[Federal Register Volume 76, Number 232 (Friday, December 2, 2011)]
[Notices]
[Pages 75577-75582]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-31001]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65843; File No. SR-CBOE-2011-107]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Incorporated; Notice of Filing of Proposed Rule Change Amending and 
Restating the CBSX Operating Agreement and Adopting Rule 2.50

November 28, 2011.
    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 28, 2011, the Chicago Board Options Exchange, 
Incorporated (the ``Exchange'' or ``CBOE'') filed with the Securities 
and Exchange Commission (the ``Commission'') the proposed rule change 
as described in Items I and II 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 proposes to amend and restate the Second Amended and

[[Page 75578]]

Restated Operating Agreement (``Operating Agreement'') of CBOE Stock 
Exchange, LLC (``CBSX'') and adopt new Rule 2.50 in connection with 
CBSX's proposed acquisition (the ``Transaction'') of the National Stock 
Exchange, Inc. (``NSX''). The text of the proposed rule change is 
available on the Exchange's Web site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the 
Secretary, the Commission's Public Reference Room, and on the 
Commission's Web site at http://www.sec.gov.

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 self-regulatory organization 
included statements concerning the purpose of and basis for the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
a. Transaction
    Currently, NSX is wholly and directly owned by NSX Holdings, Inc. 
(``NSX Holdings''). Under a Purchase Agreement (the ``Purchase 
Agreement'') dated September 28, 2011 by and between NSX, NSX Holdings 
and CBSX, CBSX will acquire all of the outstanding capital stock of NSX 
on the date of or after all conditions precedent to closing \3\ have 
been satisfied or waived, including approval by the Commission of this 
proposed rule change.
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    \3\ Conditions precedent to closing the Transaction are formal 
requirements set forth in the Purchase Agreement and include 
delivery of certain documents (such as officers' certificates, legal 
opinions, and agreements), compliance by each party with specified 
representations, warranties and covenants, and receipt of necessary 
approvals by each party.
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    Following the Transaction, NSX will be a wholly owned subsidiary of 
CBSX. NSX will remain a Delaware for-profit stock corporation, with the 
authority to issue 1,000 shares of common stock, 100 shares of which 
would be held by CBSX. At all times, all of the outstanding stock of 
NSX would be owned by CBSX. NSX would remain registered as a national 
securities exchange under Section 6 of the Act,\4\ and accordingly, NSX 
would remain a self-regulatory organization (``SRO'').\5\
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    \4\ 15 U.S.C. 78f.
    \5\ NSX would continue to adhere to the undertakings in the 
Order Instituting Administrative and Cease-and-Desist Proceedings 
Pursuant to Sections 19(h) and 21C of the Securities Exchange Act of 
1934, Making Findings, and Imposing Sanctions, including those 
related to a Regulatory Oversight Committee and the separation of 
the regulatory functions from the commercial interests of NSX. See 
Securities Exchange Act Release No. 51714 (May 19, 2005).
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    In 2007, the Commission approved the establishment of CBSX as a 
facility, as defined in Section 3(a)(2) of the Act,\6\ of CBOE.\7\ As 
the SRO for CBSX, CBOE has regulatory responsibility for the activities 
of CBSX. CBSX administers a fully automated trading platform for 
securities other than options (the ``Facility''). As a limited 
liability company, the governance structure and operating authority of 
CBSX are set forth in the Operating Agreement and the CBSX Certificate 
of Formation. In connection with the establishment of the Facility, 
CBOE adopted Rule 3.32 pertaining to ownership concentration and 
affiliation limitations.\8\
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    \6\ 15 U.S.C. 78c(a)(2).
    \7\ See Securities Exchange Act Release No. 55389 (March 2, 
2007), 72 FR 10575 (March 8, 2007) (SR-CBOE-2006-110) (the ``CBSX 
Approval Order''); see also Securities Exchange Act Release No. 
55172 (January 25, 2007), 72 FR 4745 (February 1, 2007) (SR-CBOE-
2006-110) (the ``CBSX Notice of Filing'').
    \8\ See CBSX Order Approval and CBSX Notice of Filing. CBOE Rule 
3.32(a) provides, in part:
    For as long as CBSX LLC operates as a facility of the Exchange, 
no Trading Permit Holder, either alone or together with its 
