
[Federal Register Volume 77, Number 80 (Wednesday, April 25, 2012)]
[Notices]
[Pages 24752-24756]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-9929]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66834; File Nos. SR-EDGA-2012-08; SR-EDGX-2012-07; SR-
ISE-2012-21]


Self-Regulatory Organizations; EDGA Exchange, Inc.; EDGX 
Exchange, Inc.; International Securities Exchange, LLC; Order Granting 
Approval of Proposed Rule Change Relating to a Corporate Transaction in 
Which SIX Swiss Exchange AG Will Transfer Its Interest in ISE Holdings, 
Inc. to a Newly Formed Swiss Corporation, Eurex Global Derivatives AG

April 19, 2012.

I. Introduction

    On March 8, 2012, each of EDGA Exchange, Inc (``EDGA''), EDGX 
Exchange, Inc. (``EDGX''), International Securities Exchange, LLC 
(``ISE'' and, with EDGA and EDGX, the ``Exchanges''), filed with the 
Securities and Exchange Commission (``Commission''), pursuant to 
Section 19(b)(1) \1\ of the Securities Exchange Act of 1934 
(``Act''),\2\ and Rule 19b-4 thereunder,\3\ proposed rule changes 
regarding a corporate transaction (``Transaction'') in which SIX Swiss 
Exchange AG (``SIX'') will transfer its 50% indirect ownership interest 
of International Securities Holdings, Inc. (``ISE Holdings'') to a 
newly formed Swiss corporation, Eurex Global Derivatives AG (``EGD''), 
which will become a wholly-owned subsidiary of Deutsche B[ouml]rse AG 
(``Deutsche B[ouml]rse''), granting Deutsche B[ouml]rse a 100% indirect 
ownership interest in ISE Holdings which, in turn, wholly owns ISE and 
holds a 31.54% indirect interest in each of EDGA and EDGX. The proposed 
rule changes were published for comment in the Federal Register on 
March 15, 2012.\4\ The Commission received no comment letters on the 
proposed rule changes.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ See Securities Exchange Act Release Nos. 66567 (March 9, 
2012), 77 FR 15413 (March 15, 2012) (SR-EDGA-2012-08) (``EDGA 
Notice''); 66565 (March 9, 2012), 77 FR 15422 (March 15, 2012) (SR-
EDGX-2012-07) (``EDGX Notice''); 66566 (March 9, 2012), 77 FR 15417 
(March 15, 2012) (SR-ISE-2012-21) (``ISE Notice'' and, with the EDGA 
Notice and EDGX Notice, the ``Notices'').
---------------------------------------------------------------------------

    The Commission has reviewed carefully the proposed rule changes and 
finds that the proposed rule changes are consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\5\ In particular, the 
Commission finds that the proposed rule changes are consistent with 
Section 6(b) of the Act,\6\ which, among other things, requires a 
national securities exchange to be so organized and have the capacity 
to be able to carry out the purposes of the Act 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, and assure the fair representation of its 
members in the selection of its directors and administration of its 
affairs, and provide that one or more directors shall be representative 
of issuers and investors and not be associated with a member of the 
exchange, broker, or dealer. Section 6(b) of the Act \7\ also requires 
that the rules of the exchange be designed to promote just and 
equitable principles of trade, 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.
---------------------------------------------------------------------------

    \5\ In approving the proposed rule changes, the Commission has 
considered their impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78f(b).
    \7\ Id.
---------------------------------------------------------------------------

II. Discussion

    The Exchanges have submitted their proposed rule changes to (i) 
effect the Transaction in accordance with their respective corporate 
governance documents, (ii) amend and restate the Amended and Restated 
Trust Agreement (``Trust''), (iii) file the form of EGD Corporate 
Resolution (``Resolution''), (iv) file the form of Agreement and 
Consent by and between EGD and Eurex Z[uuml]rich AG (``Eurex 
Z[uuml]rich'') (``Agreement and Consent'') and (v) amend and restate 
the Amended and Restated Bylaws of ISE Holdings (``Bylaws'').

