
[Federal Register Volume 81, Number 94 (Monday, May 16, 2016)]
[Notices]
[Pages 30351-30360]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-11405]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77794; File No. SR-ISE-2016-11]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing of Proposed Rule Change Relating to a Corporate 
Transaction Involving Its Indirect Parent

May 10, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on April 28, 2016 International Securities Exchange, LLC (the 
``Exchange'' or ``ISE'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change, as described in 
Items I, II, and III below, which items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes is hereby filing with the U.S. Securities and 
Exchange Commission (``Commission'') a proposed rule change (the 
``Proposed Rule Change'') in connection with a proposed business 
transaction (the ``Transaction'') involving the Exchange's ultimate, 
indirect, non-U.S. upstream owners, Deutsche B[ouml]rse AG (``Deutsche 
B[ouml]rse'') and Eurex Frankfurt AG (``Eurex Frankfurt''), and Nasdaq, 
Inc. (``Nasdaq''). Nasdaq is the parent company of The NASDAQ Stock 
Market LLC (``NASDAQ Exchange''), NASDAQ PHLX LLC (``Phlx Exchange''), 
NASDAQ BX, Inc. (``BX Exchange''), Boston Stock Exchange Clearing 
Corporation (``BSECC'') and Stock Clearing Corporation of Philadelphia 
(``SCCP'').\3\ Upon completion of the Transaction (the ``Closing''), 
the Exchange's indirect parent company, U.S. Exchange Holdings, Inc. 
(``U.S. Exchange Holdings''), will become a direct subsidiary of 
Nasdaq. The Exchange will therefore become an indirect subsidiary of 
Nasdaq and, in addition to the Exchange's current affiliation with ISE 
Gemini, LLC (``ISE Gemini'') and ISE Mercury, LLC (``ISE Mercury''), an 
affiliate of NASDAQ Exchange, Phlx Exchange, BX Exchange, BSECC and 
SCCP through common, ultimate ownership by Nasdaq. Nasdaq will become 
the ultimate parent of the Exchange.\4\
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    \3\ See Securities Exchange Act Release Nos. 58179 (July 17, 
2008), 73 FR 42874 (July 23, 2008) (SR-Phlx-2008-31); 58324 (August 
7, 2008), 73 FR 46936 (August 12, 2008) (SR-BSE-2008-02; SR-BSE-
2008-23; SR-BSE-2008-25; SR-BSECC-2008-01).
    \4\ The Exchange's current affiliates, ISE Gemini and ISE 
Mercury, have submitted nearly identical proposed rule changes. See 
SR-ISEGemini-2016-05 and SR-ISEMercury-2016-10.
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    In order to effect the Transaction, the Exchange hereby seeks the 
Commission's approval of the following: (i) That certain corporate 
resolutions that were previously established by entities that will 
cease to be non-U.S. upstream owners of the Exchange after the 
Transaction will cease to be considered rules of the Exchange upon 
Closing; (ii) that certain governing documents of Nasdaq will be 
considered rules of the Exchange upon Closing; (iii) that the Third 
Amended and Restated Trust Agreement (the ``Trust Agreement'') that 
currently exists among International Securities Exchange Holdings, Inc. 
(``ISE Holdings''), U.S. Exchange Holdings, and the Trustees (as 
defined therein) with respect to the ``ISE Trust'' will cease to be 
considered rules of the Exchange upon Closing and, thereafter, that the 
parties to the Trust Agreement would be permitted to take the corporate 
steps necessary to repeal the Trust Agreement and dissolve the ISE 
Trust; (iv) to amend and restate the Second Amended and Restated 
Certificate of Incorporation of ISE Holdings (``ISE Holdings COI'') to 
eliminate provisions relating to the Trust Agreement and the ISE Trust 
and, in this respect, to reinstate certain text of the ISE Holdings COI 
that existed prior to Deutsche B[ouml]rse's ownership of ISE Holdings; 
(v) to amend and restate the Second Amended and Restated Bylaws of ISE 
Holdings (the ``ISE Holdings Bylaws'') to waive certain voting and 
ownership restrictions in the ISE Holdings COI to permit Nasdaq to 
indirectly own 100% of the outstanding common stock of ISE Holdings as 
of and after Closing of the Transaction; and (vi) to amend and restate 
the Third Amended and Restated Certificate of Incorporation of U.S. 
Exchange Holdings (``U.S. Exchange Holdings COI'') to eliminate 
references therein to the Trust Agreement.
    The Exchange requests that the Proposed Rule Change become 
operative at the Closing of the Transaction. The text of the proposed 
rule change is available at the Commission's Public Reference Room and 
on the Exchange's Internet Web site at http://www.ise.com.

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

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in sections A, B and C below, of the 
most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 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's current owners and related 
actions that are necessary in connection with the Closing of the 
Transaction, as described below. The Exchange will continue to conduct 
its regulated activities (including operating and regulating its market 
and Members) in the manner

[[Page 30352]]