Affiliates, at any time, may own, directly or indirectly, of record 
or beneficially, an aggregate amount of Shares that would result in 
a greater than twenty percent (20%) Percentage Interest in CBSX LLC 
(the ``Concentration Limitation'').
    In addition, the Certificate of Incorporation of CBOE Holdings, 
Inc., the owner of CBOE (``CBOE Holdings''), provides that no person 
(either alone or together with its related persons) may beneficially 
own more than 20% of the total outstanding shares of CBOE Holdings 
stock. See Article Sixth (b) of the Amended and Restated Certificate 
of Incorporation of CBOE Holdings, Inc.; see also Securities 
Exchange Act Release No. 62158 (May 24, 2010), 75 FR 30082 (May 28, 
2010) (SR-CBOE-2008-88).
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    As a limited liability company, ownership of CBSX is represented by 
limited liability membership interests. The holders of such interests 
are referred to as ``Owners.'' CBOE is one of the Owners of CBSX and 
owns all outstanding ``Series A'' Voting Shares \9\ of CBSX, 
representing just under 50% of all outstanding shares of CBSX.\10\ The 
outstanding ``Series B'' Voting Shares of CBSX are held by nine broker-
dealers.
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    \9\ ``Voting Shares'' means those Shares entitled to vote on 
matters submitted to the Owners, which Voting Shares are held by the 
Voting Owners. See Section 2.1(a)(28) of the Operating Agreement.
    \10\ As noted in Section 3.2 of the Operating Agreement, it is 
the intention of the Owners that no other members of CBSX (other 
than Affiliates of CBOE) be owners of Series A Voting Shares, and 
that no additional Series A Voting Shares be authorized, created or 
issued for such purpose; provided however, that this provision is 
not intended to limit or restrict any rights of CBOE to transfer any 
of its Series A Voting Shares with the prior approval of the 
Commission as provided for in Article VI, including Section 6.14, of 
the Operating Agreement, or any other provision thereof, or any 
rights to be acquired by a transferee of those Shares as provided 
therein.
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    As provided in Section 8.9 of the Operating Agreement, the 
outstanding Series A Voting Shares, in the aggregate (and without being 
deemed to be a voting trust), are entitled to a number of votes equal 
to 50% of the total number of Voting Shares outstanding on each matter 
submitted to a vote of the Owners. Each outstanding Series B Voting 
Share is entitled to one vote on each matter submitted to a vote of the 
Owners.\11\
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    \11\ The Operating Agreement also creates a Series C Non-Voting 
Restricted Shares; however, these Shares are not entitled to vote on 
any matter submitted to a vote of the Owners, and there are 
currently no Series C shares outstanding. See Section 8.9 of the 
Operating Agreement.
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    The CBSX Approval Order and the CBSX Notice of Filing describe 
various characteristics of CBSX, including: the relationship between 
CBSX and CBOE; changes in control of CBSX; the regulatory jurisdiction 
of the Commission and CBOE over the controlling parties and the Owners; 
and the ownership and voting restrictions on Owners.\12\ These 
provisions, as contained in the Operating Agreement and applicable CBOE 
rules, will remain unchanged after the Transaction except as otherwise 
described below.
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    \12\ Section 6.12(a) of the Operating Agreement provides that no 
person (other than CBOE), either alone or together with its 
Affiliates, may directly or indirectly own an aggregate amount of 
Shares that would result in a greater than 20% Percentage Interest 
in CBSX (the ``Concentration Limitation''). In addition, Section 
8.10 provides that if an Owner of Series B Voting Shares that is 
also a CBOE member owns more than 20% of the outstanding Voting 
Shares (``Excess Shares''), alone or together with any Affiliate, 
such Owner will have no voting rights with respect to the Excess 
Shares.
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b. Proposed Rule Change
    In connection with the Transaction, CBOE proposes to amend and 
restate the Operating Agreement to be effective as of the closing of 
the Transaction. CBOE also proposes to adopt new Rule 2.50 regarding 
its policy with respect to NSX.
i. CBSX's Ownership of NSX
    The proposed rule change includes several amendments related to 
CBSX's ownership of NSX. These amendments address the fact that CBSX 
will become a holding company of NSX after the Transaction to the 
extent related to