A. Corporate Structure

    On December 17, 2007, ISE Holdings, the direct parent of ISE (and 
subsequent indirect parent of EDGA and EDGX), became a direct wholly-
owned subsidiary of U.S. Exchange Holdings, Inc. (``U.S. Exchange 
Holdings''), which, in turn, is a wholly-owned subsidiary of Eurex 
Frankfurt AG (``Eurex Frankfurt'', and, with Deutsche B[ouml]rse, the 
``German Upstream Owners'').\8\ Eurex Frankfurt is a wholly-owned 
subsidiary of Eurex Z[uuml]rich \9\ which, in turn, is currently 
jointly owned by Deutsche B[ouml]rse and SIX. SIX is owned by SIX Group 
AG (``SIX Group'').
---------------------------------------------------------------------------

    \8\ See Securities and Exchange Act Release No. 56955 (December 
13, 2007); 72 FR 71979 (December 19, 2007) (SR-ISE-2007-101).
    \9\ Eurex Z[uuml]rich and EGD, with the German Upstream Owners, 
are collectively referred to herein as the ``non-U.S. Upstream 
Owners'' and, with ISE Holdings, the ``Upstream Owners''.
---------------------------------------------------------------------------

    On December 23, 2008, ISE merged the ISE Stock Exchange, LLC, with 
and into Maple Merger Sub, LLC, a wholly-owned subsidiary of Direct 
Edge Holdings LLC (``Direct Edge'').\10\ As part of the same 
transaction, ISE Holdings purchased a 31.54% equity interest in Direct 
Edge.
---------------------------------------------------------------------------

    \10\ See Securities and Exchange Act Release No. 59135 (December 
22, 2008); 73 FR 79954 (December 30, 2008) (SR-ISE-2008-85).
---------------------------------------------------------------------------

    On May 7, 2009, Direct Edge's direct subsidiaries, EDGA and EDGX, 
each filed a Form 1 Application with the Commission, to own and operate 
registered national securities exchanges.\11\ On March 12, 2010, the 
Commission granted the Form 1 exchange registration applications of the 
EDGA and EDGX.\12\
---------------------------------------------------------------------------

    \11\ See Securities and Exchange Act Release No. 60651 
(September 11, 2009); 74 FR 47827 (September 17, 2009) (File Nos. 
10-193 and 10-194).
    \12\ See Securities and Exchange Act Release No. 61698 (March 
12, 2010); 75 FR 13151 (March 18, 2010) (approving File Nos. 10-194 
and 10-196).
---------------------------------------------------------------------------

    On June 7, 2011, Deutsche B[ouml]rse, SIX Group, and SIX signed a 
definitive agreement for the Transaction, which would give Deutsche 
B[ouml]rse a 100% indirect ownership interest in the currently jointly-
owned Eurex Z[uuml]rich. Deutsche B[ouml]rse currently has a 50% direct 
ownership interest in Eurex Z[uuml]rich. After the Transaction closes, 
Deutsche B[ouml]rse would also have a 100% direct ownership interest in 
EGD, which would have a 50% direct ownership interest in Eurex 
Z[uuml]rich.\13\ Accordingly, SIX and SIX Group would no longer have an 
indirect ownership interest in the Exchanges.
---------------------------------------------------------------------------

    \13\ ISE Holdings would continue to be the sole member of ISE.
---------------------------------------------------------------------------

    Section 19(b) of the Act and Rule 19b-4 thereunder require a self-
regulatory organization (``SRO'') to file proposed rule changes with 
the Commission. Although the Upstream Owners are not SROs, the 
Resolution, the Trust and the Bylaws, along with other corporate 
documents, are rules of an exchange \14\ if they are stated

[[Page 24753]]

policies, practices, or interpretations, as defined in Rule 19b-4 under 
the Act, of the exchange, and must be filed with the Commission 
pursuant to Section 19(b)(4) of the Act and Rule 19b-4 thereunder. 
Accordingly, the Exchanges filed the Trust, Resolution, Agreement and 
Consent and Bylaws with the Commission.\15\
---------------------------------------------------------------------------

