[Federal Register Volume 82, Number 199 (Tuesday, October 17, 2017)]
[Notices]
[Pages 48289-48296]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-22387]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81849; File No. SR-BatsBYX-2017-19; SR-BatsBZX-2017-55; 
SR-BatsEDGA-2017-22; SR-BatsEDGX-2017-35]


Self-Regulatory Organizations; Bats BYX Exchange, Inc.; Bats BZX 
Exchange, Inc.; Bats EDGA Exchange, Inc.; Bats EDGX Exchange, Inc.; 
Order Granting Approval of Proposed Rule Changes, as Modified by 
Amendments No. 1, To Harmonize the Corporate Governance Framework of 
Each Exchange With That of Chicago Board Options Exchange, Incorporated 
and C2 Options Exchange, Incorporated

October 11, 2017.

I. Introduction

    On August 23, 2017, each of Bats BYX Exchange, Inc. (``BYX''), Bats 
BZX Exchange, Inc. (``BZX''), Bats EDGA Exchange, Inc. (``EDGA''), and 
Bats EDGX Exchange, Inc. (``EDGX'') (each, an ``Exchange'' and 
collectively, ``Exchanges'') 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 align its corporate governance 
framework to the structure of other U.S. securities exchanges owned by 
its ultimate parent company, CBOE Holdings, Inc. (``CBOE Holdings''). 
On August 25, 2017, each of BYX, BZX, EDGA, and EDGX filed Amendment 
No. 1 to its respective proposed rule change. The proposed rule 
changes, as modified by Amendments No. 1, were published for comment in 
the Federal Register on September 6, 2017.\3\ The Commission received 
no comments on the proposed rule changes. This order grants approval of 
the proposed rule changes, each as modified by its respective Amendment 
No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release Nos. 81498 (August 30, 
2017), 82 FR 42127 (September 6, 2017) (``BYX Notice''); 81497 
(August 30, 2017), 82 FR 42181 (September 6, 2017) (``BZX Notice''); 
81496 (August 30, 2017), 82 FR 42206 (September 6, 2017) (``EDGA 
Notice''); and 81503 (August 30, 2017), 82 FR 42153 (September 6, 
2017) (``EDGX Notice,'' and together with the BYX Notice, BZX 
Notice, and EDGA Notice, ``Notices'').
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II. Background

    On December 16, 2016, the Commission approved proposed rule changes 
relating to a corporate transaction (``Transaction'') in which CBOE 
Holdings became the ultimate

[[Page 48290]]

parent of BYX, BZX, EDGA, and EDGX.\4\ CBOE Holdings is also the parent 
of Chicago Board Options Exchange, Incorporated (``CBOE'') and C2 
Options Exchange, Incorporated (``C2''). In connection with the 
Transaction, each of BYX, BZX, EDGA, and EDGX proposes to amend and 
restate its certificate of incorporation and bylaws \5\ to conform to 
the certificates of incorporation and bylaws of CBOE and C2.\6\ In 
addition, each Exchange proposes to amend its rules to reflect the 
Proposed Bylaws, as well as to address regulatory revenues in the rules 
(rather than the bylaws), similar to the treatment of this provision by 
CBOE.\7\
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    \4\ See Securities Exchange Act Release No. 79585 (December 16, 
2016), 81 FR 93988 (December 22, 2016) (SR-BatsBZX-2016-68; SR-
BatsBYX-2016-29; SR-BatsEDGA-2016-24; SR-BatsEDGX-2016-60) 
(``Transaction Order'').
    \5\ See BYX Notice, 82 FR at 42128; BZX Notice, 82 FR at 42181-
82; EDGA Notice, 82 FR at 42206-07; EDGX Notice, 82 FR at 42154. 
Specifically, BYX proposes to replace the certificate of 
incorporation of BYX (``BYX Current Certificate'') in its entirety 
with the Amended and Restated Certificate of Incorporation of BYX 
(``BYX Proposed Certificate'') and to replace the Fifth Amended and 
Restated Bylaws of BYX (``BYX Current Bylaws'') in its entirety with 
the Sixth Amended and Restated Bylaws of BYX (``BYX Proposed 
Bylaws''). See BYX Notice, 82 FR at 42128. BZX proposes to replace 
the certificate of incorporation of BZX (``BZX Current 
Certificate'') in its entirety with the Amended and Restated 
Certificate of Incorporation of BZX (``BZX Proposed Certificate'') 
and to replace the Fifth Amended and Restated Bylaws of BZX (``BZX 
Current Bylaws'') in its entirety with the Sixth Amended and 
Restated Bylaws of BZX (``BZX Proposed Bylaws''). See BZX Notice, 82 
FR at 42181. EDGA proposes to replace the certificate of 
incorporation of EDGA (``EDGA Current Certificate'') in its entirety 
with the Second Amended and Restated Certificate of Incorporation of 
EDGA (``EDGA Proposed Certificate'') and to replace the Sixth 
Amended and Restated Bylaws of EDGA (``EDGA Current Bylaws'') in its 
entirety with the Seventh Amended and Restated Bylaws of EDGA 
(``EDGA Proposed Bylaws''). See EDGA Notice, 82 FR at 42207. EDGX 
proposes to replace the certificate of incorporation of EDGX (``EDGX 
Current Certificate,'' and together with the BYX Current 
Certificate, BZX Current Certificate, and EDGA Current Certificate, 
``Current Certificates'') in its entirety with the Second Amended 
and Restated Certificate of Incorporation of EDGX (``EDGX Proposed 
Certificate,'' and together with the BYX Proposed Certificate, BZX 
Proposed Certificate, and EDGA Proposed Certificate, ``Proposed 
Certificates'') and to replace the Sixth Amended and Restated Bylaws 
of EDGX (``EDGX Current Bylaws'' and together with the BYX Current 
Bylaws, BZX Current Bylaws, and EDGA Current Bylaws, ``Current 
Bylaws'') in its entirety with the Seventh Amended and Restated 
Bylaws of EDGX (``EDGX Proposed Bylaws,'' and together with the BYX 
Proposed Bylaws, BZX Proposed Bylaws, and EDGA Proposed Bylaws, 
``Proposed Bylaws''). See EDGX Notice, 82 FR at 42154.
    \6\ The current certificates of incorporation of CBOE and C2 are 
the Third Amended and Restated Certificate of Incorporation of CBOE 
and the Fourth Amended and Restated Certificate of C2, respectively 
(collectively, ``CBOE Certificate''), and the Eighth Amended and 
Restated Bylaws of CBOE and the Eighth Amended and Restated Bylaws 
of C2, respectively (collectively, ``CBOE Bylaws''). See Notices, 
supra note 3.
    \7\ See BYX Notice, 82 FR at 42139; BZX Notice, 82 FR at 42192-
93; EDGA Notice, 82 FR at 42218; EDGX Notice, 82 FR at 42165. For a 
further description of the proposed changes to the certificates of 
incorporation, bylaws, and rules of the Exchanges, see Notices, 
supra note 3.
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    Each Exchange represents that its Proposed Certificate and Proposed 
Bylaws reflect the expectation that the Exchange will be operated with 
a governance structure similar to that of CBOE and C2.\8\ Each Exchange 
states that aligning its governance documents with the governance 
documents of CBOE and C2 will preserve governance continuity across 
each of CBOE Holdings' six U.S. securities exchanges.\9\ Each Exchange 
further states that it will continue to be so organized and 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 Exchange's rules, as required by Section 6(b)(1) of 
the Act.\10\
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    \8\ See BYX Notice, 82 FR at 42128; BZX Notice, 82 FR at 42182; 
EDGA Notice, 82 FR at 42207; EDGX Notice, 82 FR at 42154.
    \9\ See BYX Notice, 82 FR at 42139; BZX Notice, 82 FR at 42193; 
EDGA Notice, 82 FR at 42218; EDGX Notice, 82 FR at 42165.
    \10\ See BYX Notice, 82 FR at 42139; BZX Notice, 82 FR at 42193; 
EDGA Notice, 82 FR at 42218; EDGX Notice, 82 FR at 42165.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
changes, as modified by Amendments No. 1, are consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\11\ In particular, the 
Commission finds that the proposed rule changes are consistent with 
Section 6(b)(1) of the Act,\12\ which requires a national securities 
exchange to be so organized and have the capacity 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 Commission also finds that the proposed rule changes are 
consistent with Section 6(b)(3) of the Act,\13\ which requires that the 
rules of a national securities exchange assure a fair representation of 
its members in the selection of its directors and the 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 Commission further finds 
that the proposed rule changes are consistent with Section 6(b)(5) of 
the Act,\14\ which requires, among other things, that the rules of a 
national securities exchange be 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, and 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.
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    \11\ In approving these proposed rule changes, the Commission 
has considered the proposed rules' impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \12\ 15 U.S.C. 78f(b)(1).
    \13\ 15 U.S.C. 78f(b)(3).
    \14\ 15 U.S.C. 78f(b)(5).
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    The Commission notes that the Proposed Certificates and Proposed 
Bylaws are substantially similar to the CBOE Certificate and CBOE 
Bylaws, with limited exceptions as discussed below. The Commission 
further notes that it received no comments on the proposed rule 
changes.

