
[Federal Register Volume 81, Number 220 (Tuesday, November 15, 2016)]
[Notices]
[Pages 80114-80123]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-27369]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79264; File No. SR-BatsEDGX-2016-60]


Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice 
of Filing of a Proposed Rule Change in Connection With the Proposed 
Corporate Transaction Involving Bats Global Markets, Inc. and CBOE 
Holdings, Inc.

November 8, 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 November 2, 2016, Bats EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule

[[Page 80115]]

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.
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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 Substance 
of the Proposed Rule Change

    The Exchange filed a proposed rule change (the ``Proposed Rule 
Change'') in connection with the proposed corporate transaction (the 
``Transaction''), as described in more detail below, involving its 
ultimate parent company, Bats Global Markets, Inc. (``BGM''), CBOE 
Holdings, Inc. (``CBOE Holdings''), and two wholly owned subsidiaries 
of CBOE Holdings, CBOE Corporation and CBOE V, LLC (``CBOE V''). CBOE 
Holdings is the parent company of Chicago Board Options Exchange, 
Incorporated (``CBOE'') and C2 Options Exchange, Incorporated (``C2''), 
each a national securities exchange registered with the Commission 
pursuant to Section 6(a) of the Act,\3\ and CBOE Futures Exchange, LLC 
(``CBOE Futures,'' and together with CBOE and C2, the ``CBOE 
Exchanges''), a national securities exchange that lists or trades 
security-futures products notice-registered with the Commission 
pursuant to Section 6(g) of the Act.\4\
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    \3\ 15 U.S.C. 78f(a).
    \4\ 15 U.S.C. 78f(g).
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    Upon completion of the mergers described below that effectuate the 
Transaction (the ``Closing''), the business of BGM will be carried on 
by CBOE V. CBOE V, rather than BGM, will be the direct parent company 
of Direct Edge LLC (``Direct Edge''), which is the direct parent 
company of the Exchange. As a result, CBOE Holdings will become the 
ultimate parent company of Direct Edge and of the Exchange.
    To effectuate the Transaction, the Exchange seeks to obtain the 
Commission's approval of: (i) The resolutions of BGM's board of 
directors (the ``BGM Board'') waiving certain provisions of the Amended 
and Restated Certificate of Incorporation of BGM (the ``BGM Charter'') 
and making certain related determinations regarding CBOE Holdings and 
the impact of the Transaction on the Exchange (the ``Resolutions''); 
(ii) the CBOE Holdings Second Amended and Restated Certificate of 
Incorporation (the ``CBOE Holdings Charter'') and the CBOE Holdings 
Third Amended and Restated Bylaws (the ``CBOE Holdings Bylaws''); (iii) 
the Certificate of Formation of CBOE V (the ``CBOE V Certificate'') and 
the Limited Liability Company Operating Agreement of CBOE V (the ``CBOE 
V Operating Agreement''); (iv) the proposed amendments to the Amended 
and Restated Limited Liability Company Operating Agreement of Direct 
Edge (the ``Direct Edge Operating Agreement''); (v) the proposed 
amendments to the Fifth Amended and Restated Bylaws of the Exchange 
(the ``Exchange Bylaws''); and (vi) the proposed amendments to EDGX 
Rules 2.3, 2.10 and 2.12 (the ``Exchange Rules'').
    The text of the proposed rule change is available at the Exchange's 
Web site at 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 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 the organizational and governance documents of 
the Exchange and its current and proposed future parent companies, and 
related actions that are necessary in connection with the Closing of 
the Transaction, as described below.
    Other than as described herein and set forth in 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 Transaction. 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, Bats BZX Exchange, Inc. (``BZX''), Bats BYX Exchange, 
Inc. (``BYX'') and Bats EDGA Exchange, Inc. (``EDGA,'' and together 
with the Exchange, BZX and BYX, 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\
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    \5\ 15 U.S.C. 78f(a).
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    The Exchange and EDGA are each direct, wholly owned subsidiaries of 
Direct Edge, a Delaware limited liability company that is a direct, 
wholly owned subsidiary of BGM. BZX and BYX are direct, wholly owned 
subsidiaries of Bats Global Markets Holdings, Inc. (``BGM Holdings''), 
a Delaware corporation that is a direct, wholly owned subsidiary of 
BGM. In addition to certain other subsidiaries not registered with the 
Commission in any capacity, BGM Holdings also owns 100 percent of the 
equity interest in Bats Trading, Inc. (``Bats Trading''), a Delaware 
corporation that is a broker-dealer registered with the Commission that 
provides routing services outbound from, and in certain instances 
inbound to, each Bats Exchange. BGM, a Delaware corporation, is a 
publicly traded company listed on BZX.
    CBOE Holdings, a Delaware corporation, is a publicly traded company 
listed on The NASDAQ Stock Market. CBOE Holdings owns 100 percent of 
the equity interest in the CBOE Exchanges.
    In contemplation of the Transaction, CBOE Holdings formed two 
additional entities, CBOE Corporation, a Delaware corporation, and CBOE 
V, a Delaware limited liability company, each of which are direct, 
wholly owned subsidiaries of CBOE Holdings. Each of CBOE Corporation 
and CBOE V currently have no material assets or conduct any operations.
2. The Transaction
    On September 25, 2016, BGM, CBOE Holdings, CBOE Corporation and 
CBOE V entered into an Agreement and Plan of Merger (the ``Merger 
Agreement''). Pursuant to and subject to the terms of the Merger 
Agreement, at the Closing, among other things:
    (i) CBOE Corporation will be merged with and into BGM, whereupon 
the separate existence of CBOE Corporation will cease and BGM will be 
the surviving company (the ``Merger'');