    \14\ See Section 3(a)(27) of the Act, 15 U.S.C. 78c(a)(27). If 
EGD decides to change its Resolutions or governing documents, as 
applicable, EGD must submit the change to the board of directors of 
the Exchanges, and if the same must be filed with or filed with and 
approved by the Commission pursuant to Section 19 of the Act and the 
rules thereunder, such change shall not be effective until filed 
with or filed with and approved by the Commission, as applicable. 
See Resolution 11. In addition, if ISE Holdings decides to change 
the Bylaws, ISE Holdings must submit such change to the board of 
directors of the Exchanges, and if any or all of such board of 
directors shall determine that such amendment or repeal must be 
filed with or filed with and approved by the Commission pursuant to 
Section 19 of the Act and the rules thereunder, such change shall 
not be effective until filed with or filed with and approved by the 
Commission, as applicable. See Bylaws, Article X, Section 10.1.
    \15\ See proposed Second Amended and Restated Trust Agreement 
among ISE Holdings, U.S. Exchange Holdings, Inc., Wilmington Trust 
Company, Sharon Brown-Hruska, Robert Schwartz and Heinz Zimmermann 
attached as Exhibit A to the Notices; Form of Eurex Global 
Derivatives AG Corporate Resolution, attached as Exhibit B to the 
Notices; Agreement and Consent, attached as Exhibit C to the 
Notices; and proposed Second Amended and Restated Bylaws of 
International Securities Holdings, Inc. attached as Exhibit D to the 
Notices, which exhibits are available on the Commission's Web site 
(http://www.sec.gov/rules/sro.shtml) and at the Commission's Public 
Reference Room.
---------------------------------------------------------------------------

B. EGD

    Following the Transaction, Deutsche B[ouml]rse will have a 100% 
direct ownership interest in EGD, which will have a 50% direct 
ownership interest in Eurex Z[uuml]rich which, in turn, has a 100% 
indirect ownership interest in ISE Holdings. Eurex Frankfurt and 
Deutsche B[ouml]rse are stock corporations organized under the laws of 
the Federal Republic of Germany. Eurex Z[uuml]rich is a stock 
corporation organized under the laws of the Swiss Confederation.
    EGD, as a 50% owner of Eurex Z[uuml]rich, and thus a ``non-U.S. 
Upstream Owner,'' would adopt the Resolution to incorporate provisions 
regarding ownership, jurisdiction, books and records, and other issues 
related to its control of the Exchanges, with respect to itself, as 
well as to its board members, officers, employees, and agents (as 
applicable). The form of Resolution is substantially similar to the 
resolutions previously (the ``Previous Resolutions'') adopted by each 
of the non-U.S. Upstream Owners other than EGD.\16\ The Resolution is 
designed to maintain the independence of each Exchange's self-
regulatory functions, enable each Exchange to operate in a manner that 
complies with the U.S. federal securities laws, including the 
objectives and requirements of Sections 6(b) and 19(g) of the Act,\17\ 
and facilitate the ability of each Exchange and the Commission to 
fulfill their respective regulatory and oversight obligations under the 
Act.
---------------------------------------------------------------------------

    \16\ The form of Resolution differs from the Previous 
Resolutions in that the Resolution would explicitly reference EDGA 
and EDGX, and the FINMA procedure would allow EGD to provide 
information relating to the activities of the Exchanges to the 
Commission through Eurex Z[uuml]rich, which would provide such 
information to FINMA, whereas the Previous Resolutions incorporated 
EDGA and EDGX by reference, and the FINMA procedure allows SIX, SIX 
Group, and Eurex Z[uuml]rich to provide information relating to the 
activities of the Exchanges to the Commission directly through 
FINMA. See supra note 12.
    \17\ 15 U.S.C. 78f(b) and 15 U.S.C. 78s(g).
---------------------------------------------------------------------------

    For example, the Amended and Restated Certificate of Incorporation 
of ISE Holdings (``Holdings Certificate'') currently provides that no 
person, either alone or together with its related persons, may own, 
directly or indirectly, more than 40% (or 20%, if the person is a 
member as such term is defined in Section 3(a)(3)(A) of the Act of any 
of the Exchanges (each such member, an ``EDGA Member'', ``EDGX Member'' 
or ``ISE Member'')) of ISE Holdings capital stock that has the right by 
its terms to vote in the election of the board of directors of ISE 
Holdings (the ``Holdings Board'') or on other matters (other than 
matters affecting the rights, preferences, or privileges of the said 
capital stock) (``ISE Ownership Limit''). The Holdings Certificate also 
provides that no person, either alone or together with its related 
persons, may, directly or indirectly, vote or cause the voting of more 
than 20% of the ISE Holdings capital stock that has the right by its 
terms to vote in the election of the Holdings Board or on other matters 
(other than matters affecting the rights, preferences, or privileges of 
the said capital stock) (``ISE Voting Limit'').\18\
---------------------------------------------------------------------------

    \18\ Holdings Certificate, Article FOURTH, Section III. The 
Commission previously approved Ownership Limit and Voting Limit. See 
Securities Exchange Act Release No. 53705 (April 21, 2006) 71 FR 
25260 (April 28, 2006) (SR-ISE-2006-04) (reorganization of 
International Securities Exchange, Inc. into a holding company 
structure).
---------------------------------------------------------------------------

