[Federal Register Volume 74, Number 179 (Thursday, September 17, 2009)]
[Notices]
[Pages 47828-47831]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-22346]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60650]


Order Granting Application by EDGX Exchange, Inc. and EDGA 
Exchange, Inc. for a Conditional Exemption Pursuant to Section 36(a) of 
the Exchange Act From Certain Requirements of Rules 6a-1 and 6a-2 Under 
the Exchange Act

September 11, 2009.

I. Introduction

    EDGX Exchange, Inc. (``EDGX'') and EDGA Exchange, Inc. (``EDGA,'' 
and, together with EDGX, the ``Applicants'') each submitted to the 
Securities and Exchange Commission (``Commission'') an application on 
Form 1 under the Securities Exchange Act of 1934 (``Exchange Act'') to 
register as a national securities exchange. In addition, the 
Applicants, pursuant to Rule 0-12 \1\ under the Exchange Act, have 
requested an exemption under Section 36(a)(1) of the Exchange Act \2\ 
from certain requirements of Rules 6a-1(a) and 6a-2 under the Exchange 
Act.\3\ This order grants the Applicants' request for exemptive relief, 
subject to the satisfaction of certain conditions, which are outlined 
below.
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    \1\ 17 CFR 240.0-12.
    \2\ 15 U.S.C. 78mm(a)(1).
    \3\ 17 CFR 240.6a-1(a) and 6a-2. See letter from Eric W. Hess, 
General Counsel and Secretary, EDGA and EDGX, to Elizabeth Murphy, 
Secretary, Commission, dated July 30, 2009 (``Exemption Request'').
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II. Application for Conditional Exemption From Certain Requirements of 
Exchange Act Rules 6a-1 and 6a-2

A. Filing Requirements Under Exchange Act Rule 6a-1(a)

    Exchange Act Rule 6a-1(a) requires an applicant for registration as 
a national securities exchange to file an application with the 
Commission on Form 1. Exhibit C to Form 1 requires the applicant to 
provide certain information with respect to each of its subsidiaries 
and affiliates.\4\ For purposes of Form 1,

[[Page 47829]]

an ``affiliate'' is ``[a]ny person that, directly or indirectly, 
controls, is under common control with, or is controlled by, the 
national securities exchange * * * including any employees.'' \5\ Form 
1 defines ``control'' as ``[t]he power, directly or indirectly, to 
direct the management or policies of a company, whether through 
ownership of securities, by contract, or otherwise * * *.'' \6\ Form 1 
provides, further, that any person that directly or indirectly has the 
right to vote 25% or more of a class of voting securities, or has the 
power to sell or direct the sale of 25% or more of a class of voting 
securities, is presumed to control the entity.\7\
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    \4\ Specifically, Exhibit C requires the applicant to provide, 
for each subsidiary or affiliate, and for any entity that operates 
an electronic trading system used to effect transactions on the 
exchange: (1) The name and address of the organization; (2) the form 
of organization; (3) the name of the State and statute citation 
under which it is organized, and the date of its incorporation in 
its present form; (4) a brief description of the nature and extent 
of the affiliation; (5) a brief description of the organization's 
business or function; (6) a copy of the organization's constitution; 
(7) a copy of the organization's articles of incorporation or 
association, including all amendments; (8) a copy of the 
organization's by-laws or corresponding rules or instruments; (9) 
the name and title of the organization's present officers, 
governors, members of all standing committees, or persons performing 
similar functions; and (10) an indication of whether the business or 
organization ceased to be associated with the applicant during the 
previous year, and a brief statement of the reasons for termination 
of the association.
    \5\ Form 1 Instructions, Explanation of Terms, 17 CFR 249.1.
    \6\ Id.
    \7\ Id.
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    Exhibit D to Form 1 requires an applicant for exchange registration 
to provide unconsolidated financial statements for the latest fiscal 
year for each subsidiary or affiliate. Exhibit D requires the financial 
statements to include, at a minimum, a balance sheet and an income 
statement with such footnotes and other disclosures as are necessary to 
avoid rendering the financial statements misleading. Exhibit D 
provides, in addition, that if any affiliate or subsidiary of the 
applicant is required by another Commission rule to submit annual 
financial statements, a statement to that effect, with a citation to 
the other Commission rule, may be provided in lieu of the financial 
statements required in Exhibit D.
    A Form 1 application is not considered filed until all necessary 
information, including financial statements and other required 
documents, have been furnished in the proper form.\8\
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    \8\ 17 CFR 202.3(b)(2). Defective Form 1 applications may be 
returned with a request for correction or held until corrected 
before being accepted as a filing. See 17 CFR 202.3(b)(2). See also 
Securities Exchange Act Release No. 40760 (December 8, 1998), 63 FR 
70844 (December 22, 1998) (``Regulation ATS Adopting Release'') at 
note 329 and accompanying text.
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B. Filing Requirements Under Exchange Act Rule 6a-2

