
[Federal Register Volume 78, Number 239 (Thursday, December 12, 2013)]
[Notices]
[Pages 75585-75597]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-29623]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71024; File No. SR-BYX-2013-039]


Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change in Connection With the Proposed 
Business Combination Involving BATS Global Markets, Inc. and Direct 
Edge Holdings LLC

December 6, 2013.
    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 25, 2013, BATS Y-Exchange, Inc. (the ``Exchange'') 
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.
---------------------------------------------------------------------------

    \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 filed a proposed rule change (the ``Proposed Rule 
Change'') in connection with the proposed business combination (the 
``Combination''), as described in more detail below, involving its 
parent company, BATS Global Markets, Inc. and Direct Edge Holdings LLC 
(``DE Holdings''), the indirect parent company of EDGX Exchange, Inc. 
(``EDGX'') and EDGA Exchange, Inc. (``EDGA''), each a national 
securities exchange registered with the Commission.
    Upon completion of the Combination (the ``Closing''), BATS Global 
Markets, Inc. and DE Holdings will each become intermediate holding 
companies, held under a single new holding company. The new holding 
company, currently named ``BATS Global Markets Holdings, Inc.,'' will 
at that time change its name to ``BATS Global Markets, Inc.'' In 
addition, the current parent company of the Exchange, BATS Global 
Markets, Inc., will at that time change its name to ``BATS Global 
Markets Holdings, Inc.''
    For ease of reference, this Proposed Rule Change will refer to the 
current parent company of the Exchange as ``Current BGM'' when 
referring to the entity prior to the Closing, and as ``BGM Holdings'' 
when referring to that entity after the Closing. The entity that will 
become the new top-level holding company that will, after Closing, own 
BGM Holdings and DE Holdings, will be referred to as ``New BGM.''
    To effectuate the Combination, the Exchange seeks to obtain the 
Commission's approval of (i) resolutions of Current BGM's board of 
directors (the ``Resolutions'') making certain determinations regarding 
New BGM and the impact of the Combination on the Exchange; (ii) the 
proposed Amended and Restated Certificate of Incorporation of New BGM 
(the ``New BGM Charter''); (iii) the proposed Amended and Restated 
Bylaws of New BGM (the ``New BGM Bylaws''); (iv) the proposed 
amendments to Current BGM's Second Amended and Restated Certificate of 
Incorporation (the ``Current BGM Charter,'' and after such amendments, 
the ``BGM Holdings Charter''); (v) the proposed amendments to the 
Amended and Restated Bylaws of Current BGM (the ``Current BGM Bylaws,'' 
and after such amendments, the ``BGM Holdings Bylaws''); (vi) the 
proposed amendments to the By-Laws of the Exchange (the ``Exchange 
Bylaws''); (vii) the proposed amendments to Exchange Rule 2.3 to 
reflect the affiliation between the Exchange and two additional 
registered national securities exchanges; (viii) the proposed 
amendments to Exchange Rule 2.12 to reflect the affiliation between the 
Exchange and the routing broker for EDGA and EDGX; and (ix) the 
indirect acquisition by an affiliate of the Exchange of a Member \3\ of 
the Exchange and the resulting affiliation between the Exchange and the 
Member of the Exchange, as required under Exchange Rule 2.10.
---------------------------------------------------------------------------

    \3\ The term ``Member'' is defined in Exchange Rule 1.5(n) as 
any registered broker or dealer that has been admitted to membership 
in the Exchange.
---------------------------------------------------------------------------

    The text of the proposed rule change is available at the Exchange's 
Web site at http://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

[[Page 75586]]

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 various changes to the organizational and 
governance documents of the Exchange and the Exchange's current and 
proposed future parent companies, changes to Exchange Rules,\4\ and 
related actions that are necessary in connection with the Closing of 
the Combination, as described below.
---------------------------------------------------------------------------

    \4\ The term ``Exchange Rules'' refers to the rules of the 
Exchange.
---------------------------------------------------------------------------

    Other than as described herein and set forth in the attached 
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 Combination. 
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 and BATS Exchange, Inc. (``BZX'' and together with the 
Exchange, 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\ Each BATS Exchange is a direct, 
wholly owned subsidiary of Current BGM, a Delaware corporation. Current 
BGM also owns 100 percent of the equity interest in BATS Trading, Inc., 
a Delaware corporation (``BATS Trading'') that is a broker-dealer 
registered with the Commission that provides routing services outbound 
from and, in certain instances inbound to, each BATS Exchange. In 
contemplation of the Combination, several new entities have been 
formed: New BGM, a Delaware corporation, is currently a wholly owned 
subsidiary of Current BGM, and is currently a shell company with no 
material assets or operations. New BGM, in turn, owns 100 percent of 
the equity interest in each of Blue Merger Sub Inc., a Delaware 
corporation (``Blue Merger Sub''), and Delta Merger Sub LLC, a Delaware 
limited liability company (``Delta Merger Sub''). Each of Blue Merger 
Sub and Delta Merger Sub are currently shell companies with no material 
assets or operations.
---------------------------------------------------------------------------

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

    Current BGM is itself beneficially owned primarily by a consortium 
of several unaffiliated firms, including Members or affiliates of 
Members of the Exchange. No firm beneficially owns 20 percent or 
greater of Current BGM, and the only firms beneficially owning ten 
percent or greater of Current BGM are (i) GETCO Investments, LLC, an 
affiliate of KCG Holdings, Inc., (ii) BGM Holding, L.P., a holding 
company itself owned by entities affiliated with the Spectrum Equity 
Investors and TA Associates Management private investment funds, and 
(iii) Strategic Investments I, Inc., an affiliate of Morgan Stanley.\6\ 
Seven other firms each beneficially own five percent or greater but 
less than ten percent of Current BGM, while seven other firms as well 
as various individuals each beneficially own less than five percent of 
Current BGM.
---------------------------------------------------------------------------

    \6\ For purposes of this Proposed Rule Change, references to the 
beneficial ownership of a ``firm'' refers to the aggregate 
beneficial ownership of the firm and its affiliated entities.
---------------------------------------------------------------------------

    DE Holdings, a Delaware limited liability company, owns 100 percent 
of the equity interest in Direct Edge, Inc., a Delaware corporation 
(``DEI''). DEI, in turn, owns 100 percent of the equity interest in two 
registered national securities exchanges, EDGX and EDGA, each a 
Delaware corporation (together, the ``DE Exchanges''). In addition, DE 
Holdings owns 100 percent of the equity interest in Direct Edge ECN LLC 
d/b/a DE Route, a Delaware limited liability company and the routing 
broker-dealer for the DE Exchanges (``DE Route'').
    As a limited liability company, ownership in DE Holdings is 
represented by units held by ``LLC Members.'' Certain of the DE 
Holdings LLC Members are Members or affiliates of Members of the 
Exchange. The Exchange understands that International Securities 
Exchange Holdings, Inc. (``ISE Holdings'') is the only LLC Member of DE 
Holdings to beneficially own greater than 20 percent of the equity 
interest in DE Holdings. Other than ISE Holdings, the only firms 
beneficially owning ten percent or greater of DE Holdings (but in each 
case less than 20 percent) are Citadel Securities LLC, The Goldman 
Sachs Group, Inc., and an affiliate of KCG Holdings, Inc. No LLC Member 
beneficially owns five percent or greater but less than ten percent of 
DE Holdings. Five other firms as well as various individuals each 
beneficially own less than five percent of DE Holdings.
2. The Combination
    On August 23, 2013, an Agreement and Plan of Merger (the ``Merger 
Agreement'') was entered into among Current BGM, New BGM, DE Holdings, 
Blue Merger Sub, Delta Merger Sub, and Cole, Schotz, Meisel, Forman & 
Leonard, P.A., solely in its capacity as representative of the LLC 
Members. Pursuant to and subject to the terms of the Merger Agreement, 
at the Closing, among other things:
    (i) Blue Merger Sub will be merged with and into Current BGM, 
whereupon the separate existence of Blue Merger Sub will cease and 
Current BGM will be the surviving company (the ``BATS Merger'');
    (ii) Delta Merger Sub will be merged with and into DE Holdings, 
whereupon the separate existence of Delta Merger Sub will cease and DE 
Holdings will be the surviving company (the ``Direct Edge Merger'');
    (iii) by virtue of the BATS Merger and without any action required 
on the part of Current BGM, New BGM, Blue Merger Sub or any holder of 
Current BGM stock, each outstanding share of Current BGM stock issued 
and outstanding will be converted into the right to receive shares of 
New BGM stock, and each outstanding share of Blue Merger Sub issued and 
outstanding will be converted into one share of Current BGM, such that 
Current BGM will become a wholly owned subsidiary of New BGM; and
    (iv) by virtue of the Direct Edge Merger and without any action 
required on the part of DE Holdings, New BGM, Delta Merger Sub, or any 
LLC Member, each LLC Member's membership interests in DE Holdings will 
be converted into the right to receive shares of New BGM stock, and 
each unit of ownership interest of Delta Merger Sub issued and 
outstanding will be converted into one unit of ownership of DE 
Holdings, such that DE Holdings will become a wholly owned subsidiary 
of New BGM.