currently conducted and will not make any changes to its regulated 
activities in connection with the Transaction. The Exchange is not 
proposing any amendments to its trading or regulatory rules at this 
time relating to the Transaction.\5\ The Exchange would continue to be 
registered as a national securities exchange, with separate rules, 
membership rosters, and listings, distinct from the rules, membership 
rosters, and listings of NASDAQ Exchange, Phlx Exchange and BX Exchange 
as well as from its current affiliates, ISE Gemini and ISE Mercury. 
Neither the Exchange nor its current affiliates engage in clearing 
securities transactions, nor would they do so after the Transaction. 
Additionally, the Exchange would continue to be a separate self-
regulatory organization (``SRO'').
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    \5\ If the Exchange determines to make any such changes, it will 
seek the approval of the Commission only after the approval of this 
Proposed Rule Change to the extent required by the Securities 
Exchange Act of 1934, as amended (``Act''), the Commission's rules 
thereunder, or the Exchange's rules.
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1. Current Ownership Structure of the Exchange
    On December 17, 2007, ISE Holdings, the sole, direct parent of the 
Exchange, became a direct, wholly-owned subsidiary of U.S. Exchange 
Holdings.\6\ U.S. Exchange Holdings is 85% directly owned by Eurex 
Frankfurt and 15% directly owned by Deutsche B[ouml]rse. Eurex 
Frankfurt is a wholly-owned, direct subsidiary of Deutsche 
B[ouml]rse.\7\ Deutsche B[ouml]rse therefore owns 100% of U.S. Exchange 
Holdings through its aggregate direct and indirect ownership.
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    \6\ See Securities Exchange Act Release No. 56955 (December 13, 
2007), 72 FR 71979 (December 19, 2007) (SR-ISE-2007-101).
    \7\ See Securities Exchange Act Release No. 66834 (April 19, 
2012), 77 FR 24752 (April 25, 2012) (SR-ISE-2012-21). Each of 
Deutsche B[ouml]rse and Eurex Frankfurt is referred to as a ``Non-
U.S. Upstream Owner'' and collectively as the ``Non-U.S. Upstream 
Owners.''
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2. The Transaction
    On March 9, 2016, a Stock Purchase Agreement (the ``Agreement'') 
was entered into among Deutsche B[ouml]rse, Eurex Frankfurt and Nasdaq. 
Pursuant to and subject to the terms of the Agreement, at the Closing, 
Deutsche B[ouml]rse and Eurex Frankfurt will sell, transfer and deliver 
to Nasdaq, and Nasdaq will purchase, the capital stock of U.S. Exchange 
Holdings.
3. Post-Closing Ownership Structure of the Exchange
    As a result of the Transaction, Nasdaq will directly own 100% of 
the equity interest of U.S. Exchange Holdings. U.S. Exchange Holdings 
will remain the sole, direct owner of ISE Holdings. ISE Holdings will 
remain the sole, direct owner of the Exchange. The Exchange will 
therefore become an indirect subsidiary of Nasdaq and Nasdaq will 
become the ultimate parent of the Exchange. The Exchange will become an 
affiliate of NASDAQ Exchange, Phlx Exchange, BX Exchange, BSECC and 
SCCP through common, ultimate ownership by Nasdaq. As a result of the 
Transaction, Deutsche B[ouml]rse and Eurex Frankfurt will cease to be 
owners of the Exchange. The Exchange will therefore cease to have any 
Non-U.S. Upstream Owners. The Transaction will not have any effect on 
ISE Holdings' direct ownership of the Exchange. However, consummation 
of the Transaction is subject to approval of this Proposed Rule Change 
by the Commission, as described below.
4. Non-U.S. Upstream Owner Resolutions
    Deutsche B[ouml]rse and Eurex Frankfurt, as the Non-U.S. Upstream 
Owners of the Exchange, have previously taken appropriate steps to 
incorporate provisions regarding ownership, jurisdiction, books and 
records, and other issues related to their control of the Exchange. 
Specifically, each of such Non-U.S. Upstream Owners has adopted 
resolutions (``Non-U.S. Upstream Owner Resolutions''), which were 
previously approved by the Commission, to incorporate these concepts 
with respect to itself, as well as its board members, officers, 
employees, and agents (as applicable), to the extent that they are 
involved in the activities of the Exchange.\8\ For example, the 
resolution of each of such Non-U.S. Upstream Owners provides that it 
shall comply with the U.S. federal securities laws and the rules and 
regulations thereunder and shall cooperate with the Commission and with 
the Exchange. In addition, the resolution of each of such Non-U.S. 
Upstream Owners provides that the board members, including each person 
who becomes a board member, would so consent to comply and cooperate 
and the particular Non-U.S. Upstream Owner would take reasonable steps 
to cause its officers, employees, and agents to also comply and 
cooperate, to the extent that he or she is involved in the activities 
of the Exchange.
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    \8\ See SR-ISE-2007-101, supra note 6; SR-ISE-2012-21, supra 
note 7.
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    Section 19(b) of the Act,\9\ and Rule 19b-4 thereunder,\10\ require 
an SRO to file proposed rule changes with the Commission. Although the 
Non-U.S. Upstream Owners are not SROs, the Non-U.S. Upstream Owner 
Resolutions have previously been filed with the Commission as stated 
policies, practices, or interpretations of the Exchange and therefore 
are considered rules of the Exchange.\11\ As Deutsche B[ouml]rse and 
Eurex Frankfurt will both cease to be Non-U.S. Upstream Owners of the 
Exchange after the Transaction, the Exchange proposes that the 
resolutions of Deutsche B[ouml]rse and Eurex Frankfurt will cease to be 
stated policies, practices, or interpretations of the Exchange and, 
therefore, will cease to be considered rules of the Exchange as of a 
date that corresponds to the Closing date of the Transaction.\12\
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    \9\ 15 U.S.C. 78s(b).
    \10\ 17 CFR 240.19b-4.
    \11\ See SR-ISE-2007-101, supra note 6 at 71981.
    \12\ The ``Form of German Parent Corporation Resolutions'' is 
attached hereto as Exhibit 5A. As referenced above, resolutions in 
relation to board members, officers, employees, and agents (as 
applicable) of Deutsche B[ouml]rse and Eurex Frankfurt also would 
cease accordingly. Resolution 11 provides that, notwithstanding any 
provision of the resolutions, before: (a) Any amendment to or repeal 
of any provision of this or any of the resolutions; or (b) any 
action that would have the effect of amending or repealing any 
provision of the resolutions shall be effective, the same shall be 
submitted to the board of directors of the Exchange, and if the same 
must be filed with, or filed with and approved by, the Commission 
before the same may be effective, under Section 19 of the Act and 
the rules promulgated thereunder, then the same shall not be 
effective until filed with, or filed with and approved by, the 
Commission, as the case may be. In addition, Deutsche B[ouml]rse, 
Eurex Frankfurt, U.S. Exchange Holdings, ISE Holdings, and the 
Exchange previously became parties to an agreement to provide for 
adequate funding for the Exchange's regulatory responsibilities. ISE 
Gemini and ISE Mercury subsequently became parties to the agreement. 
This agreement will be terminated upon the Closing of the 
Transaction.
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5. Nasdaq Governing Documents
    Nasdaq will become the ultimate parent of the Exchange upon the 
Closing of the Transaction. As described above, Section 19(b) of the 
Act and Rule 19b-4 thereunder require an SRO to file proposed rule 
changes with the Commission. Although the Exchange's existing U.S. 
upstream owners are not SROs, their governing documents have previously 
been filed with the Commission as stated policies, practices, or 
interpretations of the Exchange and therefore are considered rules of 
the Exchange.\13\ The Exchange proposes that the Nasdaq Amended and 
Restated Certificate of Incorporation (``Nasdaq COI'') and the Nasdaq 
Bylaws (``Nasdaq Bylaws, and together with the Nasdaq COI, the ``Nasdaq 
governing documents'') will become stated policies, practices, or 
interpretations of the Exchange as of the Closing and,

[[Page 30353]]