[[Page 80116]]

    (ii) by virtue of the Merger and without any action required on the 
part of BGM, CBOE Corporation or any holder of BGM or CBOE Corporation 
stock, each share of BGM common stock (whether voting or non-voting) 
issued and outstanding (with the exception of shares owned by CBOE 
Holdings, BGM or any of their respective subsidiaries and certain 
shares held by persons that are entitled to and properly demand 
appraisal rights) will be converted into the right to receive a 
particular number of shares of CBOE Holdings and/or cash, at the 
election of the holder of such share of BGM common stock (the ``Merger 
Consideration''), and each share of CBOE Corporation issued and 
outstanding will be converted into one share of BGM, such that BGM will 
become a wholly owned subsidiary of CBOE Holdings; and
    (iii) immediately following the Merger, BGM will be merged with and 
into CBOE V, whereupon the separate existence of BGM will cease and 
CBOE V will be the surviving company (the ``Subsequent Merger'').
    Upon the Closing, the Direct Edge Operating Agreement, the Exchange 
Bylaws and the Exchange Rules will be amended to take into account the 
post-Closing corporate structure, described below.
3. Post-Closing Corporate Structure
    As a result of the Transaction, BGM will cease to exist and the 
business of BGM will be carried on by CBOE V, which is a wholly owned 
subsidiary of CBOE Holdings.\6\ CBOE V will own 100 percent of the 
equity interest in Direct Edge and BGM Holdings. Direct Edge will 
continue to own 100 percent of the equity interest in the Exchange and 
EDGA. BGM Holdings will continue to own 100 percent of the equity 
interest in BZX, BYX, Bats Trading, and certain other subsidiaries not 
registered with the Commission in any capacity.\7\
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    \6\ In connection with the Transaction, CBOE Holdings agreed in 
the Merger Agreement to take all requisite actions so, as of the 
Closing, the CBOE Holdings Board will include three individuals 
designated by BGM who (1) are serving as BGM directors immediately 
prior to the Closing and (2) comply with the policies (including 
clarifications of the policies provided to BGM) of the Nominating 
and Governance Committee of the CBOE Holdings Board as in effect on 
the date of the Merger Agreement and previously provided to BGM 
(each of whom will be appointed to the CBOE Holdings Board as of the 
Closing). The CBOE Holdings Board currently consists of 14 
directors. The Exchange expects three current CBOE Holdings 
directors to resign effective prior to the Closing and the remaining 
CBOE Holdings directors to fill those vacancies with the three BGM 
directors designated by BGM.
    \7\ As described above, the Transaction will result in a change 
of ownership of Bats Trading, which is a member of the Financial 
Industry Regulatory Authority, Inc. (``FINRA''). The Exchange 
understands that, pursuant to NASD Rule 1017, Bats Trading is 
seeking approval for this change of ownership from FINRA.
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4. Ownership and Voting Limitations of BGM; Resolutions
    The BGM Charter provides that (i) no Person,\8\ 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 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 BGM to the extent of any voting in excess 
of the limitation.\11\
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    \8\ The BGM Charter generally defines a ``Person'' as a natural 
person, partnership, corporation, limited liability company, entity, 
government, or political subdivision, agency or instrumentality of a 
government. See BGM Charter, Art. FIFTH, para. (a)(i).
    \9\ The 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 BGM; (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 any 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 BGM or 
any of its parents or subsidiaries; (vii) in the case of a Person 
that is an executive officer (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 BGM 
Charter, Art. FIFTH, para. (a)(ii).
    \10\ See BGM Charter, Art. FIFTH, para. (b).
    \11\ See BGM Charter, Art. FIFTH, para. (d).
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    However, the 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 BGM Board if, in connection with taking 
such action, the BGM Board states in such resolution that it is the 
determination of the BGM Board 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 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\
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    \12\ See BGM Charter, Art. FIFTH, para. (b)(ii)(B).

In granting such a waiver, the BGM Board 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\
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    \13\ Id.
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    In addition, notwithstanding the above, the 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 BGM's capital stock, such a transaction 
will not become effective until the BGM Board determines, by 
resolution, that such Person and its Related Persons are not subject to 
any ``statutory disqualification,'' as defined in Section 3(a)(39) of 
the Act.\15\
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    \14\ See BGM Charter, Art. FIFTH, para. (b)(iii).
    \15\ 15 U.S.C. 78c(a)(39).

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[[Page 80117]]