[[Page 75579]]

CBSX's control of NSX and clarify CBSX's rights and responsibilities 
related to its role as a holding company of a registered national 
securities exchange (amendments related to such responsibilities are 
further discussed in Section (ii) below). For example, the proposed 
rule change amends Section 1.6 to provide that the Company's sole 
purposes (and any other lawful purposes related to those purposes) will 
be: (1) To act as a trading market for securities other than options as 
a facility of a registered national securities exchange and (2) to act 
as a holding company of NSX. The proposed rule change also amends 
several provisions to clarify that certain references to CBSX include 
its subsidiaries, including NSX.\13\
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    \13\ See, e.g., proposed Sections 1.6 and 9.15(a)(9) and (10) of 
the Operating Agreement.
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    In addition, the proposal amends Section 6.12 to provide that the 
Concentration Limitation described in that section does not apply to 
CBOE or CBOE Holdings, and to expand applicability of the Concentration 
Limitation to persons and their Related Persons \14\ rather than to 
persons and their Affiliates.\15\ The proposal also amends Section 
6.12(c) and (e) to impose on NSX equity trading permit holders the 
Concentration Limitation prohibitions described in those paragraphs, 
which are currently only imposed on CBOE Trading Permit Holders. The 
proposal makes similar amendments to Section 8.10 to expand 
applicability of the voting restriction described in that section to 
persons and their Related Persons and to provide that if any person, 
not just a CBOE Trading Permit Holder, exceeds the Concentration 
Limitation set forth in Section 6.12 of the Operating Agreement, then 
the Owner and its Related Persons will have no voting rights with 
respect to the shares in excess of such limitation unless it satisfies 
certain requirements set forth in proposed Section 8.10(b) through (d), 
which are similar to the requirements set forth in Section 6.12(b), (c) 
and (e). The proposed rule change also extends the applicability of the 
voting restriction in Section 8.10 to voting agreements, plans and 
arrangements.
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    \14\ Proposed Rule 2.1(a)(23) of the Operating Agreement defines 
``Related Person'' as (A) with respect to any person, all 
``affiliates'' as such term is defined in Rule 12b-2 of the Exchange 
Act); (B) any person associated with a member (as the phrase 
``person associated with a member'' is defined under Section 
3(a)(21) of the Exchange Act); (C) any two or more persons that have 
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 CBSX; (D) in the case of a person 
that is a company, corporation or similar entity, any executive 
officer (as defined under Rule 3b-7 of the Exchange Act) or director 
of such person and, in the case of a person that is a partnership or 
a limited liability company, any general partner, managing member of 
manager of such person, as applicable; (E) in the case of a person 
that is a natural person, any relative or spouse of such natural 
person, or any relative of such spouse who has the same home as such 
natural person or who is a director or officer of CBSX or any of 
CBSX's parents or subsidiaries; (F) in the case of a person that is 
an executive officer (as defined under Rule 3b-7 of the Exchange 
Act) or a director of a company, corporation or similar entity, such 
company, corporation or entity, as applicable; and (G) 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. Under this definition, 
Related Persons include Affiliates and thus extends the 
Concentration Limitation imposed by proposed Rule 6.12 to a broader 
group of persons.
    \15\ Rule 2.1(a)(1) of the Operating Agreement defines 
``Affiliate'' as, with respect to any person, any other person that 
directly, or indirectly through one or more intermediaries, 
controls, is controlled by, or is under common control with, such 
person. As used in this definition, ``control'' means the 
possession, directly or indirectly, of the power to direct or cause 
the direction of management and policies of a person, whether 
through the ownership of voting securities, by contract or otherwise 
with respect to such person.
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    The proposal also amends Section 9.15(a)(9) to clarify that with 