A. Ownership

    BYX's and BZX's Proposed Certificates each specify that Bats Global 
Markets Holdings, Inc. (``Bats Global Markets Holdings'') will be the 
sole owner of the common stock of the Exchange and that any sale, 
transfer, or assignment by Bats Global Markets Holdings of any shares 
of common stock of the Exchange will be subject to prior approval by 
the Commission pursuant to a rule filing.\15\ EDGA's and EDGX's 
Proposed Certificates each include a similar provision reflecting 
Direct Edge LLC (``Direct Edge'') as sole owner of the common stock of 
the Exchange and prohibiting any sale, transfer, or assignment by 
Direct Edge of the Exchange's common stock without prior approval by 
the Commission pursuant to a rule filing.\16\
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    \15\ See BYX Proposed Certificate, Article Fourth; BZX Proposed 
Certificate, Article Fourth.
    \16\ See EDGA Proposed Certificate, Article Fourth; EDGX 
Proposed Certificate, Article Fourth. Bats Global Markets Holdings 
and Direct Edge are each wholly-owned subsidiaries of CBOE V, LLC 
(``CBOE V'') and CBOE V is a wholly-owned subsidiary of CBOE 
Holdings. Any change in CBOE V's status as sole stockholder of Bats 
Global Markets Holdings or sole member of Direct Edge, or of CBOE 
Holdings' status a sole member of CBOE V, must be approved by the 
Commission pursuant to a rule filing. See Transaction Order, 81 FR 
at 93990.
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    The Commission believes that specifying the sole owner of each 
Exchange as either Bats Global Markets Holdings or Direct Edge and the

[[Page 48291]]

proposed restrictions on Bats Global Market Holdings and Direct Edge 
that prevent these entities from selling, transferring, or assigning 
their common stock in BYX and BZX, and EDGA and EDGX, respectively, 
without the Commission's approval, taken together with the voting 
restrictions and ownership limitations in the governing documents of 
CBOE Holdings and the restrictions on CBOE V previously approved by the 
Commission, are designed to minimize the potential that a person could 
improperly interfere with, or restrict the ability of, the Commission 
or the Exchanges to effectively carry out their regulatory oversight 
responsibilities under the Act.\17\ The Commission also notes that the 
restrictions on transfer of ownership interest in the Exchanges will be 
similar to those currently in place.\18\ In this regard, the Commission 
believes that the proposed rule changes are consistent with Section 
6(b)(1) of the Act \19\ in particular, which requires that an exchange 
be organized and 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.
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    \17\ See Transaction Order, 81 FR at 93989-91. In addition to 
the restrictions on CBOE Holdings and CBOE V discussed above, see 
supra note 16, CBOE Holdings' governing documents place restrictions 
on the ability to own and vote shares of the capital stock of CBOE 
Holdings. Specifically, unless the CBOE Holdings Board of Directors 
waives such restrictions for a permissible reason, no person, alone 
or together with its related persons: (1) Shall be entitled to vote 
or cause the voting of shares of stock of CBOE Holdings to the 
extent that such shares represent more than 20% of the then 
outstanding votes entitled to be cast; (2) shall be party to any 
agreement, plan, or other arrangement under circumstances that would 
result in the shares of CBOE Holdings stock not being voted, or the 
withholding of any related proxy, where the effect of such 
agreement, plan, or other arrangement would be to enable any person, 
alone or together with its related persons, to vote, possess the 
right to vote, or cause the voting of shares of stock of CBOE 
Holdings that would exceed 20% of the then outstanding votes 
entitled to be cast; or (3) shall be permitted to beneficially own 
directly or indirectly shares of stock of CBOE Holdings representing 
more than 20% of the shares then outstanding. See Transaction Order, 
81 FR at 93989-90. See also Securities Exchange Act Release No. 
62158 (May 24, 2010), 75 FR 30082, 30084-85 (May 28, 2010) (SR-CBOE-
2008-88) (approving proposed rule change relating to demutualization 
of CBOE) (``CBOE Demutualization Order'').
    \18\ See BYX Current Bylaws, Article IV, Section 7; BZX Current 
Bylaws, Article IV, Section 7; EDGA Current Bylaws, Article IV, 
Section 7; and EDGX Current Bylaws, Article IV, Section 7 (providing 
that stockholder may not transfer or assign, in whole or in part, 
its ownership interest).
    \19\ 15 U.S.C. 78f(b)(1).
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B. Governance