    Exchange Act Rule 6a-2(a)(2) requires a national securities 
exchange to update the information provided in Exhibit C within 10 days 
of any action that causes the information provided in Exhibit C to 
become inaccurate or incomplete. In addition, Exchange Act Rule 6a-
2(b)(1) requires a national securities exchange to file Exhibit D on or 
before June 30 of each year, and Exchange Act Rule 6a-2(c) requires a 
national securities exchange to file Exhibit C every three years.

C. Exemption Request

    On July 23, 2009, the Applicants requested that the Commission 
grant an exemption under Section 36 of the Exchange Act, subject to the 
conditions set forth below, from the requirement under Exchange Act 
Rule 6a-1 to file the information requested in Exhibits C and D to Form 
1 for the ``Foreign Indirect Affiliates,'' as defined below, of the 
Applicants.\9\ In addition, the Applicants requested an exemption, 
subject to certain conditions, with respect to the Foreign Indirect 
Affiliates from the requirements under: (1) Exchange Act Rule 6a-
2(a)(2) to amend Exhibit C within 10 days if the information in Exhibit 
C becomes inaccurate or incomplete; and (2) Exchange Act Rules 6a-
2(b)(1) and (c) to file periodic updates to Exhibits C and D.
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    \9\ See Exemption Request, supra note 3.
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    The Applicants are wholly-owned subsidiaries of Direct Edge 
Holdings LLC (``DE Holdings''). International Securities Exchange 
Holdings, Inc. (``ISE Holdings'') owns a 31.54% ownership interest in 
DE Holdings.\10\ ISE Holdings is a wholly-owned subsidiary of U.S. 
Exchange Holdings, Inc., which is wholly-owned by a German stock 
corporation, Eurex Frankfurt AG (``Eurex Frankfurt''). Eurex Frankfurt 
is wholly-owned by Eurex Zurich AG (``Eurex Zurich''), a Swiss stock 
corporation owned by SIX Swiss Exchange AG (``SIX Swiss Exchange''), 
and Deutsche Borse AG (``Deutsche Borse'').\11\ SIX Swiss Exchange is a 
wholly-owned subsidiary of SIX Group AG (``SIX Group''), a Swiss stock 
corporation. According to the Applicants, Eurex Frankfurt, Eurex 
Zurich, SIX Swiss Exchange, Deutsche Borse, and SIX Group 
(collectively, the ``Foreign Direct Affiliates'') hold ownership 
interests in excess of 25% in a large number of other foreign entities, 
some of which also own interests in excess of 25% in other entities 
(such Foreign Direct Affiliate-owned entities are referred to, 
collectively, as the ``Foreign Indirect Affiliates'').\12\
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    \10\ See Exemption Request, supra note 3, at 2-3. See also 
Securities Exchange Act Release No. 59135 (December 22, 2008), 73 FR 
79954 (December 30, 2008) (File No. SR-ISE-2008-85) (order approving 
ISE Holdings' purchase of an ownership interest in DE Holdings).
    \11\ SIX Swiss Exchange, a Swiss stock corporation, and Deutsche 
Borse, a German stock corporation, each own approximately 50% of 
Eurex Zurich. See Exemption Request, supra note 3, at 2-3.
    \12\ See Exemption Request, supra note 3, at 3.
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    Because of the limited and indirect nature of their connection to 
the Foreign Indirect Affiliates, the Applicants believe that the 
corporate and financial information of the Foreign Indirect Affiliates 
required by Exhibits C and D of Form 1 would have little relevance to 
the Commission's review of the Applicants' Form 1 applications or to 
the Commission's ongoing oversight of the Applicants as national 
securities exchanges if the Commission approves the Applicants' Form 1 
applications.\13\ In this regard, the Exemption Request states that the 
Foreign Indirect Affiliates have no ability to influence the 
management, policies, or finances of the Applicants and no obligation 
to provide funding to, or ability to materially affect the funding of, 
the Applicants.\14\ The Exemption Request also states that (1) the 
Foreign Indirect Affiliates have no ownership interest in the 
Applicants or in any of the controlling shareholders of the Applicants; 
and (2) there are no commercial dealings between the Applicants and the 
Foreign Indirect Affiliates.\15\ Further, the Exemption Request states 
that obtaining detailed corporate and financial information with 
respect to the Foreign Indirect Affiliates (1) is unnecessary for the 
protection of investors and the public interest and (2) would be unduly 
burdensome and inefficient because these affiliates are located in 
foreign jurisdictions and the disclosure of such information could 
implicate foreign information sharing restrictions in such 
jurisdictions.\16\
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    \13\ Id.
    \14\ Id.
    \15\ Id.
    \16\ Id. The Applicants also believe that providing the 
information required by Exhibits C and D with respect to the Foreign 
Indirect Affiliates could raise confidentiality concerns because 
many of the Foreign Indirect Affiliates are not public companies. 
Id.
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    As a condition to the granting of exemptive relief, the Applicants 
have agreed to provide: (i) A listing of the names of the Foreign 
Indirect Affiliates; (ii) an organizational chart setting forth the 
affiliation of the Foreign Indirect Affiliates and the Foreign Direct 
Affiliates and the Applicants; and (iii) in Exhibit C of the 
Applicants' respective Form 1 applications, a description of the nature 
of the Foreign Indirect Affiliates' affiliation with the Foreign Direct 
Affiliates and the Applicants. In addition, as a condition to the 
granting of exemptive relief from the requirements of Exchange Act Rule 
6a-2(a)(2), 6a-2(b)(1), and 6a-2(c), as

[[Page 47830]]

described above, the Applicants have agreed to provide amendments to 
the information required under conditions (i) through (iii) above on or 
before June 30th of each year. Further, the Applicants note that they 
will provide the information required by Exhibits C and D for all of 
their affiliates other than the Foreign Indirect Affiliates, including 
the Foreign Direct Affiliates.\17\
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    \17\ See Exemption Request, supra note 3, at 4.
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III. Order Granting Conditional Section 36 Exemption