Upon the Closing, each of Current BGM and New BGM will amend and 
restate their respective certificates of incorporation to, among other 
things, change their names such that New BGM will be renamed ``BATS 
Global Markets, Inc.'' and Current BGM will be renamed ``BATS Global 
Markets Holdings, Inc.''
3. Post-Closing Corporate Structure
    As a result of the Combination, New BGM will own (i) 100 percent of 
the

[[Page 75587]]

equity interest in BGM Holdings (the entity previously referred to as 
``Current BGM''), and (ii) 100 percent of the LLC membership interests 
in DE Holdings. BGM Holdings will continue to own 100 percent of the 
equity interest in each BATS Exchange and BATS Trading. DE Holdings 
will continue to own 100 percent of the equity interest in DE Route \7\ 
and DEI. DEI will, in turn, continue to own 100 percent of the equity 
interest in each DE Exchange. Each of the BATS Exchanges and BATS 
Trading, on the one hand, and the DE Exchanges and DE Route, on the 
other hand, will continue to operate separately.
---------------------------------------------------------------------------

    \7\ As described above, the Combination will result in a change 
of ownership of both BATS Trading and DE Route, each of which is a 
member of the Financial Industry Regulatory Authority, Inc. 
(``FINRA''). The Exchange understands that, pursuant to NASD Rule 
1017, each of BATS Trading and DE Route is seeking approval for this 
change of ownership from FINRA.
---------------------------------------------------------------------------

    New BGM, as the new top-level holding company for the combined 
businesses, will have widely dispersed ownership, divided among the 
several firms and individuals that previously held equity interests in 
each of Current BGM and DE Holdings. Of the firms and individuals that 
are expected to hold equity interests in New BGM after the Closing, 
none will beneficially own 20 percent or greater of New BGM and only an 
affiliate of KCG Holdings, Inc. will beneficially own ten percent or 
greater. Seven firms will beneficially own five percent or greater but 
less than ten percent, while 12 other firms as well as various 
individuals will each beneficially own less than five percent of New 
BGM.\8\
---------------------------------------------------------------------------

    \8\ ISE Holdings, which will beneficially own greater than five 
percent but less than ten percent of New BGM, will receive common 
stock of New BGM designated as Class A Non-Voting Common Stock. As 
set forth in the proposed New BGM Charter and described below, 
shares of Class A Non-Voting Common Stock are generally non-voting, 
except with respect to certain actions that would adversely affect 
the preferences, rights or powers of the holders of Class A Non-
Voting Common Stock disproportionately relative to Voting Common 
Stock or the Class B Non-Voting Common Stock. See New BGM Charter, 
Art. FOURTH, para. (b)(ii). Pursuant to the New BGM Charter and the 
Investor Rights Agreement expected to be entered into at Closing and 
attached as Exhibit A to the New BGM Bylaws (the ``Investor Rights 
Agreement''), ISE Holdings' shares of Class A Non-Voting Common 
Stock may convert to Voting Common Stock (i) automatically with 
respect to any shares transferred to persons other than Related 
Persons of ISE Holdings; (ii) upon the termination of the Investor 
Rights Agreement; and (iii) automatically with respect to any shares 
of Class A Non-Voting Common Stock sold by ISE Holdings in any 
public offering of the stock of New BGM. See New BGM Charter, Art. 
FOURTH, para. (c); Investor Rights Agreement, Section 2.2(j).
---------------------------------------------------------------------------

4. Voting and Ownership Limitations of Current BGM; Resolutions
    The Current BGM Charter provides that (i) no person, 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 Current 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 Current BGM to the extent of any 
voting in excess of the limitation.\11\
---------------------------------------------------------------------------

    \9\ The Current 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 Current BGM (provided no person is deemed a Related 
Person pursuant to clause (ii) solely as a result of such person's 
being or becoming a party to the Investor Rights Agreement entered 
into by and among Current BGM and the stockholders named therein on 
January 1, 2008); (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 
either 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 Current BGM or any of 
its parents or subsidiaries; (vii) in the case of a person that is 
an executive office (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 Current BGM Charter, 
Art. FIFTH, para. (a)(ii).
    \10\ See Current BGM Charter, Art. FIFTH, para. (b).
    \11\ See Current BGM Charter, Art. FIFTH, para. (d).
---------------------------------------------------------------------------

    However, the Current 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 board of directors of 
Current BGM if, in connection with taking such action, the board of 
directors states in such resolution that it is the determination of the 
board of directors that the waiver:
     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 Current 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\
---------------------------------------------------------------------------

    \12\ See Current BGM Charter, Art. FIFTH, para. (b)(ii)(B).
---------------------------------------------------------------------------

    In granting such a waiver, the Current BGM board of directors 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\
---------------------------------------------------------------------------

    \13\ Id.
---------------------------------------------------------------------------

    In addition, notwithstanding the above, the Current 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 Current BGM's capital 
stock, such a transaction will not become effective until the Current 
BGM board of directors determines, by resolution, that such person and 
its

[[Page 75588]]

Related Persons are not subject to any ``statutory disqualification,'' 
as defined in Section 3(a)(39) of the Act.\15\
---------------------------------------------------------------------------

    \14\ See Current BGM Charter, Art. FIFTH, para. (b)(iii).
    \15\ 15 U.S.C. 78c(a)(39).
---------------------------------------------------------------------------

    As described above, upon the Closing of the proposed Combination, 
New BGM will become the sole owner of Current BGM (referred to as ``BGM 
Holdings'' upon the Closing and thereafter). Additionally, as discussed 
in more detail below, the Exchange is also seeking the Commission's 
approval for Current BGM's proposal to, contemporaneously with the 
Closing, amend and restate the Current BGM Charter as the BGM Holdings 
Charter, and for New BGM to adopt the New BGM Charter. Unlike the 
Current BGM Charter, as proposed to be amended, the BGM Holdings 
Charter will not contain the BGM Ownership Limitation or the BGM Voting 
Limitation.\16\ While the BGM Ownership Limitation and BGM Voting 
Limitation will not be contained in the BGM Holdings Charter, the BGM 
Holdings Charter specifies that BGM Holdings' sole stockholder will be 
New BGM, and the New BGM Charter will contain substantively identical 
ownership and voting limitation provisions, which will also become 
effective contemporaneously with the Closing.\17\
---------------------------------------------------------------------------

    \16\ See infra text accompanying note 58.
    \17\ See infra text accompanying notes 23 through 27.
---------------------------------------------------------------------------

    As a result, New BGM's acquisition of ownership and voting rights 
in BGM Holdings upon Closing would not cause New BGM to contravene the 
BGM Ownership Limitation or BGM Voting Limitation, because the Current 
BGM Charter will be contemporaneously amended to eliminate the BGM 
Ownership Limitation and the BGM Voting Limitation, and the New BGM 
Charter will be contemporaneously amended with respect to New BGM's 
stockholders.
    Nevertheless, because the Combination will result in a change of 
ownership of Current BGM (in that New BGM will become the sole 
stockholder of Current BGM), the Exchange and the board of directors of 
Current BGM each believe that it is appropriate for the board of 
directors of Current BGM to adopt the Resolutions, attached as Exhibit 
5A, making certain determinations with respect to New BGM and the 
Combination similar to those that would be necessary to waive the BGM 
Ownership Limitation and BGM Voting Limitation. Specifically, the board 
of directors of Current BGM determined that:
     The acquisition of the proposed ownership by New BGM in 
Current 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 Current 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 New BGM in Current 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, that it is otherwise in the best interests of the Current 
BGM, its stockholders and the BATS Exchanges, and that it will not 
impair the ability of the Commission to enforce the Act and the rules 
and regulations promulgated thereunder;
     neither New BGM, nor any of its Related Persons, is 
subject to ``statutory disqualification'' within the meaning of Section 
3(a)(39) of the Act; \18\ and
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78c(a)(39).
---------------------------------------------------------------------------

     neither New BGM, nor any of its Related Persons (excluding 
BATS Trading, an Exchange Member whose affiliation with the Exchanges 
has been approved/permitted by the Commission pursuant to Rule 2.11 and 
Rule 2.12 of each Exchange),\19\ is an Exchange Member.\20\
---------------------------------------------------------------------------