therefore, will be considered rules of the Exchange as of a date that 
corresponds to the Closing date of the Transaction.\14\
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    \13\ See SR-ISE-2007-101, supra note 6 at 71981.
    \14\ The Nasdaq COI dated January 24, 2014 is attached hereto as 
Exhibit 5B along with subsequent amendments thereto dated November 
17, 2014 and September 8, 2015 and the Certificate of Elimination of 
the Series A Convertible Preferred Stock dated January 27, 2014. The 
Nasdaq Bylaws are attached hereto as Exhibit 5C.
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    The Nasdaq Bylaws contain certain provisions regarding ownership, 
jurisdiction, books and records, and other issues, with respect to 
Nasdaq, as well as its board members, officers, employees, and agents 
(as applicable), relating to Nasdaq's control of any ``Self-Regulatory 
Subsidiary'' (i.e., any subsidiary of Nasdaq that is an SRO as defined 
under Section 3(a)(26) of the Act).\15\ The Exchange would be a ``Self-
Regulatory Subsidiary'' of Nasdaq upon the Closing of the Transaction. 
The provisions in the Nasdaq Bylaws are comparable to the provisions of 
the Non-U.S. Upstream Owners Resolutions, including in the following 
manner:
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    \15\ 15 U.S.C. 78c(a)(26).
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     Giving due regard to the preservation of the independence 
of the self-regulatory function of each of Nasdaq's Self-Regulatory 
Subsidiaries.\16\
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    \16\ Nasdaq Bylaws Section 12.1(a) (Self-Regulatory Organization 
Functions of the Self-Regulatory Subsidiaries).
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     Maintaining the confidentiality of all books and records 
of each Self-Regulatory Subsidiary reflecting confidential information 
pertaining to the self-regulatory function of such Self-Regulatory 
Subsidiary (including but not limited to disciplinary matters, trading 
data, trading practices and audit information) that comes into Nasdaq's 
possession, which shall not be used for any non-regulatory purposes; 
making such books and records available for inspection and copying by 
the Commission; and maintaining such books and records relating to each 
Self-Regulatory Subsidiary in the United States.\17\
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    \17\ Nasdaq Bylaws Section 12.1(b).
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     To the extent they are related to the activities of a 
Self-Regulatory Subsidiary, the books, records, premises, officers, 
Directors, and employees of Nasdaq shall be deemed to be the books, 
records, premises, officers, directors, and employees of such Self-
Regulatory Subsidiary for the purposes of, and subject to oversight 
pursuant to, the Act.\18\
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    \18\ Nasdaq Bylaws Section 12.1(c).
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     Compliance by Nasdaq with the U.S. federal securities laws 
and the rules and regulations thereunder, cooperation by Nasdaq with 
the Commission and Nasdaq's Self-Regulatory Subsidiaries, and 
reasonable steps by Nasdaq necessary to cause its agents to cooperate 
with the Commission and, where applicable, the Self-Regulatory 
Subsidiaries pursuant to their regulatory authority.\19\
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    \19\ Nasdaq Bylaws Section 12.2(a) (Cooperation with the 
Commission). The officers, Directors, and employees of Nasdaq, by 
virtue of their acceptance of such position, shall be deemed to 
agree to cooperate with the Commission and each Self-Regulatory 
Subsidiary in respect of the Commission's oversight responsibilities 
regarding the Self-Regulatory Subsidiaries and the self-regulatory 
functions and responsibilities of the Self-Regulatory Subsidiaries. 
Nasdaq Bylaws Section 12.2(b).
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     Consent by Nasdaq and its officers, Directors, and 
employees to the jurisdiction of the United States federal courts, the 
Commission, and each Self-Regulatory Subsidiary for the purposes of any 
suit, action or proceeding pursuant to the United States federal 
securities laws, and the rules and regulations thereunder, arising out 
of, or relating to, the activities of any Self-Regulatory 
Subsidiary.\20\
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    \20\ Nasdaq Bylaws Section 12.3 (Consent to Jurisdiction).
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     Reasonable steps by Nasdaq necessary to cause its current 
and future officers, Directors, and employees, to consent in writing to 
the applicability to them of certain provisions of the Nasdaq Bylaws, 
as applicable, with respect to their activities related to any Self-
Regulatory Subsidiary.\21\
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    \21\ Nasdaq Bylaws Section 12.4 (Further Assurances).
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     Approval by the Commission under Section 19 of the Act 
prior to any resolution of the Nasdaq Board to approve an exemption for 
any person from the ownership limitations of the Nasdaq COI.\22\
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    \22\ Nasdaq Bylaws Section 12.5 (Board Action with Respect to 
Voting Limitations of the Certificate of Incorporation).
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     Filing with, or filing with and approval by, the 
Commission (as the case may be) under Section 19 of the Act prior to 
amending the Nasdaq COI or the Nasdaq Bylaws.\23\
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    \23\ Nasdaq Bylaws Section 12.6 (Amendments to the Certificate 
of Incorporation); Nasdaq Bylaws Section 11.3 (Review by Self-
Regulatory Subsidiaries).
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    The Exchange believes that the provisions in the Nasdaq Bylaws 
should minimize the potential that a person could improperly interfere 
with, or restrict the ability of, the Commission or the Exchange to 
effectively carry out their regulatory oversight responsibilities under 
the Act.\24\
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    \24\ The U.S. Exchange Holdings COI also includes similar 
provisions, including that U.S. Exchange Holdings will take 
reasonable steps necessary to cause ISE Holdings to be in compliance 
with the ``Ownership Limit'' and the ``Voting Limit.'' See U.S. 
Exchange Holdings COI, Articles TENTH through SIXTEENTH. The U.S. 
Exchange Holdings COI provides that U.S. Exchange Holdings will 
notify the Exchange's Board if any ``Person,'' either alone or 
together with its ``Related Persons,'' at any time owns (whether by 
acquisition or by a change in the number of shares outstanding) of 
record or beneficially, whether directly or indirectly, 10%, 15%, 
20%, 25%, 30%, 35%, or 40% or more of the then outstanding shares of 
U.S. Exchange Holdings. See SR-ISE-2007-101, supra note 6, at 71981.
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    Additionally, and similar to the ISE Holdings COI, the Nasdaq COI 
imposes limits on direct and indirect changes in control, which are 
designed to prevent any shareholder from exercising undue control over 
the operation of its SRO subsidiaries and to ensure that its SRO 
subsidiaries and the Commission are able to carry out their regulatory 
obligations under the Act. Specifically, no person who beneficially 
owns shares of common stock, preferred stock, or notes of Nasdaq in 
excess of 5% of the securities generally entitled to vote may vote the 
shares in excess of 5%.\25\ This limitation would mitigate the 
potential for any Nasdaq shareholder to exercise undue control over the 
operations of the Exchange, and it facilitates the Exchange's and the 
Commission's ability to carry out their regulatory obligations under 
the Act. The Nasdaq Board may approve exemptions from the 5% voting 
limitation for any person that is not a broker-dealer, an affiliate of 
a broker-dealer, or a person subject to a statutory disqualification 
under Section 3(a)(39) of the Act,\26\ provided that the Nasdaq Board 
also determines that granting such exemption would be consistent with 
the self-regulatory obligations of its SRO subsidiary.\27\ Further, any 
such exemption from the 5% voting limitation would not be effective 
until approved by the Commission pursuant to Section 19 of the Act.\28\
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    \25\ See Article FOURTH, Section C of the Nasdaq COI.
    \26\ 15 U.S.C. 78c(a)(39).
    \27\ See Article FOURTH, Section C.6. of the Nasdaq COI. 
Specifically, the Nasdaq Board must determine that granting such 
exemption would (1) not reasonably be expected to diminish the 
quality of, or public confidence in, Nasdaq or the other operations 
of Nasdaq, on the ability to prevent fraudulent and manipulative 
acts and practices and on investors and the public, and (2) promote 
just and equitable principles of trade, foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to an facilitating transactions 
in securities or assist in the removal of impediments to or 
perfection of the mechanisms for a free and open market and a 
national market system.
    \28\ See Section 12.5 of the Nasdaq Bylaws.
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6. Trust Agreement \29\
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    \29\ The Trust Agreement exists among ISE Holdings, U.S. 
Exchange Holdings, and the Trustees (as defined therein). By its 
terms, the Trust Agreement originally related solely to ISE 
Holdings' ownership of ISE, and not to any other national securities 
exchange that ISE Holdings might control, directly or indirectly. In 
2010, the Commission approved proposed rule changes that revised the 
Trust Agreement to replace references to ISE with references to any 
Controlled National Securities Exchange. See Securities Exchange Act 
Release Nos. 59135 (December 22, 2008), 73 FR 79954 (December 30, 
2008) (SR-ISE-2008-85) and 61498 (February 4, 2010), 75 FR 7299 
(February 18, 2010) (SR-ISE-2009-90); see also ISE Trust Agreement, 
Articles I and II, Sections 1.1 and 2.6. Thus, the ISE Trust 
Agreement also applies to ISE Gemini and ISE Mercury.
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    The ISE Holdings COI currently contains certain ownership limits

[[Page 30354]]