    In connection with the proposal to adopt the Proposed Certificates 
and Proposed Bylaws, each Exchange is proposing to replace certain 
provisions pertaining to governance of the Exchange with related 
provisions that are based on provisions currently in the CBOE 
Certificate and CBOE Bylaws. For each Exchange, these changes include, 
among others, provisions governing: The composition of the Exchange's 
board of directors (``Board'' and each member of the Board, a 
``Director''); the process for nominating, electing, removing, and 
filling vacancies of Directors; the Board committee structure; the 
authorization to create an Advisory Board; and the regulatory 
independence of the Exchange.\20\
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    \20\ See BYX Notice, 82 FR at 42128-39; BZX Notice, 82 FR at 
42182-92; EDGA Notice, 82 FR at 42207-17; EDGX Notice, 82 FR at 
42154-65.
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1. Board of Directors
    Under the Proposed Bylaws, each Exchange's Board will consist of at 
least five Directors. Each Exchange's Board will determine, by 
resolution, the total number of Directors and the number of Non-
Industry Directors and Industry Directors, if any.\21\ The number of 
Non-Industry Directors will not constitute less than the number of 
Industry Directors, excluding the Chief Executive Officer from the 
calculation of Industry Directors for such purpose. At all times at 
least 20% of the Directors will be Representative Directors as 
nominated or otherwise selected through the Representative Director 
Nominating Body, and the Board will determine the number of 
Representative Directors that are Non-Industry Directors and Industry 
Directors, if any.\22\
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    \21\ Under the Proposed Bylaws, an ``Industry Director'' is 
defined, subject to limited exclusions, as any director who (i) is 
an Exchange Member or otherwise subject to regulation by the 
Exchange; (ii) is a broker-dealer or an officer, director or 
employee of a broker-dealer or has been in any such capacity within 
the prior three years; (iii) is, or was within the prior three 
years, associated with an entity that is affiliated with a broker-
dealer whose revenues account for a material portion of the 
consolidated revenues of the entities with which the broker-dealer 
is affiliated; (iv) has a material ownership interest in a broker-
dealer and has investments in broker-dealers that account for a 
material portion of the director's net worth; (v) has a consulting 
or employment relationship with or has provided professional 
services to the Exchange or any of its affiliates or has had such a 
relationship or has provided such services within the prior three 
years; or (vi) provides, or has provided within the prior three 
years, professional or consulting services to a broker-dealer, or to 
an entity with a 50% or greater ownership interest in a broker-
dealer whose revenues account for a material portion of the 
consolidated revenues of the entities with which the broker-dealer 
is affiliated, and the revenue from all such professional or 
consulting services accounts for a material portion of either the 
revenues received by the director or the revenues received by the 
director's firm or partnership. Under the Proposed Bylaws, a ``Non-
Industry Director'' is defined as a person who is not an Industry 
Director. At all times, at least one Non-Industry Director will be a 
Non-Industry Director exclusive of the exceptions provided and will 
have no material business relationship with a broker or dealer or 
the Exchange or any of its affiliates. See BYX Proposed Bylaws, 
Article III, Section 3.1; BZX Proposed Bylaws, Article III, Section 
3.1; EDGA Proposed Bylaws, Article III, Section 3.1; EDGX Proposed 
Bylaws, Article III, Section 3.1. ``Exchange Member'' will have the 
same meaning as the term ``Member'' in the rules of the Exchange. 
See BYX Proposed Bylaws, Article I, Section 1.1(f); BZX Proposed 
Bylaws, Article I, Section 1.1(f); EDGA Proposed Bylaws, Article I, 
Section 1.1(f); EDGX Proposed Bylaws, Article I, Section 1.1(f). The 
term ``Member'' means any registered broker or dealer that has been 
admitted to membership in the Exchange. See BYX Rule 1.5(n); BZX 
Rule 1.5(n); EDGA Rule 1.5(n); EDGX Rule 1.5(n).
    \22\ See BYX Proposed Bylaws, Article III, Sections 3.1 and 3.2; 
BZX Proposed Bylaws, Article III, Sections 3.1 and 3.2; EDGA 
Proposed Bylaws, Article III, Sections 3.1 and 3.2; EDGX Proposed 
Bylaws, Article III, Sections 3.1 and 3.2. Under the Proposed 
Bylaws, a ``Representative Director'' is defined as a director 
recommended by the Representative Director Nominating Body. See BYX 
Proposed Bylaws, Article III, Section 3.2; BZX Proposed Bylaws, 
Article III, Section 3.2; EDGA Proposed Bylaws, Article III, Section 
3.2; EDGX Proposed Bylaws, Article III, Section 3.2. The 
``Representative Director Nominating Body'' is defined as either (i) 
the Industry-Director Subcommittee of the Nominating and Governance 
Committee if there are at least two Industry Directors on the 
Nominating and Governance Committee, or (ii) if the Nominating and 
Governance Committee has less than two Industry Directors, then the 
Representative Director Nominating Body shall mean the Exchange 
Member Subcommittee of the Advisory Board. See BYX Proposed Bylaws, 
Article I, Section 1.1(j); BZX Proposed Bylaws, Article I, Section 
1.1(j); EDGA Proposed Bylaws, Article I, Section 1.1(j); EDGX 
Proposed Bylaws, Article I, Section 1.1(j). Each Exchange represents 
that if there are less than two Industry Directors on the Nominating 
and Governance Committee, it would institute an Advisory Board, if 
not already established. See BYX Notice, 82 FR at 42130 n. 15; BZX 
Notice, 82 FR at 42184 n. 15; EDGA Notice, 82 FR at 42209 n. 15; 
EDGX Notice, 82 FR at 42156 n. 15. For a description of the proposed 
``Advisory Board,'' see infra notes 60-62 and accompanying text.
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    Directors will serve one-year terms ending on the annual meeting 
following the meeting at which such Directors were elected or at such 
time as their successors are elected or appointed and qualified, except 
in the event of earlier death, resignation, disqualification, or 
removal.\23\ The Board will be the sole judge of whether an Industry 
Director or Non-Industry Director fails to maintain the requisite 
qualifications, in which event the Director will be terminated. A 
Representative Director may only be removed for cause by a vote of the 
stockholders.\24\ A vacancy on the Board