    \19\ As noted above, BATS Trading is a routing broker-dealer and 
an Exchange Member that is affiliated with the Exchange, pursuant to 
Exchange Rules 2.11 and 2.12, and a direct subsidiary of Current 
BGM. The same structure will continue to be in place following the 
Closing and BATS Trading will remain a direct subsidiary of BGM 
Holdings.
    \20\ In addition, the Resolutions contain a determination that 
the execution and delivery of the Merger Agreement by New BGM 
constituted notice of New BGM's 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 Current BGM Charter, Art. FIFTH, para. 
(b)(iv).
---------------------------------------------------------------------------

    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 Combination will not 
impair the ability of either 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 Combination. 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 Current BGM board of directors that the 
Combination and New BGM's resulting ownership and voting rights in BGM 
Holdings are otherwise in the best interests of Current BGM, its 
stockholders, and the BATS Exchanges.
    In addition, the Exchange notes that notwithstanding the 
Resolutions and the Combination, 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. As described in more detail below, the Exchange is also 
proposing the adoption of the New BGM Charter and the New BGM Bylaws, 
which are modeled in large part on the Current BGM Charter and the 
Current BGM Bylaws (and include provisions substantially identical to 
the BGM Ownership Limitation and the BGM Voting Limitation), creating 
an ownership structure that 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 entities, 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.
    The Exchange therefore requests that the Commission approve the 
Resolutions, attached as Exhibit 5A.
5. Adoption of New BGM Charter and New BGM Bylaws
    New BGM was incorporated on August 22, 2013, under the name BATS 
Global Markets Holdings, Inc., by filing a certificate of incorporation 
with the Secretary of State of Delaware. Upon incorporation, New BGM 
also adopted bylaws. New BGM is currently a shell company, with no 
material assets or operations. Therefore, neither its certificate of 
incorporation nor bylaws currently need or contain any provisions that 
would be appropriate for an entity that has direct or indirect 
ownership in a registered national securities exchange.

[[Page 75589]]

    However, in connection with the Combination, upon the Closing, New 
BGM will become (i) the indirect owner (through BGM Holdings) of each 
of the BATS Exchanges and BATS Trading, (ii) the indirect owner 
(through DE Holdings and DEI) of each of the DE Exchanges, and (iii) 
the indirect owner (through DE Holdings) of DE Route. As a result, the 
Exchange is proposing that in connection with New BGM's acquisition of 
indirect ownership in the Exchange, New BGM would amend and restate 
each of its certificate of incorporation and bylaws to adopt provisions 
designed to protect and maintain the integrity of the self-regulatory 
functions of the Exchange and to facilitate the ability of the Exchange 
and the Commission to carry out their regulatory and oversight 
obligations under the Act. Each of the New BGM Charter and the New BGM 
Bylaws is modeled on, and substantially similar to, the Current BGM 
Charter and Current BGM Bylaws, respectively, except with respect to 
the differences described below.
a. New BGM Charter
    The New BGM Charter is proposed to be adopted as the Amended and 
Restated Certificate of Incorporation of BATS Global Markets Holdings, 
Inc. However, the New BGM Charter will effect an amendment to the name 
of the corporation upon Closing such that it will be renamed ``BATS 
Global Markets, Inc.'' \21\ The change of name is intended to reflect 
the fact that New BGM is succeeding to the business of Current BGM in 
all respects, notwithstanding the technical change of corporate entity 
that will result from the structure of the Combination.
---------------------------------------------------------------------------

    \21\ See New BGM Charter, Art. FIRST.
---------------------------------------------------------------------------

    The New BGM Charter, which is attached as Exhibit 5B, is 
substantially similar to the Current BGM Charter, which the Commission 
has previously found to be consistent with the Act.\22\ It contains 
provisions imposing the BGM Ownership Limitation and the BGM Voting 
Limitation on any owners or prospective owners of New BGM.\23\ In 
addition, similar to the Current BGM Charter, the New BGM Charter 
prohibits a Member of any of New BGM's registered national securities 
exchange subsidiaries, either alone or together with such Member's 
Related Persons,\24\ from owning, directly or indirectly, of record or 
beneficially, more than 20 percent of shares of any class of capital 
stock of New BGM.\25\ As in the Current BGM Charter, purported sales, 
transfers, assignments, pledges or ownership that would result in a 
violation of the BGM Ownership Limitation will not be recognized by New 
BGM to the extent of any ownership in excess of the limitation, and New 
BGM shall have the right to redeem the shares in excess of the 
applicable ownership limit for their fair market value. In addition, in 
contrast to the Current BGM Charter, the New BGM Charter would clarify 
that these same non-recognition and redemption rights apply in the case 
of a purported conversion of shares resulting in a violation of the BGM 
Ownership Limitation, as apply to purported sales, transfers, 
assignments, pledges or ownership that result in such a violation.\26\ 
Similarly, as in the Current BGM Charter, purported voting or voting 
arrangements in violation of the BGM Voting Limitation will not be 
honored by New BGM to the extent of any voting in excess of the 
limitation.\27\
---------------------------------------------------------------------------

    \22\ See Securities Exchange Act Release No. 58375 (August 18, 
2008), 73 FR 49498 (August 21, 2008).
    \23\ See New BGM Charter, Art. FIFTH paras. (b)(i)(A) and (C).
    \24\ The New BGM Charter defines ``Related Persons'' consistent 
with the definition in the Current BGM Charter, see supra note 9, 
except that (i) the definition of ``Exchange'' for purposes of such 
definition is expanded to refer to any national securities exchange 
that is a direct or indirect subsidiary of New BGM, and (ii) the 
reference to the Investor Rights Agreement has been revised to refer 
to the Investor Rights Agreement to be entered into upon Closing.
    \25\ See New BGM Charter, Art. FIFTH para. (b)(i)(B).
    \26\ See New BGM Charter, Art. FIFTH, paras. (d)-(e).
    \27\ See New BGM Charter, Art. FIFTH, para. (d).
---------------------------------------------------------------------------

    These provisions are designed to prevent any stockholder from 
exercising undue control over the operation of the BATS Exchanges or 
the DE Exchanges (together, the ``Exchange Subsidiaries''), each of 
which New BGM will indirectly own following the Combination, and to 
assure that each Exchange Subsidiary and the Commission are able to 
carry out their regulatory obligations under the Act.
    Further, consistent with the Current BGM Charter, the New BGM 
Charter provides that, for so long as New BGM controls, directly or 
indirectly, a registered national securities exchange, before any 
amendment to the New BGM Charter may be effective, those changes must 
be submitted to the board of directors of each such exchange, and if 
the amendment is required to be filed with, or filed with and approved 
by the Commission pursuant to Section 19(b) of the Act, \28\ such 
change shall not be effective until filed with, or filed with and 
approved by, the Commission.\29\ The Exchange believes that these 
provisions will assist the Exchange in fulfilling its self-regulatory 
obligations and in administering and complying with the requirements of 
the Act.
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78s(b).
    \29\ See New BGM Charter, Art. TWELFTH.
---------------------------------------------------------------------------

    The provisions of the New BGM Charter differ from those of the 
Current BGM Charter in certain limited respects:
     The total number of shares of common stock that New BGM 
will have authority to issue is 75,000,000, divided between 55,000,000 
shares designated as Voting Common Stock, 10,000,000 shares designated 
as Class A Non-Voting Common Stock, and 10,000,000 shares designated as 
Class B Non-Voting Common Stock.\30\ This represents an increase from 
the 25,000,000 shares that Current BGM is authorized to issue (divided 
between 24,500,000 shares designated as Voting Common Stock and 500,000 
shares designated as Non-Voting Common Stock). The increase in 
authorized shares is due to the greater number of stockholders that New 
BGM will have following the Combination, as compared to Current BGM, as 
well as to provide an adequate number of authorized shares to allow for 
potential future issuances. The rights and preferences of the Class A 
Non-Voting Common Stock and Class B Non-Voting Common Stock are 
identical in all respects, except for conversion rights. Class A Non-
Voting Common Stock converts into Voting Common Stock automatically 
upon transfer to a person other than a Related Person of such holder, 
upon termination of the Investor Rights Agreement, and may be converted 
into Voting Common Stock at any time at the option of the holder.\31\ 
Class B Non-Voting Common Stock, however, may only be converted into 
Voting Common Stock following a ``Qualified Transfer.'' \32\ The term

[[Page 75590]]

