
[Federal Register: May 6, 2009 (Volume 74, Number 86)]
[Notices]               
[Page 21031-21033]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06my09-145]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59839; File No. SR-BSECC-2009-02]

 
Self-Regulatory Organizations; Boston Stock Exchange Clearing 
Corporation; Order Granting Approval of a Proposed Rule Change To Amend 
the Articles of Organization and By-Laws of Boston Stock Exchange 
Clearing Corporation

April 28, 2008.

I. Introduction

    On February 20, 2009, Boston Stock Exchange Clearing Corporation 
(``BSECC'') filed with the Securities and Exchange Commission 
(``Commission'') proposed rule change SR-BSECC-2009-02 pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'').\1\ 
Notice of the proposal was published in the Federal Register on March 
20, 2009.\2\ No comment letters were received. For the reasons 
discussed below, the Commission is granting approval of the proposed 
rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 59571 (March 12, 2009), 
74 FR 11983.
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II. Description

    The proposed rule change amends BSECC's Articles of Organization 
and By-Laws to increase BSECC's authorized shares and to reflect a 
transfer in ownership of five percent of BSECC's shares. The proposed 
rule change also amends BSECC's Articles of Organization and By-Laws to 
change its name to the NASDAQ Clearing Corporation and to make other 
miscellaneous changes.
    On August 29, 2008, The NASDAQ OMX Group, Inc. (``NASDAQ OMX'') 
completed its acquisition of the Boston Stock Exchange, Incorporated 
(recently renamed NASDAQ OMX BX, Inc.) and several of its wholly owned 
subsidiaries, including BSECC. As a result, BSECC has become an 
indirect wholly owned subsidiary of NASDAQ OMX. On January 5, 2009, OMX 
AB, which is another indirect wholly owned subsidiary of NASDAQ OMX, 
entered into agreements with Fortis Bank Global Clearing N.V. 
(``Fortis'') and European Multilateral Clearing Facility N.V. 
(``EMCF''), pursuant to which, among other things, OMX AB (i) has 
acquired a 22% equity stake in EMCF and (ii) has agreed to acquire a 5% 
equity stake in BSECC from NASDAQ OMX BX, Inc. and in turn to transfer 
this stake to EMCF.
    The Articles of BSECC provide that:

    All of the authorized shares of Common Stock of [BSECC] shall be 
issued and outstanding, and shall be held by Boston Stock Exchange, 
Incorporated, a Delaware corporation. Boston Stock Exchange, 
Incorporated may not transfer or assign any shares of stock of 
BSECC, in whole or in part, to any entity, unless such transfer or 
assignment shall be filed with and approved by the U.S. Securities 
and Exchange Commission under Section 19 of the Securities Exchange 
Act of 1934, as amended, and the rules promulgated thereunder.

    Accordingly, in order to complete the transfer of shares of BSECC 
contemplated by the agreements, BSECC must amend its Articles to 
specify an additional stockholder in BSECC and must obtain Commission 
approval for

[[Page 21032]]