(``Ownership Limits'') and voting limits (``Voting Limits'') with 
respect to the outstanding capital stock of ISE Holdings.\30\ The Trust 
Agreement was entered into in 2007 to provide for an automatic transfer 
of ISE Holdings shares to a trust (the ``ISE Trust'') if a Person \31\ 
were to obtain an ownership or voting interest in ISE Holdings in 
excess of these Ownership Limits and Voting Limits, through ownership 
of one of the Non-U.S. Upstream Owners, without obtaining the approval 
of the Commission. In this regard, the Trust Agreement serves four 
general purposes: (i) To accept, hold and dispose of Trust Shares \32\ 
on the terms and subject to the conditions set forth therein; (ii) to 
determine whether a Material Compliance Event \33\ has occurred or is 
continuing; (iii) to determine whether the occurrence and continuation 
of a Material Compliance Event requires the exercise of the Call 
Option; \34\ and (iv) to transfer Deposited Shares from the Trust to 
the Trust Beneficiary \35\ as provided in Section 4.2(h) therein. The 
ISE Trust, and corresponding Trust Agreement, is the mechanism by which 
the Ownership Limits and Voting Limits in the ISE Holdings COI 
currently would be protected in the event that a Non-US Upstream Owner 
purportedly transfers any related ownership or voting rights other than 
in accordance with the ISE Holdings COI.
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    \30\ See Article FOURTH, Section III of the ISE Holdings COI.
    \31\ See SR-ISE-2007-101, supra note 6. Under the Trust 
Agreement, the term ``Person'' means any individual, corporation 
(including not-for-profit), general or limited partnership, limited 
liability company, joint venture, estate, trust, association, 
organization, government or any agency or political subdivision 
thereof, or any other entity of any kind or nature.
    \32\ Under the Trust Agreement, the term ``Trust Shares'' means 
either Excess Shares or Deposited Shares, or both, as the case may 
be. The term ``Excess Shares'' means that a Person obtained an 
ownership or voting interest in ISE Holdings in excess of certain 
ownership and voting restrictions pursuant to Article FOURTH of the 
ISE Holdings COI, through, for example, ownership of one of the Non-
U.S. Upstream Owners or U.S. Exchange Holdings, without obtaining 
the approval of the Commission. The term ``Deposited Shares'' means 
shares that are transferred to the Trust pursuant to the Trust's 
exercise of the Call Option.
    \33\ Under the Trust Agreement, the term ``Material Compliance 
Event'' means, with respect to a Non-U.S. Upstream Owner, any state 
of facts, development, event, circumstance, condition, occurrence or 
effect that results in the failure of any of the Non-U.S. Upstream 
Owners to adhere to their respective commitments under the 
resolutions (i.e., as referenced in note 7) in any material respect.
    \34\ Under the Trust Agreement, the term ``Call Option'' means 
the option granted by the Trust Beneficiary to the Trust to call the 
Voting Shares as set forth in Section 4.2 therein.
    \35\ Under the Trust Agreement, the term ``Trust Beneficiary'' 
means U.S. Exchange Holdings.
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    As described above, Section 19(b) of the Act and Rule 19b-4 
thereunder require an SRO to file proposed rule changes with the 
Commission. Although the ISE Trust is not an SRO, the Trust Agreement 
has previously been filed with the Commission as stated policies, 
practices, or interpretations of the Exchange and therefore is 
considered rules of the Exchange.\36\ The purpose for which the ISE 
Trust was formed will not be relevant after the Closing of the 
Transaction, given that the Exchange will no longer have Non-U.S. 
Upstream Owners and that the Exchange's current and resulting U.S. 
upstream owners' governing documents provide for similar protections 
(e.g., U.S. Exchange Holdings COI Article THIRTEENTH and Nasdaq Bylaws 
Section 12.5). Accordingly, the Exchange proposes that the Trust 
Agreement will cease to be stated policies, practices, or 
interpretations of the Exchange and, therefore, will cease to be 
considered rules of the Exchange as of a date that corresponds to the 
Closing date of the Transaction.\37\ The Exchange also proposes that, 
as of the Closing of the Transaction, the parties to the Trust 
Agreement would be permitted to take the corporate steps necessary to 
repeal the Trust Agreement and dissolve the ISE Trust.
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    \36\ See SR-ISE-2007-101, supra note 6 at 71984.
    \37\ The current Trust Agreement is attached hereto as Exhibit 
5D. Section 8.2 of the Trust Agreement provides, in part, that, for 
so long as ISE Holdings controls, directly or indirectly, the 
Exchange, before any amendment or repeal of any provision of the 
Trust Agreement shall be effective, such amendment or repeal shall 
be submitted to the board of directors of the Exchange, as 
applicable, and if such amendment or repeal must be filed with or 
filed with and approved by the Commission under Section 19 of the 
Act and the rules promulgated thereunder before such amendment or 
repeal may be effectuated, then such amendment or repeal shall not 
be effectuated until filed with or filed with and approved by the 
Commission, as the case may be. The Exchange notes that, according 
to the terms of the Trust Agreement, Sections 6.1 and 6.2 thereof, 
which relate to limits on disclosure of confidential information and 
certain permitted disclosure, will survive the termination of the 
Trust Agreement for a period of ten years.
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7. ISE Holdings COI
    The ISE Holdings COI was amended in 2007 in relation to the 
ownership of the Exchange by Deutsche B[ouml]rse.\38\ At that time, 
provisions were added to the ISE Holdings COI relating to the ISE Trust 
to provide for an automatic transfer of ISE Holdings' shares to the ISE 
Trust if a Person were to obtain an ownership or voting interest in ISE 
Holdings in excess of Voting Limits and Ownership Limits, without 
obtaining the approval of the Commission.
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    \38\ See SR-ISE-2007-101, supra note 6.
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    As described above, the Exchange is proposing that the Trust 
Agreement will cease to be considered rules of the Exchange as of a 
date that corresponds to the Closing date of the Transaction. 
Accordingly, the Exchange proposes to remove provisions relating to the 
Trust Agreement and the ISE Trust from the ISE Holdings COI.\39\ The 
Exchange proposes to reinstate certain provisions of the ISE Holdings 
COI that existed prior to Deutsche B[ouml]rse's ownership of ISE 
Holdings that were removed upon introduction of the provisions relating 
to the ISE Trust and the Trust Agreement.\40\
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    \39\ The proposed, amended ISE Holdings COI is attached hereto 
as Exhibit 5E. Capitalized terms used to describe the ISE Holdings 
COI that are not otherwise defined herein shall have the meanings 
prescribed in the ISE Holdings COI. Article FOURTEENTH of the ISE 
Holdings COI provides that, for so long as U.S. Exchange Holdings 
shall control, directly or indirectly, the Exchange, or facility 
thereof, before any amendment to or repeal of any provision of the 
ISE Holdings COI shall be effective, the same shall be submitted to 
the board of directors of the Exchange, and if the same must be 
filed with, or filed with and approved by, the Commission before the 
same may be effective, under Section 19 of the Act and the rules 
promulgated thereunder, then the same shall not be effective until 
filed with, or filed with and approved by, the Commission, as the 
case may be.
    \40\ See, e.g., Exhibit 5A to SR-ISE-2007-101, supra note 6. See 
also Securities Exchange Act Release No. 51029 (January 12, 2005), 
70 FR 3233 (January 21, 2005) (SR-ISE-2004-29), through which the 
Exchange, which was organized as a corporation at that time (i.e., 
``ISE, Inc.''), amended its Certificate of Incorporation and 
Constitution at that time in connection with the Exchange's then-
contemplated initial public offering. The Exchange subsequently 
reorganized into a holding company structure, whereby it became a 
limited liability company, as it is so organized currently, and 
whereby ISE Holdings became the sole owner of the Exchange. See 
Securities Exchange Act Release No. 53705 (April 21, 2006), 71 FR 
25260 (April 28, 2006) (SR-ISE-2006-04). As a result, and at the 
time of the reorganization, the Exchange eliminated the ``ISE, 
Inc.'' Certificate of Incorporation and Constitution. The ISE 
Holdings COI and ISE Holdings Bylaws were introduced at that time 
and included substantially the same ownership and voting limitations 
that had been contained in the ISE, Inc. Certificate of 
Incorporation and Constitution.
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    The changes to the ISE Holdings COI proposed herein would describe 
the corrective treatment of ``Excess Shares'' (i.e., any sale, 
transfer, assignment or pledge that, if effective would result in any 
Person, either alone or together with its Related Persons, owning 
shares in excess of any of the Ownership Limits). The proposed changes 
would apply