    Section 6 of the Exchange Act \18\ sets forth a procedure for an 
exchange to register as a national securities exchange.\19\ Exchange 
Act Rule 6a-1(a) \20\ requires an application for registration as a 
national securities exchange to be filed on Form 1 in accordance with 
the instructions in Form 1. A Form 1 application is not considered 
filed until all necessary information, including financial statements 
and other required documents, have been furnished in the proper 
form.\21\ Exchange Act Rule 6a-2 establishes ongoing requirements to 
file certain amendments to Form 1.
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    \18\ 15 U.S.C. 78f.
    \19\ Specifically, Section 6(a) of the Exchange Act states that 
``[a]n exchange may be registered as a national securities exchange 
* * * by filing with the Commission an application for registration 
in such form as the Commission, by rule, may prescribe containing 
the rules of the exchange and such other information and documents 
as the Commission, by rule, may prescribe as necessary or 
appropriate in the public interest or for the protection of 
investors.'' Section 6 of the Exchange Act also sets forth various 
requirements to which a national securities exchange is subject.
    \20\ 17 CFR 240.6a-1(a).
    \21\ 17 CFR 202.3(b)(2). See also note 8, supra.
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    Section 36(a)(1) of the Exchange Act provides that ``the 
Commission, by rule, regulation, or order, may conditionally or 
unconditionally exempt any person, security, or transaction, or any 
class or classes of persons, securities, or transactions, from any 
provision or provisions of [the Exchange Act] or of any rule or 
regulation thereunder, to the extent that such exemption is necessary 
or appropriate in the public interest, and is consistent with the 
protection of investors.'' \22\
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    \22\ 15 U.S.C. 78mm(a)(1).
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    For the reasons discussed below, the Commission believes that it is 
appropriate in the public interest and consistent with the protection 
of investors to exempt the Applicants from the requirement under 
Exchange Act Rule 6a-1 to provide the information required in Exhibits 
C and D to Form 1 with respect to the Foreign Indirect Affiliates, 
subject to the following conditions:
    (1) The Applicants must provide a list of the names of the Foreign 
Indirect Affiliates;
    (2) The Applicants must provide an organizational chart setting 
forth the affiliation of the Foreign Indirect Affiliates and the 
Foreign Direct Affiliates and the Applicants; and
    (3) As part of Exhibit C to the Applicants' respective Form 1 
Applications, the Applicants must provide a description of the nature 
of the affiliation between the Foreign Indirect Affiliates and the 
Foreign Direct Affiliates and the Applicants.
    The Commission believes, further, that it is appropriate in the 
public interest and consistent with the protection of investors to 
exempt the Applicants, with respect to the Foreign Indirect Affiliates, 
from the requirements under: (a) Exchange Act Rule 6a-2(a)(2) to amend 
Exhibit C within 10 days of any action that renders the information in 
Exhibit C inaccurate or incomplete; (b) Exchange Act Rules 6a-2(c) to 
provide periodic updates of Exhibit C; and (c) Exchange Act Rules 6a-
2(b)(1) to provide periodic updates of Exhibits D, subject to the 
condition that the Applicants provide amendments to the information 
required under conditions (1) through (3) above on or before June 30th 
of each year.
    As part of an application for exchange registration, the 