    As described above, as a result of the Merger (and prior to its 
separate existence ceasing as a result of the Subsequent Merger), BGM 
will become a wholly owned subsidiary of CBOE Holdings, such that CBOE 
Holdings will possess ownership and voting rights in BGM in excess of 
the Ownership Limitation and the Voting Limitation. In addition, as a 
result of the Subsequent Merger, BGM will merge with and into CBOE V, 
terminating the BGM Charter and becoming an entity whose ownership and 
voting is held entirely by CBOE Holdings, in excess of the BGM 
Ownership Limitation and the BGM Voting Limitation that would otherwise 
apply.
    The BGM Board therefore determined that in order to effect the 
Transaction, a waiver of the BGM Ownership Limitation and the BGM 
Voting Limitation with respect to CBOE Holdings would be required. To 
do so, the BGM Board adopted the Resolutions, attached as Exhibit 5A, 
making certain determinations with respect to CBOE Holdings and the 
Transaction that are necessary to waive the BGM Ownership Limitation 
and BGM Voting Limitation. Specifically, the BGM Board determined that:
     The acquisition of the proposed ownership by CBOE Holdings 
in 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 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 CBOE Holdings in 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 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;
     neither CBOE Holdings nor any of its Related Persons is 
subject to ``statutory disqualification'' within the meaning of Section 
3(a)(39) of the Act; \16\ and
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    \16\ Id.
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     neither CBOE Holdings nor any of its Related Persons is an 
Exchange Member.\17\
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    \17\ In addition, the Resolutions contain a determination that 
the execution and delivery of the Merger Agreement by CBOE Holdings 
constituted notice of CBOE Holdings' 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 BGM Charter, Art. FIFTH, para. (b)(iv). 
The Exchange notes that Art. FIFTH, para. (c)(i) of the BGM Charter 
further requires that any Person that, either alone or together with 
its Related Persons, owns, directly or indirectly (whether by 
acquisition or by a change in the number of shares outstanding), of 
record or beneficially, five percent or more of the then outstanding 
shares of capital stock of BGM must immediately upon acquiring 
knowledge of its ownership of five percent or more give written 
notice of such ownership to the BGM Board. The Merger Agreement 
provides that the Merger Agreement constitutes such notice with 
respect to certain voting agreements entered into concurrently with 
the Merger Agreement. See Merger Agreement, Section 5.21.
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    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 Transaction will not 
impair the ability of any 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 Transaction. 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 BGM Board that the Transaction and CBOE Holdings' 
resulting ownership and voting rights in BGM following the Merger, and 
CBOE V's ownership and voting rights following the Subsequent Merger, 
are otherwise in the best interests of BGM, its stockholders and the 
Bats Exchanges. The Bats Exchanges will be ultimately held by an 
entity, CBOE Holdings, that already owns other national securities 
exchanges and is subject to governance documents that similarly 
restrict concentration of ownership and voting rights.
    As described in more detail below, the Exchange is also requesting 
approval of the adoption of the CBOE Holdings Charter and the CBOE 
Holdings Bylaws. The CBOE Holdings Charter includes a number of 
provisions relating to the Commission's regulatory oversight that have 
a similar effect as those in the BGM Charter, including the BGM 
Ownership Limitation and the BGM Voting Limitation. Therefore, 
notwithstanding the Resolutions and the Transaction, provisions similar 
(and, in some cases, more stringent) to 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. This means that the Exchange ownership structure 
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 
companies, 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. CBOE Holdings Charter and CBOE Holdings Bylaws
    CBOE Holdings currently holds a direct ownership interest in the 
CBOE Exchanges. The Commission has previously approved the CBOE 
Holdings Charter and the CBOE Holdings Bylaws (collectively, the ``CBOE 
Holdings Organizational Documents''), attached as Exhibits 5B and 5C, 
respectively.\18\
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    \18\ See Securities Exchange Act Release No. 62158 (May 24, 
2010), 75 FR 30082 (May 28, 2010) (SR-CBOE-2008-88). The CBOE 
Organizational Documents have been subsequently amended from time to 
time pursuant to proposed rule changes that were filed with the 
Commission for immediate effectiveness. See, e.g., Securities 
Exchange Act Release No. 76282 (October 27, 2015), 80 FR 67464 
(November 2, 2015) (SR-CBOE-2015-092).
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    In connection with the Transaction, upon the Closing, CBOE Holdings 
will become the indirect owner (through CBOE V and Direct Edge) of the 
Exchange and EDGA and the indirect owner (through CBOE V and BGM 
Holdings) of BZX, BYX and Bats Trading (and certain other subsidiaries 
not registered with the Commission in any capacity).
    The CBOE Holdings Organizational Documents include various 
provisions relating to any ``Regulated Securities Exchange 
Subsidiary,'' which is defined as any national securities exchange 
controlled, directly or indirectly, by CBOE Holdings. Upon the Closing, 
the Exchange will be covered by the

[[Page 80118]]