respect to a sale of material assets or ownership interests that 
requires approval pursuant to Section 9.15, ``material assets or 
ownership interests'' include subsidiaries of CBSX. In addition, the 
proposed rule change adds Section 15.19 to the Operating Agreement, 
which obligates CBSX, when voting as NSX's sole shareholder in an 
election of the NSX board of directors, to vote in favor of ETP Holder 
Directors (a certain class of directors defined in the NSX Bylaws) that 
were nominated in accordance with the procedures set forth in NSX's 
certificate of incorporation and bylaws.
ii. Self-Regulatory Function of NSX
    The proposed rule change adds various provisions designed to 
protect the independence of the self-regulatory function of NSX and to 
clarify NSX's jurisdiction with respect to CBSX, but only to the extent 
related to CBSX's control of NSX. For example, the proposed rule change 
adds Section 5.7(b), which, among other things:
     For so long as CBSX controls NSX, only to the extent 
related to the activities of NSX, requires CBSX Owners, board of 
directors, officers and employees to give due regard to the 
preservation of the independence of the self-regulatory function of NSX 
and to its obligations under the Act;
     Prohibits these persons from taking any actions that would 
interfere with the effectuation of any decisions by the NSX board of 
directors relating to NSX's regulatory functions, including 
disciplinary matters, or with NSX's ability to carry out its 
responsibilities under the Act; and
     Requires CBSX to comply with federal securities laws and 
the rules and regulations thereunder, and requires CBSX and its 
officers, directors, employees and agents to cooperate with the 
Commission and NSX pursuant to and to the extent of their regulatory 
authority.
    In addition, the proposed rule change amends Section 6.15 to 
clarify possession of CBSX's and its Owners' books and records by the 
Facility and NSX in connection with their oversight pursuant to the 
Act. The proposed rule change amends Section 6.15(a): \16\
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    \16\ Section 6.15(a) of the Operating Agreement currently 
provides: ``The Owners acknowledge that to the extent they are 
related to [CBSX's] activities, the books, records, premises, 
officers, directors, agents, and employees of the Owners shall be 
deemed to be the books, records, premises, officers, directors, 
agents, and employees of CBOE for the purpose of and subject to 
oversight pursuant to the Exchange Act.''
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     To clarify that the Owners acknowledge that the books, 
records, premises, officers, directors, agents, and employees of the 
Owners will be deemed to be the books, records, premises, officers, 
directors, agents, and employees of CBOE for the purpose of and subject 
to oversight pursuant to the Act, but only to the extent they are 
related to the Facility; and
     To add the provision that the Owners acknowledge that the 
books, records, premises, officers, directors, agents, and employees of 
the Owners will be deemed to be the books, records, premises, officers, 
directors, agents, and employees of NSX for the purpose of and subject 
to oversight pursuant to the Act, but only to the extent they are 
related to the activities of NSX.
    Similarly, the proposed rule change amends Section 6.15(b): \17\
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    \17\ Section 6.15(b) of the Operating Agreement currently 
provides: ``The books, records, premises, officers, directors, 
agents, and employees of [CBSX] shall be deemed to be the books, 
records, premises, officers, directors, agents, and employees of 
CBOE for the purpose of and subject to oversight pursuant to the 
Exchange Act.''
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     To clarify that the books, records, premises, officers, 
directors, agents, and employees of CBSX will be deemed to be the 
books, records, premises, officers, directors, agents, and employees of 
CBSX for the purpose of and subject to oversight pursuant to the Act, 
but only to the extent related to the Facility; and
     To add the provision that the books, records, premises, 
officers, directors, agents, and employees of CBSX will be deemed to be 
the books, records, premises, officers, directors, agents, and 
employees of NSX for the purpose of and subject to oversight pursuant 
to the