    The Fifth Amended and Restated Operating Agreement of Direct Edge 
(``DE Operating Agreement'') contains similar ownership and voting 
limitations. The DE Operating Agreement currently provides that no 
person, either alone or together with its related persons, may own, 
directly or indirectly, Units representing in the aggregate a 
Percentage Interest of more than 40% (or 20%, if the person is an 
Exchange Member) \19\ (``DE Ownership Limit'' and, with the ISE 
Ownership Limit, the ``Ownership Limits''). The DE Operating Agreement 
also provides that no person, either alone or together with its related 
persons, may, directly, indirectly or pursuant to any voting trust, 
agreement, plan or other arrangement, vote or cause voting of Units or 
give any consent or proxy with respect to Units representing a 
Percentage Interest of more than 20% (the ``DE Voting Limit'' and, with 
the ISE Voting Limit, the ``Voting Limit'').\20\
---------------------------------------------------------------------------

    \19\ ``Exchange Member'', ``Percentage Interest'' and ``Units'' 
have the respective meanings set forth in the DE Operating 
Agreement.
    \20\ DE Holdings Operating Agreement Section 12.1(a). The 
Commission previously approved the DE Ownership Limit and DE Voting 
Limit. See Securities Exchange Act Release No. 61698 (March 12, 
2010) 75 FR 13151 (March 18, 2010) (File Nos. 10-104 and 10-106) 
(order approving applications of EDGA and EDGX for registration as 
national securities exchanges).
---------------------------------------------------------------------------

    To facilitate compliance with the Ownership Limit and Voting Limit, 
the Resolution provides that EGD shall take reasonable steps necessary 
to cause ISE Holdings to be in compliance with the ISE Ownership Limit 
and ISE Voting Limit and Direct Edge to be in compliance with the DE 
Ownership Limit and DE Voting Limit.\21\ Further, the Resolution would 
require EGD to notify the board of directors of the Exchanges and the 
Trust (as described below) if any person, either alone or together with 
its related persons, acquires 20%, 33 [frac13]%, 45%, 50%, or 66 
[frac23] or more of the shares of stock then-outstanding shares of 
stock of EGD.\22\
---------------------------------------------------------------------------

    \21\ Resolution 4.
    \22\ Id.
---------------------------------------------------------------------------

    The Commission finds the provisions in the Resolution, requiring 
EGD to take reasonable steps necessary to cause ISE Holdings and Direct 
Edge to be in compliance with their respective Ownership Limits and 
Voting Limits, consistent with the Act. These provisions should 
minimize the potential that a person could improperly interfere with, 
or restrict the ability of, the Commission or the Exchanges to 
effectively carry out their regulatory oversight responsibilities under 
the Act. Further, the provisions in the Resolution requiring 
notification to the board of directors of the Exchanges and the Trust 
upon acquisition of certain ownership percentage of EGD should help 
facilitate the ability of the Exchanges to comply with their 
responsibilities under the Act.
    The Resolution also provides that EGD will comply with the U.S. 
federal securities laws and the rules and regulations thereunder and 
shall cooperate with the Commission and the

[[Page 24754]]

Exchanges.\23\ Also, each board member, officer, and employee of the 
EGD, in discharging his or her responsibilities, shall comply with the 
U.S. federal securities laws and the rules and regulations thereunder, 
cooperate with the Commission, and cooperate with each Exchange.\24\ In 
discharging his or her responsibilities as a board member of EGD, each 
such member must, to the fullest extent permitted by applicable law, 
take into consideration the effect that the actions of the EGD would 
have on the ability of the Exchanges to carry out their respective 
responsibilities under the Act.\25\ In addition, EGD, its board 
members, officers and employees shall give due regard to the 
preservation of the independence of the self-regulatory function of the 
Exchanges.\26\
---------------------------------------------------------------------------

    \23\ Resolution 1.
    \24\ Resolutions 7(a) and 8(a). The Resolutions also provide 
that EGD will take reasonable steps necessary to cause each person 
who becomes a board member of the non-U.S. Upstream Owner after 
consummation of the Transaction to agree in writing to certain 
matters included in the Resolutions. See Resolution 7.
    \25\ Resolution 7(f).
    \26\ Resolution 5, 7(d), and 8(d).
---------------------------------------------------------------------------