definition of Regulated Securities Exchange Subsidiary for purposes of 
the CBOE Holdings Organizational Documents. As a result, no amendments 
to the CBOE Holdings Organizational Documents will be necessary to 
reflect CBOE Holdings' indirect ownership of the Exchange.
    The Exchange believes that the CBOE Holdings Organizational 
Documents will protect and maintain the integrity of the self-
regulatory functions of the Exchange and facilitate the ability of the 
Exchange and the Commission to carry out their regulatory and oversight 
obligations under the Act, as the CBOE Organizational Documents do with 
respect to the CBOE Exchanges.
    In addition, the CBOE Organizational Documents contain provisions, 
including those with respect to the following, that are similar to 
those contained in the BGM Charter and BGM's Amended and Restated 
Bylaws (the ``BGM Bylaws''), which the Commission has previously found 
to be consistent with the Act: \19\
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    \19\ See Securities Exchange Act Release No. 77464 (March 29, 
2016), 81 FR 19252 (April 4, 2016) (File Nos. SR-BATS-2016-10, SR-
BYX-2016-02, SR-EDGX-2016-04, and SR-EDGA-2016-01).
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     Ownership and Voting Limitations. Similar to the BGM 
Voting Limitation and the BGM Ownership Limitation contained in the BGM 
Charter, the CBOE Holdings Charter limits the extent of ownership and 
voting rights which certain persons may possess or exercise.\20\ Like 
the BGM Charter, the CBOE Holdings Charter similarly prohibits any 
Person,\21\ together with its Related Persons,\22\ from exercising 
voting rights with respect to more than 20 percent of the then 
outstanding votes entitled to be cast on such matter.\23\ However, with 
respect to ownership limitations, the CBOE Holdings Charter contains a 
more stringent threshold than contained in the BGM Charter. Under the 
CBOE Holdings Charter, no Person, together with its Related Persons, is 
permitted at any time to beneficially own directly or indirectly shares 
of stock of CBOE Holdings representing in the aggregate more than 20 
percent of the then outstanding shares of stock of CBOE Holdings.\24\ 
In contrast, the BGM Ownership Limitation only applies a 20 percent 
threshold to any Exchange Member together with its Related Persons, 
while applying a 40 percent threshold to any other Person together with 
its Related Persons. As a result, the CBOE Holdings Charter should be 
at least as effective as the BGM Charter at preventing any stockholder 
from exercising undue control over the operation of the Exchange.
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    \20\ Compare CBOE Holdings Charter, Art. SIXTH with BGM Charter, 
Art. FIFTH.
    \21\ ``Person'' mean an individual, partnership (general or 
limited), joint stock company, corporation, limited liability 
company, trust or unincorporated organization, or any governmental 
entity or agency or political subdivision thereof. See CBOE Holdings 
Charter, Art. FIFTH, para. (a)(iv).
    \22\ ``Related Person'' is defined in the CBOE Holdings Charter 
in a manner substantially the same as it is defined in the BGM 
Charter. See supra note 9; CBOE Holdings Charter, Art. FIFTH, para. 
(a)(vi).
    \23\ See CBOE Holdings Charter, Art. SIXTH, para. (a).
    \24\ See CBOE Holdings Charter, Art. SIXTH, para. (b).
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     Independence and Non-Interference. Similar to provisions 
contained in the BGM Bylaws, the CBOE Holdings Charter provides that 
for so long as CBOE Holdings controls, directly or indirectly, a 
Regulated Securities Exchange Subsidiary, each officer, director and 
employee of CBOE Holdings must give due regard to the preservation of 
the independence of the self-regulatory function of the Regulated 
Securities Exchange Subsidiaries and may not take any actions that he 
or she knows or reasonably should have known would interfere with the 
effectuation of any decisions by the board of directors of any 
Regulated Securities Exchange Subsidiary relating to such Regulated 
Securities Exchange Subsidiary's regulatory functions (including 
disciplinary matters) or that would adversely affect the ability of the 
Regulated Securities Exchange Subsidiary to carry out such Regulated 
Securities Exchange Subsidiary's responsibilities under the Act.\25\
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    \25\ Compare CBOE Holdings Charter, Art. SIXTEENTH, para. (c) 
with BGM Bylaws, Section 12.01.
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     Confidentiality. Similar to provisions contained in the 
BGM Bylaws, the CBOE Holdings Charter provides that, to the fullest 
extent permitted by applicable law, all confidential information 
pertaining to the self-regulatory function of Regulated Securities 
Exchange Subsidiaries contained in the books and records of any 
Regulated Securities Exchange Subsidiary that shall come into the 
possession of the CBOE Holdings must be retained in confidence by CBOE 
Holdings and its officers, directors, employees and agents and must not 
be used for any commercial purposes.\26\
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    \26\ Compare CBOE Holdings Charter, Art. FIFTEENTH with BGM 
Bylaws, Section 12.02.
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     Books and Records. Similar to provisions contained in the 
BGM Bylaws, the CBOE Holdings Charter provides that, for so long as 
CBOE Holdings directly or indirectly controls any Regulated Securities 
Exchange Subsidiary, the books, records, premises, officers, directors 
and employees of CBOE Holdings shall be deemed to be the books, 
records, premises, officers, directors and employees of the Regulated 
Securities Exchange Subsidiary for purposes of and subject to oversight 
pursuant to the Act, but only to the extent that such books, records, 
premises, officers, directors and employees of the Corporation relate 
to the business of such Regulated Securities Exchange Subsidiary.\27\
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    \27\ Compare CBOE Holdings Charter, Art. FIFTEENTH with BGM 
Bylaws, Section 12.03.
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     Compliance With Securities Laws; Cooperation With the 
Commission. Similar to provisions contained in the BGM Bylaws, the CBOE 
Holdings Charter provides that CBOE Holdings shall comply with the 
federal securities laws and the rules and regulations thereunder and 
shall cooperate with the Commission, and each Regulated Securities 
Exchange Subsidiary pursuant to and to the extent of its regulatory 
authority, and shall take reasonable steps necessary to cause its 
agents to cooperate with the Commission and, where applicable, the 
Regulated Securities Exchange Subsidiaries pursuant to their regulatory 
authority, with respect to such agents' activities related to the 
Regulated Securities Exchange Subsidiaries.\28\
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    \28\ Compare CBOE Holdings Charter, Art. SIXTEENTH, para. (a) 
with BGM Bylaws, Section 12.04.
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     Consent to Jurisdiction. Similar to provisions contained 
in the BGM Bylaws, the CBOE Holdings Charter provides that CBOE 
Holdings, its directors, officers, agents and employees, irrevocably 
submit to the jurisdiction of the U.S. federal courts, the Commission, 
and the Regulated Securities Exchange Subsidiaries, for the purposes of 
any suit, action or proceeding pursuant to U.S. federal securities laws 
or the rules or regulations thereunder, commenced or initiated by the 
Commission arising out of, or relating to, the Regulated Securities 
Exchange Subsidiaries' activities.\29\
---------------------------------------------------------------------------

    \29\ Compare CBOE Holdings Charter, Art. FOURTEENTH with BGM 
Bylaws, Section 12.05.
---------------------------------------------------------------------------