``Qualified Transfer'' means a sale or other transfer of Class B Non-
Voting Common Stock by a holder of such shares: (a) In a widely 
distributed public offering registered pursuant to the Securities Act 
of 1933; \33\ (b) in a private sale or transfer in which the relevant 
transferee (together with its Affiliates, as defined below, and other 
transferees acting in concert with it) acquires no more than two 
percent of any class of voting shares (as defined in 12 CFR 225.2(q)(3) 
and determined by giving effect to any such permitted conversion of 
transferred shares of Class B Non-Voting Common Stock upon such 
transfer pursuant to Article FOURTH of the New BGM Charter), (c) to a 
transferee that (together with its Affiliates and other transferees 
acting in concert with it) owns or controls more than 50 percent of any 
class of voting shares (as defined in 12 CFR 225.2(q)(3)) of New BGM 
without regard to any transfer of shares from the transferring holder 
of shares of Class B Non-Voting Common Stock, or (d) to New BGM. As 
used above, the term ``Affiliate'' means, with respect to any person, 
any other person directly or indirectly controlling, controlled by or 
under common control with such person, and ``control'' (including, with 
correlative meanings, the terms ``controlled by'' and ``under common 
control with'') has the meaning set forth in 12 CFR 225.2(e)(1).\34\ 
The Exchange understands that certain persons that will become 
stockholders of New BGM as of the Closing may be, or may become, 
subject to restrictions under the Bank Holding Company Act of 1956 \35\ 
on the extent to which they are permitted to own voting stock of New 
BGM or certain types of non-voting stock convertible into voting stock 
of New BGM. The Exchange understands that New BGM's Class B Non-Voting 
Common Stock is designed to permit a stockholder that may be subject to 
such restrictions to maintain an economic interest in New BGM, through 
ownership of Class B Non-Voting Common Stock, in excess of its voting 
interest and in compliance with such restrictions, for purposes of the 
Bank Holding Company Act of 1956.
---------------------------------------------------------------------------

    \30\ See New BGM Charter, Art. FOURTH, para. (a).
    \31\ See New BGM Charter, Art. FOURTH, para. (c). In addition, 
Class A Non-Voting Common Stock held by ISE Holdings will convert 
automatically if ISE Holdings includes any such shares in any public 
offering of stock of New BGM.
    \32\ The Exchange notes that, notwithstanding the conversion 
features, neither Class A Non-Voting Common Stock nor Class B Non-
Voting Common Stock may convert into Voting Common Stock if such a 
conversion would cause the stockholder to own, alone or with its 
Related Persons, directly or indirectly, of record or beneficially 
(i) more than 40% of any class of capital stock of New BGM in 
contravention of the BGM Ownership Limitation (unless a waiver is 
granted by the board of directors of New BGM and approved by the 
Commission), or (ii) in the case of an Exchange Member stockholder, 
more than 20% of any class of capital stock of New BGM. See New BGM 
Charter, Art. FIFTH, para. (b)(i)(A) and (B). In addition, to the 
extent that any Class A Non-Voting Common Stock or Class B Non-
Voting Common Stock is converted into Voting Common Stock, the 
stockholder owning the converted Voting Common Stock would be 
subject to the BGM Voting Limitation and not permitted, either alone 
or together with its Related Persons, at any time, directly, 
indirectly or pursuant to any of various arrangements, to 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 
the then issued and outstanding capital stock of New BGM (unless a 
waiver is granted by the board of directors of New BGM and approved 
by the Commission). See New BGM Charter, Art. FIFTH, para. 
(b)(i)(C).
    \33\ 15 U.S.C. 77a.
    \34\ See New BGM Charter, Art. FOURTH, para. (d)(i).
    \35\ 12 U.S.C. 1841 et seq.
---------------------------------------------------------------------------

     The term ``Exchange,'' as used in the New BGM Charter, is 
defined to refer to ``any national securities exchange registered under 
Section 6 of the Act with the [Commission] that is a direct or indirect 
subsidiary'' of New BGM.\36\ The term ``Exchange'' is used throughout 
the New BGM Charter to refer to subsidiaries of New BGM that are 
registered as national securities exchanges. This definition differs 
from the definition contained in the Current BGM Charter, which defines 
``Exchange'' by specific reference to the names of the BATS Exchanges. 
Because, following the Combination, the DE Exchanges will also become 
indirect subsidiaries of New BGM, the definition in the New BGM Charter 
has been expanded so as to capture the DE Exchanges in addition to the 
BATS Exchanges.
---------------------------------------------------------------------------

    \36\ See New BGM Charter, Art. FIFTH, para. (a)(ii).
---------------------------------------------------------------------------

     The New BGM Charter reflects certain non-substantive 
differences and typographical corrections, including conforming the 
spelling of ``Bylaws'' throughout the organizational documents of New 
BGM and its proposed subsidiaries.
b. New BGM Bylaws
    As with the New BGM Charter, the New BGM Bylaws, which are set 
forth in Exhibit 5C, contain provisions substantially similar to those 
of the Current BGM Bylaws, which the Commission has previously found to 
be consistent with the Act.\37\ This includes provisions that are 
designed to maintain the independence of the self-regulatory functions 
of the Exchange Subsidiaries. Consistent with the Current BGM Bylaws, 
the New BGM Bylaws provide that New BGM and its officers, directors, 
employees and agents submit to the Commission's jurisdiction with 
respect to activities relating to any of the Exchange Subsidiaries,\38\ 
and, for so long as New BGM controls, directly or indirectly, such 
Exchange Subsidiary, New BGM agrees to provide the Commission and each 
Exchange Subsidiary with access to its books and records that are 
related to the operation or administration of the Exchange 
Subsidiary.\39\ In addition, to the extent they are related to the 
operation or administration of an Exchange Subsidiary, the books, 
records, premises, officers, directors, agents, and employees of New 
BGM shall be deemed to be the books, records, premises, officers, 
directors, agents, and employees of the Exchange Subsidiary for 
purposes of, and subject to oversight pursuant to, the Act.\40\
---------------------------------------------------------------------------

    \37\ See Securities Exchange Act Release No. 58375 (August 18, 
2008), 73 FR 49498 (August 21, 2008).
    \38\ See New BGM Bylaws, Section 14.05.
    \39\ See New BGM Bylaws, Section 14.03.
    \40\ Id.
---------------------------------------------------------------------------

    The New BGM Bylaws also provide that all books and records of an 
Exchange Subsidiary reflecting confidential information pertaining to 
the self-regulatory function of the Exchange Subsidiary (including but 
not limited to disciplinary matters, trading data, trading practices 
and audit information) that shall come into the possession of New BGM 
shall not be made available other than to those officers, directors, 
employees and agents of New BGM that have a reasonable need to know the 
contents thereof, and shall be retained in confidence by New BGM, the 
members of its board of directors, its officers, employees and agents, 
and not used for any non-regulatory purposes.\41\ The New BGM Bylaws, 
however, specify that the New BGM Bylaws (including these 
confidentiality provisions) shall not be interpreted so as to limit or 
impede the rights of the Commission or an Exchange Subsidiary to access 
and examine such confidential information pursuant to the federal 
securities laws and the rules and regulations thereunder, or to limit 
or impede the ability of any officers, directors, employees or agents 
of New BGM to disclose such confidential information to the Commission 
or an Exchange Subsidiary.\42\
---------------------------------------------------------------------------

    \41\ See New BGM Bylaws, Section 14.02.
    \42\ See id.
---------------------------------------------------------------------------

    In addition, for so long as New BGM controls, directly or 
indirectly, an Exchange Subsidiary, the directors, officers, employees 
and agents of New BGM are required to give due regard to the 
preservation of the independence of each Exchange Subsidiary's self-
regulatory functions, and to its obligations to investors and the 
general public, and not take any actions which would interfere with the 
effectuation of decisions by the board of directors of such Exchange 
Subsidiary relating to regulatory functions (including disciplinary 
matters) or which would interfere with such Exchange Subsidiary's 
ability to carry out its responsibilities under the Act.\43\ Further, 
the New BGM Bylaws require that, for so long as New BGM controls, 
directly or indirectly, an Exchange Subsidiary, before any amendment to 
or repeal of any provision of the New BGM Bylaws may be effective, 
those changes must be submitted to the board of directors of each 
Exchange Subsidiary, and, if such amendment is required to be filed 
with, or filed with and

[[Page 75591]]

approved by, the Commission before the changes may be effective under 
Section 19 of the Act 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.\44\ The Exchange 
believes that these provisions will assist the Exchange in fulfilling 
its self-regulatory obligations and in administering and complying with 
the requirements of the Act.
---------------------------------------------------------------------------

    \43\ See New BGM Bylaws, Section 14.01.
    \44\ See New BGM Bylaws, Art. XII.
---------------------------------------------------------------------------

    The provisions of the New BGM Bylaws differ from those of the 
Current BGM Bylaws in certain limited respects:
     The New BGM Bylaws provide for two separate corporate 
officer positions, one known as the Chief Executive Officer and another 
known as the President. The Current BGM Bylaws, in contrast, provide 
for a combined position known as the President and Chief Executive 
Officer.\45\ Under the New BGM Bylaws, the Chief Executive Officer will 
be the chief executive officer of New BGM and subject to the control of 
the board of directors of New BGM, has general supervision, direction 
and control of the business and affairs of New BGM,\46\ while the 
President will be a senior executive officer with certain designated 
powers, among other things, to serve as the chief executive officer in 
the absence or disability of the Chief Executive Officer.\47\ 
References to corporate officers throughout the New BGM Bylaws reflect 
this difference. The difference in corporate officer designations is 
intended to facilitate the anticipated executive leadership of New BGM 
following the Combination. It is anticipated that, following the 
Combination, the current President and Chief Executive Officer of 
Current BGM will become the Chief Executive Officer of New BGM, while 
the current Chief Executive Officer of DE Holdings will become the 
President of New BGM.
---------------------------------------------------------------------------