[[Page 30355]]

corrective procedures if any Person, alone or together with its Related 
Persons, purports to sell, transfer, assign or pledge any shares of ISE 
Holdings stock in in violation of the Ownership Limits. Specifically, 
any such sale, transfer, assignment or pledge would be void, and that 
number of shares in excess of the Ownership Limits would be deemed to 
have been transferred to ISE Holdings, as ``Special Trustee'' of a 
``Charitable Trust'' for the exclusive benefit of a ``Charitable 
Beneficiary'' to be determined by ISE Holdings.\41\ These corrective 
procedures also would apply if there is any other event causing any 
holder of ISE Holdings stock to exceed the Ownership Limits, such as a 
repurchase of shares by ISE Holdings. The automatic transfer would be 
deemed to be effective as of the close of business on the business day 
prior to the date of the violative transfer or other event. The Special 
Trustee of the Charitable Trust would be required to sell the Excess 
Shares to a person whose ownership of shares is not expected to violate 
the Ownership Limits, subject to the right of ISE Holdings to 
repurchase those shares. The proposed changes to the ISE Holdings COI 
are as follows: \42\
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    \41\ ISE Holdings may also determine to appoint as ``Special 
Trustee'' any entity that is unaffiliated with ISE Holdings and any 
Person or its Related Persons owning Excess Shares, and any 
successor trustee appointed by ISE Holdings. Currently, the ISE 
Trust would hold capital stock of ISE Holdings in the event that a 
person obtains ownership or voting interest in ISE Holdings in 
excess of the Ownership Limits or Voting Limits or in the event of a 
Material Compliance Event. See SR-ISE-2007-101, supra note 6, for a 
discussion of the ISE Trust, including the operation thereof.
    \42\ The Exchange is not proposing any changes to the actual 
Ownership Limits or Voting Limits specified in the current ISE 
Holdings COI. See Article FOURTH, Sections III(a) and III(b) of the 
ISE Holdings COI. The Exchange proposes to delete certain defined 
terms from the ISE Holdings COI, such as ``ISE Trust,'' ``Trust 
Beneficiary'' and ``Trustee,'' and replace them with new defined 
terms within the ISE Holdings COI, such as ``Charitable Trust,'' 
``Charitable Beneficiary'' and ``Special Trustee.'' The Exchange 
also proposes to renumber certain sections of the ISE Holdings COI 
to account for proposed new and deleted sections therein.
---------------------------------------------------------------------------

     The Exchange proposes to delete the current provisions in 
Article Fourth, Sections III(a)(ii), III(a)(iii) and III(b)(i) of the 
ISE Holdings COI that provide that the ISE Holdings Board of Directors 
shall deliver to the ISE Trust copies of certain written notice and 
updates thereto currently required under Sections III(a)(ii) and 
III(a)(iii) of Article FOURTH (i.e., if any Person at any time owns, of 
record or beneficially, whether directly or indirectly, five percent 
(5%) or more of the then outstanding Voting Shares).
     The Exchange proposes to adopt new Article FOURTH, Section 
III(b)(iii) of the ISE Holdings COI, which would provide that, 
notwithstanding any other provisions contained in the ISE Holdings COI, 
to the fullest extent permitted by applicable law, any shares of 
capital stock of ISE Holdings (whether such shares are common stock or 
preferred stock) not entitled to be voted due to the restrictions set 
forth in Section III(b)(i) of Article FOURTH of the ISE Holdings COI 
(and not waived by the ISE Holdings Board of Directors and approved by 
the Commission pursuant to Section III(b)(i) of Article FOURTH of the 
ISE Holdings COI), shall not be deemed to be outstanding for purposes 
of determining a quorum or a minimum vote required for the transaction 
of any business at any meeting of stockholders of ISE Holdings, 
including, without limitation, when specified business is to be voted 
on by a class or a series voting as a class.
     As a result of the addition of new Article FOURTH, Section 
III(b)(iii) of the ISE Holdings COI, the Exchange proposes to renumber 
current Article FOURTH, Section III(b)(iii) as resulting Article 
FOURTH, Section III(b)(iv).
     The Exchange proposes several changes to Article FOURTH, 
Section III(c) of the ISE Holdings COI, which relates to violations of 
any Ownership Limits or Voting Limits and the treatment of Excess 
Shares, including the following:
     Addition of new text relating to the designation as 
``Excess Shares'' for any shares held in excess of the relevant 
Ownership Limits; such designation and treatment being effective as of 
the close of business on the business day prior to the date of the 
purported transfer or other event leading to such Excess Shares.\43\
---------------------------------------------------------------------------

    \43\ See resulting Article FOURTH, Section III(c).
---------------------------------------------------------------------------

     Deletion of current text requiring notification to the ISE 
Trust upon the occurrence of certain events and the transfer of Voting 
Shares to the ISE Trust.\44\
---------------------------------------------------------------------------

    \44\ Id.
---------------------------------------------------------------------------

     Addition of new text describing the treatment of ``Excess 
Shares'' upon any sale, transfer, assignment or pledge that, if 
effective would result in any Person, either alone or together with its 
Related Persons, owning shares in excess of any of the Ownership 
Limits. Specifically, the Exchange proposes within new Article FOURTH, 
Section III(c)(i) of the ISE Holdings COI that any such purported event 
shall be void ab initio as to such Excess Shares, and the intended 
transferee shall acquire no rights in such Excess Shares. Such Excess 
Shares shall be deemed to have been transferred to ISE Holdings (or to 
an entity appointed by ISE Holdings that is unaffiliated with ISE 
Holdings and any Person or its Related Persons owning such Excess 
Shares), as Special Trustee of the Charitable Trust for the exclusive 
benefit of the Charitable Beneficiary or Beneficiaries.\45\
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    \45\ See proposed Article FOURTH, Section III(c)(ii). The 
``Charitable Beneficiary'' would be one or more organizations 
described in Sections 170(b)(1)(A) or 170(c) of the Internal Revenue 
Code of 1986, as amended from time to time. The ``Charitable Trust'' 
would be the trust established for the benefit of the Charitable 
Beneficiary for which ISE Holdings is the trustee. The ``Special 
Trustee'' would be ISE Holdings, in its capacity as trustee for the 
Charitable Trust, any entity appointed by ISE Holdings that is 
unaffiliated with ISE Holdings and any Person or its Related Persons 
owning Excess Shares, and any successor trustee appointed by ISE 
Holdings.
---------------------------------------------------------------------------

     Addition of new text describing the treatment of dividends 
or other distributions paid with respect to Excess Shares.\46\
---------------------------------------------------------------------------

    \46\ See proposed Article FOURTH, Section III(c)(iii).
---------------------------------------------------------------------------

     Addition of new text describing the handling of any 
distribution of assets received in respect of the Excess Shares in any 
liquidation, dissolution or winding up of, or any distribution of the 
assets of ISE Holdings.\47\
---------------------------------------------------------------------------

    \47\ See proposed Article FOURTH, Section III(c)(iv).
---------------------------------------------------------------------------

     Addition of new text describing the authority of the 
Special Trustee with respect to rescinding as void any votes cast by a 
purported transferee or holder of Excess Shares as well as recasting of 
votes in accordance with the desires of the Special Trustee acting for 
the benefit of ISE Holdings.\48\
---------------------------------------------------------------------------

    \48\ See proposed Article FOURTH, Section III(c)(v).
---------------------------------------------------------------------------

     Addition of new text describing the sale by the Special 
Trustee, to a Person or Persons designated by the Special Trustee whose 
ownership of Voting Shares will not violate any Ownership Limit or 
Voting Limit, of Excess Shares transferred to the Charitable Trust, 
within 20 days of receiving notice from ISE Holdings that Excess Shares 
have been so transferred.\49\ Existing text would be deleted that 
requires the Trustees of the ISE Trust to use their commercially 
reasonable efforts to sell the Excess Shares upon receipt of written 
instructions from the ISE Trust Beneficiary. New text also would be 
added describing the handling of any proceeds of such a sale.
---------------------------------------------------------------------------

    \49\ See proposed Article FOURTH, Section III(c)(vi).
---------------------------------------------------------------------------

     Addition of new text describing that Excess Shares shall 
be deemed to have been offered for sale to ISE Holdings on

[[Page 30356]]

the date of the transaction or event resulting in such Excess 
Shares.\50\
---------------------------------------------------------------------------

    \50\ See proposed Article FOURTH, Section III(c)(vii).
---------------------------------------------------------------------------