     Amendments. Similar to provisions contained in the BGM 
Charter and BGM Bylaws, the CBOE Organizational Documents provide that 
for so long as CBOE Holdings controls, directly or indirectly, 
Regulated Securities Exchange, before any amendment to or repeal of the 
CBOE Holdings Charter or CBOE Holdings Bylaws may be effective, such 
amendment or repeal must be submitted to the board of directors of each 
such exchange, and if the amendment or repeal is required to

[[Page 80119]]

be filed with, or filed with and approved by the Commission, then such 
change shall not be effective until filed with, or filed with and 
approved by, the Commission, as the case may be.\30\ As stated above, 
the Exchange believes that the foregoing provisions will assist the 
Exchange in fulfilling its self-regulatory obligations and in 
administering and complying with the requirements of the Act.
---------------------------------------------------------------------------

    \30\ Compare CBOE Holdings Charter, Arts. ELEVENTH, TWELFTH and 
CBOE Holdings Bylaws, Section 10.2 with BGM Charter, Art. FOURTEENTH 
and BGM Bylaws, Article XI.
---------------------------------------------------------------------------

6. CBOE V Certificate and CBOE V Operating Agreement
    Effective as of the Closing of the Transaction, CBOE V will hold 
direct ownership of (i) Direct Edge, which will continue to hold direct 
ownership of the Exchange and EDGA and (ii) BGM Holdings, which will 
continue to hold direct ownership of BZX, BYX and Bats Trading (and 
certain other subsidiaries not registered with the Commission in any 
capacity). However, unlike BGM currently, CBOE V will not be the 
ultimate holding company under the post-Closing corporate structure, 
but rather will be an intermediate holding company owned by CBOE 
Holdings. The Exchange believes that the CBOE V Operating Agreement 
contains provisions relating to its indirect ownership of one or more 
national securities exchanges, including such exchanges' regulatory 
functions and Commission oversight, that are appropriate for an 
intermediate holding company in the ownership chain of a national 
securities exchange. Many of the provisions of the CBOE V Operating 
Agreement relating to these matters are similar to the organizational 
documents of Direct Edge, which currently is, and following the 
Subsequent Merger will be, similarly situated as an intermediate 
holding company of the Exchange. The Commission has previously found 
the Direct Edge organizational documents to be consistent with the 
Act.\31\
---------------------------------------------------------------------------

    \31\ See Securities Exchange Act Release No. 71449 (January 30, 
2014), 79 FR 6961 (February 5, 2014) (SR-EDGA-2013-34; SR-EDGX-2013-
43).
---------------------------------------------------------------------------

    Although CBOE V will not carry out any regulatory 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 CBOE V 
Operating Agreement therefore includes 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) \32\ and 19(g) \33\ of the Act, and 
facilitate the ability of each Bats Exchange and the Commission to 
fulfill their respective regulatory and oversight obligations under the 
Act.
---------------------------------------------------------------------------

    \32\ 15 U.S.C. 78f(b).
    \33\ 15 U.S.C. 78s(g).
---------------------------------------------------------------------------

a. CBOE V Certificate of Formation
    The CBOE V Certificate, attached as Exhibit 5D, includes the 
following provisions required under Delaware law: (i) The full name of 
CBOE V as ``CBOE V, LLC'', and (ii) the name and address of CBOE V's 
registered office in the State of Delaware and the name of CBOE V's 
registered agent at such address.\34\ In addition, the CBOE V 
Certificate contains a provision providing that CBOE V shall indemnify 
members of its board of directors and certain other persons, subject to 
certain conditions.
---------------------------------------------------------------------------

    \34\ Delaware Limited Liability Company Act Sec.  18-201.
---------------------------------------------------------------------------

    As the Exchange believes is customary for limited liability 
companies formed in the State of Delaware, other substantive provisions 
governing the ownership, operation and management of CBOE V are set 
forth in the CBOE V Operating Agreement, discussed below.
b. CBOE V Operating Agreement
    With respect to ownership and control of CBOE V, the CBOE V 
Operating Agreement, attached as Exhibit 5E, specifically provides that 
CBOE V's sole member is CBOE Holdings, until the CBOE V Operating 
Agreement is amended (subject to Commission approval, as described 
below).\35\ Further, for so long as CBOE V controls, directly or 
indirectly, a subsidiary that is registered with the Commission as a 
national securities exchange (an ``Exchange Subsidiary''), CBOE 
Holdings may not sell, assign, transfer, convey, gift, exchange or 
otherwise dispose of any or all of its member interest in CBOE V, 
except pursuant to an amendment to the CBOE V Operating Agreement that 
is filed with and approved by the Commission. \36\ These restrictions 
are designed to ensure that any change to the ownership or control of 
any Exchange Subsidiary, including without limitation the Bats 
Exchanges, may only occur through a change in the ownership or control 
of CBOE Holdings. As such, any purported change of such ownership or 
control (unless pursuant to a Commission-approved change of ownership 
of CBOE V) would need to comply with the CBOE Holdings Charter and CBOE 
Holdings Bylaws, including the ownership and voting limitations 
discussed above (or a Commission-approved waiver therefrom).
---------------------------------------------------------------------------

    \35\ CBOE V Operating Agreement, Section 1.1.
    \36\ CBOE V Operating Agreement, Section 5.1.
---------------------------------------------------------------------------

    The CBOE V Operating Agreement also contains several provisions 
designed to protect the independence of the self-regulatory functions 
of the Bats Exchanges. The CBOE V Operating Agreement requires that, 
for so long as CBOE V, directly or indirectly, controls any Exchange 
Subsidiary, CBOE Holdings, as the sole member of CBOE V, and officers, 
employees and agents of CBOE V must give due regard to the preservation 
of independence of the self-regulatory functions of such Exchange 
Subsidiary, as well as to its obligations to investors and the general 
public, and not interfere with the effectuation of any decisions by the 
board of directors of an Exchange Subsidiary relating to its regulatory 
functions (including disciplinary matters) or which would interfere 
with the ability of such Exchange Subsidiary to carry out its 
responsibilities under the Act.\37\
---------------------------------------------------------------------------