    \45\ Compare New BGM Bylaws, Sections 4.01 and 4.02 with Current 
BGM Bylaws, Sections 4.01 and 4.02(c) and (d).
    \46\ See New BGM Bylaws, Section 4.02(c).
    \47\ See New BGM Bylaws, Section 4.02(d).
---------------------------------------------------------------------------

     The New BGM Bylaws provide for a board of directors 
consisting of 15 members, or such other number of members as the board 
of directors determines from time to time. The Current BGM Bylaws 
provide that the board of directors will consist of one or more 
members, as determined by resolution of the board of directors.\48\ The 
size of the New BGM board is proposed to be initially set at 15 in 
order to reflect the anticipated initial membership of the board of 
directors of New BGM. The Current BGM board of directors currently has 
13 members. After the Closing, it is anticipated that the New BGM board 
of directors will consist of the same members as the Current BGM board, 
except that the New BGM board will be expanded by two members, to 
include representatives of two additional firms that are currently LLC 
Members of DE Holdings but will, by virtue of the Combination, become 
stockholders of New BGM.
---------------------------------------------------------------------------

    \48\ Compare New BGM Bylaws, Section 3.01 with Current BGM 
Bylaws, Section 3.01.
---------------------------------------------------------------------------

     Section 5.02(a) of the Current BGM Bylaws sets forth the 
process for representatives of Current BGM to attend meetings of, and 
vote the shares of, any corporation, partnership or other entity 
(including each BATS Exchange) in which Current BGM may hold stock, 
partnership, or other equity interests. This provision parenthetically 
refers to the BATS Exchanges to reflect the fact that Current BGM is 
the direct owner of each of the BATS Exchanges. However, following the 
Combination, New BGM will instead be the direct owner of each of BGM 
Holdings and DE Holdings. The corresponding provision in the New BGM 
Bylaws therefore contains a similar parenthetical reference to its 
ownership of BGM Holdings and DE Holdings, rather than the BATS 
Exchanges.\49\ In addition, the New BGM Bylaws include a reference to 
meetings of ``members'' of any ``limited liability company'' in which 
New BGM holds equity interests, which terms are not included in the 
corresponding provision in the Current BGM Bylaws.\50\ This is intended 
to reflect the fact that New BGM will, following the Closing, be the 
sole member of DE Holdings, a limited liability company, while Current 
BGM does not hold equity in any limited liability companies.\51\ In 
addition, the Current BGM Bylaws contain provisions that relate to 
Current BGM's voting of shares in the election of directors, and 
Members of the Member Nominating Committees, of the BATS Exchanges.\52\ 
These provisions will not be applicable to New BGM and are not included 
in the New BGM Bylaws, as the BATS Exchanges will be directly owned by 
BGM Holdings, rather than New BGM.\53\
---------------------------------------------------------------------------

    \49\ See New BGM Bylaws, Section 5.02.
    \50\ Id.
    \51\ Compare New BGM Bylaws, Section 5.02 with Current BGM 
Bylaws, Section 5.02.
    \52\ See Current BGM Bylaws, Sections 5.02(b) and (c).
    \53\ Substantially identical provisions are instead included in 
the BGM Holdings Bylaws. See infra text accompanying note 70.
---------------------------------------------------------------------------

     The term ``Exchange,'' as used in the New BGM Bylaws, is 
defined to refer to ``any national securities exchange registered with 
the [Commission] under Section 6 of the [Act] that is a direct or 
indirect subsidiary'' of New BGM.\54\ The term ``Exchange'' is used 
throughout the New BGM Bylaws to refer to subsidiaries of New BGM that 
are registered as national securities exchanges. The Current BGM Bylaws 
either refer to each BATS Exchange by name or define ``Exchange'' by 
specific reference to the BATS Exchanges. Because, following the 
Combination, the DE Exchanges will also become indirect subsidiaries of 
New BGM, the definition in the New BGM Bylaws has been expanded so as 
to capture the DE Exchanges in addition to the BATS Exchanges.
---------------------------------------------------------------------------

    \54\ See New BGM Bylaws, Section 10.02.
---------------------------------------------------------------------------

     The New BGM Bylaws reflect certain non-substantive updates 
to dates of agreements and cross-references, as well as typographical 
corrections, including conforming the spelling of ``Bylaws'' throughout 
the organizational documents of New BGM and its proposed subsidiaries.
6. Adoption of BGM Holdings Charter and BGM Holdings Bylaws
    Effective as of the Closing of the Combination, BGM Holdings 
(previously referred to as Current BGM) will continue to hold direct 
ownership of the BATS Exchanges and BATS Trading, but will no longer be 
the ultimate holding company of the corporate structure, itself being a 
wholly owned subsidiary of New BGM. As a result, provisions of the 
Current BGM Charter and Current BGM Bylaws, which contemplate an entity 
that was the ultimate holding company in the corporate structure, will 
no longer be appropriate. The Exchange is therefore proposing the 
amendment and restatement of each of the Current BGM Charter (as 
amended, referred to as the ``BGM Holdings Charter'') and the Current 
BGM Bylaws (as amended, referred to as the ``BGM Holdings Bylaws''). 
Each of the proposed BGM Holdings Charter and the BGM Holdings Bylaws 
are modeled on, and substantially similar to, the current certificate 
of incorporation and bylaws, respectively, of DEI, which is similarly 
situated as an intermediate holding company between DE Holdings and the 
DE Exchanges. The Commission has previously found the DEI certificate 
of incorporation and bylaws to be consistent with the Act.\55\
---------------------------------------------------------------------------

    \55\ See Securities Exchange Act Release No. 62515 (July 16, 
2010), 75 FR 43584 (July 26, 2010) (SR-EDGX-2010-02).
---------------------------------------------------------------------------

    Following the Closing, BGM Holdings will be the sole stockholder of 
the BATS Exchanges. Although BGM Holdings will not carry out any 
regulatory

[[Page 75592]]

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 BGM Holdings Charter and the BGM Holdings Bylaws therefore include 
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) \56\ and 
19(g) \57\ of the Act, and facilitate the ability of each BATS Exchange 
and the Commission to fulfill their regulatory and oversight 
obligations under the Act.
---------------------------------------------------------------------------

    \56\ 15 U.S.C. 78f(b).
    \57\ 15 U.S.C. 78s(g).
---------------------------------------------------------------------------

a. BGM Holdings Charter
    With respect to ownership and control of BGM Holdings, the proposed 
BGM Holdings Charter, attached as Exhibit 5D, specifically provides 
that BGM Holdings' sole stockholder will be New BGM.\58\ This 
restriction is designed to assure that any change to the ownership or 
control of the BATS Exchanges may only occur through a change in the 
ownership or control of New BGM. As such, any purported change of such 
ownership or control would need to comply with the New BGM Charter and 
New BGM Bylaws, including the BGM Ownership Limitation and the BGM 
Voting Limitation (or a Commission-approved waiver therefrom).
---------------------------------------------------------------------------

    \58\ See BGM Holdings Charter, Art. SEVENTH, para. 4.
---------------------------------------------------------------------------

    The proposed BGM Holdings Charter further specifies that nothing 
contained therein or in the BGM Holdings Bylaws shall be applicable 
where the application of the provision would interfere with the 
effectuation of any and all decisions relating to the regulatory 
functions of the BATS Exchanges (including disciplinary matters) or the 
structure of the market that each BATS Exchange regulates, or would 
interfere with the ability of each BATS Exchange to carry out its 
responsibilities under the Act or oversee the market that each 
regulates.\59\
---------------------------------------------------------------------------

    \59\ See BGM Holdings Charter, Art. FIFTH, para. 2.
---------------------------------------------------------------------------

    In addition, the proposed BGM Holdings Charter provides that for so 
long as BGM Holdings controls, directly or indirectly, a registered 
national securities exchange, before any amendment to or repeal of any 
provision of the BGM Holdings Charter may be effective, those changes 
shall be submitted to the board of directors of each such exchange, 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 \60\ and the rules promulgated thereunder, then such proposed 
changes shall not be effective until filed with, or filed with and 
approved by, the Commission, as the case may be.\61\
---------------------------------------------------------------------------