[[Page 48292]]

may be filled by a vote of majority of the Directors then in office, or 
by the sole remaining Director, so long as the elected Director 
qualifies for the position. For vacancies of Representative Directors, 
the Representative Director Nominating Body will recommend an 
individual to be elected or provide a list of recommended individuals, 
and the position will be filled by the vote of a majority of the 
Directors.\25\
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    \23\ See BYX Proposed Bylaws, Article III, Section 3.1; BZX 
Proposed Bylaws, Article III, Section 3.1; EDGA Proposed Bylaws, 
Article III, Section 3.1; EDGX Proposed Bylaws, Article III, Section 
3.1.
    \24\ See BYX Proposed Bylaws, Article III, Section 3.4; BZX 
Proposed Bylaws, Article III, Section 3.4; EDGA Proposed Bylaws; 
Article III, Section 3.4; EDGX Proposed Bylaws, Article III, Section 
3.4.
    \25\ See BYX Proposed Bylaws, Article III, Section 3.5; BZX 
Proposed Bylaws, Article III, Section 3.5; EDGA Proposed Bylaws, 
Article III, Section 3.5; EDGX Proposed Bylaws, Article III, Section 
3.5.
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    The Representative Director Nominating Body will provide a 
mechanism for Exchange Members to provide input with respect to 
nominees for the Representative Directors. The Representative Director 
Nominating Body will issue a circular to Exchange Members identifying 
nominees selected by the Representative Director Nominating Body. 
Exchange Members may nominate alternative candidates for election to be 
Representative Directors by submitting a petition signed by individuals 
representing not less than 10% of the Exchange Members at the time, 
with a run-off election held if one or more valid petitions are 
received.\26\ In any run-off election, each Exchange Member will have 
one vote for each Representative Director position to be filled that 
year; provided, however, that no Exchange Member, either alone or 
together with its affiliates, may account for more than 20% of the 
votes cast for a candidate.\27\ Each Exchange's Nominating and 
Governance Committee will be bound to accept and nominate the 
Representative Director nominees recommended by the Representative 
Director Nominating Body or, in the case of a run-off election, the 
Representative Director nominees who receive the most votes.\28\ 
Subject to the specific provisions pertaining to nomination of 
Representative Directors and filling of vacancies, each Exchange's 
Nominating and Governance Committee will have the authority to nominate 
individuals for election as Directors.\29\
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    \26\ See BYX Proposed Bylaws, Article III, Section 3.2; BZX 
Proposed Bylaws, Article III, Section 3.2; EDGA Proposed Bylaws, 
Article III, Section 3.2; EDGX Proposed Bylaws, Article III, Section 
3.2.
    \27\ See BYX Proposed Bylaws, Article III, Section 3.2; BZX 
Proposed Bylaws, Article III, Section 3.2; EDGA Proposed Bylaws, 
Article III, Section 3.2; EDGX Proposed Bylaws, Article III, Section 
3.2. The CBOE Bylaws provide that in any run-off election for 
Representative Directors, a holder of a trading permit will have one 
vote with respect to each trading permit held by such trading permit 
holder for each Representative Director position to be filled. See 
CBOE Bylaws, Article III, Section 3.2. The Exchanges note that 
because no ``trading permit'' or similar concept exists on the 
Exchanges, the Proposed Bylaws provide instead that each Exchange 
Member shall have one vote for each Representative Director position 
to be filled. See BYX Notice, 82 FR at 42131 n. 16; BZX Notice, 82 
FR at 42184 n. 16; EDGA Notice, 82 FR at 42209 n. 16; EDGX Notice, 
82 FR at 42157 n.16. The Exchanges state that they do not believe 
this deviation from the CBOE Bylaws is significant and note that 
other Exchanges have similar practices. See BYX Notice, 82 FR at 
42131 n. 16; BZX Notice, 82 FR at 42184 n. 16; EDGA Notice, 82 FR at 
42209 n. 16; and EDGX Notice, 82 FR at 42157 n. 16 (citing Amended 
and Restated Bylaws of Miami International Securities Exchange, LLC, 
Article II, Section 2.4(f)).
    \28\ See BYX Proposed Bylaws, Article III, Section 3.1; BZX 
Proposed Bylaws, Article III, Section 3.1; EDGA Proposed Bylaws, 
Article III, Section 3.1; EDGX Proposed Bylaws, Article III, Section 
3.1.
    \29\ See BYX Proposed Bylaws, Article IV, Section 4.3; BZX 
Proposed Bylaws, Article IV, Section 4.3; EDGA Proposed Bylaws, 
Article IV, Section 4.3; EDGX Proposed Bylaws, Article IV, Section 
4.3.
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    The Commission believes that the proposed composition of each 
Exchange's Board satisfies the requirements in Section 6(b)(3) of the 
Act,\30\ which requires in part that one or more directors be 
representative of issuers and investors and not be associated with a 
member of the exchange, or with a broker or dealer.\31\ In particular, 
at least one Non-Industry Director would be a Non-Industry Director 
exclusive of any exceptions and would have no material business 
relationship with a broker or dealer or the Exchange or any of its 
affiliates. The Commission previously has stated that the inclusion of 
public, non-industry representatives on exchange oversight bodies is an 
important mechanism to support an exchange's ability to protect the 
public interest,\32\ and that they can help to ensure that no single 
group of market participants has the ability to systematically 
disadvantage others through the exchange governance process.\33\ As it 
has previously stated, the Commission believes that public directors 
can provide unique, unbiased perspectives, which should enhance the 
ability of each Exchange's Board to address issues in a non-
discriminatory fashion and foster the integrity of the Exchange.\34\
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    \30\ 15 U.S.C. 78f(b)(3).
    \31\ The Commission also notes that it previously found the 
composition requirements for the Boards of Directors of CBOE and C2, 
upon which the proposed requirements are based, to be consistent 
with the Act. See CBOE Demutualization Order, 75 FR at 30087-88; 
Securities Exchange Act Release Nos. 80523 (April 25, 2017), 82 FR 
20399, 20400 (May 1, 2017) (SR-CBOE-2017-017) (``CBOE 2017 Order''); 
80522 (April 25, 2017), 82 FR 20409, 20410 (May 1, 2017) (SR-C2-
2017-009) (``C2 2017 Order''); 68767 (January 30, 2013), 78 FR 8216, 
8217 (February 5, 2013) (SR-C2-2012-039); 68766 (January 30, 2013), 
78 FR 8203, 8204-05 (February 5, 2013) (SR-CBOE-2012-116); 65980 
(December 15, 2011), 76 FR 79252, 79253-54 (December 21, 2011) (SR-
CBOE-2011-099) (``CBOE December 2011 Order''); 65979 (December 15, 
2011), 76 FR 79239, 79241 (December 21, 2011) (SR-C2-2011-031) (``C2 
December 2011 Order''); 61152 (December 10, 2009), 74 FR 66699, 
66700-02 (December 16, 2009) (File No. 10-191) (granting the 
exchange registration of C2) (``C2 Exchange Order'').
    \32\ See, e.g., Securities Exchange Act Release No. 40760 
(December 8, 1998), 63 FR 70844, 70882 (December 22, 1998) (File No. 
S7-12-98) (Regulation of Exchanges and Alternative Trading Systems).
    \33\ See, e.g., Securities Exchange Act Release No. 68341 
(December 3, 2012), 77 FR 73065, 73067 (December 7, 2012) (File No. 
10-207) (granting the exchange registration of the Miami 
International Securities Exchange, LLC) (``MIAX Exchange Order'').
    \34\ See, e.g., Securities Exchange Act Release Nos. 62716 
(August 13, 2010), 75 FR 51295, 51298 (August 19, 2010) (File No. 
10-198) (granting the exchange registration of BATS Y-Exchange, 
Inc.); 53382 (February 27, 2006), 71 FR 11251, 11261 (March 6, 2006) 
(SR-NYSE-2005-77) (approving the New York Stock Exchange Inc.'s 
business combination with Archipelago Holdings, Inc.); 53128 
(January 13, 2006), 71 FR 3550, 3553 (January 23, 2006) (File No. 
10-131) (granting the exchange registration of The Nasdaq Stock 
Market, LLC) (``Nasdaq Exchange Order'').
---------------------------------------------------------------------------