    Further, EGD (along with their respective board members, officers, 
and employees) agrees to keep confidential, to the fullest extent 
permitted by applicable law, all confidential information pertaining to 
the self-regulatory function of the Exchanges, including, but not 
limited to, confidential information regarding disciplinary matters, 
trading data, trading practices, and audit information, contained in 
the books and records of the Exchanges and not use such information for 
any commercial \27\ purposes.\28\ In addition, books and records of EGD 
related to the activities of the Exchanges will at all times be made 
available for inspection and copying by the Commission and the 
Exchanges, subject, where necessitated by Swiss law, to certain 
procedures.\29\ Moreover, for so long as EGD directly or indirectly 
controls the Exchanges, the books, records, officers, directors (or 
equivalent), and employees of EGD shall be deemed to be the books, 
records, officers, directors, and employees of the Exchanges.\30\
---------------------------------------------------------------------------

    \27\ The Commission believes that any non-regulatory use of such 
information would be for a commercial purpose.
    \28\ Resolutions 6, 7(e), and 8(e).
    \29\ Resolution 3. See infra note 38 and accompanying text.
    \30\ Id.
---------------------------------------------------------------------------

    To the extent involved in the activities of the Exchanges, EGD, its 
board members, officers, and employees irrevocably submit to the 
jurisdiction of the U.S. federal courts and the Commission for purposes 
of any action arising out of, or relating to, the activities of the 
Exchanges.\31\
---------------------------------------------------------------------------

    \31\ Resolutions 2, 7(b), and 8(b).
---------------------------------------------------------------------------

    Moreover, EGD acknowledges that it is responsible for referring 
possible violations of the Act, the rules and regulations thereunder, 
and rules of EDGA, EDGX and ISE to EDGA, EDGX and ISE, respectively. In 
addition, EGD represents that it will become a party to an agreement 
among Deutsche B[ouml]rse, Eurex Frankfurt, Eurex Z[uuml]rich, SIX, SIX 
Group, U.S. Exchange Holdings, ISE Holdings and each of the Exchanges 
to provide adequate funding for the Exchanges' regulatory 
responsibilities.\32\
---------------------------------------------------------------------------

    \32\ See EDGA Notice, 77 FR at 15414; EDGX Notice, 77 FR at 
15422-15423; ISE Notice, 77 FR at 15418. Following the consummation 
of the Transaction, SIX and SIX Group will no longer be parties to 
such agreement.
---------------------------------------------------------------------------

    The Resolution also requires that any change to the Resolution 
(including any action by EGD that would have the effect of changing the 
Resolutions), be submitted to the board of directors of each Exchange. 
If such change must be filed with, or filed with and approved by, the 
Commission under Section 19 of the Act \33\ and the rules thereunder, 
then such change shall not be effective until filed with, or filed with 
and approved by, the Commission.\34\ This requirement to submit changes 
to the board of directors of each Exchange continues for so long as 
EGD, directly or indirectly, controls the Exchanges.
---------------------------------------------------------------------------

    \33\ 15 U.S.C. 78s.
    \34\ Resolution 11.
---------------------------------------------------------------------------

    Finally, the Resolution also provides that, where necessitated by 
Swiss law, EGD will provide information related to the activities of 
the Exchanges, including books and records of EGD related to the 
activities of the Exchanges, to the Commission promptly through Eurex 
Z[uuml]rich, which will, in turn, provide such information to the Swiss 
Financial Market Supervisory Authority (``FINMA''). Moreover, oral 
exchanges between EGD and the Commission related to the activities of 
the Exchanges will include the participation of Eurex Z[uuml]rich and 
the FINMA, through its oversight of Eurex Z[uuml]rich as a regulated 
legal entity, where necessitated by Swiss law.\35\
---------------------------------------------------------------------------

    \35\ Resolution 1, 3(b), 6, 7(a), 7(e), 8(a), 8(e), and 9. The 
transmission of information between EGD and Eurex Z[uuml]rich is 
provided for in the Agreement and Consent.
---------------------------------------------------------------------------

    Swiss law designed to protect Swiss sovereignty raises concerns 
about the ability of the EGD to provide the Commission with direct 
access to information, including books and records, related to the 
activities of the Exchanges.\36\ In order not to run afoul of Swiss law 
and to facilitate the Transaction, the Commission and the FINMA have 
developed a procedure (``Procedure'') under which the FINMA undertakes 
to serve as a conduit for unfiltered delivery of books and records of 
EGD related to the activities of the Exchanges.\37\
---------------------------------------------------------------------------