    \60\ 15 U.S.C. 78s(b).
    \61\ See BGM Holdings Charter, Art. Seventh, para. 3.
---------------------------------------------------------------------------

b. BGM Holdings Bylaws
    The proposed BGM Holdings Bylaws, attached as Exhibit 5E, contain 
several provisions designed to protect the independence of the self-
regulatory functions of the BATS Exchanges. The proposed BGM Holdings 
Bylaws require that, for so long as BGM Holdings, directly or 
indirectly, controls a BATS Exchange, BGM Holdings' board of directors, 
officers, employees and agents must give due regard to the preservation 
of independence of the self-regulatory functions of each BATS Exchange 
and not interfere with the effectuation of any decisions by either of 
the BATS Exchange boards of directors relating to its regulatory 
functions (including disciplinary matters) or which would interfere 
with the ability of such exchange to carry out its responsibilities 
under the Act.\62\ The BGM Holdings Bylaws would further require that 
BGM Holdings comply with the U.S. federal securities laws and rules and 
regulations thereunder and shall cooperate with the Commission and each 
BATS Exchange, as applicable, pursuant to and to the extent of their 
respective regulatory authority.\63\ Pursuant to the BGM Holdings 
Bylaws, BGM Holdings' 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) to cooperate with 
the Commission and each BATS Exchange in respect of the Commission's 
oversight responsibilities regarding the BATS Exchanges and their self-
regulatory functions and responsibilities of the BATS Exchanges, and 
BGM Holdings will take reasonable steps to cause its officers, 
directors, employees and agents to so cooperate.\64\
---------------------------------------------------------------------------

    \62\ See BGM Holdings Bylaws, Section 7.1.
    \63\ See BGM Holdings Bylaws, Section 7.2.
    \64\ Id.
---------------------------------------------------------------------------

    Furthermore, BGM Holdings 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 BATS Exchange, 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.\65\
---------------------------------------------------------------------------

    \65\ See BGM Holdings Bylaws, Section 7.3.
---------------------------------------------------------------------------

    The proposed BGM Holdings Bylaws also contain a number of 
provisions designed to ensure that the BATS Exchanges have sufficient 
access to the books and records of BGM Holdings. Pursuant to the BGM 
Holdings Bylaws, the books, records, premises, officers, directors, 
agents, and employees of BGM Holdings are deemed to be the books, 
records, premises, officers, directors, agents and employees of the 
BATS Exchanges to the extent they are related to the operation or 
administration of such exchange.\66\ In addition, for as long as BGM 
Holdings controls, directly or indirectly, the BATS Exchanges, BGM 
Holdings' books and records shall be subject at all times to inspection 
and copying by the Commission and the BATS Exchanges, provided that 
such books and records are related to the operation or administration 
of the BATS Exchanges.\67\
---------------------------------------------------------------------------

    \66\ See BGM Holdings Bylaws, Section 5.8(b).
    \67\ Id.
---------------------------------------------------------------------------

    The proposed BGM Holdings Bylaws also provide that, to the fullest 
extent permitted by law, all books and records of the BATS Exchanges 
reflecting confidential information pertaining to the self-regulatory 
function of such exchange (including disciplinary matters, trading 
data, trading practices and audit information) that comes into the 
possession of BGM Holdings, shall be retained in confidence by BGM 
Holdings and its stockholders, board of directors, officers, employees 
and agents, and not be used for any non-regulatory purposes.\68\ The 
proposed BGM Holdings Bylaws provide, however, that the foregoing shall 
not limit or impede the rights of the Commission or the BATS Exchanges 
to access and examine such confidential information pursuant to the 
federal securities laws and the rules and regulations thereunder, or 
limit or impede the ability of any BGM Holdings stockholders, officers, 
directors, employees or agents to disclose such confidential 
information to the Commission or either BATS Exchange.\69\
---------------------------------------------------------------------------

    \68\ See BGM Holdings Bylaws, Section 5.8(a).
    \69\ Id.
---------------------------------------------------------------------------

    With respect to the election of directors of the BATS Exchanges, 
Current BGM is currently the sole and direct stockholder of each of the 
BATS Exchanges. As noted above, while

[[Page 75593]]

Current BGM will become BGM Holdings, it will continue to hold the 
direct ownership interest and voting rights in the BATS Exchanges. 
Therefore, the BGM Holdings Bylaws are proposed to maintain provisions 
relating to its voting of its interests in the BATS Exchanges that are 
substantially identical to those contained in the Current BGM 
Bylaws.\70\ In particular, the proposed BGM Holdings Bylaws would 
continue to provide that at any meeting of the stockholders of either 
BATS Exchange held for the purpose of electing directors and members of 
such exchange's Member Nominating Committee, or in the event written 
consents are solicited or otherwise sought from the stockholders of 
such BATS Exchange with respect thereto, BGM Holdings will cause all 
outstanding shares of the BATS Exchange owned by BGM Holdings to be 
voted in favor of only those Member Representative Directors and 
nominees for the Member Nominating Committee nominated in accordance 
with such exchange's bylaws, and, with respect to any written consents, 
BGM Holdings will only cause to be validly executed written consents 
electing such directors and members of the Member Nominating 
Committee.\71\ The Exchange believes that this requirement will ensure 
that BGM Holdings effectuates the election of directors and members of 
the Exchange's Member Nominating Committee in the manner contemplated 
by the Exchange's Bylaws, ensuring the fair representation of members 
in the selection of directors and the administration of the Exchange as 
required by Section 6(b)(3) of the Act.\72\
---------------------------------------------------------------------------

    \70\ Compare BGM Holdings Bylaws, Sections 2.15(b) and (c) with 
Current BGM Bylaws, Sections 5.02(b) and (c).
    \71\ See BGM Holdings Bylaws, Sections 2.15(b) and (c).
    \72\ 15 U.S.C. 78f(b)(3).
---------------------------------------------------------------------------

    Similar to the proposed BGM Holdings Charter, the proposed BGM 
Holdings Bylaws provide that for so long as BGM Holdings controls 
either BATS Exchange, before any amendment to or repeal of any 
provision of the BGM Holdings Bylaws will be effective, those changes 
must be submitted to the board of directors of each BATS Exchange, 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, \73\ 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.\74\
---------------------------------------------------------------------------

    \73\ 15 U.S.C. 78s.
    \74\ See BGM Holdings Bylaws, Section 6.4.
---------------------------------------------------------------------------

    Lastly, while as noted above, the BGM Holdings Bylaws are modeled 
on the current bylaws of DEI (the ``DEI Bylaws''), in contrast with the 
current DEI Bylaws, the proposed BGM Holdings Bylaws do not contain a 
provision relating to BGM Holdings' handling of funds derived from the 
regulatory operations of its exchange subsidiaries (such as regulatory 
fees, fines and penalties). The Exchange Bylaws and the bylaws of BZX 
each prohibit the Exchange and BZX, respectively, from distributing any 
such funds to its stockholder, instead requiring that such funds only 
be applied to fund the legal and regulatory operations of the 
respective exchange or pay restitution and disgorgement of funds 
intended for customers.\75\ As a result, BGM Holdings will not be 
permitted to come into possession of regulatory funds, as they will 
remain at the respective exchange and used only for permitted purposes. 
The Exchange therefore believes that including a provision in the BGM 
Holdings Bylaws relating to the handling by BGM Holdings of such funds 
is unnecessary and potentially confusing. The Exchange understands that 
the DE Exchanges are each proposing to amend DEI's bylaws to eliminate 
the corresponding provision.\76\
---------------------------------------------------------------------------

    \75\ See e.g., Exchange Bylaws, Art. X, Section 4.
    \76\ See DEI Bylaws, Section 4.6(b).
---------------------------------------------------------------------------

