[Federal Register Volume 86, Number 231 (Monday, December 6, 2021)]
[Notices]
[Pages 69111-69113]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-26337]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93683; File No. SR-MEMX-2021-15]


Self-Regulatory Organizations; MEMX LLC; Order Granting 
Accelerated Approval of a Proposed Rule Change To Amend the Corporate 
Documents of the Exchange's Parent Company

November 30, 2021.
    On October 22, 2021, MEMX LLC (``MEMX'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``Commission''), pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ 
and Rule 19b-4 thereunder,\2\ a proposed rule change to amend and 
restate the limited liability company agreement of MEMX Holdings LLC 
(``Holdco''), the parent company of the Exchange. The proposed rule 
change was published for comment in the Federal Register on November 3, 
2021.\3\ The Commission received no comment letters regarding the 
proposed rule change. This order approves the proposed rule change on 
an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 93452 (October 28, 
2021), 86 FR 60683 (``Notice'').
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I. Summary of the Proposed Rule Change \4\
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    \4\ A full description of the proposed rule change is provided 
in the Notice.
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    The Exchange filed a proposed rule change to reflect certain 
changes to the Fifth Amended and Restated Limited Liability Company 
Agreement of Holdco that resulted in the restatement of that agreement 
as the Sixth Amended and Restated Limited Liability Company Agreement 
of Holdco (``Sixth Amended Holdco LLC Agreement''). Specifically, the 
Sixth Amended Holdco LLC Agreement reflects the following substantive 
amendments: (1) The creation of the Class C Units \5\ and the Common 
Units \6\ in connection with the

[[Page 69112]]