     Deletion of current Article FOURTH, Section III(c)(v), 
which currently relates to the ISE Trust Beneficiary's right to 
reacquire Excess Shares from the ISE Trust under certain circumstances.
    The Exchange is not proposing to reinstate all of the ISE Holdings 
COI text that existed prior to Deutsche B[ouml]rse's ownership of ISE 
Holdings, as certain of such text would continue to not be applicable, 
even after the Transaction, given the Exchange's resulting ownership. 
For example, prior to Deutsche B[ouml]rse's ownership of ISE Holdings, 
the ISE Holdings COI contained certain provisions that dealt with the 
publicly-traded nature of ISE Holdings' stock. This text was removed 
from the ISE Holdings COI upon Deutsche B[ouml]rse's ownership of ISE 
Holdings, as ISE Holdings' stock ceased to be publicly-traded.\51\ 
Therefore, the Exchange is not proposing to reinstate the following 
provisions of the ISE Holdings COI that existed prior to Deutsche 
B[ouml]rse's ownership of ISE Holdings relating to:
---------------------------------------------------------------------------

    \51\ See Exhibit 5A to SR-ISE-2007-101, supra note 6.
---------------------------------------------------------------------------

     Regulation 14A under the Act (pertaining to solicitations 
of proxies).
     the treatment of transactions of ISE Holdings stock on or 
through the facilities of any national securities exchange or national 
securities association.
     inspection of the ISE Holdings accounts and records by ISE 
Holdings stockholders.
     stockholder voting to amend, repeal or adopt provisions of 
the ISE Holdings COI or the ISE Holdings Bylaws.
     stockholder action called at annual or special meetings of 
stockholders.
     nominations for directors and the election thereof.
    The Exchange also is not proposing to reinstate the ISE Holdings 
COI text that existed prior to Deutsche B[ouml]rse's ownership of ISE 
Holdings that related to changes in terminology used throughout the ISE 
Holdings COI.\52\ Additionally, provisions of the ISE Holdings COI that 
authorize shares of capital stock of ISE Holdings have been amended 
since Deutsche B[ouml]rse acquired ownership of ISE Holdings.\53\ The 
Exchange does not propose to amend the text of the ISE Holdings COI 
relating to share authorization. The Exchange also does not propose to 
reinstate the location or specific wording of text of the ISE Holdings 
COI that was adjusted or relocated upon Deutsche B[ouml]rse's ownership 
of ISE Holdings, but that otherwise has the same practical effect and 
meaning as it did prior to Deutsche B[ouml]rse's ownership of ISE 
Holdings.
---------------------------------------------------------------------------

    \52\ For example, the ISE Holdings COI currently refers to 
Delaware General Corporation Law as ``DGCL.'' The Exchange would not 
reinstate the prior ``GCL'' term that was used in the ISE Holdings 
COI.
    \53\ See, e.g., Securities Exchange Act Release No 73860 
(December 17, 2014), 79 FR 77066 (December 23, 2014) (SR-ISE-2014-
44).
---------------------------------------------------------------------------

7. U.S. Exchange Holdings COI
    The Exchange proposes to remove the reference to the Trust 
Agreement in Article THIRTEENTH of the U.S. Exchange Holdings COI. As 
proposed herein, the Trust Agreement will cease to be considered rules 
of the Exchange as of the Closing of the Transaction and would be 
repealed in connection with the Transaction. The Exchange also proposes 
to retitle the document as the ``Fourth'' Amended and Restated 
Certificate of Incorporation of U.S. Exchange Holdings and update the 
effective date thereof.\54\
---------------------------------------------------------------------------

    \54\ The proposed, amended U.S. Exchange Holdings COI is 
attached hereto as Exhibit 5F. Article SIXTEENTH of the U.S. 
Exchange Holdings COI provides that, for so long as U.S. Exchange 
Holdings shall control, directly or indirectly, the Exchange, or 
facility thereof, before any amendment to or repeal of any provision 
of the U.S. Exchange Holdings COI shall be effective, the same shall 
be submitted to the board of directors of the Exchange, and if the 
same must be filed with, or filed with and approved by, the 
Commission before the same may be effective, under Section 19 of the 
Act and the rules promulgated thereunder, then the same shall not be 
effective until filed with, or filed with and approved by, the 
Commission, as the case may be. The Exchange also proposes to amend 
the U.S. Exchange Holdings COI to consistently refer to such 
document as the ``Restated Certificate,'' which is a defined term 
therein.
---------------------------------------------------------------------------

8. ISE Holdings Bylaws
    The ISE Holdings COI Voting Limits restrict any person, either 
alone or together with its related persons, from having voting control, 
either directly or indirectly, over more than 20% of the outstanding 
capital stock of ISE Holdings. The ISE Holdings COI Ownership Limits 
restrict any person, either alone or together with its related persons, 
from directly or indirectly owning of record or beneficially more than 
40% of the outstanding capital stock of ISE Holdings (or in the case of 
any Exchange member, acting alone or together with its related persons, 
from directly or indirectly owning of record or beneficially more than 
20% of the outstanding capital stock of ISE Holdings).\55\
---------------------------------------------------------------------------

    \55\ See ISE Holdings COI, Article FOURTH, Section III.
---------------------------------------------------------------------------

    The ISE Holdings COI and the ISE Holdings Bylaws provide that the 
board of directors of ISE Holdings may waive these voting and ownership 
restrictions in an amendment to the ISE Holdings Bylaws if the board 
makes the following three findings: (1) The waiver will not impair the 
ability of the Exchange to carry out its functions and responsibilities 
as an exchange under the Act and the rules thereunder; (2) the waiver 
is otherwise in the best interests of ISE Holdings, its stockholders, 
and the Exchange; and (3) the waiver will not impair the ability of the 
Commission to enforce the Act. However, the board of directors may not 
waive these voting and ownership restrictions as they apply to Exchange 
members. In addition, the board of directors may not waive these voting 
and ownership restrictions if such waiver would result in a person 
subject to a ``statutory disqualification'' owning or voting shares 
above the stated thresholds. Any waiver of these voting and ownership 
restrictions must be by way of an amendment to the Bylaws approved by 
the board of directors, which amendment must be approved by the 
Commission.\56\
---------------------------------------------------------------------------

    \56\ See ISE Holdings COI, Article FOURTH, Sections III(a)(i) 
and III(b)(i). Such amendment to Holdings Bylaws must be filed with 
and approved by the Commission under Section 19(b) of the Act and 
become effective thereunder. In this regard, Section 10.1 of the 
Bylaws provides that the Bylaws may be amended, added to, rescinded 
or repealed at any meeting of the Board of Directors of ISE Holdings 
or meeting of the stockholders. With respect to each national 
securities exchange controlled, directly or indirectly, by ISE 
Holdings (the ``Controlled National Securities Exchanges''), or 
facility thereof, before any amendment to or repeal of any provision 
of the Bylaws of ISE Holdings shall be effective, the same shall be 
submitted to the board of directors of each Controlled National 
Securities Exchange, and if the same must be filed with, or filed 
with and approved by, the Commission before the same may be 
effective, under Section 19 of the Act and the rules promulgated 
thereunder, then the same shall not be effective until filed with, 
or filed with and approved by, the Commission, as the case may be.
---------------------------------------------------------------------------

    Acting pursuant to this waiver provision, the board of directors of 
ISE Holdings has approved the amendment to the ISE Holdings Bylaws to 
waive the Ownership Limits and Voting Limits in order to permit Nasdaq 
to indirectly own 100% of the outstanding common stock of ISE Holdings 
as of and after Closing of the Transaction.\57\ In adopting such 
amendment, the board of directors of ISE Holdings made the necessary 
determinations and approved

[[Page 30357]]

the submission of the Proposed Rule Change to the Commission. In so 
waiving the applicable voting and ownership restrictions, the board of 
directors of ISE Holdings has determined, with respect to Nasdaq, that: 
(i) Such waiver will not impair the ability of ISE Holdings and each 
Controlled National Securities Exchange, or facility thereof, to carry 
out its respective functions and responsibilities under the Act and the 
rules promulgated thereunder; \58\ (ii) such waiver is otherwise in the 
best interests of ISE Holdings, its stockholders, and each Controlled 
National Securities Exchange, or facility thereof; \59\ (iii) such 
waiver will not impair the ability of the Commission to enforce the 
Act; \60\ (iv) neither Nasdaq nor any of its Related Persons (as that 
term is defined in the ISE Holdings COI) are subject to any applicable 
``statutory disqualification'' (within the meaning of Section 3(a)(39) 
of the Act); and (v) neither Nasdaq nor any of its Related Persons is a 
member (as such term is defined in Section 3(a)(3)(A) of the Act) of 
such Controlled National Securities Exchange.
---------------------------------------------------------------------------