information included in Exhibits C and D is designed to help the 
Commission make the determinations required under Sections 6(b) and 
19(a) of the Exchange Act with respect to the application. The updated 
Exhibit C and D information required under Exchange Act Rule 6a-2 is 
designed to help the Commission exercise its oversight responsibilities 
with respect to registered national securities exchanges. Specifically, 
Exhibit D is designed to provide the Commission with information 
concerning the financial status of an exchange and its affiliates and 
subsidiaries,\23\ and Exhibit C provides the Commission with the names 
and organizational documents of these affiliates and subsidiaries.\24\ 
Such information is designed to help the Commission determine whether 
an applicant for exchange registration would have the ability to carry 
out its obligations under the Exchange Act, and whether a registered 
national securities exchange continues to have the ability to carry out 
its obligations under the Exchange Act.
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    \23\ See Securities Exchange Act Release No. 18843 (June 25, 
1982), 47 FR 29259 (July 6, 1982) (proposing amendments to Form 1); 
see also Form 1, 17 CFR 249.1, and Section II.A., supra.
    \24\ Form 1, 17 CFR 249.1. See also note 4, supra.
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    Since the most recent amendments to Form 1 in 1998,\25\ many 
registered national securities exchanges that previously were member-
owned organizations with few affiliated entities have demutualized. 
Some of these demutualized exchanges have been consolidated under 
holding companies with numerous affiliates that, in some cases, have 
only a limited and indirect connection to the registered national 
securities exchange, with no ability to influence the management or 
policies of the registered exchange and no obligation to fund, or to 
materially affect the funding of, the registered exchange. The 
Commission believes that, for these affiliated entities, the 
information required under Exhibits C and D would have limited 
relevance to the Commission's review of an application for exchange 
registration or to its oversight of a registered exchange.
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    \25\ See Regulation ATS Adopting Release, note 8, supra.
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    Based on the Applicants' representations, the indirect nature of 
the relationship between the Applicants and the Foreign Indirect 
Affiliates, and the information that the Applicants will provide with 
respect to the Foreign Direct Affiliates and the Foreign Indirect 
Affiliates, the Commission believes that it will have sufficient 
information to review the Applicants' Form 1 applications and to make 
the determinations required under Sections 6(b) and 19(a) of the 
Exchange Act with respect to their applications for registration as 
national securities exchanges.\26\ The Commission believes, further, 
that it would have the information necessary to oversee the Applicants' 
activities as national securities exchanges if the Commission approves 
the Applicants' Form 1 applications. In particular, the Commission 
notes that the Applicants have represented that they have no direct 
connection to the Foreign Indirect Affiliates, that the Foreign 
Indirect Affiliates have no ability to influence the management or 
policies of the Applicants, and that the Foreign Indirect Affiliates 
have no obligation to fund, or ability to materially affect the funding 
of, the Applicants. In addition, the Commission notes that the 
Applicants represented that: (1) The Foreign Indirect Affiliates have 
no ownership interest in the Applicants or