7. Bylaws of the Exchange
    In connection with the Combination, the Exchange proposes to amend 
and restate its Second Amended and Restated By-Laws and adopt the 
amended Exchange Bylaws as its Third Amended and Restated Bylaws, 
attached as Exhibit 5F. The Exchange proposes making the following 
amendments to the Exchange Bylaws:
     Amending Article I, paragraph (cc) of the Exchange Bylaws 
to reflect the change of name of the Exchange's stockholder from 
Current BGM to BGM Holdings. This amendment is intended to reflect the 
change in the Exchange's corporate holding structure and corporate name 
changes described above as well as prevent any change of ownership of 
the Exchange other than in accordance with the requirements set forth 
in the organizational documents of the Exchange's parent and indirect 
parent companies.
     Amending Section 2(b) and Section 3(b) of Article III of 
the Exchange Bylaws to clarify that the Chief Executive Officer of the 
Exchange is considered to be an Industry Director, but is excluded from 
being designated as a member of one of the three classes of directors 
for purposes of the Board's staggered three-year terms. This amendment 
is meant to clarify, rather than change, current practice. The Exchange 
Bylaws require that the Board of Directors be composed of one Director 
who is the Chief Executive Officer of the Exchange, and a sufficient 
number of Non-Industry Directors (including Independent Directors), 
Industry Directors and Member Representative Directors such that (i) 
the number of Non-Industry Directors, including at least one 
Independent Director, equals or exceeds the sum of the number of 
Industry Directors and Member Representative Directors, and (ii) the 
number of Member Representative Directors equals at least 20 percent of 
the Board of Directors (the ``Exchange Board Composition 
Requirements'').\77\ Because the definition of ``Industry Director'' 
includes a Director that has an employment relationship with the 
Exchange,\78\ the Chief Executive Officer of the Exchange will always 
meet the definition of ``Industry Director.'' Consistent with this 
definition, and in order to effectuate the Exchange Board Composition 
Requirements, the Exchange considers the Chief Executive Officer to be 
an Industry Director. Were the Chief Executive Officer to not be 
considered for purposes of determining composition of the board, the 
total number of persons affiliated with the securities industry 
(including Industry Directors, Member Representative Directors and the 
Chief Executive Officer) could potentially exceed the number of Non-
Industry Directors--a result that the Exchange believes the Exchange 
Board Composition Requirements were intended to prevent. The Exchange 
therefore proposes to amend Section 2(b) of Article III of the Exchange 
Bylaws to explicitly clarify that the Chief Executive Officer shall be 
considered to be an Industry Director. The Exchange Bylaws separately 
provide that each of the Non-Industry Directors and Industry Directors 
are divided into one of three classes to serve staggered three-year 
terms.\79\ Unlike other Industry Directors, rather than serving a 
three-year term, the Chief Executive Officer of the Exchange serves on 
the Board of Directors until he or she ceases to be Chief Executive 
Officer.\80\

[[Page 75594]]

The Exchange is therefore proposing to amend Section 3(b) of Article 
III of the Exchange Bylaws to explicitly clarify that the reference to 
each Industry Director serving a staggered three-year term excludes the 
Chief Executive Officer.
---------------------------------------------------------------------------

    \77\ See Exchange Bylaws, Art. III, Section 2(b).
    \78\ See Exchange Bylaws, Art. I, para. (o)(vi).
    \79\ See Exchange Bylaws, Art. III, Section 3(b).
    \80\ See Exchange Bylaws, Art. III, Section 3(a).
---------------------------------------------------------------------------

     Amending Section 4(a), Section 4(c) and Section 4(e) of 
Article III of the Exchange Bylaws to permit the Director nomination 
and election process (including the Member Representative Director 
nomination and election process conducted by the Member Nominating 
Committee) to be conducted through either an annual or special meeting 
of stockholders, rather than solely through an annual meeting of 
stockholders. Under the current Exchange Bylaws, should one or more 
vacancies on the Board of Directors occur, the vacancies would continue 
until they can be filled at an annual meeting. As a result, vacancies 
that arise soon after an annual meeting could remain for close to a 
full year. The Exchange therefore proposes to amend the Exchange Bylaws 
to add flexibility to the governance process around the nomination and 
election of a Director position that may become vacant at a time that 
does not coincide with the Exchange's annual director election process, 
by permitting the process to occur at any time via a special meeting of 
stockholders.
     Amending Section 2(a) of Article V of the Exchange Bylaws 
to clarify that the Chairman, with the approval of the Board, not only 
appoints the members of all committees of the Board, but also the chair 
of each committee. This amendment is intended to reflect the current 
committee and committee Chair appointment processes utilized by the 
Exchange.
     Amending Section 6(c) of Article V of the Exchange Bylaws 
to clarify that the Regulatory Oversight Committee responsibilities 
include (i) those with regard to each of the Exchange's facilities, as 
defined in Section 3(a)(2) of the Act,\81\ (ii) assessing the 
Exchange's regulatory performance, (iii) assisting the Board and 
committees of the Board in reviewing the regulatory plan and the 
overall effectiveness of the Exchange's regulatory functions, and (iii) 
in consultation with the Chief Executive Officer of the Exchange, 
establishing the goals, assessing the performance, and fixing the 
compensation of the Chief Regulatory Officer of the Company. These 
amendments are intended to reflect the current responsibilities of the 
Regulatory Oversight Committee.
---------------------------------------------------------------------------

    \81\ 15 U.S.C. 78c(a)(2).
---------------------------------------------------------------------------

     Deleting as outdated Section 1 of Article XI of the 
Exchange Bylaws, relating to the interpretation of the Exchange Bylaws 
prior to the Exchange's commencement of business as a national 
securities exchange, and renumbering the remaining sections within 
Article XI accordingly.
     Expanding the prohibition contained in Section 3 of 
Article XI of the Exchange Bylaws (to be renumbered as Section 2). 
Currently, Section 3 of Article XI prohibits Current BGM's directors, 
officers, staff, counsel and advisors 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). Because, following the Combination, 
the Exchange will be owned directly by BGM Holdings and indirectly by 
New BGM, instead of only directly by Current BGM, the Exchange is 
proposing to expand this prohibition to cover both its direct and 
indirect parent companies. The Exchange believes that this amendment 
will protect the independence of the Exchange's self-regulatory 
activities.
     Correcting certain typographical errors, including 
conforming the spelling of ``Bylaws'' throughout the organizational 
documents of the Exchange and its parent companies.
8. 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 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 exchange, BZX, is not sufficient for 
purposes of eligibility for Exchange membership. As a result of the 
Combination, the Exchange will additionally become affiliated with the 
DE Exchanges. The Exchange continues to believe that it is appropriate 
to limit its membership to registered broker-dealers that are members 
of at least one national securities association or national securities 
exchange that is not affiliated with the Exchange. Therefore, the 
Exchange proposes to amend Exchange Rule 2.3 to specify that a 
registered broker-dealer will be eligible for membership only if it is 
a member of a national securities association or national securities 
exchange other than BZX, EDGA or EDGX. The proposed amendments to 
Exchange Rule 2.3 are set forth in Exhibit 5G.
9. Exchange Rule 2.12--DE Route as Inbound Router
    BATS Trading provides Members of the Exchange and BZX with optional 
routing services to other market centers. Thus, in certain 
circumstances, BATS Trading provides inbound routing from BZX to the 
Exchange. Exchange Rule 2.12 governs this inbound routing of orders by 
BATS Trading to the Exchange in BATS Trading's capacity as a facility 
of BZX. Recognizing that the Commission has previously expressed 
concern regarding the potential for conflicts of interest in instances 
where a member firm is affiliated with an exchange to which it is 
routing orders, the Exchange has implemented limitations and conditions 
on BATS Trading's affiliation with the Exchange in order to permit the 
Exchange to accept inbound orders that BATS Trading routes in its 
capacity as a facility of BZX. These conditions and limitations, set 
forth in Exchange Rule 2.12, require that:
    (1) The Exchange must enter into (a) a plan pursuant to Rule 17d-2 
under the Act with a non-affiliated self-regulatory organization 
(``SRO'') to relieve the Exchange of regulatory responsibilities for 
BATS Trading with respect to rules that are common rules between the 
Exchange and the non-affiliated SRO, and (b) a regulatory services 
contract (``Regulatory Contract'') with a non-affiliated SRO to perform 
regulatory responsibilities for BATS Trading for unique Exchange rules.
    (2) The Regulatory Contract must require the Exchange to provide 
the non-affiliated SRO with information, in an easily accessible 
manner, regarding all exception reports, alerts, complaints, trading 
errors, cancellations, investigations, and enforcement matters 
(collectively ``Exceptions'') in which BATS Trading is identified as a 
participant that has potentially violated Exchange or Commission Rules, 
and requires that the non-affiliated SRO provide a report, at least 
quarterly, to the Exchange quantifying all Exceptions in which BATS 
Trading is identified as a participant that has potentially violated 
Exchange or Commission rules.
    (3) The Exchange, on behalf of its parent company, must establish 
and maintain procedures and internal controls reasonably designed to 
ensure that BATS Trading does not develop or implement changes to its 
system based on non-public information obtained as a result of its 
affiliation with the Exchange, until such information is available 
generally to similarly situated Members of the Exchange.