sale by Holdco of Class C Units to certain LLC Members \7\ in a capital 
raise transaction (``Transaction''); (2) provisions that address 
certain LLC Members' BHCA \8\ considerations, particularly in light of 
recent amendments to BHCA regulations, to facilitate their continued 
compliance with requirements and restrictions under the BHCA regarding 
investments in nonbanking companies; \9\ and (3) Holdco governance 
changes in connection with the Transaction.\10\ The Exchange expects 
the Transaction to close shortly after this proposed rule change is 
approved. The Exchange represents that none of the proposed changes 
will affect the governance of the Exchange.\11\
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    \5\ As proposed, ``Class C Units'' means Class C-1 Units and 
Class C-2 Units; the term ``Class C-1 Units'' means the Units having 
the privileges, preference, duties, liabilities, obligations and 
rights specified with respect to ``Class C-1 Units'' in the Sixth 
Amended Holdco LLC Agreement; and the term ``Class C-2 Units'' means 
the Units having the privileges, preference, duties, liabilities, 
obligations and rights specified with respect to ``Class C-2 Units'' 
in the Sixth Amended Holdco LLC Agreement.
    \6\ As proposed, the term ``Common Units'' means the Units 
having the privileges, preference, duties, liabilities, obligations 
and rights specified with respect to ``Common Units'' in the Sixth 
Amended Holdco LLC Agreement. Common Units are divided into the 
Voting Common Units and the Nonvoting Common Units.
    \7\ A ``LLC Member'' is a person (i.e., an individual or entity) 
that owns one or more Units and is admitted as a limited liability 
company member of Holdco.
    \8\ ``BHCA'' refers to the United States Bank Holding Company 
Act of 1956, as amended and the rules and regulations thereunder. 
Certain LLC Members are subject to requirements and restrictions 
under the BHCA, including recent amendments to BHCA regulations 
regarding the determination of control over investments in 
nonbanking companies that became effective on September 30, 2020. 
See Notice, supra note 3, 86 FR at 60684.
    \9\ See id.
    \10\ The Sixth Amended Holdco LLC Agreement also reflects 
various clarifying, updating, conforming, and other non-substantive 
amendments. For example, the Exchange proposes to delete provisions 
and language that are now obsolete due to the passage of time or the 
occurrence of certain events.
    \11\ See id. at 60684. Under the current Holdco LLC Agreement, 
LLC Members do not have any voting or management rights, except in 
certain very limited circumstances; the authority to manage and 
control the business and affairs of Holdco is vested in the Holdco 
Board. In connection with the Transaction, three LLC Members that do 
not currently have the right to nominate a director (``Director'') 
to the Holdco Board--Citicorp North America, Inc., UBS Americas 
Inc., and Wells Fargo Central Pacific Holdings, Inc.--will receive 
the right to nominate a Director, thereby increasing the size of the 
Holdco Board from 11 to 14 Directors.
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    Currently there are two classes of Units: \12\ Class A Units, which 
are divided into the Class A-1 Units and the Class A-2 Units; \13\ and 
Class B Units. The Exchange proposes to create two new classes Units: 
Class C Units and Common Units, each of which is divided into a voting 
series and a non-voting series. Holdco will sell Class C Units pursuant 
to the Transaction and will use the proceeds from the sale for general 
corporate expenses, including support of the operations and regulation 
of the Exchange. Class C Units are convertible into Common Units,\14\ 
and generally will have the same rights and obligations as Class A 
Units. While each LLC Member's proportionate ownership of Holdco will 
change because of the Transaction, no LLC Member will own, directly or 
indirectly, Units constituting more than 20% of any class of Units or 
will otherwise exceed any ownership or voting limitation applicable to 
the LLC Members set forth in the current Holdco LLC Agreement after 
giving effect to the Transaction.\15\
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    \12\ A ``Unit'' is a unit representing a fractional part of the 
membership interests of the members of Holdco.
    \13\ The Exchange proposes to re-characterize Class A-1 Units 
and Class A-2 Units as separate ``series'' rather than ``classes'' 
of Units. The Exchange represents that the Holdco Board asserts that 
this is appropriate because such Units have identical privileges, 
preference, duties, liabilities, obligations, and rights under the 
Sixth Amended Holdco LLC Agreement, and the only difference between 
such Units is the original purchase price paid by the applicable LLC 
Members. See id. at 60683, n.10.
    \14\ Common Units will be issuable only in connection with an 
investment in Holdco or upon optional or mandatory conversion of 
Class C Units. No Common Units will be sold in connection with the 
Transaction, and none are currently issued and outstanding. In the 
event of a conversion to Common Units, Class C-1 Units will be 
converted into Voting Common Units, and Class C-2 Units will be 
converted into Nonvoting Common Units. The Exchange states that this 
conversion structure is designed to keep the same voting construct 
in place with respect to the Common Units that are issued upon the 
conversion of any Class C Units in a manner consistent with BHCA 
considerations. See id., 86 FR at 60685.
    \15\ See Section 3.5 of the Sixth Amended Holdco LLC Agreement. 
See also Notice, supra note 3, 86 FR at 60684.
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    The Exchange also proposes a number of changes to facilitate 
certain LLC Members' continued compliance, particularly in light of 
recent amendments to the BHCA regulations, with requirements and 
restrictions under the BHCA regarding investments in nonbanking 
companies. For example, the Exchange proposes to divide the existing 
series of Class A Units into voting and non-voting series in a manner 
consistent with the proposed voting structure of the Class C Units and 
the Common Units and prescribe certain matters on which such series are 
entitled to vote.\16\ The Exchange also proposes to allow LLC Members 
to specify a maximum voting percentage for Voting Class A and Class C-1 
Units.\17\
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    \16\ The Exchange states that the sole purpose of these changes 
is to facilitate certain LLC Members' continued compliance with 
requirements and restrictions under the BHCA regarding investments 
in nonbanking companies. See Notice, supra note 3, 86 FR at 60684.
    \17\ The Exchange represents that the proposed amendments to the 
current Holdco LLC Agreement are simply an expansion of existing 
provisions allowing LLC Members to specify a maximum voting 
percentage and are designed to facilitate certain LLC Members' 
compliance with the BHCA. See id. at 60692.
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    Additionally, the Exchange proposes a number of Holdco governance 
changes in connection with the Transaction. For example, the Exchange 
proposes to amend the definition of Supermajority Board Vote, which 
currently refers to the affirmative vote of at least 77% of the votes 
of all Directors then entitled to vote on the matter under 
consideration and who have not recused themselves, whether or not 
present at the applicable meeting of the Board,\18\ and the current 
definition also provides that if the affirmative vote threshold results 
in the necessity of the affirmative vote of all such Directors with 
respect to such matter, that an affirmative vote of all but one of such 
Directors shall instead be required.\19\ Instead, the Exchange proposes 
that, if the affirmative vote threshold results in the necessity of the 
affirmative vote of eight Directors or fewer, an affirmative vote of 
all but two such Directors shall be required with respect to such 
matter.\20\ The Exchange also proposes to allow a meeting of the LLC 
Members to be called by the Class C Members holding, in the aggregate, 
at least 20% of the aggregate then-outstanding Class C Units, and to 
include a reference to Class C Units in the provision governing quorum 
for the transaction of business by the LLC Members. Further, the 
Exchange proposes that the dissolution and winding up of the affairs of 
Holdco be approved by holders of the various series of Units in 
addition to the approval of the Holdco Board by Supermajority Board 
Vote.
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    \18\ This aspect of the definition is not changing.
    \19\ MEMX states that this provision is intended to cover 
situations where a large number of Directors are recused from voting 
on a matter or the size of the Board is such that a Board vote would 
require unanimity and instead allows a matter to be approved so long 
as all but one Director is in favor of a particular voting matter. 
See id. at 60690.
    \20\ According to the Exchange, the proposed change will ensure 
that a more consistent voting structure is maintained even if 
several Directors are recused from voting on a particular matter. 
See id.
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II. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\21\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(1) of the Act,\22\ which 
requires that a national securities exchange be so organized as to have 
the capacity to be able to carry out the purposes of the Act and to 
comply with the provisions of the Act, the rules and regulations