[[Page 47831]]

in any of the controlling shareholders of the Applicants; and (2) there 
are no commercial dealings between the Applicants and the Foreign 
Indirect Affiliates.\27\ The Commission also believes that, based on 
the Applicants' representations, it could be burdensome for the 
Applicants to obtain detailed corporate and financial information with 
respect to the Foreign Indirect Affiliates because these affiliates are 
located in foreign jurisdictions and the disclosure of such information 
could implicate foreign information sharing restrictions in such 
jurisdictions.\28\ Given the limited and indirect relationship between 
the Applicants and the Foreign Indirect Affiliates and the location of 
the Foreign Indirect Affiliates in foreign jurisdictions, as described 
above, the Commission believes that the detailed corporate and 
financial information required in Exhibits C and D with respect to the 
Foreign Indirect Affiliates is unnecessary for the Commission's review 
of the Applicants' Form 1 applications and would be unnecessary for the 
Commission's oversight of the Applicants as registered national 
securities exchanges following any Commission approval of their Form 1 
applications.
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    \26\ 15 U.S.C. 78f(b) and 78s(a). Section 6(b) of the Exchange 
Act enumerates certain determinations that the Commission must make 
with respect to an exchange before registering the exchange as a 
national securities exchange. The Commission will not register an 
exchange as a national securities exchange unless it is satisfied 
that the exchange meets these requirements. See Regulation ATS 
Adopting Release, supra note 8, at IV.B.
    \27\ See Exemption Request, supra note 3, at 3.
    \28\ See id.
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    For the reasons discussed above, the Commission finds that the 
conditional exemptive relief requested by the Applicants is appropriate 
in the public interest and is consistent with the protection of 
investors.
    It is ordered, pursuant to Section 36 of the Exchange Act,\29\ and 
subject to the conditions described above, that the Applicants are 
exempt from the requirements to: (1) Include in their Form 1 
applications the information required in Exhibits C and D to Form 1 
with respect to the Foreign Indirect Affiliates; and (2) with respect 
to the Foreign Indirect Affiliates, update the information in Exhibits 
C and D to Form 1 as required by Exchange Act Rules 6a-2(a)(2), 6a-
2(b)(1), and 6a-2(c).
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    \29\ 15 U.S.C. 78mm.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-22346 Filed 9-16-09; 8:45 am]
BILLING CODE 8010-01-P