    \36\ See Art. 271 of Swiss penal code, ``Prohibited acts for a 
foreign state,'' which states, in part: ``Whoever, without being 
authorized, performs acts for a foreign state on Swiss territory 
that are reserved to an authority or an official, whoever performs 
such acts for a foreign party or another foreign organization, 
whoever aids and abets such acts, shall be punished with 
imprisonment and, in serious cases, sentenced to the penitentiary.''
    \37\ Application of the Procedure would be limited to issues 
arising in the context of the Transaction and the Commission's 
oversight of the Exchanges. Information-sharing and cooperation 
between the Commission and the FINMA in securities enforcement 
matters will continue to be governed by the letters of cooperation 
between the Commission and the FINMA.
---------------------------------------------------------------------------

    Pursuant to the Procedure, where necessitated by Swiss law, if the 
Commission or the staff makes a request to EGD for information related 
to the activities of the Exchanges, including books and records related 
to the activities of the Exchanges, the FINMA shall deliver to the 
Commission or the staff, without delay, any responsive information 
provided to the FINMA by EGD through Eurex Z[uuml]rich. Written 
requests for information, including book and records, related to the 
activities of the Exchanges shall be made by the Commission or the 
staff directly to EGD, and the FINMA will be copied on any such 
requests. Moreover, a FINMA staff member shall participate in any oral 
exchanges between the Commission, EGD and Eurex Z[uuml]rich.\38\ 
Notwithstanding this Procedure, EGD would remain fully responsible for 
meeting all of its obligations as an owner of the Exchanges.
---------------------------------------------------------------------------

    \38\ The Procedure is designed to ensure that the delivery of 
books and records to the Commission is not delayed. Therefore, the 
Commission's requests for books and records would be sent directly 
to EGD and would not be subject to filtering or substantive review 
by the FINMA. In addition, the FINMA has agreed to pass to the 
Commission without delay and without substantive review materials 
provided by EGD through Eurex Z[uuml]rich that are responsive to the 
Commission's requests for information. The same Procedure would 
continue to apply with respect to information from Eurex 
Z[uuml]rich.
---------------------------------------------------------------------------

    The Commission finds that these provisions of the Resolutions are 
consistent with the Act. These provisions are intended to assist the 
Exchanges in fulfilling their respective self-regulatory obligations 
and in administering and complying with the requirements of the Act.
    The Commission notes that while the Resolution does not provide 
that books and records of EGD related to the

[[Page 24755]]

activities of the Exchanges will be maintained within the U.S., such 
books and records are deemed to be the books and records of the 
Exchanges, and EGD has committed in the Resolution to make available, 
at all times, such books and records for inspection and copying by the 
Commission and the Exchanges.\39\
---------------------------------------------------------------------------

    \39\ See supra note 29.
---------------------------------------------------------------------------

    Moreover, if EGD fails to make its books and records available to 
the Commission, the Commission could bring an action under, among other 
provisions, Section 17 of the Act \40\ and Rule 17a-1(b) thereunder 
\41\ against the Exchanges pursuant to Section 19(h) of the Act.\42\ 
The Commission believes that EGD's representations and commitments, 
together with the Trustees' and the Commission's authority, will allow 
the Exchanges to meet their respective obligations under Section 17 of 
the Act and the rules thereunder.
---------------------------------------------------------------------------

    \40\ 15 U.S.C. 78q.
    \41\ 17 CFR 240.17a-1(b).
    \42\ 15 U.S.C. 78s(h).
---------------------------------------------------------------------------

    The Commission also notes that, for EGD, FINMA will serve as a 
conduit for the delivery of information related to the activities of 
the Exchanges. The Commission's usual practice is to have direct access 
to books and records related to the activities of a U.S. securities 
exchange. However, subject to the condition that EGD will promptly 
deliver such information to the Commission via the Procedure, coupled 
with the fact that under the Exchanges' rules all trading records of 
the Exchanges are required to be maintained in the U.S.,\43\ the 
Commission believes that the provisions of the Resolutions related to 
the Commission's access to books and records through the FINMA should 
not result in a level of access materially different from that agreed 
to by other entities that control U.S. securities exchanges.
---------------------------------------------------------------------------