    \57\ The proposed, amended ISE Holdings Bylaws are attached 
hereto as Exhibit 5G. The proposed amendment to the ISE Holdings 
Bylaws would also clarify that Eurex Global Derivatives AG or 
``EGD,'' which is referenced in Section 11.2 of the ISE Holdings 
Bylaws, ceased to be an Upstream Owner of the Exchange as a result 
of a prior transaction that did not require an amendment to the ISE 
Holdings Bylaws. See Securities Exchange Act Release No. 73530 
(November 5, 2014), 79 FR 77066 (December 17, 2014) (SR-ISE-2014-
44).
    \58\ For example, the Exchange will continue to conduct its 
regulated activities (including operating and regulating its market 
and Members) in the manner currently conducted and will not make any 
changes to its regulated activities in connection with the 
Transaction. The Exchange is not proposing any amendments to its 
trading or regulatory rules at this time relating to the 
Transaction.
    \59\ For example, the Transaction will produce a stronger and 
more efficient infrastructure that will have an improved ability to 
provide innovative products and services.
    \60\ For example, the Commission will continue to have plenary 
regulatory authority over the Exchange, as is currently the case, as 
well as jurisdiction over the Exchange's direct and indirect owners 
with respect to activities related to the Exchange. The Commission 
will continue to have 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 owners and their directors 
(where applicable), officers, employees and agents to the extent 
they are involved in the activities of the Exchange.
---------------------------------------------------------------------------

    The Exchange will continue to conduct its regulated activities 
(including operating and regulating its market and Members) in the 
manner currently conducted and will not make any changes to its 
regulated activities in connection with the Transaction. In addition, 
the Transaction will not impair the ability of the Exchange's, or any 
facility thereof, to carry out their respective functions and 
responsibilities under the Act and will not impair the ability of the 
Commission to enforce the Act. The Exchange therefore seeks approval of 
the waiver described herein with respect to the Ownership Limits and 
Voting Limits in order to permit Nasdaq to indirectly own 100% of the 
outstanding common stock of ISE Holdings as of and after Closing of the 
Transaction.
Summary
    The Exchange will continue to conduct its regulated activities 
(including operating and regulating its market and Members) in the 
manner currently conducted and will not make any changes to its 
regulated activities in connection with the Transaction. The 
Transaction will not impair the ability of ISE Holdings, the Exchange, 
or any facility thereof, to carry out their respective functions and 
responsibilities under the Act. Moreover, the Transaction will not 
impair the ability of the Commission to enforce the Act with respect to 
the Exchange. As such, the Commission's plenary regulatory authority 
over the Exchange will not be affected by the approval of this Proposed 
Rule Change. The Exchange is requesting approval by the Commission of 
changes proposed herein in order to allow the Transaction to take 
place.
2. Statutory Basis
    The Exchange believes that this proposal is consistent with Section 
6(b)of the Act,\61\ in general, and furthers the objectives of Section 
6(b)(1) of the Act,\62\ in particular, 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 
exchange members and persons associated with its exchange 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. The Exchange will continue to conduct 
its regulated activities (including operating and regulating its market 
and Members) in the manner currently conducted and will not make any 
changes to its regulated activities in connection with the Transaction. 
Thus, the Commission will continue to have plenary regulatory authority 
over the Exchange, as is currently the case, as well as jurisdiction 
over the Exchange's direct and indirect owners with respect to 
activities related to the Exchange. The Proposed Rule Change is 
consistent with and will facilitate 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 owners and their 
directors (where applicable), officers, employees and agents to the 
extent they are involved in the activities of the Exchange.
---------------------------------------------------------------------------

    \61\ 15 U.S.C. 78s(b).
    \62\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

    The Exchange also believes that this Proposed Rule Change furthers 
the objectives of Section 6(b)(5) \63\ of the Act 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. Specifically, the Exchange 
believes that the Proposed Rule Change will continue to provide the 
Commission and the Exchange with access to necessary information that 
will allow the Exchange to efficiently and effectively enforce 
compliance with the Act, as well as allow the Commission to provide 
proper oversight, which will ultimately promote just and equitable 
principles of trade and protect investors.
---------------------------------------------------------------------------

    \63\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Approval of this Proposed Rule Change will enable ISE Holdings to 
continue its operations and the Exchange to continue its orderly 
discharge of regulatory duties 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.
    In addition, the Exchange expects that the Transaction 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 Transaction will benefit 
investors, the market as a whole, and shareholders by, among other 
things, enhancing competition among securities venues and reducing 
costs. In particular,

[[Page 30358]]

the Transaction will contribute to streamlined and efficient 
operations, thereby intensifying competition for transaction order flow 
with other exchange and non-exchange trading centers, as well as 
potentially in other areas, 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 will continue to conduct its regulated 
activities (including operating and regulating its market and Members) 
in the manner currently conducted and will not make any changes to its 
regulated activities in connection with the Transaction. 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 Exchange believes it is consistent with the Act to allow Nasdaq 
to become the ultimate parent of the Exchange. Neither Nasdaq nor any 
of its related persons is subject to any statutory disqualification or 
is a Member of the Exchange. Moreover, the Nasdaq governing documents 
include certain provisions designed to maintain the independence of the 
Exchange's self-regulatory functions. Accordingly, the Exchange 
believes that Nasdaq's acquisition of ultimate ownership and exercise 
of voting control of the Exchange will not impair the ability of the 
Commission or the Exchange to discharge their respective 
responsibilities under the Act.
    Although Nasdaq will not carry out regulatory functions, its 
activities with respect to the operation of the Exchange must be 
consistent with, and not interfere with, the Exchange's self-regulatory 
obligations. Nasdaq's governing documents include certain provisions 
that are designed to maintain the independence of the Exchange's self-
regulatory functions, enable the Exchange to operate in a manner that 
complies with the U.S. federal securities laws, including the 
objectives and requirements of Sections 6(b) and 19(g) of the Act,\64\ 
and facilitate the ability of the Exchange and the Commission to 
fulfill their regulatory and oversight obligations under the Act. For 
example, the Nasdaq governing documents provide that Nasdaq will comply 
with the U.S. federal securities laws and the rules and regulations 
thereunder and shall cooperate with the Commission and the Exchange. 
Also, each board member, officer, and employee of Nasdaq, in 
discharging his or her responsibilities, shall comply with the U.S. 
federal securities laws and the rules and regulations thereunder, 
cooperate with the Commission, and cooperate with the Exchange. In 
discharging his or her responsibilities as a board member of Nasdaq, 
each such member must, to the fullest extent permitted by applicable 
law, take into consideration the effect that Nasdaq's actions would 
have on the ability of the Exchange to carry out its responsibilities 
under the Act. In addition, Nasdaq, its board members, officers and 
employees shall give due regard to the preservation of the independence 
of the self-regulatory function of the Exchange.
---------------------------------------------------------------------------

    \64\ 15 U.S.C. 78f(b) and 15 U.S.C. 78s(g).
---------------------------------------------------------------------------