[[Page 75580]]

Act, but only to the extent related to the activities of NSX.\18\
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    \18\ CBSX's complete records and books of account must be 
subject at all times to inspection and examination by CBOE (to the 
extent related to the Facility), NSX (to the extent related to 
CBSX's control of NSX), and the Commission at no additional charge 
to CBOE, NSX and the Commission, as applicable. See proposed Section 
13.2 of the Operating Agreement.
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    The proposal also amends Section 6.15(c) to provide that CBSX and 
the Owners and their respective officers, directors, agents, and 
employees,\19\ irrevocably submit to the jurisdiction of the U.S. 
federal courts, the Commission, CBOE and NSX 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 Facility or the 
Company's control of NSX, as applicable.
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    \19\ Proposed Rule 6.15(c) (consent to jurisdiction) and (d) 
(consent in writing to applicability) also extend the requirements 
of these provisions to all agents and employees of the Company and 
its Owners, rather than only agents and employees whose principal 
place of business and residence is outside of the United States.
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    In addition, the proposed rule change amends Sections 9.15(c) and 
9.16 to provide that CBSX directors agree to comply with the federal 
securities laws and the rules and regulations thereunder, and to 
cooperate with the Commission, CBOE, and NSX pursuant to their 
regulatory authority, as applicable, and the provisions of the 
Operating Agreement. The proposal also amends Section 9.15(c) to 
provide that CBSX directors will take into consideration whether any 
actions taken or proposed to be taken as a director for or on behalf of 
CBSX, or any failure or refusal to act, would constitute interference 
with CBOE's or NSX's regulatory functions and responsibilities, as 
applicable, in violation of the Operating Agreement or the Act.\20\
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    \20\ Interference with respect to the Facility will be 
determined by the CBSX board designees of CBOE. See proposed Section 
9.15(c) of the Operating Agreement.
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    Additionally, the proposal amends Section 14.1(a) to provide that, 
for so long as CBSX controls NSX, before any amendment, alteration, or 
repeal of any provision of the Operating Agreement, to the extent 
related to CBSX's control of NSX, will be effective, such amendment, 
alteration, or repeal must be submitted to the NSX board of directors, 
and if CBOE and the NSX board of directors determine that such 
amendment, alteration, or repeal must be filed with or filed with and 
approved by the Commission, then such amendment, alteration, or repeal 
will not become effective until filed with or filed with and approved 
by the Commission, as the case may be. The proposal also adds a 10-day 
notice provision for any amendment, alteration, or repeal of the 
Operating Agreement made pursuant to Section 14.1(a) to provide CBOE 
and NSX with sufficient opportunity to review any potential regulatory 
impacts of such amendment, alteration, or repeal before it becomes 
effective.
    The proposal also amends Section 15.2 to provide that nothing in 
the Operating Agreement will be interpreted to limit or impede the 
rights of the Commission, CBOE, or NSX to access and examine any 
Confidential Information (as defined in the Operating Agreement) 
pursuant to the U.S. federal securities laws and the rules thereunder, 
or to limit or impede the ability of an Owner or an officer, director, 
agent, or employee of an Owner to disclose any Confidential Information 
to the Commission, CBOE, or NSX. Proposed Section 15.2 also provides 