[[Page 75595]]

    (4) The Exchange may furnish to BATS Trading only the same 
information and on the same terms as the Exchange makes available in 
the normal course of business to other users.\82\
---------------------------------------------------------------------------

    \82\ See Securities Exchange Act Release No. 66572 (March 12, 
2012), 77 FR 15152 (March 14, 2012) (SR-BYX-2012-006).
---------------------------------------------------------------------------

    Similar to the role of BATS Trading with respect to the BATS 
Exchanges, the Exchange understands that DE Route provides members of 
the DE Exchanges with optional routing services to other market 
centers, which may include routing from a DE Exchange to the Exchange. 
Following the Combination, it is expected that DE Route will continue 
to provide these routing services, which may involve routing to the 
Exchange. Because, following the Combination, DE Route will be 
affiliated with and potentially routing to the Exchange, the Exchange 
believes that the potential conflict of interest currently addressed by 
Exchange Rule 2.12 with respect to BATS Trading must also be addressed 
with respect to DE Route.
    The Exchange is therefore proposing to amend and expand Exchange 
Rule 2.12 such that substantially the same conditions and limitations 
that currently apply to the inbound routing of orders by BATS Trading 
apply to the inbound routing of orders by DE Route. The proposed 
amendments to Exchange Rule 2.12, as set forth in Exhibit 5H, would 
provide that, in order for the Exchange to accept inbound routed orders 
from DE Route, the conditions and limitations currently set forth in 
Exchange Rule 2.12 with respect to BATS Trading must also be satisfied 
with respect to DE Route.
    The Exchange believes that these proposed amendments will 
adequately manage the potential for a conflict of interest that could 
arise from DE Route routing orders to the Exchange. The Exchange 
expects to arrange that these conditions be met prior to the Closing so 
as to allow DE Route to continue routing to the Exchange following the 
Closing without interruption.\83\
---------------------------------------------------------------------------

    \83\ If such conditions and limitations are not satisfied by 
Closing, the Exchange will not accept inbound orders from DE Route 
until such conditions and limitations are satisfied.
---------------------------------------------------------------------------

    In addition, the language in Exchange Rule 2.12 leading into the 
four conditions described above incorrectly refers to the conditions 
being undertaken by ``each of the Exchange and BATS Trading.'' However, 
by their terms, the conditions contained in Exchange Rule 2.12 are 
undertaken only by the Exchange and, in one case, the Exchange on 
behalf of its parent company. The Exchange therefore proposes to delete 
the incorrect reference to BATS Trading.
10. Exchange Rule 2.10--Affiliation With DE Route
    Exchange Rule 2.10 provides that, subject to certain exceptions, 
without the prior approval of the Commission, (i) the Exchange or any 
entity with which the Exchange is affiliated (as defined in Rule 12b-2 
under the Act), may not directly or indirectly acquire or maintain an 
ownership interest in a Member of the Exchange, and (ii) a Member of 
the Exchange may not be or become an affiliate of the Exchange, or an 
affiliate of any affiliate of the Exchange.
    DE Route is currently a Member of the Exchange. As a result of the 
Combination, (i) New BGM, an entity affiliated with the Exchange, will 
acquire and maintain an indirect ownership interest in DE Route, and 
(ii) DE Route will become an affiliate of the Exchange. Pursuant to 
Exchange Rule 2.10, the Exchange is seeking the Commission's prior 
approval to permit this affiliation.
    The Exchange notes that the purpose of Exchange Rule 2.10 is to 
prevent or manage potential conflicts of interest that could arise from 
the Exchange or its affiliates having an ownership interest in an 
Exchange Member, particularly with respect to the Exchange's obligation 
under Section 19(g) of the Act to enforce its Members' compliance with 
the Act, the Commission's rules thereunder, and Exchange Rules.\84\
---------------------------------------------------------------------------

    \84\ 15 U.S.C. 78s(g).
---------------------------------------------------------------------------

    The Exchange believes that it should be permitted to become 
affiliated with DE Route, notwithstanding DE Route's Exchange 
membership. As described above, as a result of the proposed amendments 
to Exchange Rule 2.12, the Exchange intends on addressing the potential 
conflicts of interests arising from its expected affiliation with DE 
Route by, among other things, entering into (i) a plan pursuant to Rule 
17d-2 under the Act with a non-affiliated SRO to relieve the Exchange 
of regulatory responsibilities for DE Route with respect to rules that 
are common rules between the Exchange and the non-affiliated SRO, and 
(ii) a Regulatory Contract with a non-affiliated SRO to perform 
regulatory responsibilities for DE Route for unique Exchange rules. The 
Exchange believes that any potential conflict of interest that would 
arise as a result of its affiliation with DE Route will be mitigated by 
the same procedures that the Exchange anticipates adopting to satisfy 
the proposed amendments to Exchange Rule 2.12. The Exchange therefore 
requests that, pursuant to Exchange Rule 2.10, the Commission approve 
the indirect acquisition of DE Route by an affiliate of the Exchange 
and the resulting affiliation between the Exchange and DE Route, so 
long as the requirements under Exchange Rule 2.12, as proposed to be 
amended, are satisfied.
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.\85\ In 
particular, the proposal is consistent with Section 6(b)(1) of the Act 
\86\ 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. 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 New BGM Charter and New BGM 
Bylaws, like the Current BGM Charter and Current BGM Bylaws, various 
provisions intended to protect and maintain the integrity of the self-
regulatory functions of the Exchange upon Closing. For example, the New 
BGM Bylaws, as described above, are drafted to preserve the 
independence of the Exchange's self-regulatory function and ensure that 
the Exchange is able to obtain information it needs from the specified 
parties to detect and deter any fraudulent and manipulative acts in its 
marketplace and carry out their regulatory responsibilities under the 
Act. In addition, the New BGM Charter and New BGM Bylaws are drafted to 
make sure that the Exchange's Board of Directors receives notice of any 
amendment to the New BGM Charter and New BGM Bylaws so that the 
Exchange's Board of Directors may review and approve, and the Exchange 
may make any filings with the Commission necessary for the Exchange to 
fulfill its regulatory duties under the Act. The New BGM Charter also 
imposes the BGM Ownership Limitation

[[Page 75596]]

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.
---------------------------------------------------------------------------

    \85\ 15 U.S.C. 78f(b).
    \86\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------

    Moreover, notwithstanding the Proposed Rule Change, including the 
change to the ownership structure 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 parents with respect to activities related to the 
Exchange.\87\ 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 entities and their directors, officers, employees and agents to 
the extent they are involved in the activities of the Exchange.
---------------------------------------------------------------------------

    \87\ See, e.g., New BGM Bylaws, Section 14.05; BGM Holdings 
Bylaws, Section 7.3.
---------------------------------------------------------------------------

    The Exchange also believes that the Proposed Rule Change furthers 
the objectives of Section 6(b)(5) of the Act \88\ 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.
---------------------------------------------------------------------------

    \88\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In addition, the Exchange expects that the Combination will 
facilitate efficiencies and innovation for clients and efficient, 
transparent and well-regulated markets for issuers and clients, thus 
removing impediments to, and perfecting the mechanism of a free and 
open market and a national market system. The Combination will benefit 
investors, the market as a whole, and shareholders by, among other 
things, enhancing competition among securities venues and reducing 
costs. In particular, the Combination will result in a third major 
exchange operator which will have more streamlined and efficient 
operations, including the transition of the DE Exchanges to a 
technology platform in common with the BATS Exchanges, thereby 
intensifying competition for transaction order flow with other exchange 
and non-exchange trading centers, as well as potentially in other areas 
where the two major exchange operators lead, such as proprietary market 
data products and listings. This enhanced level of competition among 
trading centers will benefit investors through new or more competitive 
product offerings and, ultimately, lower 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 the Exchange is proposing to 
Exchange Rules 2.3 are designed to extend the membership eligibility 
criteria in a way that is consistent with the current rule, taking into 
account the prospective affiliation with the DE Exchanges. The proposed 
change to Exchange Rule 2.12 is designed to address the potential for 
conflicts of interest due to the prospective affiliation between the 
Exchange and DE Route. The Exchange believes that the proposed change 
to its Rules is consistent with the requirements of the Act and the 
rules and regulations thereunder. The Exchange believes that the rule 
change promotes the maintenance of a fair and orderly market, the 
protection of investors and the public interest, and is in the best 
interests of the Exchange and its Members as it would continue to allow 
routing of orders between the four affiliated exchanges.

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 intermarket trading venues, as the Exchange believes 
that the Combination will produce a stronger and more efficient entity 
that will have an improved ability to provide innovative products and 
services. Moreover, 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. 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.\89\
---------------------------------------------------------------------------

    \89\ See, e.g., Securities Exchange Act Release No. 66071 
(December 29, 2011), 77 FR 521 (January 05, 2012) (SR-CBOE-2011-107 
and SR-NSX-2011-14); Securities Exchange Act Release No. 58324 (Aug. 
7, 2008), 73 FR 46936 (August 12, 2008) (SR-BSE-2008-02; SR-BSE-
2008-23; SR-BSE-2008-25; SR-BSECC-2008-01); Securities Exchange Act 
Release No. 53382 (Feb. 27, 2006), 71 FR 11251 (March 06, 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 neither solicited nor 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 self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the 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
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-BYX-2013-039 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.


[[Page 75597]]


All submissions should refer to File Number SR-BYX-2013-039. 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-BYX-2013-039, and should be 
submitted on or before January 2, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\90\
---------------------------------------------------------------------------

    \90\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-29623 Filed 12-11-13; 8:45 am]
BILLING CODE 8011-01-P


