
[Federal Register Volume 81, Number 247 (Friday, December 23, 2016)]
[Notices]
[Pages 94458-94460]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-30939]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79591; File Nos. SR-CBOE-2016-076; SR-C2-2016-022]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; C2 Options Exchange, Incorporated; Order Approving a 
Proposed Rule Change in Connection With a Proposed Corporate 
Transaction Involving CBOE Holdings, Inc. and Bats Global Markets, Inc.

December 19, 2016.

I. Introduction

    On November 4, 2016, Chicago Board Options Exchange, Incorporated 
(``CBOE'') and C2 Options Exchange, Incorporated (``C2'' and, together 
with CBOE, the ``CBOE Exchanges'') each filed with the Securities and 
Exchange Commission (``Commission''), pursuant to Section 19(b)(1) \1\ 
of the Securities Exchange Act of 1934 (``Act''),\2\ and Rule 19b-4 
thereunder,\3\ proposed rule changes in connection with the proposed 
corporate transaction (the ``Transaction''), as described in more 
detail below, involving their ultimate parent company, CBOE Holdings, 
Inc. (``CBOE Holdings''), two wholly owned subsidiaries of CBOE 
Holdings, CBOE Corporation and CBOE V, LLC (``CBOE

[[Page 94459]]

V''), and Bats Global Markets, Inc. (``BGM''). BGM is the ultimate 
parent company of Bats BZX Exchange, Inc. (``Bats BZX''), Bats BYX 
Exchange, Inc. (``Bats BYX''), Bats EDGX Exchange, Inc. (``Bats 
EDGX''), and Bats EDGA Exchange, Inc. (``Bats EDGA'' and, together with 
Bats BZX, Bats BYX, and Bats EDGX, the ``Bats Exchanges''). Upon 
completion of the Transaction (the ``Closing''), CBOE Holdings will 
become the ultimate parent of the Bats Exchanges. The proposed rule 
changes were published for comment in the Federal Register on November 
15, 2016.\4\ The Commission received no comments on the proposals.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ See Securities Exchange Act Release Nos. 79268 (November 8, 
2016), 81 FR 80157 (SR-CBOE-2016-076); and 79267 (November 8, 2016), 
81 FR 80132 (SR-C2-2016-022) (``Notices'').
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II. Description of the Proposed Rule Changes

A. Corporate Structure

1. Current Structure
    The CBOE Exchanges are each Delaware corporations that are national 
securities exchanges registered with the Commission pursuant to Section 
6(a) of the Act.\5\ The CBOE Exchanges are each direct, wholly owned 
subsidiaries of CBOE Holdings, a publicly traded Delaware corporation. 
CBOE V is a Delaware limited liability company and a direct, wholly 
owned subsidiary of CBOE Holdings, which currently has no material 
assets and conducts no operations.
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    \5\ 15 U.S.C. 78f(a).
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    Each Bats Exchange is a Delaware corporation that is a national 
securities exchange registered with the Commission pursuant to Section 
6(a) of the Act.\6\ BGM is a publicly traded Delaware corporation and 
the ultimate parent of the Bats Exchanges.
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    \6\ Id.
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2. The Transaction
    On September 25, 2016, CBOE Holdings, CBOE Corporation, CBOE V, and 
BGM entered into an Agreement and Plan of Merger, as it may be amended 
from time to time (the ``Merger Agreement'').\7\ Pursuant to and 
subject to the terms of the Merger Agreement, each share of BGM common 
stock (whether voting or non-voting) issued and outstanding (other than 
shares owned by CBOE Holdings, BGM, or any of their respective 
subsidiaries, and certain shares held by BGM stockholders 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 common stock, an amount of cash, or a combination of both, at 
the election of the holder of such share of BGM common stock.\8\ BGM 
will ultimately merge with and into CBOE Holdings' wholly owned 
subsidiary CBOE V, at which time the separate existence of BGM will 
cease and CBOE V will be the surviving company.\9\
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    \7\ See Notices, supra note 4, at 80157 and 80132.
    \8\ See id. at 80158 and 80133.
    \9\ See id.
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    As a result of the Transaction, CBOE Holdings will be the ultimate 
parent of the Bats Exchanges, each of which will continue to operate 
separately.\10\ CBOE Holdings will continue to be a publicly owned 
company and the ultimate parent of the CBOE Exchanges, each of which 
will continue to operate separately.
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    \10\ See id.; see also Securities Exchange Act Release Nos. 
79266 (November 8, 2016), 81 FR 80101 (November 15, 2016) (SR-
BatsBZX-2016-68); 79269 (November 8, 2016), 81 FR 80093 (November 
15, 2016) (SR-BatsBYX-2016-29); 79265 (November 8, 2016), 81 FR 
80146 (November 15, 2016) (SR-BatsEDGA-2016-24) and 79264 (November 
8, 2016), 81 FR 80114 (November 15, 2016) (SR-BatsEDGX-2016-60) 
(notice of filing of proposed rule changes related to a corporate 
transaction involving BGM and CBOE Holdings).
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B. Proposed Rule Change