the transfer of stock. In addition, BSECC is proposing to amend its 
Articles and its By-Laws to change its name to NASDAQ Clearing 
Corporation and to adopt other miscellaneous changes.
    EMCF is a central counterparty clearinghouse for European equity 
trading on exchanges and multilateral trading facilities, including 
NASDAQ OMX Europe Ltd., Chi-X Europe Ltd., and BATS Trading Europe Ltd. 
In addition, EMCF has agreed to provide central counterparty clearing 
services to NASDAQ OMX exchanges in Stockholm, Helsinki, Copenhagen, 
and Iceland. EMCF clears stocks traded on multiple European markets, 
including stocks comprising the AEX, DAX, FTSE100, CAC40, and SMI20 
indexes. Services offered by EMCF include novation, gross trade 
netting, settlement, margining, and fails and buy-in management. EMCF 
is headquartered in the Netherlands and is subject to voluntary 
supervision by De Nederlandsche Bank and Autoriteit Financiele Markten. 
In addition to OMX AB, EMCF's stockholders are Fortis Bank Nederland 
(Holding) N.V. and Fortis Bank Global Clearing N.V. NASDAQ OMX and 
EMCF's other stockholders will seek to further broaden EMCF's ownership 
structure to include order flow providers and financial institutions. 
It is expected that this will increase the commitment of banks and flow 
providers towards EMCF, decrease EMCF's dependence on one shareholder, 
and demonstrate to the market that EMCF is a solid company with firm 
backing of shareholders with high standing and is a company that looks 
after the interests of all its interested parties. Also, a key purpose 
of the diversified shareholders' base is to facilitate the further 
development of EMCF into becoming the leading central counterparty 
services provider for European cash equities.
    Under the Share Transfer Agreement dated January 5, 2009, among 
Fortis, OMX AB, and EMCF, OMX AB has agreed, subject to Commission 
approval, to transfer a 5% stake in BSECC to EMCF. The transfer of 
BSECC's shares is a portion of the consideration to be paid by OMX AB 
for obtaining a 22% stake in EMCF. Accordingly, OMX AB must obtain the 
shares from NASDAQ OMX BX, Inc. prior to transferring them to EMCF. OMX 
AB has agreed to undertake to use reasonable endeavors to obtain 
Commission approval for the transfer as soon as possible and in any 
event by July 5, 2009.
    Currently, the authorized share capital of BSECC is 150 shares, 
each with a par value of $100. Because 5% of the 150 BSECC shares is 
7.5 shares, BSECC must increase its authorized share capital and pay a 
2 for 1 stock dividend to NASDAQ OMX BX, Inc. so that NASDAQ OMX BX, 
Inc. will own 300 shares of BSECC and be able to transfer 15 of them. 
Accordingly, BSECC proposes to amend its Articles in order to increase 
its authorized share capital to 300 shares. BSECC proposes to amend its 
Articles to reflect either OMX AB or EMCF as one of its stockholders 
and to reflect the name change of the Boston Stock Exchange to NASDAQ 
OMX BX, Inc.
    The amended provisions would state:

    All of the authorized shares of Common Stock of [BSECC] shall be 
issued and outstanding, and shall be held by NASDAQ OMX BX, Inc., a 
Delaware corporation, and either OMX AB, a corporation organized 
under the laws of Sweden, or European Multilateral Clearing 
Facility, N.V., a public company with limited liability incorporated 
under the laws of the Netherlands.

The language in the Articles providing that a stockholder may not 
transfer or assign shares of stock of BSECC without approval of the 
Commission would remain in place so that all of the stockholders of 
BSECC would be bound by that restriction.
    The Share Transfer Agreement also provides that under certain 
circumstances, EMCF may transfer the shares of BSECC back to OMX AB or 
NASDAQ OMX BX, Inc., thereby unwinding this aspect of the transaction. 
In order to avoid the need to seek approval for such an unwinding in 
the future, BSECC requests that the Commission approve at this time 
both the initial transfer and any future unwinding.
    Finally, at the time of the transfer EMCF and NASDAQ OMX BX, Inc. 
will enter into a Shareholders Agreement to govern their relationship 
with respect to BSECC. The key provisions of the Shareholders Agreement 
are as follows. First, EMCF will grant BSECC a right of first refusal 
to purchase all or any portion of its shares that EMCF may propose to 
transfer. Second, if NASDAQ OMX BX, Inc. proposes to transfer any of 
its shares of BSECC to any person, it must provide EMCF with the right 
to substitute EMCF's shares in such transfer in proportion to EMCF's 
percentage share of ownership in BSECC. Third, if NASDAQ OMX BX, Inc. 
proposes to enter into a transaction under which it would no longer own 
a majority of BSECC's outstanding shares or a sale of all or 
substantially all of the assets of BSECC (``Sale Transaction''), EMCF 
will in most circumstances take such actions as are necessary to 
support the consummation of the Sale Transaction. Fourth, if BSECC 
issues new securities it must first offer them to NASDAQ OMX BX, Inc. 
and EMCF. Finally, the Shareholders Agreement provides for rights of 
the stockholders to obtain information from BSECC about its financial 
performance and operations.
    Because the share transfers described by the Shareholders Agreement 
would require Commission approval under the Articles, the Agreement 
also provides that ``[n]othing in the Agreement shall be construed to 
authorize [BSECC] or any stockholder of [BSECC] to transfer any share 
or other interests in [BSECC] unless such transfer is approved in 
accordance with the restrictions contained in the [Articles] of [BSECC] 
and such other restrictions as may be imposed by the * * * Commission 
or other governmental authority having jurisdiction over [BSECC].''
    BSECC is also changing its name from Boston Stock Exchange Clearing 
Corporation to NASDAQ Clearing Corporation. The change reflects BSECC's 
changed status as a subsidiary of NASDAQ OMX. In addition, BSECC is 
making the following miscellaneous changes to its Articles and By-Laws. 
First, BSECC is restating its Articles to consolidate prior amendments 
into a single document. Under Massachusetts law, the form for 
restatement of the Articles necessitates nonsubstantive changes to 
citations to Massachusetts statutes in the title of the Articles, 
changes to prefatory language in Article IV of the Articles, and the 
addition of nonsubstantive language regarding date of effectiveness as 
a new Article VII. Second, BSECC is amending the Articles and By-Laws 
to reflect the change in the name of Boston Stock Exchange, 
Incorporated to NASDAQ OMX BX, Inc. Finally, BSECC is correcting 
several typographical errors in Article X of the By-Laws.