    The Commission also believes that the proposed requirement that at 
least 20% of the Directors be Representative Directors, and the means 
by which they will be chosen by Exchange Members, is consistent with 
Section 6(b)(3) of the Act,\35\ because it provides for the fair 
representation of members in the selection of directors and the 
administration of each Exchange. Section 6(b)(3) of the Act requires 
that ``the rules of the exchange assure a 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.'' \36\ As the Commission previously has 
noted, this statutory requirement helps to ensure that members of each 
Exchange have a voice in the Exchange's use of its self-regulatory 
authority, and that each Exchange is administered in a way that is 
equitable to all those who trade on its market or through its 
facilities.\37\
---------------------------------------------------------------------------

    \35\ 15 U.S.C. 78f(b)(3).
    \36\ Id.
    \37\ See, e.g., Securities Exchange Act Release No. 81263 (July 
31, 2017), 82 FR 36497, 36501 (SR-ISE-2017-32) (approving proposed 
rule change to harmonize corporate governance framework of Nasdaq 
ISE, LLC with that of other exchanges owned by Nasdaq, Inc.) (``ISE 
Order''); MIAX Exchange Order, 77 FR at 73067; Nasdaq Exchange 
Order, 71 FR at 3553.
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2. Exchange Committees
    Under the Proposed Bylaws, each Exchange will establish certain 
committees that consist solely of Directors. These Board committees 
will include an Executive Committee, a Regulatory Oversight Committee, 
a Nominating and Governance Committee, and such other standing and

[[Page 48293]]

special committees as may be approved by the Board. In addition, each 
Exchange will have committees that are not comprised solely of 
Directors that may be provided for in the Exchange's bylaws or rules or 
created by the Board.\38\
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    \38\ See BYX Proposed Bylaws, Article IV, Section 4.1; BZX 
Proposed Bylaws, Article IV, Section 4.1; EDGA Proposed Bylaws, 
Article IV, Section 4.1; EDGX Proposed Bylaws, Article IV, Section 
4.1.
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    The Proposed Bylaws require that each Exchange maintain an 
Executive Committee.\39\ The Executive Committee will include the 
Chairman of the Board; the Chief Executive Officer, if a Director; the 
Lead Director,\40\ if any; at least one Representative Director; and 
such other number of Directors that the Board deems appropriate, 
provided that in no event shall the number of Non-Industry Directors 
constitute less than the number of Industry Directors, excluding the 
Chief Executive Officer from the calculation of Industry Directors for 
this purpose. Members of the Executive Committee, except for those 
specified above, will be recommended by the Nominating and Governance 
Committee for approval by the Board and committee members will not be 
subject to removal except by the Board. The Executive Committee will 
have and may exercise all the powers and authority of the Board in the 
management of the business and affairs of the Exchange, with limited 
exceptions.\41\
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    \39\ See BYX Notice, 82 FR at 42135; BZX Notice, 82 FR at 42188-
89; EDGA Notice, 82 FR at 42214; EDGX Notice, 82 FR at 42161. See 
also BYX Proposed Bylaws, Article IV, Sections 4.1 and 4.2; BZX 
Proposed Bylaws, Article IV, Sections 4.1 and 4.2; EDGA Proposed 
Bylaws, Article IV, Sections 4.1 and 4.2; EDGX Proposed Bylaws, 
Article IV, Sections 4.1 and 4.2.
    \40\ Under the Proposed Bylaws, the Board of each Exchange may 
appoint one of the Non-Industry Directors to serve as the Lead 
Director and perform such duties and possess such powers as the 
Board prescribes. See BYX Proposed Bylaws, Article III, Section 3.7; 
BZX Proposed Bylaws, Article III, Section 3.7; EDGA Proposed Bylaws, 
Article III, Section 3.7; EDGX Proposed Bylaws, Article III, Section 
3.7.
    \41\ See BYX Proposed Bylaws, Article IV, Section 4.2; BZX 
Proposed Bylaws, Article IV, Section 4.2; EDGA Proposed Bylaws, 
Article IV, Section 4.2; EDGX Proposed Bylaws, Article IV, Section 
4.2.
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    Each Exchange proposes to eliminate its current Nominating and 
Member Nominating Committees and prescribe that their duties be 
performed by its newly formed Nominating and Governance Committee.\42\ 
The Nominating and Governance Committee will consist of at least five 
Directors, with a majority of Directors that are Non-Industry 
Directors. Members of the committee will be recommended by the 
Nominating and Governance Committee for approval by the Board and will 
not be subject to removal except by the Board. The Nominating and 
Governance Committee will have the authority to nominate individuals 
for election as Directors and have such other duties or exercise such 
other authority as may be prescribed by resolution of the Board. If the 
Nominating and Governance Committee has two or more Industry Directors, 
there shall be an Industry-Director Subcommittee consisting of all such 
Directors, which will act as the Representative Director Nominating 
Body.\43\
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    \42\ See BYX Notice, 82 FR at 42135; BZX Notice, 82 FR at 42189; 
EDGA Notice, 82 FR at 42214; EDGX Notice, 82 FR at 42161.
    \43\ See BYX Proposed Bylaws, Article IV, Section 4.3; BZX 
Proposed Bylaws, Article IV, Section 4.3; EDGA Proposed Bylaws, 
Article IV, Section 4.3; EDGX Proposed Bylaws, Article IV, Section 
4.3. See also supra note 22.
---------------------------------------------------------------------------