[[Page 69113]]

thereunder, and the rules of the exchange.
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    \21\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \22\ 15 U.S.C. 78f(b)(1).
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    The Commission believes that the proposed updates and clarifying 
changes reflected in the Sixth Amended Holdco LLC Agreement will not 
materially alter Holdco's governance with respect to the Exchange or 
adversely impact governance of the Exchange itself \23\ and will 
continue to enable the Exchange to be organized to have the capacity to 
carry out the purposes of the Act and to comply with the provisions of 
the Act, the rules and regulations thereunder, and the rules of the 
Exchange.
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    \23\ The protections against any particular Holdco shareholder 
exerting undue influence over the affairs of Holdco--and indirectly 
the affairs of the Exchange--remain in place. See supra note 15 and 
accompanying text. See also note 11 and accompanying text.
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    In particular, the Sixth Amended Holdco LLC Agreement does not 
amend Section 3.5 (Limitations on Ownership), which imposes an 
ownership limit of ``twenty percent (20%) of any class of Units'' and a 
voting limit of ``twenty percent (20%) of the voting power of the then 
issued and outstanding Units.'' \24\ Though Holdco will have two new 
classes of shares and some LLC Members will make additional investments 
as part of the Transaction, the 20% ownership limit will apply to those 
new series, and the 20% voting limit will continue to apply to all 
issued and outstanding Units collectively. These limitations are 
designed to address the conflicts of interests that might result from a 
broker-dealer member of a national securities exchange owning interests 
in an entity that controls that exchange.\25\ The Commission believes 
that these requirements are designed to minimize the potential that a 
person or entity can improperly interfere with or restrict the ability 
of the Exchange to effectively carry out its regulatory oversight 
responsibilities under the Act. In addition, other provisions that 
recognize the unique and important regulatory nature of MEMX as a 
national securities exchange and self-regulatory organization under the 
Act similarly will not be substantively altered by the proposed 
amendments, including but not limited to Sections 15.12 (Submission to 
Jurisdiction), 15.9 (Amendments), 12.2 (Inspection Rights; Books and 
Records), and 8.18 (Governance of Company Subsidiaries; Certain 
Agreements Related to the Exchange Board). Rather, the proposed 
amendments accommodate the Transaction, facilitate LLC Members' 
continued compliance with requirements and restrictions under the BHCA 
regarding investments in nonbanking companies (i.e., Holdco), and make 
non-substantive changes that do not alter the important protections 
that Holdco has adopted to protect MEMX's regulatory independence and 
ability to operate in a manner consistent with the Act as a registered 
a national securities exchange.
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    \24\ Section 3.5(a)(ii) provides that ``[n]o Exchange Member, 
either alone or together with its Related Persons, may own, directly 
or indirectly, of record or beneficially, Units constituting more 
than twenty percent (20%) of any class of Units'' and Section 
2.5(a)(iii) provides that ``[n]o Person, either alone or together 
with its Related Persons, at any time may, directly, indirectly or 
pursuant to any voting trust, agreement, plan or other arrangement, 
vote or cause the voting of Units or give any consent or proxy with 
respect to Units representing more than twenty percent (20%) of the 
voting power of the then issued and outstanding Units. . . .''
    \25\ As the Commission has previously explained, an exchange 
member's ownership interest in an entity that controls an exchange 
could become so large as to cast doubt on whether the exchange may 
fairly and objectively exercise its self-regulatory responsibilities 
with respect to such member. An exchange member that is a 
controlling shareholder of an exchange could seek to exercise that 
controlling influence by directing the exchange to refrain from, or 
the exchange may hesitate to, diligently monitor and conduct 
surveillance of the member's conduct or diligently enforce the 
exchange's rules and the federal securities laws with respect to 
conduct by the member that violates such provisions. See, e.g., 
Securities Exchange Act Release No. 88806 (May 4, 2020), 85 FR 27451 
(May 8, 2020) (In the Matter of the Application of MEMX LLC for 
Registration as a National Securities Exchange).
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III. Accelerated Approval of the Proposed Rule Change

    The Commission finds good cause to approve the proposed rule change 
prior to the thirtieth day after the date of publication of notice in 
the Federal Register.\26\ The Exchange states that approval of the 
proposed rule change on an accelerated basis will facilitate certain 
LLC Members' continued compliance with requirements and restrictions 
under the BHCA regarding investments in nonbanking companies. As 
discussed above, because the proposed changes do not impact Holdco's 
ownership of the Exchange, alter LLC Members' ownership and voting 
limits, or otherwise alter any existing provision that would adversely 
impact the Exchange, the Commission finds good cause, pursuant to 
Section 19(b)(2) of the Act,\27\ to approve the proposed rule change on 
an accelerated basis.
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    \26\ The 21-day comment period for this proposed rule change 
expired on November 24, 2021 (see Notice, supra note 3, 86 FR at 
60693) and no comments were received.
    \27\ 15 U.S.C. 78s(b)(2).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\28\ that the proposed rule change (SR-MEMX-2021-15), be, and 
hereby is, approved on an accelerated basis.
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    \28\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-26337 Filed 12-3-21; 8:45 am]
BILLING CODE 8011-01-P