that the obligation of Owners not to disclose Confidential Information 
described in that section does not apply to CBOE's or NSX's 
communications with the Commission with respect to the conduct of the 
Facility's business or NSX's business, respectively. In addition, the 
proposal amends the representation being made by Owners in Section 
15.17(a) with respect to the validity and enforceability of the 
Operating Agreement by excepting the requirement, as applicable to the 
Facility or NSX (with respect to CBSX's control of NSX), that the 
portions of the Operating Agreement that constitute rules of a facility 
of an exchange or rules of a self-regulatory organization, as 
applicable, be filed for public comment and approval by the Commission 
from that representation.
    The proposed rule change adds CBOE Rule 2.50 to further preserve 
the self-regulatory function of NSX. Rule 2.50 proposes a policy that 
CBOE, as a partial owner of CBSX, will not take any action related to 
NSX's activities that would interfere with NSX's efforts to carry out 
its self-regulatory obligations under the Act and the rules and 
regulations thereunder. Additionally, proposed Rule 2.50 provides that 
the Exchange will exercise its powers as a partial owner of CBSX to 
support the fulfillment by NSX of its self-regulatory obligations, 
including the appropriate allocation by NSX of such financial, 
technological, technical and personnel resources as may be necessary or 
appropriate for NSX to meet its obligations under the Exchange Act. 
While the Exchange is not a guarantor of NSX's compliance with the 
Exchange Act and will not be in a position to monitor the day-to-day 
operations of NSX, the purpose of proposed Rule 2.50(a) is to provide 
that the Exchange will, through CBSX and consistent with its 
relationship with CBSX, work with NSX to establish and maintain 
appropriate resources in connection with NSX's self-regulatory 
obligations, as well as to establish a framework by which NSX will 
affirmatively report deficiencies in fulfilling its self-regulatory 
obligations to the CBSX board of directors while taking action to 
remedy such deficiencies.
iii. Facility of CBOE
    The proposed rule change amends various provisions to clarify that 
the part of CBSX that constitutes the Facility is a facility of CBOE 
under the Act, while the part of CBSX that relates to its control of 
NSX will not be a facility of CBOE. For example, the proposal amends 
Section 1.7 to clarify that the Facility (and not CBSX to the extent it 
will act as a holding company for NSX) is a facility of CBOE under the 
Act, and therefore the Facility will be subject to self-regulation by 
CBOE and oversight by the Commission. The proposal also amends Section 
1.8 to clarify that only the Facility is a facility of CBOE.\21\
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    \21\ See also proposed Sections 6.2(e), 6.15(c) and (d), 9.2(d), 
9.15(a)(14) and 14.1(a) for additional such clarifications.
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iv. Additional Changes
    Finally, the proposed rule change makes several non-substantive 
technical and conforming changes throughout the Operating Agreement, 
including: Updating the name and date of the Operating Agreement; 
updating the current Owners and their current percentage interests and 
CBSX shares owned; \22\ replacing references to CBOE members with CBOE 
trading permit holders; \23\ updating the table of contents and section 
references; and adding new defined terms and renumbering the defined 
terms as necessary.\24\ In connection with the updates to reflect the 
current Owners, the proposed rule change amends the definition of 
``Super Majority of the Owners'' to mean, subject to the regulatory 
requirements described in Section 1.8 of the Operating Agreement, the 
affirmative vote of both (i) all of the Owners of the Series A Voting 
Shares at the time, and