    \43\ See Amended and Restated Bylaws of EDGA, Inc., Article XI, 
Section 4; Amended and Restated Bylaws of EDGX, Inc., Article XI, 
Section 4; and ISE Second Amended and Restated Limited Liability 
Company Agreement, Article IV, Section 4.1.
---------------------------------------------------------------------------

    Finally, the Commission notes that under Section 20(a) of the 
Act,\44\ any person with a controlling interest in the Exchanges shall 
be jointly and severally liable with and to the same extent that the 
Exchange is liable under any provision of the Act, unless the 
controlling person acted in good faith and did not directly or 
indirectly induce the act or acts constituting the violation or cause 
of action. In addition, Section 20(e) of the Act \45\ creates aiding 
and abetting liability for any person who knowingly provides 
substantial assistance to another person in violation of any provision 
of the Act or rule thereunder. Further, Section 21C of the Act \46\ 
authorizes the Commission to enter a cease-and-desist order against any 
person who has been ``a cause of'' a violation of any provision of the 
Act through an act or omission that the person knew or should have 
known would contribute to the violation. These provisions are 
applicable to the dealings of EGD with the Exchanges.
---------------------------------------------------------------------------

    \44\ 15 U.S.C. 78t(a).
    \45\ 15 U.S.C. 78t(e).
    \46\ 15 U.S.C. 78u-3.
---------------------------------------------------------------------------

C. Trust

    The Exchanges propose to amend certain provisions of the Trust in 
connection with the Transaction. The Trust serves four general 
purposes: (i) To accept, hold and dispose of Trust Shares \47\ on the 
terms and subject to the conditions set forth therein, (ii) to 
determine whether a Material Compliance Event \48\ has occurred or is 
continuing; (iii) to determine whether the occurrence and continuation 
of a Material Compliance Event requires the exercise of the Call 
Option; \49\ and (iv) to transfer Deposited Shares from the Trust to 
the Trust Beneficiary \50\ as provided in Section 4.2(h) therein.
---------------------------------------------------------------------------

    \47\ Under the Trust, the term ``Trust Shares'' means either 
Excess Shares or Deposited Shares, or both, as the case may be. The 
term ``Excess Shares'' means that a Person obtained an ownership or 
voting interest in ISE Holdings in excess of certain ownership and 
voting restrictions pursuant to Article FOURTH of the Amended and 
Restated Certificate of Incorporation of ISE Holdings (the 
``Certificate''), through, for example, ownership of one of the non-
U.S. Upstream Owners or U.S. Exchange Holdings, without obtaining 
the approval of the Commission. The term ``Deposited Shares'' means 
shares that are transferred to the Trust pursuant to the Trust's 
exercise of the Call Option.
    \48\ Under the Trust, the term ``Material Compliance Event'' 
means, with respect to a non-U.S. Upstream Owner, any state of 
facts, development, event, circumstance, condition, occurrence or 
effect that results in the failure of any of the non-U.S. Upstream 
Owners to adhere to their respective commitments under the Previous 
Resolutions or the Resolution any material respect.
    \49\ Under the Trust, the term ``Call Option'' means the option 
granted by the Trust Beneficiary to the Trust to call the Voting 
Shares as set forth in Section 4.2 therein.
    \50\ Under the Trust, the term ``Trust Beneficiary'' means U.S. 
Exchange Holdings.
---------------------------------------------------------------------------

    The Exchanges propose to update the recitals of the Trust, remove 
references to SIX and SIX Group from the definition of ``Affected 
Affiliate'' in Section 1.1 of the Trust, add a reference to EGD in the 
definition of ``Affected Affiliate'' in Section 1.1 of the Trust, 
remove SIX's address from the notice provisions in Section 8.8 of the 
Trust, and add EGD's address to the notice provisions in Section 8.8 of 
the Trust. The Exchange also proposes to correct several typographical 
errors in the Trust.
    As discussed above, Section 19(b) of the Act and Rule 19b-4 
thereunder require an SRO to file a proposed rule change with the 
Commission. Although the Trust is not an SRO, certain provisions of the 
Trust Agreement are rules of an exchange if they are stated policies, 
practice, or interpretations, as defined in Rule 19b-4 under the 
Act,\51\ and must therefore be filed with the Commission pursuant to 
Section 19(b)(4) of the Act \52\ and Rule 19b-4 thereunder. 
Accordingly, the Exchange has filed the Trust Agreement with the 
Commission.
---------------------------------------------------------------------------

    \51\ 17 CFR 240.19b-4.
    \52\ 15 U.S.C. 78s(b).
---------------------------------------------------------------------------

    The Commission finds that the amendments to the Trust's provisions 
are consistent with the Act and that they are designed to facilitate 
the Exchanges' ability to comply with the requirements of the Act.