    Further, Nasdaq (along with its respective board members, officers, 
and employees) and U.S. Exchange Holdings agree to keep confidential, 
to the fullest extent permitted by applicable law, all confidential 
information pertaining to the self-regulatory function of the Exchange, 
including, but not limited to, confidential information regarding 
disciplinary matters, trading data, trading practices, and audit 
information, contained in the books and records of the Exchange and not 
use such information for any non-regulatory purposes.
    In addition, Nasdaq's books and records relating to the activities 
of the Exchange will at all times be made available for, and books and 
records of U.S. Exchange Holdings will be subject at all times to, 
inspection and copying by the Commission and the Exchange. Books and 
records of U.S. Exchange Holdings related to the activities of the 
Exchange also will continue to be maintained within the U.S. Moreover, 
for so long as Nasdaq directly or indirectly controls the Exchange, the 
books, records, officers, directors (or equivalent), and employees of 
Nasdaq shall be deemed to be the books, records, officers, directors, 
and employees of the Exchange.
    To the extent involved in the activities of the Exchange, Nasdaq, 
its board members, officers, and employees irrevocably submit to the 
jurisdiction of the U.S. federal courts and the Commission for purposes 
of any action arising out of, or relating to, the activities of the 
Exchange. Likewise, U.S. Exchange Holdings, its officers and directors, 
and employees whose principal place of business and residence is 
outside of the U.S., to the extent such directors, officers, or 
employees are involved in the activities of the Exchange, irrevocably 
submit to the jurisdiction of the U.S. federal courts and the 
Commission for purposes of any action arising out of, or relating to, 
the activities of the Exchange.
    The Nasdaq governing documents, the U.S. Exchange Holdings COI, and 
the U.S. Exchange Holdings Bylaws require that any change thereto must 
be submitted to the Exchange's Board. If such change must be filed 
with, or filed with and approved by, the Commission under Section 19 of 
the Act and the rules thereunder, then such change shall not be 
effective until filed with, or filed with and approved by, the 
Commission. This requirement to submit changes to the Exchange's Board 
continues for so long as Nasdaq or U.S. Exchange Holdings, as 
applicable, directly or indirectly, control the Exchange.
    As Deutsche B[ouml]rse and Eurex Frankfurt will both cease to be 
Non-U.S. Upstream Owners of the Exchange upon the Closing of the 
Transaction, the Exchange believes that its proposal that the 
resolutions of Deutsche B[ouml]rse and Eurex Frankfurt will cease to be 
considered rules of the Exchange as of a date that corresponds to the 
Closing date of the Transaction is consistent with the Act.
    The purpose for which the ISE Trust was formed will not be relevant 
after the Closing of the Transaction, given that the Exchange will no 
longer have Non-U.S. Upstream Owners and that the Exchange's current 
and resulting U.S. upstream owners' governing documents provide for 
similar protections (e.g., U.S. Exchange Holdings COI Article 
THIRTEENTH and Nasdaq Bylaws Section 12.5). Accordingly, the Exchange 
believes that its proposal that the Trust Agreement will cease to be 
considered rules of the Exchange as of a date that corresponds to the 
Closing date of the Transaction is consistent with the Act.
    Given the Exchange's proposal to repeal the Trust Agreement and 
dissolve the ISE Trust, the Exchange believes that the proposed changes 
to the ISE Holdings COI are consistent with the Act. The proposed 
changes would delete provisions of the ISE Holdings COI that will no 
longer be relevant and would reinstate certain provisions of the ISE 
Holdings COI that were removed upon introduction of the provisions 
relating to the ISE Trust and the Trust Agreement.

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

    In accordance with Section 6(b)(8) of the Act,\65\ the Exchange 
believes that the Proposed Rule Change would not impose any burden on 
competition that is not necessary or appropriate in

[[Page 30359]]

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 
Transaction will produce a stronger and more efficient infrastructure 
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.
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    \65\ 15 U.S.C. 78f(b)(8).
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    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.\66\ In this 
regard, the Exchange notes that the Exchange, and its affiliates ISE 
Gemini and ISE Mercury, function only as options trading markets--they 
do not function as equity trading markets or as clearing agencies, as 
do certain of Nasdaq's existing subsidiaries.
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    \66\ See, e.g., Securities Exchange Act Release No. 66071 (Dec. 
29, 2011), 77 FR 521 (Jan. 05, 2012) (SR-CBOE-2011-107 and SR-NSX-
2011-14); Securities Exchange Act Release No. 58324 (Aug. 7, 2008), 
73 FR 46936 (Aug. 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 (Mar. 06, 2006) (SR-NYSE-2005-
77); Securities Exchange Act Release No. 71449 (Jan. 30, 2014), 79 
FR 6961 (Feb. 05, 2014) (SR-EDGA-2013-34; SR-EDGX-2013-43); 
Securities Exchange Act Release No. 66171 (January 17, 2012), 77 FR 
3297 (January 23, 2012) (File Nos. SR-EDGA-2011-34; SR-EDGX-2011-33; 
SR-ISE-2011-69; SR-NYSE-2011-51; SR-NYSEAmex-2011-78; SR-NYSEArca-
2011-72).
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    The Exchange believes that there is considerable support for a 
finding that the Transaction is consistent with the Act with respect to 
competition. 14 exchanges currently compete for options trading 
business. Exchanges compete on technology, market model, trading venue, 
fees and fee structure. Additionally, low switching costs allow 
customers to easily move to another exchange, which customers do 
regularly, as reflected in constantly varying market shares among the 
existing exchange operators. In addition, the Commission has approved 
several, new registered options exchanges in recent history, which 
highlights an increase in competition in the market for listed options 
trading.\67\
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    \67\ See, e.g., Securities Exchange Act Release Nos. 76998 
(January 29, 2016), 81 FR 6066 (February 4, 2016) (Order approving 
application for exchange registration of ISE Mercury, LLC); 75650 
(August 7, 2015), 80 FR 48600 (August 13, 2015) (Order approving 
rules governing the trading of options on the EDGX Options Market); 
70050 (July 26, 2013), 78 FR 46622 (August 1, 2013) (Order approving 
application for exchange registration of Topaz Exchange, LLC (n/k/a 
ISE Gemini, LLC)); 68341 (December 3, 2012), 77 FR 73065 (December 
7, 2012) (Order approving application for exchange registration of 
Miami International Securities Exchange, LLC); 61419 (January 26, 
2010), 75 FR 5157 (February 1, 2010) (Order approving rules 
governing the trading of options on the BATS Options Exchange).
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    The Exchange believes that the Transaction will not change the 
competitive landscape for listed options trading and the changes 
proposed herein are consistent with other recent Commission approvals. 
For example, a similar proposed combination of Deutsche B[ouml]rse and 
NYSE Euronext in 2011 received Commission approval and would have 
resulted in a combined greater than 40% market share of listed options 
volume among its three, respective options exchanges (based on 2010 
data).\68\ Similarly, as a result of the Transaction, the options 
exchanges owned by Nasdaq would account for approximately 41% aggregate 
market share of listed options volume.
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    \68\ See Securities Exchange Act Release No. 66171 (January 17, 
2012), 77 FR 3297 (January 23, 2012) (File Nos. SR-EDGA-2011-34; SR-
EDGX-2011-33; SR-ISE-2011-69; SR-NYSE-2011-51; SR-NYSEAmex-2011-78; 
SR-NYSEArca-2011-72).
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    For these reasons, the Exchange believes that the proposal is 
consistent with the Act.

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

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

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

    Within 45 days of the publication date of this notice or within 
such longer period (1) as the Commission may designate up to 45 days of 
such date if it finds such longer period to be appropriate and 
publishes its reasons for so finding or (2) as to which the self-
regulatory organization consents, the Commission will:
    (A) By order approve such Proposed Rule Change; or
    (B) institute proceedings to determine whether the Proposed Rule 
Change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-ISE-2016-11 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ISE-2016-11. 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 on 
official business days between the hours of 10:00 a.m. and 3:00 p.m. 
Copies of such filing also will be available for inspection and copying 
at the principal offices of the Exchange. All comments received will be 
posted without change; the Commission does not edit personal 
identifying information from submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-ISE-2016-11, and should be submitted on 
or June 6, 2016.


[[Page 30360]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\69\
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    \69\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-11405 Filed 5-13-16; 8:45 am]
 BILLING CODE 8011-01-P