    Each Exchange proposes to modify the required composition, 
appointment procedures, and duties of its Regulatory Oversight 
Committee.\44\ Under the Proposed Bylaws, the Regulatory Oversight 
Committee of each Exchange will consist of at least three Directors, 
all of whom will be Non-Industry Directors. Members of the Regulatory 
Oversight Committee will be recommended by the Non-Industry Directors 
on the Nominating and Governance Committee for approval by the Board 
and will not be subject to removal except by the Board. The Regulatory 
Oversight Committee will have such duties and exercise such authority 
as may be prescribed by resolution of the Board, bylaws, or Exchange 
rules.\45\
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    \44\ See BYX Notice, 82 FR at 42134-35; BZX Notice, 82 FR at 
42188; EDGA Notice, 82 FR at 42213; EDGX Notice, 82 FR at 42160-61.
    \45\ See BYX Proposed Bylaws, Article IV, Section 4.4; BZX 
Proposed Bylaws, Article IV, Section 4.4; EDGA Proposed Bylaws, 
Article IV, Section 4.4; EDGX Proposed Bylaws, Article IV, Section 
4.4. Unlike the Proposed Bylaws, the Current Bylaws explicitly 
delineate particular responsibilities of the Regulatory Oversight 
Committee. See BYX Current Bylaws, Article V, Section 6(c); BZX 
Current Bylaws, Article V, Section 6(c); EDGA Current Bylaws, 
Article V, Section 6(c); EDGX Current Bylaws, Article V, Section 
6(c). The Exchanges state that, under the Proposed Bylaws, the 
Regulatory Oversight Committee will continue to have the duties and 
authority delineated in the Current Bylaws, with the exception that 
the Regulatory Oversight Committee will no longer consult the Chief 
Executive Officer with respect to establishing the goals, assessing 
the performance, and fixing compensation of the Chief Regulatory 
Officer. The Exchanges state that this change is consistent with the 
Exchanges' desire to maintain the independence of the regulatory 
functions of the Exchanges. See BYX Notice, 82 FR at 42135; BZX 
Notice, 82 FR at 42188; EDGA Notice, 82 FR at 42213; EDGX Notice, 82 
FR at 42161. In addition, the Proposed Bylaws eliminate the 
requirement in the Current Bylaws that the Chief Regulatory Officer 
is a designated officer of the Exchange. See BYX Current Bylaws, 
Article VII, Section 9; BZX Current Bylaws, Article VII, Section 9; 
EDGA Current Bylaws, Article VII, Section 9; EDGX Current Bylaws, 
Article VII, Section 9. The Exchanges represent that notwithstanding 
the proposed elimination of this provision, the Exchange have no 
intention to eliminate the role of the Chief Regulatory Officer. See 
BYX Notice, 82 FR at 42137; BZX Notice, 82 FR at 42190; EDGA Notice, 
82 FR at 42215-16; EDGX Notice, 82 FR at 42163.
---------------------------------------------------------------------------

    Each Exchange proposes to eliminate its Compensation Committee. The 
Exchanges explain that the responsibilities of their Compensation 
Committees largely are duplicative of those of the Compensation 
Committee of their parent company, CBOE Holdings, other than to the 
extent that the Exchange Compensation Committees recommend the 
compensation of executive officers whose compensation is not already 
determined by the CBOE Holdings Compensation Committee.\46\ The 
Exchanges represent that currently, each of the executive officers 
whose compensation would need to be determined by the Exchange-level 
Compensation Committee are officers of both the Exchange and CBOE 
Holdings, but should compensation need to be determined in the future 
for any Exchange officer who is not also a CBOE Holdings officer, the 
Exchange Board or senior management will perform such action without 
the use of a compensation committee, as provided for in Article V, 
Section 5.11 of the Proposed Bylaws.\47\
---------------------------------------------------------------------------

    \46\ See BYX Notice, 82 FR at 42133; BZX Notice, 82 FR at 42187; 
EDGA Notice, 82 FR at 42212; EDGX Notice, 82 FR at 42159.
    \47\ See BYX Notice, 82 FR at 42133; BZX Notice, 82 FR at 42187; 
EDGA Notice, 82 FR at 42212; EDGX Notice, 82 FR at 42159.
---------------------------------------------------------------------------

    Each Exchange also proposes to eliminate its Audit Committee 
because the Audit Committees' functions are duplicative of the 
functions of the Audit Committee of CBOE Holdings. The Exchanges state 
that CBOE Holdings' Audit Committee is composed of at least three CBOE 
Holdings Directors, all of whom must be independent within the meaning 
given to that term in the CBOE Holdings Bylaws and Corporate Governance 
Guidelines and Rule 10A-3 under the Act.\48\ The Exchanges also state 
that the CBOE Holdings Audit Committee has broad authority to assist 
the CBOE Holdings Board in fulfilling its oversight responsibilities in 
assessing controls that mitigate the regulatory and operational risks 
associated with operating each Exchange and to assist the CBOE Holdings 
Board in discharging its responsibilities relating to, among other 
things, CBOE Holdings' financial statements and disclosure matters, 
internal controls, and oversight and risk management.\49\ The Exchanges

[[Page 48294]]

further state that CBOE Holdings' financial statements are prepared on 
a consolidated basis that includes the financial results of CBOE 
Holdings' subsidiaries, including each Exchange, and therefore the CBOE 
Holdings Audit Committee's purview necessarily includes each 
Exchange.\50\ Finally, the Exchanges note that despite the elimination 
of Exchange-level Audit Committees, unconsolidated financial statements 
of each Exchange will still be prepared for each fiscal year.\51\
---------------------------------------------------------------------------

    \48\ 17 CFR 240.10A-3.
    \49\ See BYX Notice, 82 FR at 42133-34; BZX Notice, 82 FR at 
42187; EDGA Notice, 82 FR at 42212-13; EDGX Notice, 82 FR at 42159-
60.
    \50\ See BYX Notice, 82 FR at 42134; BZX Notice, 82 FR at 42187; 
EDGA Notice, 82 FR at 42212; EDGX Notice, 82 FR at 42160.
    \51\ See BYX Notice, 82 FR at 42134; BZX Notice, 82 FR at 42187; 
EDGA Notice, 82 FR at 42212; EDGX Notice, 82 FR at 42160.
---------------------------------------------------------------------------

    Each Exchange proposes to eliminate its Appeals Committee, which is 
a Board-level committee that presides over all appeals related to 
disciplinary and adverse action determinations in accordance with 
Exchange rules. The Exchanges state that while they are proposing to 
eliminate the Appeals Committee as a specified Board-level committee, 
each Exchange would have the ability to appoint a Board-level or an 
Exchange-level Appeals Committee pursuant to Article IV, Section 4.1 of 
the Proposed Bylaws. According to the Exchanges, they would prefer not 
to have to maintain and staff a standing Appeals Committee, but rather 
would like to provide their Boards with the flexibility to determine 
whether to establish a Board-level or Exchange-level Appeals 
Committee.\52\ The Exchanges note that CBOE and C2 maintain an 
exchange-level Appeals Committee rather than a Board-level Appeals 
Committee and that other exchanges do not require standing Appeals 
Committees.\53\
---------------------------------------------------------------------------

