modified by Amendment No. 1, by International Securities 
Exchange, LLC Relating to Changes to the Third Amended and Restated 
Limited Liability Company Operating Agreement of Direct Edge Holdings 
LLC

March 3, 2009.
    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 February 27, 2009, the International Securities Exchange, LLC 
(the ``Exchange'' or the ``ISE'') 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 self-regulatory organization. On March 3, 2009, the Exchange 
filed Amendment No. 1 to the proposed rule change. The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as modified by Amendment No. 1, from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to make changes to the Third Amended and 
Restated Limited Liability Company Operating Agreement of Direct Edge 
Holdings LLC (``Third Amended and Restated DE Operating Agreement'') to 
preserve the right of the DB US Financial Markets Holding Corporation, 
LabMorgan Corporation, Merrill Lynch L.P. Holdings, Inc., Nomura 
Securities International, Inc., and Sun Partners LLC (together, the 
``ISE Stock Exchange Consortium Members''), who were formerly minority 
unitholders of the ISE Stock Exchange, LLC, as defined below, to retain 
the right to designate a Manager to Direct Edge Holdings Board of 
Managers \3\ on an ongoing basis. The text of the proposed rule change 
is available on the Exchange's Web site http://www.ise.com, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.
---------------------------------------------------------------------------

    \3\ Pursuant to Section 7.1(a) of the Third Amended and Restated 
DE Operating Agreement, each Manager is designated as a ``manager'' 
of Direct Edge within the meaning of the Securities and [sic] 
Exchange Act of 1934 (the ``Exchange Act'').
---------------------------------------------------------------------------

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 self-regulatory organization has prepared summaries, 
set forth in Sections A, B and C below, of the most significant aspects 
of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On December 23, 2008, the ISE closed a transaction whereby, among 
other things, ISE Stock Exchange, LLC (``ISE Stock Exchange''), a 
Delaware limited liability company, merged with and into Maple Merger 
Sub, LLC (``Maple Merger Sub''), a Delaware limited liability company 
and a wholly owned subsidiary of Direct Edge Holdings LLC (``Direct 
Edge''), with Maple Merger Sub being the surviving entity.\4\ As part 
of the same transaction, ISE Holdings purchased equity interests in 
Direct Edge such that subsequent to completing the transaction, ISE 
Holdings owns a 31.54% equity interest in Direct Edge. Following the 
closing of the transaction and the merger of ISE

[[Page 10323]]

Stock Exchange into Maple Merger Sub, Maple Merger Sub now owns and 
operates the marketplace for the trading of U.S. cash equities by 
Equity Electronic Access Members (``Equity EAMs'') of ISE under the 
rules of ISE, as a facility, as that term is defined in Section 3(a)(2) 
of the Exchange Act \5\ of ISE (the ``Facility'' or ``ISE Stock'').\6\
---------------------------------------------------------------------------

    \4\ See Exchange Act Release No. 59135 (December 22, 2008), 73 
FR 79954 (December 30, 2008)(SR-ISE-2008-85)(Order approving a 
proposed rule change, as modified by amendment no. 1, relating to 
the purchase by International Securities Exchange Holdings, Inc. 
(``ISE Holdings'') of an ownership interest in Direct Edge).
    \5\ 15 U.S.C. 78c(a)(2).
    \6\ Direct Edge is planning to file two Form 1 Applications to 
own and operate two national securities exchanges. If the Commission 
approves the Form 1 Applications, the Facility will cease 
operations.
---------------------------------------------------------------------------