    \37\ See CBOE V Operating Agreement, Section 10.1(a).
---------------------------------------------------------------------------

    The CBOE V Operating Agreement also would require that CBOE V 
comply with the U.S. federal securities laws and rules and regulations 
thereunder and cooperate with the Commission and each Exchange 
Subsidiary, as applicable, pursuant to and to the extent of their 
respective regulatory authority.\38\ Further, CBOE V's 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) cooperate with the Commission and each Exchange 
Subsidiary in respect of the Commission's oversight responsibilities 
regarding such Exchange Subsidiary and the self-regulatory functions 
and responsibilities of the Exchange Subsidiaries, and CBOE V will take 
reasonable steps to cause its officers, employees and agents to so 
cooperate.\39\
---------------------------------------------------------------------------

    \38\ See CBOE V Operating Agreement, Section 10.2(a).
    \39\ Id.
---------------------------------------------------------------------------

    Furthermore, to the fullest extent permitted by law, CBOE V 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 Exchange Subsidiary, as applicable, for purposes of any suit, 
action, or proceeding pursuant to the U.S. federal securities laws or 
the rules or

[[Page 80120]]

regulations thereunder arising out of, or relating to, the activities 
of such Exchange Subsidiary.\40\
---------------------------------------------------------------------------

    \40\ See CBOE V Operating Agreement, Section 10.3(a).
---------------------------------------------------------------------------

    The proposed CBOE V Operating Agreement also contains a number of 
provisions designed to ensure that the Exchange will have sufficient 
access to the books and records of CBOE V as they relate to any 
Exchange Subsidiary. Pursuant to the CBOE V Operating Agreement, to the 
extent they are related to the operation or administration of an 
Exchange Subsidiary, the books, records, premises, officers, agents, 
and employees of CBOE V are deemed to be the books, records, premises, 
officers, agents and employees of such Exchange Subsidiary for the 
purposes of, and subject to oversight pursuant to, the Act.\41\ In 
addition, for as long as CBOE V controls, directly or indirectly, an 
Exchange Subsidiary, CBOE V's books and records shall be subject at all 
times to inspection and copying by the Commission and the applicable 
Exchange Subsidiary, provided that such books and records are related 
to the operation or administration of an Exchange Subsidiary.\42\
---------------------------------------------------------------------------

    \41\ See CBOE V Operating Agreement, Section 8.4(b).
    \42\ Id.
---------------------------------------------------------------------------

    The proposed CBOE V Operating Agreement also provides that, to the 
fullest extent permitted by law, all books and records of any Exchange 
Subsidiary reflecting confidential information pertaining to the self-
regulatory function of such Exchange Subsidiary (including disciplinary 
matters, trading data, trading practices and audit information) that 
comes into the possession of CBOE V, shall be retained in confidence by 
CBOE V, CBOE V's officers, employees and agents and CBOE Holdings, and 
not used for any non-regulatory purposes.\43\ The proposed CBOE V 
Operating Agreement provides, however, that the foregoing shall not 
limit or impede the rights of the Commission or an Exchange Subsidiary 
to access and examine such confidential information pursuant to the 
U.S. federal securities laws and the rules and regulations thereunder, 
or limit or impede the ability of CBOE Holdings or any of CBOE V's 
officers, employees or agents to disclose such confidential information 
to the Commission or an Exchange Subsidiary.\44\
---------------------------------------------------------------------------

    \43\ See CBOE V Operating Agreement, Section 8.4(a).
    \44\ Id.
---------------------------------------------------------------------------

    In addition, the CBOE V Operating Agreement provides that for so 
long as CBOE V controls, directly or indirectly, any Exchange 
Subsidiary, before any amendment to or repeal of any provision of the 
CBOE V Operating Agreement will be effective, those changes must be 
submitted to the board of directors of each Exchange Subsidiary, 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 \45\ 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.\46\
---------------------------------------------------------------------------

    \45\ 15 U.S.C. 78s.
    \46\ See CBOE V Operating Agreement, Section 11.2.
---------------------------------------------------------------------------

7. Direct Edge Operating Agreement
    The Direct Edge Operating Agreement currently provides that the 
sole member of Direct Edge is BGM. However, as a result of the 
Transaction, CBOE V will become the sole member of Direct Edge. The 
Exchange proposes to amend the Direct Edge Operating Agreement to 
reflect this change, as set forth in Exhibit 5F.
8. Bylaws of the Exchange
    In connection with the Transaction, the Exchange proposes to amend 
and restate its Fifth Amended and Restated Bylaws and adopt the amended 
Exchange Bylaws as its Sixth Amended and Restated Bylaws, attached as 
Exhibit 5G. Specifically, the Exchange proposes to (i) expand the 
prohibition contained in Section 2 of Article XI of the Exchange Bylaws 
and (ii) add a definition of ``Trading Permit Holder'' to Article I.
    Currently, Section 2 of Article XI of the Exchange Bylaws prohibits 
directors of BGM or Direct Edge 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). This provision refers to BGM and 
Direct Edge because they are currently the only direct and indirect 
owners of the Exchange. However, following the Transaction, the 
Exchange will be owned indirectly by CBOE V and CBOE Holdings (in 
addition to its direct ownership by Direct Edge). Therefore, the 
Exchange is proposing to remove the reference to BGM and insert 
references to CBOE V and CBOE Holdings, so that CBOE V and CBOE 
Holdings will both be covered by this prohibition. The Exchange 
believes that this amendment will protect the independence of the 
Exchange's self-regulatory activities.
    In addition, as noted above, the CBOE Holdings Charter currently 
prohibits certain persons from owning or exercising voting rights over 
certain percentages of ownership of CBOE Holdings. The CBOE Holdings 
Charter permits the board of directors of CBOE Holdings to waive the 
limitation on the exercise of voting rights in excess of 20 percent of 
the then outstanding votes entitled to be cast on such matter only if, 
among other things, ``for so long as [CBOE Holdings] directly or 
indirectly controls any Regulated Securities Exchange Subsidiary, 
neither such Person nor any of its Related Persons is a `Trading Permit 
Holder' (as defined in the Bylaws of any Regulated Securities Exchange 
Subsidiary as they may be amended from time to time).'' \47\
---------------------------------------------------------------------------