    Section 19(b) of the Act \11\ and Rule 19b-4 \12\ thereunder 
require a self-regulatory organization (``SRO'') to file proposed rule 
changes with the Commission. Although CBOE Holdings is not an SRO, 
certain provisions of its certificate of incorporation and bylaws, 
along with other corporate documents, are rules of the CBOE Exchanges, 
as defined in Rule 19b-4 under the Act, and must be filed with the 
Commission pursuant to Section 19(b) of the Act and Rule 19b-4 
thereunder. Accordingly, each of the CBOE Exchanges filed with the 
Commission to seek approval of a provision in the Merger Agreement 
regarding the composition of the CBOE Holdings Board upon Closing.
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    \11\ 15 U.S.C. 78s(b).
    \12\ 17 CFR 240.19b-4.
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    The CBOE Exchanges represented that 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).\13\ The CBOE Holdings Board currently consists of 14 
directors.\14\ The CBOE Exchanges expect three current CBOE Holdings 
directors to resign prior to the Closing, at which point the CBOE 
Holdings Board will fill those vacancies by appointing the three 
individuals designated by BGM that have complied with the policies of 
the Nominating and Governance Committee of the CBOE Holdings Board.\15\
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    \13\ See Notices, supra note 4, at 80158 and 80133.
    \14\ See id.
    \15\ See id.
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III. Discussion and Commission Findings

    The Commission has reviewed carefully the proposed rule changes and 
finds that the proposed rule changes are consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\16\ In particular, the 
Commission finds that the proposed rule changes are consistent with 
Sections 6(b)(1) and (3) of the Act,\17\ which, among other things, 
require a national securities exchange to be so organized and have the 
capacity to be able to carry out the purposes of the Act, and to 
enforce compliance by its members and persons associated with its 
members with the provisions of the Act, the rules and regulations 
thereunder, and the rules of the exchange, and assure the fair 
representation of its members in the selection of its directors and 
administration of its affairs, and provide that one or more directors 
shall be representative of issuers and investors and not be associated 
with a member of the exchange, broker, or dealer. The CBOE Exchanges 
represented that the proposal is consistent with CBOE Holdings' 
governing documents previously filed with the Commission and noted that 
they are not proposing any changes to existing rules or governing 
documents of CBOE Holdings or the CBOE Exchanges.\18\ The CBOE 
Exchanges' proposed rule changes are limited to the provision in the 
Merger Agreement regarding the ability of BGM to designate three 
directors to the CBOE Holdings Board one time in connection with 
Closing. The Nominating and Governance Committee of the CBOE Holdings 
Board, consistent with the governing documents of CBOE

[[Page 94460]]

Holdings, must follow its policies in determining whether to recommend 
those candidates for election as directors to the Board. Accordingly, 
BGM's ability to recommend specific candidates is subject to CBOE 
Holdings' governance process and procedures.
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    \16\ In approving the proposed rule changes, the Commission has 
considered their impact on efficiency, competition and capital 
formation. See 15 U.S.C. 78c(f).
    \17\ 15 U.S.C. 78f(b)(1) and (b)(3).
    \18\ See Notices, supra note 4, at 80158 n.10 and accompanying 
text and 80133 n. 10 and accompanying text. See also id. at 80157-58 
and 80132-33.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\19\ that the proposed rule changes (SR-CBOE-2016-076 and SR-C2-2016-
022), be, and hereby are, approved.
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    \19\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-30939 Filed 12-22-16; 8:45 am]
 BILLING CODE 8011-01-P