    ISE is a registered national securities exchange under Section 6 of 
the Exchange Act and a self-regulatory organization (``SRO''). As a 
facility of ISE, the Facility is subject to regulation by ISE and 
oversight by the Securities and Exchange Commission (``Commission'' or 
``SEC'').
    The Third Amended and Restated DE Operating Agreement contains 
provisions designed to ensure that any changes to the Third Amended and 
Restated DE Operating Agreement be first reviewed by ISE to determine 
whether such change must be filed with the SEC. For example, Section 
15.2 of the Third Amended and Restated DE Operating Agreement provides 
that before any amendment to any provision of the Third Amended and 
Restated DE Operating Agreement shall be effective, such amendment 
shall be submitted to ISE and if ISE determines that such amendment 
must be filed with, or filed with and approved by, the SEC before the 
amendment may be effective under Section 19 of the Exchange Act and the 
rules promulgated under the Exchange Act or otherwise, then the 
proposed amendment to the Third Amended and Restated DE Operating 
Agreement shall not be effective until filed with, or filed with and 
approved by, the SEC, as the case may be.
    Direct Edge is now proposing to amend and restate the Third Amended 
and Restated DE Operating Agreement to preserve the right of the ISE 
Stock Exchange Consortium Members to retain the right to designate a 
manager to Direct Edge's Board of Managers so long as such ISE Stock 
Exchange Consortium Members own at least 5% in Direct Edge. Currently 
the ISE Stock Exchange Consortium Members have a collective ownership 
interest of 8.76% in Direct Edge. The ISE Stock Exchange Consortium 
Members have a right, pursuant to Section 7.1(a)(2) of the Third 
Amended and Restated DE Operating Agreement, to appoint a Manager 
provided that their Percentage Interest \7\ does not fall below 7.5%. 
The ISE Stock Exchange Consortium Members expressed concern that their 
Percentage Interest could be diluted below the 7.5% threshold for 
appointing a Manager and that potential sales by ISE Stock Exchange 
Consortium Members to parties who are not ISE Stock Exchange Consortium 
Members could also have an unintended dilutive effect. Accordingly, 
Direct Edge is now proposing to amend and restate the Third Amended and 
Restated DE Operating Agreement to mitigate the potential for such 
dilutive events.
---------------------------------------------------------------------------

    \7\ ``Percentage Interest'' means, with respect to a member, the 
ratio of the number of Units held by the member to the total of all 
of the issued and outstanding Units, expressed as a percentage.
---------------------------------------------------------------------------

    Specifically, Direct Edge is seeking to amend Section 7.2(a)(2) by: 
(i) Lowering the ownership threshold for appointing a Manager from 7.5% 
Percentage Interest to a 5% Percentage Interest; and (ii) providing a 
right of first refusal to the ISE Stock Exchange Consortium Members 
with respect to certain sales of other ISE Stock Exchange Consortium 
Members to parties who are not ISE Stock Exchange Consortium Members. 
Consistent with the requirements set forth in Section 15.2, the ISE has 
reviewed the proposed changes to the Third Amended and Restated DE 
Operating Agreement and has determined that such changes shall not be 
effective until filed with and approved by the SEC. Accordingly, ISE 
hereby submits the proposed changes and seeks Commission approval of 
such changes so that Direct Edge may execute the Fourth Amended and 
Restated Limited Liability Company Operating Agreement of Direct Edge 
Holdings LLC (``Fourth Amended and Restated DE Operating Agreement'').
    Additionally, Direct Edge proposes to make other non-substantive 
clean-up changes necessary to reflect that this agreement has been 
changed from the Third Amended and Restated DE Operating Agreement to 
the Fourth Amended and Restated Operating Agreement.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Exchange Act,\8\ in general, 
and with Sections 6(b)(1) and (b)(5) of the Exchange Act,\9\ in 
particular, in that the proposal enables the Exchange and the Facility 
to be so organized as to have the capacity to be able to carry out the 
purposes of the Exchange Act and to comply with and enforce compliance 
by members and persons associated with members with provisions of the 
Exchange Act, the rules and regulations thereunder, and SRO rules, and 
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.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(1), (5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any unsolicited written comments from members or other interested 
parties.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (a) By order approve 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:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules.sro.shtml ); or

[[Page 10324]]

     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-ISE-2009-08 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-ISE-2009-08. This file 
number should be included on the subject line if e-mail 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 inspection and copying in the 
Commission's Public Reference Room, on business days between the hours 
of 10 a.m. and 3 p.m., located at 100 F Street, NE., Washington, DC 
20549. Copies of such 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-ISE-2009-08 and should be submitted on 
or before March 31, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
---------------------------------------------------------------------------

    \10\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E9-4962 Filed 3-9-09; 8:45 am]

BILLING CODE 8011-01-P