    \47\ See CBOE Holdings Charter, Art. SIXTH, para. (a)(ii)(C).
---------------------------------------------------------------------------

    The Exchange does not issue ``trading permits,'' but admits 
members. The Exchange believes the provisions of the CBOE Holdings 
Charter that refer to Trading Permit Holders of its Regulated 
Securities Exchange Subsidiaries should apply equally to members of the 
Exchange once it becomes a Regulated Securities Exchange Subsidiary of 
CBOE Holdings. As a result, the Exchange proposes to add clause (ff) to 
Article I of the Exchange Bylaws, providing that `` `Trading Permit 
Holder' shall have the same meaning as Exchange Member.'' This will 
ensure that the Exchange's members will be considered Trading Permit 
Holders of a Regulated Securities Exchange Subsidiary for purposes of 
the CBOE Holdings Charter.
9. Exchange Rules
a. 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 currently 
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 exchanges, BZX, BYX or EDGA, 
is not sufficient for purposes of eligibility for Exchange membership. 
The Exchange adopted this because the Bats Exchanges have historically 
not functioned as the designated examining authority for any of its 
members, and the Exchange wanted to be sure that any member would be 
appropriately supervised by another national securities association or 
national securities exchange that has

[[Page 80121]]

the capacity to function as the member's designated examining 
authority.
    As a result of the Transaction, the Exchange will additionally 
become affiliated with the CBOE Exchanges. As with the Bats Exchanges, 
C2 does not currently serve as the designated examination authority for 
any of its members. CBOE, however, does act as the designated examining 
authority for certain of its members. Therefore, the Exchange proposes 
to amend Exchange Rule 2.3 to specify that a registered broker or 
dealer will be eligible for membership only if it is a member of a 
national securities association or national securities exchange other 
than or in addition to the following affiliates of the Exchange: BZX, 
BYX, EDGA and C2.
    In addition, to ensure there is no confusion with respect to the 
possibility that a broker or dealer could qualify for membership in the 
Exchange based solely on membership in CBOE Futures or any other 
national securities exchange notice--registered with the Commission 
pursuant to Section 6(g) of the Act \48\ that lists or trades security-
futures products, the Exchange proposes to also specify that 
eligibility for membership requires membership in a national securities 
association registered pursuant to Section 15A of the Act or a national 
securities exchange registered with the Commission pursuant to Section 
6(a) of the Act, so as to exclude a national securities exchange 
registered solely under Section 6(g) of the Act. The proposed 
amendments to Exchange Rule 2.3 are set forth in Exhibit 5H.
---------------------------------------------------------------------------

    \48\ 15 U.S.C. 78f(g).
---------------------------------------------------------------------------

b. Exchange Rule 2.10--Affiliation Between Exchange and a Member
    Exchange Rule 2.10 provides that, without prior approval of the 
Commission, neither the Exchange, nor any of its affiliates, shall 
directly or indirectly acquire or maintain an ownership interest in a 
member of the Exchange. This restriction is intended to address 
potential conflicts of interest that could result from affiliation 
between the Exchange and a member. Notwithstanding this general 
restriction, Exchange Rule 2.10 provides that it does not prohibit a 
member or its affiliate from acquiring or holding an equity interest in 
BGM that is permitted by the ownership and voting limitations contained 
in the BGM Charter and the BGM Bylaws. In addition, Exchange Rule 2.10 
states that it does not prohibit a member from being or becoming an 
affiliate of the Exchange, or an affiliate of any affiliate of the 
Exchange, solely by reason of such member or any officer, director, 
manager, managing member, partner or affiliate of such member being or 
becoming either (a) a director of the Exchange pursuant to the Bylaws 
of the Exchange, or (b) a director of the Exchange serving on the board 
of directors of BGM. The Exchange proposes to replace the references to 
BGM in Rule 2.10 with references to CBOE Holdings to reflect the fact 
that following the Transaction, CBOE Holdings will replace BGM as the 
ultimate parent holding company of the Exchange.
    Exchange Rule 2.10 also clarifies that it does not prohibit the 
Exchange from being an affiliate of its routing broker-dealer Direct 
Edge ECN LLC d/b/a DE Route (``DE Route'') or of EDGA, BZX, BYX, or 
Bats Trading, each of which are affiliated with the Exchange. The 
Exchange proposes to remove the reference to DE Route to reflect the 
fact that Bats Trading previously replaced DE Route as the Exchange's 
routing broker-dealer.\49\ The Exchange also proposes to add references 
to the CBOE Exchanges, as the CBOE Exchanges will become new affiliated 
exchanges following the Transaction. The proposed amendments to 
Exchange Rule 2.10 are set forth in Exhibit 5H.
---------------------------------------------------------------------------