    \52\ See BYX Notice, 82 FR at 42134; BZX Notice, 82 FR at 42188; 
EDGA Notice, 82 FR at 42213; EDGX Notice, 82 FR at 42160.
    \53\ See BYX Notice, 82 FR at 42134; BZX Notice, 82 FR at 42188; 
EDGA Notice, 82 FR at 42213; EDGX Notice, 82 FR at 42160. For 
example, BOX Options Exchange, LLC does not mandate an Appeals 
Committee under its bylaws or exchange rules. See bylaws of BOX 
Options Exchange, LLC; rules of BOX Options Exchange, LLC.
---------------------------------------------------------------------------

    Further, each Exchange proposes to eliminate a provision of its 
Current Bylaws that allows the Chairman, with approval of the Board, to 
appoint a Finance Committee to advise the Board with respect to the 
oversight of the financial operations and conditions of the 
Exchange.\54\ The Exchanges note that they do not currently maintain, 
and have no intention of establishing, Finance Committees and that CBOE 
and C2 do not have exchange-level Finance Committees. The Exchanges 
state that they will retain the authority, under Article IV, Section 
4.1 of the Proposed Bylaws, to establish a Finance Committee in the 
future if so desired.\55\
---------------------------------------------------------------------------

    \54\ See BYX Notice, 82 FR at 42134 (citing BYX Current Bylaws, 
Article V, Section 6(f)); BZX Notice, 82 FR at 42188 (citing BZX 
Current Bylaws, Article V, Section 6(f)); EDGA Notice, 82 FR at 
42213 (citing EDGA Current Bylaws, Article V, Section 6(f)); EDGX 
Notice, 82 FR at 42160 (citing EDGX Current Bylaws, Article V, 
Section 6(f)).
    \55\ See BYX Notice, 82 FR at 42134; BZX Notice, 82 FR at 42188; 
EDGA Notice, 82 FR at 42213; EDGX Notice, 82 FR at 42160.
---------------------------------------------------------------------------

    The Commission believes that each Exchange's proposed committees, 
which are similar to the committees maintained by CBOE and C2,\56\ are 
designed to help enable the Exchange to carry out its responsibilities 
under the Act and are consistent with the Act, including Section 
6(b)(1), which requires, in part, an exchange to be so organized and 
have the capacity to carry out the purposes of the Act.\57\ The 
Commission further believes that each Exchange's proposed committees, 
including their composition and the means by which committee members 
will be chosen, are consistent with Section 6(b)(3) of the Act because 
relevant committees provide for the fair representation of members in 
the administration of that Exchange's affairs.\58\
---------------------------------------------------------------------------

    \56\ See CBOE Bylaws, Article IV, Sections 4.1-4.4; C2 Bylaws, 
Article IV, Sections 4.1-4.4.
    \57\ 15 U.S.C. 78f(b)(1).
    \58\ See 15 U.S.C. 78f(b)(3).
---------------------------------------------------------------------------

    With respect to the proposal to eliminate each Exchange's 
Compensation Committee and Audit Committee, the Commission notes that 
this change is comparable to the governing structures of other 
exchanges, including CBOE and C2, which the Commission has previously 
approved.\59\ As more fully set forth in the Notices, the Exchanges 
state that their respective Compensation Committees' and Audit 
Committees' responsibilities largely are duplicative of those of the 
Compensation Committee and Audit Committee of CBOE Holdings. With 
respect to the proposal to eliminate each Exchange's Appeals Committee 
and the specific provision permitting a Finance Committee, the 
Commission notes that the Act does not require the Exchanges to 
maintain such committees and each Exchange will have the ability, under 
the Proposed Bylaws, to establish an Appeals Committee or Finance 
Committee in the future, if desired.
---------------------------------------------------------------------------

    \59\ See CBOE 2017 Order, 82 FR at 20400; C2 2017 Order, 82 FR 
at 20410; Securities Exchange Act Release Nos. 64127 (March 25, 
2011), 76 FR 17974, 17976 (March 31, 2011) (SR-CBOE-2011-010) 
(``CBOE March 2011 Order''); 64128 (March 25, 2011), 76 FR 17973, 
17974 (March 31, 2011) (SR-C2-2011-003) (``C2 March 2011 Order''); 
62304 (June 16, 2010), 75 FR 36136, 36137 (June 24, 2010) (SR-
NYSEArca-2010-31); 60276 (July 9, 2009), 74 FR 34840, 34841 (July 
17, 2009) (SR-NASDAQ-2009-042).
---------------------------------------------------------------------------

3. Advisory Board
    Each Exchange proposes to adopt Article VI, Section 6.1 of the 
Proposed Bylaws, which provides that the Board may establish an 
Advisory Board which will advise the Board and management regarding 
matters of interest to Exchange Members. If established, the Board 
would set the number of members of the Advisory Board, and at least two 
members would be Exchange Members or persons associated with Exchange 
Members. The Nominating and Governance Committee would recommend 
members of the Advisory Board for approval by the Board.\60\ Each 
Exchange states that it believes an Advisory Board could provide a 
vehicle for Exchange management to receive advice from the perspective 
of Exchange Members and regarding matters that impact Exchange 
Members.\61\ Each Exchange further explains that an Advisory Board 
would be completely advisory in nature and would not be vested with any 
Exchange decision-making authority or other authority to act on behalf 
of the Exchange. The Exchanges note that while under the CBOE Bylaws an 
Advisory Board is mandatory, the Exchanges would like the flexibility 
to determine if an Advisory Board should be established in the 
future.\62\
---------------------------------------------------------------------------

    \60\ See BYX Proposed Bylaws, Article VI, Section 6.1; BZX 
Proposed Bylaws, Article VI, Section 6.1; EDGA Proposed Bylaws, 
Article VI, Section 6.1; EDGX Proposed Bylaws, Article VI, Section 
6.1.
    \61\ See BYX Notice, 82 FR at 42136; BZX Notice, 82 FR at 42189; 
EDGA Notice, 82 FR at 42214; EDGX Notice, 82 FR at 42162.
    \62\ The Exchanges further note that there is no statutory 
requirement to maintain an Advisory Board and the Current Bylaws do 
not require the Exchanges to establish an Advisory Board. See BYX 
Notice, 82 FR at 42136; BZX Notice, 82 FR at 42189-90; EDGA Notice, 
82 FR at 42215; EDGX Notice, 82 FR at 42162.
---------------------------------------------------------------------------

    The Commission believes that each Exchange's proposal to authorize 
an Advisory Board to advise the Board and management with respect to 
matters of interest to Exchange Members is consistent with the Act. The 
Commission notes that the Advisory Board will be advisory in nature and 
will not be vested with decision-making authority or the authority to 
act on behalf of the Exchange. Nevertheless, if established, the 
Advisory Board could serve as a supplementary adjunct advisory body 
that can provide an additional forum for Exchange Members to be heard 
and provide input to Exchange management above and beyond the formal 
role played by Representative Directors, as discussed