D. Waiver of the ISE Holdings Ownership and Voting Limits

    The Holdings Board may waive the ISE Ownership Limit and ISE Voting 
Limit in an amendment to the Bylaws if, in connection with the adoption 
of such amendment, the board of directors in its sole discretion adopts 
a resolution stating that it is the determination of the board of 
directors that such amendment:
     Will not impair the ability of ISE Holdings and any of the 
Exchanges, or facility thereof, to carry out their respective 
responsibilities under the Act and the rules and regulations 
thereunder;
     is otherwise in the best interest of ISE Holdings, its 
stockholders and the Exchanges;
     will not impair the Commission's ability to enforce the 
Act;
     for so long as ISE Holdings directly or indirectly 
controls the Exchanges, neither such person nor any of its related 
persons is an ISE Member, EDGA Member or EDGX Member; and
     neither such person nor any of its related persons is 
subject to any ``statutory disqualification'' (as such term is defined 
in Section 3(a)(39) of the Act).\53\
---------------------------------------------------------------------------

    \53\ See Amended and Restated Certificate of Incorporation of 
ISE Holdings, Article FOURTH, Section III, and Amended and Restated 
Bylaws of ISE Holdings, Article XI.
---------------------------------------------------------------------------

    Such amendment shall not be effective unless it has been filed with 
and approved by the Commission under Section 19(b) of the Act.\54\
---------------------------------------------------------------------------

    \54\ 15 U.S.C. 78s(b).
---------------------------------------------------------------------------

    Acting pursuant to this waiver provision, the Holdings Board has 
approved the amendment to the Bylaws

[[Page 24756]]

in order to permit EGD to indirectly own 50% of the outstanding common 
stock of ISE Holdings as of and after consummation of the Transaction. 
In adopting such amendment, the Holdings Board made the necessary 
determinations and approved the submission of the proposed rule change 
to the Commission. Specifically, each Exchange represented that it will 
continue to operate and regulate its respective market and members 
exactly as it has done prior to the Transaction.\55\ In addition, each 
Exchange stated that Transaction will not impair the ability of ISE 
Holdings, such Exchange, or any facility thereof, to carry out their 
respective functions and responsibilities under the Exchange Act and 
will not impair the ability of the Commission to enforce the Exchange 
Act.
---------------------------------------------------------------------------

    \55\ See EDGA Notice at 15416; ISE Notice at 15420; EDGX Notice 
at 15425.
---------------------------------------------------------------------------

    The Exchanges also stated that the Holdings Board determined that 
ownership of ISE Holdings by EGD is in the best interests of ISE 
Holdings, its shareholders, and the Exchanges. In addition, neither 
EGD, nor any of its related persons, is (1) an ISE Member; (2) an EDGA 
Member; (3) an EDGX Member; or (4) subject to any ``statutory 
disqualification.'' \56\
---------------------------------------------------------------------------

    \56\ See EDGA Notice at 15416; ISE Notice at 15421; EDGX Notice 
at 15425.
---------------------------------------------------------------------------

    In light of these representations and findings, the Commission 
believes it is consistent with the Act to allow EGD to indirectly own 
50% of the outstanding common stock of ISE Holdings. EGD has also 
included in the Resolution certain provisions designed to maintain the 
independence of the Exchanges' self-regulatory functions from EGD and 
Deutsche B[ouml]rse.\57\ Accordingly, the Commission believes that the 
indirect ownership of ISE Holdings by EGD will not impair the ability 
of the Commission or any of the Exchanges to discharge their respective 
responsibilities under the Act.
---------------------------------------------------------------------------

    \57\ See supra notes 23-31 and accompanying text.
---------------------------------------------------------------------------

III. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\58\
---------------------------------------------------------------------------

    \58\ The Commission's approval of the proposed rule change based 
on the Exchanges' representations that the Resolution will be signed 
by the board of directors of EGD before or at the closing of the 
Transaction.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\59\ that the proposed rule changes (SR-EDGA-2012-08, SR-EDGX-2012-07, 
SR-ISE 2012-21) are approved.
---------------------------------------------------------------------------

    \59\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\60\
---------------------------------------------------------------------------

    \60\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012-9929 Filed 4-24-12; 8:45 am]
BILLING CODE 8011-01-P