    \49\ See Securities Exchange Act Release No. 71449 (January 30, 
2014), 79 FR 6961 (February 5, 2014) (SR-EDGA-2013-34; SR-EDGX-2013-
43).
---------------------------------------------------------------------------

c. Exchange Rule 2.12--Bats Trading, Inc. as Inbound Router
    Exchange Rule 2.12 provides that the Exchange, on behalf of BGM, 
shall establish and maintain procedures and internal controls 
reasonably designed to ensure that Bats Trading does not develop or 
implement changes to its systems on the basis of nonpublic information 
obtained as a result of its affiliation with the Exchange until such 
information is available generally to similarly situated members of the 
Exchange in connection with the provision of inbound order routing to 
the Exchange. The Exchange proposes to replace the reference to BGM 
with a reference to ``the holding company indirectly owning the 
Exchange and Bats Trading.'' This change would reflect the fact that 
BGM would no longer be the ultimate holding company of the Exchange 
following the Transaction and would also make this language consistent 
with the language used in Rule 2.12 of the BZX and BYX rulebooks. The 
proposed amendments to Exchange Rule 2.12 are set forth in Exhibit 5H.
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.\50\ In 
particular, the proposal is consistent with Section 6(b)(1) of the Act 
\51\ 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.
---------------------------------------------------------------------------

    \50\ 15 U.S.C. 78f(b).
    \51\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------

    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 
CBOE Holdings Charter and CBOE Holdings Bylaws, like the BGM Charter 
and BGM Bylaws, various provisions intended to protect and maintain the 
integrity of the self-regulatory functions of the Exchange upon 
Closing. For example, the CBOE Holdings Charter, as described above, is 
drafted to preserve the independence of the Exchange's self-regulatory 
function and carry out its regulatory responsibilities under the Act. 
In addition, the CBOE Holdings Charter imposes limitations similar to 
the BGM Ownership Limitation 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.
    Moreover, notwithstanding the Proposed Rule Change, including the 
change to the indirect ownership 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 parent companies with respect to activities related to the 
Exchange.\52\ 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

[[Page 80122]]

companies and their directors, officers, employees and agents to the 
extent they are involved in the activities of the Exchange.
---------------------------------------------------------------------------

    \52\ See, e.g., CBOE Holdings Charter, Art. FOURTEENTH; CBOE V 
Operating Agreement, Section 10.3; Direct Edge Operating Agreement, 
Section 10.3.
---------------------------------------------------------------------------

    The Exchange also believes that the Proposed Rule Change furthers 
the objectives of Section 6(b)(5) of the Act \53\ 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.
---------------------------------------------------------------------------

    \53\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In addition, as discussed further in the Exchange's Statement on 
Burden on Competition below, the Exchange expects that the Transaction 
will foster further innovation while facilitating efficient, 
transparent and well-regulated markets for issuers and investors, 
removing impediments to, and perfecting the mechanism of a free and 
open market and a national market system. The Transaction will benefit 
investors and the securities market as a whole by, among other things, 
enhancing competition among securities venues and reducing 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 that the Exchange is 
proposing to the Exchange Rules are designed to reflect the prospective 
affiliation with CBOE Holdings and the CBOE Exchanges. The Exchange 
believes that the proposed change to its Rules is consistent with the 
requirements of the Act and the rules and regulations thereunder.

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 trading venues, as the Exchange believes that the 
Transaction will result in various synergies and efficiencies. For 
example, the Transaction will allow the Bats Exchanges and the CBOE 
Exchanges to utilize a single technology platform, which the Exchange 
expects will reduce Bats Exchanges' and the CBOE Exchanges' combined 
costs, creating the opportunity to further reduce costs to their 
respective members and other constituents. The potential use of a 
single technology platform may also reduce investors' costs of 
connecting to and using the Bats Exchanges and the CBOE Exchanges, 
including through the combination of data centers and market data 
services. Combining the expertise of the CBOE Exchanges' personnel with 
the expertise of the Bats Exchanges' personnel will also facilitate 
ongoing innovation, including through new product creation and platform 
improvements.
    The Exchange notes that the Bats Exchanges and the CBOE Exchanges 
generally operate with different business models, target different 
customer bases and primarily focus on different asset classes, limiting 
any concern that the Transaction could burden competition. Therefore, 
the Exchange expects that the Transaction will benefit investors, 
issuers, shareholders and the market as a whole. 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. These efficiencies will pass through to the benefit of 
investors and issuers, promoting further efficiencies, competition and 
capital formation, placing no burden on competition not necessary or 
appropriate in furtherance of the Act.
    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.\54\
---------------------------------------------------------------------------

    \54\ See, e.g., Securities Exchange Act Release Nos. 71375 
(January 23, 2014), 79 FR 4771 (January 29, 2014) (SR-BATS-2013-059; 
SR-BYX-2013-039); 66071 (December 29, 2011), 77 FR 521 (January 5, 
2012) (SR-CBOE-2011-107 and SR-NSX-2011-14); 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); 53382 (February 27, 2006), 71 FR 
11251 (March 6, 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 not solicited or 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 Exchange consents, the Commission will: (a) By order approve 
or disapprove 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-BatsEDGX-2016-60 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-BatsEDGX-2016-60. 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

[[Page 80123]]

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-BatsEDGX-2016-60, and should be submitted on or before 
December 6, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\55\
---------------------------------------------------------------------------

    \55\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2016-27369 Filed 11-14-16; 8:45 am]
 BILLING CODE 8011-01-P