[[Page 75581]]

(ii) Owners of the Series B Voting Shares who then retain ownership of 
Series B Voting Shares and represent at least a twenty (20%) percentage 
interest in CBSX, which more accurately corresponds to CBSX's current 
ownership structure.\25\
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    \22\ See proposed Section 3.2(d) of and signature page and 
Exhibit A to the Operating Agreement.
    \23\ See proposed Sections 6.12(c) and (e) and 8.10 of the 
Operating Agreement.
    \24\ See proposed Section 2.1 of the Operating Agreement.
    \25\ See proposed Rule 2.1(a)(26). This change is consistent 
with the original structure of CBSX under which a super majority 
could be obtained with an affirmative vote of CBOE and two initial 
owners, who all initially had ten (10%) percentage interests in 
CBSX.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6 of the Act \26\ and the rules and regulations thereunder and, 
in particular, the requirements of Section 6(b) of the Act.\27\ 
Specifically, the Exchange believes the amendments described in Item 
II(A)(1)(b)(iii), including amendments to Sections 1.7 and 1.8, that 
clarify the Facility is a facility of CBOE under the Act further the 
objective of Section 6(b)(1) of the Act because they ensure that CBOE 
will continue to have the necessary authority to perform its regulatory 
responsibilities with respect to the Facility under Section 6 of the 
Act. Additionally, this clarification of what constitutes the Facility 
ensures that CBSX, to the extent it controls NSX, is not part of the 
Facility and thus is not subject to CBOE's regulatory authority over 
the Facility, which the Exchange believes will preserve the 
independence of NSX's self-regulatory functions and allow NSX to 
fulfill its self-regulatory duties.
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    \26\ 15 U.S.C. 78f.
    \27\ 15 U.S.C. 78f(b).
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    The Exchange also believes that this proposed rule change furthers 
the objectives of Section 6(b)(5) of the Act,\28\ because the 
amendments summarized in this filing will ensure that CBSX and NSX 
continue to have governance and regulatory structures designed to 
promote just and equitable principles of trade, to prevent fraudulent 
and manipulative acts, to remove impediments to and to perfect the 
mechanism for a free and open market and a national market system, and, 
in general, to protect investors and the public interest. In 
particular, the amendments to Sections 6.12 and 8.10 described in Item 
II(A)(1)(b)(i) above extend certain ownership and voting restrictions 
to NSX equity trading permit holders in addition to CBOE trading permit 
holders to ensure that CBSX continues to promote equitable principles 
of trade by not allowing certain interested parties to have excessive 
influence over CBSX's activities.
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    \28\ 15 U.S.C. 78f(b)(5).
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    The addition of Section 5.7(b) (described in Item II(A)(1)(b)(ii) 
above) is intended to preserve the independence of NSX's self-
regulatory function and ensure that NSX is able to obtain any 
information it needs from the specified parties to detect and deter any 
fraudulent and manipulative acts in its marketplace and carry out its 
regulatory responsibilities under the Act. Similarly, the amendments to 
Section 6.15(a) and (b) (described in Item II(A)(1)(b)(ii) above) that 
clarify that CBSX's books and records with respect to the Facility and 
NSX's activities will be subject to the necessary oversight of the Act 
are consistent with Section 6(b)(5) of the Act, because they provide 
for the Commission, CBOE and NSX to have access to necessary 
information that will allow CBOE and NSX to efficiently and effectively 
enforce compliance with the Act and their respective rules, as well as 
allow the Commission to provide proper oversight, which will ultimately 
promote just and equitable principles of trade and protect investors. 
The amendment to Section 14.1(a) (described in Item II(A)(1)(b)(ii) 
above) is intended to make sure that NSX receives notice of any 
amendment to the Operating Agreement so that it can make any filings 
with the Commission necessary for NSX to fulfill its regulatory duties 
under the Act.
    The Exchange represents that it remains committed to its role as a 
national securities exchange and does not believe that the proposed 
changes to the Operating Agreement will undermine the Exchange's 
responsibilities for regulating the Facility. The proposed rule change 
provides transparency and clarity with respect to the governance of 
CBSX and the status of CBSX as both a facility of CBOE and a holding 
company of NSX. Additionally, the proposed rule changes are intended to 
protect and maintain the integrity of the self-regulatory functions of 
CBOE with respect to the Facility and of NSX, and to allow both CBOE 
and NSX to carry out their regulatory responsibilities under the Act.
    Moreover, the Exchange is not proposing any significant changes to 
CBSX's existing operational or trading structure in connection with the 
Transaction. Instead, the Exchange represents that the proposed rule 
change primarily consists of amendments to the Operating Agreement that 
will allow for CBSX's ownership of NSX, which are generally consistent 
with parallel provisions of governance documents of other companies 
that directly control SROs, which were previously approved by the 
Commission,\29\ and with the principles articulated by the 
Commission,\30\ while allowing CBOE to maintain its regulatory 
jurisdiction and authority over the Facility and NSX to remain an 
independent self-regulatory organization.
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    \29\ See Articles Sixth, Fifteenth, and Sixteenth of the Amended 
and Restated Certificate of Incorporation of CBOE Holdings, Inc.; 
see also Securities Exchange Act Release No. 62158 (May 24, 2010), 
75 FR 30082 (May 28, 2010) (SR-CBOE-2008-88) (order approving the 
Amended and Restated Certificate of Incorporation of CBOE Holdings 
in connection with the demutualization of CBOE).
    \30\ See Securities Exchange Act Release No. 50699 (November 18, 
2004), 69 FR 71126 (December 8, 2004) (File No. S7-39-04).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    CBOE does not believe that the proposed rule change will impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act.

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

    No written comments were solicited or received with respect to 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 up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the 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 [email protected]. Please include 
File

[[Page 75582]]

Number SR-CBOE-2011-107 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CBOE-2011-107. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing will also be available for 
inspection and copying at the Exchange's principal office. 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 publicly available. All 
submissions should refer to File Number SR-CBOE-2011-107 and should be 
submitted on or before December 23, 2011.
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    \31\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-31001 Filed 12-1-11; 8:45 am]
BILLING CODE 8011-01-P