 III. Discussion

    Section 17A(b)(3)(C) of the Act requires, among other things, that 
a clearing agency's rules assure the fair representation of its 
shareholders (or members) and participants in the selection of its 
directors and administration of its affairs.\3\ The Commission 
previously determined that Nasdaq OMX's acquisition of BSECC as an 
indirect wholly-owned subsidiary would not affect BSECC's ability to 
meet the requirements of Section 17A(b)(3)(C) because BSECC's By-Laws 
relating to the selection, composition, powers, and duties of the BSECC 
Board, committees, and officers of BSECC would remain essentially 
unchanged after the

[[Page 21033]]

acquisition.\4\ Similarly, the proposal to transfer a 5% interest in 
BSECC to EMCF does not require modification to BSECC's By-Laws, other 
than to include EMCF as an authorized shareholder and to make other 
minor changes discussed above, and should not alter the effectiveness 
of the By-Laws to assure fair representation of BSECC's shareholders 
and participants. Furthermore, we note that the proposed rule change 
does not alter the provisions of NASDAQ OMX's Certificate and NASDAQ 
OMX's By-Laws that are designed to maintain the independence of each of 
its SRO subsidiaries' self-regulatory functions, enable each SRO 
subsidiary to operate in a manner that complies with the federal 
securities laws, and facilitate the ability of each SRO subsidiary and 
the Commission to fulfill their regulatory and oversight obligations 
under the Act. For these reasons, we find that the proposed rule change 
is designed to allow BSECC to continue to meet the requirement under 
Section 17A(b)(3)(C) that it assure the fair representation of its 
shareholders and participants in the selection of its directors and 
administration of its affairs.\5\ In addition, the amendments to the 
BSECC's Articles and By-Laws to change the name of BSECC, consolidate 
prior amendments, and correct certain errors are non-substantive 
amendments which should not affect BSECC's obligations under Section 
17A.
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    \3\ 15 U.S.C. 78q-1(b)(3)(C).
    \4\ Securities Exchange Act Release No. 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).
    \5\ This order grants approval to the current transfer of 
ownership from BSECC to EMCF only. It does not as requested by BSECC 
in its filing approve potential unwinds of the transfer of ownership 
that may occur in the future.
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
in particular Section 17A of the Act and the rules and regulations 
thereunder.\6\
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    \6\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition and 
capital formation. 15 U.S.C. 78c(f).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-BSECC-2009-02) be and hereby 
is approved.
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    \7\ 17 CFR 200.30-3(a)(12).

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-10464 Filed 5-5-09; 8:45 am]

BILLING CODE 8010-01-P