[[Page 48295]]

above. The Commission further notes that the composition and function 
of the Advisory Board is the same as that for CBOE and C2, and that, 
while the CBOE Bylaws currently mandate the establishment of an 
Advisory Board, the Commission previously approved a proposal for a 
permissive Advisory Board by CBOE and C2.\63\
---------------------------------------------------------------------------

    \63\ See CBOE December 2011 Order, 76 FR at 79254; C2 December 
2011 Order, 76 FR at 79241-42; CBOE March 2011 Order, 76 FR at 
17976; C2 March 2011 Order, 76 FR at 17974.
---------------------------------------------------------------------------

4. Regulatory Independence
    The Proposed Certificates and Proposed Bylaws, as well as proposed 
Exchange rules, include provisions designed to help maintain the 
independence of the regulatory functions of each Exchange,\64\ which 
provisions are substantially similar to those included in the governing 
documents of other exchanges.\65\ Specifically:
---------------------------------------------------------------------------

    \64\ See BYX Notice, 82 FR at 42140; BZX Notice, 82 FR at 42193; 
EDGA Notice, 82 FR at 42218; EDGX Notice, 82 FR at 42166.
    \65\ See, e.g., ISE Order, 82 FR at 36503-05; CBOE 
Demutualization Order, 75 FR at 30089; C2 Exchange Order, 74 FR at 
66704-05.
---------------------------------------------------------------------------

     In discharging his or her responsibilities as a member of 
the Board, each Director shall take into consideration the effect that 
his or her actions would have on the ability of the Exchange to carry 
out the Exchange's responsibilities under the Act and on the ability of 
the Exchange: To engage in conduct that fosters and does not interfere 
with the Exchange's ability 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 mechanisms of a free and open market and a national market 
system; and, in general, to protect investors and the public interest. 
In discharging his or her responsibilities as a member of the Board or 
as an officer or employee of the Exchange, each Director, officer or 
employee shall comply with the federal securities laws and the rules 
and regulations thereunder and shall cooperate with the Commission, and 
the Exchange pursuant to its regulatory authority.\66\
---------------------------------------------------------------------------

    \66\ See BYX Proposed Certificate, Article Fifth(d); BZX 
Proposed Certificate, Article Fifth(d); EDGA Proposed Certificate, 
Article Fifth(d); EDGX Proposed Certificate, Article Fifth(d). The 
Exchanges note that this provision contains language similar to that 
in the Current Bylaws. See BYX Notice, 82 FR at 42128 and n. 4 
(citing BYX Current Bylaws, Article III, Sections 1(d) and (e)); BZX 
Notice, 82 FR at 42182 and n. 4 (citing BZX Current Bylaws, Article 
III, Sections 1(d) and (e)); EDGA Notice, 82 FR at 42207 and n. 4 
(citing EDGA Current Bylaws, Article III, Sections 1(d) and (e)); 
EDGX Notice, 82 FR at 42154 and n. 4 (citing EDGX Current Bylaws, 
Article III, Sections 1(d) and (e)).
---------------------------------------------------------------------------

     All confidential information pertaining to the self-
regulatory function of the Exchange (including but not limited to 
disciplinary matters, trading data, trading practices, and audit 
information) contained in the books and records of the Exchange shall: 
(1) Not be made available to any persons other than to those officers, 
Directors, employees, and agents of the Exchange that have a reasonable 
need to know the contents thereof; (2) be retained in confidence by the 
Exchange and its officers, Directors, employees, and agents; and (3) 
not be used for any commercial purposes.\67\
---------------------------------------------------------------------------

    \67\ See BYX Proposed Certificate, Article Eleventh; BZX 
Proposed Certificate, Article Eleventh; EDGA Proposed Certificate, 
Article Eleventh; EDGX Proposed Certificate, Article Eleventh. The 
Commission notes that, as is currently the case, the requirement to 
keep information confidential will not be interpreted as to limit or 
impede the rights of the Commission to access and examine such 
confidential information pursuant to the federal securities laws and 
the rules and regulations thereunder, or limit or impede the ability 
of any officers, Directors, employees, or agents of the Exchange to 
disclose such confidential information to the Commission. See BYX 
Proposed Certificate, Article Eleventh; BZX Proposed Certificate, 
Article Eleventh; EDGA Proposed Certificate, Article Eleventh; EDGX 
Proposed Certificate, Article Eleventh. See also BYX Current Bylaws, 
Article XI, Section 3; BZX Current Bylaws, Article XI, Section 3; 
EDGA Current Bylaws, Article XI, Section 3; EDGX Current Bylaws, 
Article XI, Section 3.
---------------------------------------------------------------------------

     Under the Proposed Bylaws, as is the case under the 
Current Bylaws, the books and records of each Exchange must be 
maintained in the United States.\68\
---------------------------------------------------------------------------

    \68\ See BYX Proposed Bylaws, Article VIII, Section 8.12; BZX 
Proposed Bylaws, Article VIII, Section 8.12; EDGA Proposed Bylaws, 
Article VIII, Section 8.12; EDGX Proposed Bylaws, Article VIII, 
Section 8.12. See also BYX Current Bylaws, Article XI, Section 3; 
BZX Current Bylaws, Article XI, Section 3; EDGA Current Bylaws, 
Article XI, Section 3; EDGX Current Bylaws, Article XI, Section 3. 
The Commission notes that such books and records would be subject to 
examination by the Commission pursuant to the federal securities 
laws and the rules and regulations thereunder.
---------------------------------------------------------------------------

     Under the Proposed Certificates and Proposed Bylaws, any 
amendments to those documents will not become effective until filed 
with, or filed with and approved by, the Commission, as required under 
Section 19 of the Act and the rules promulgated thereunder.\69\
---------------------------------------------------------------------------

    \69\ See BYX Proposed Certificate, Article Seventh; BZX Proposed 
Certificate, Article Seventh; EDGA Proposed Certificate, Article 
Seventh; EDGX Proposed Certificate, Article Seventh; BYX Proposed 
Bylaws, Article IX, Section 9.3; BZX Proposed Bylaws, Article IX, 
Section 9.3; EDGA Proposed Bylaws, Article IX, Section 9.3; EDGX 
Proposed Bylaws, Article IX, Section 9.3. The Commission notes that, 
although the Current Certificates and Current Bylaws do not include 
a similar, explicit requirement regarding the filing of amendments 
pursuant to Section 19 of the Act, the Current Certificates and 
Current Bylaws, as rules of the Exchange, are nonetheless subject to 
the requirements of Section 19 of the Act and the rules and 
regulations thereunder.
---------------------------------------------------------------------------

     Additionally, each Exchange proposes a rule that would 
prohibit the Exchange from using any revenues received by the Exchange 
from fees derived from its regulatory function or regulatory fines for 
non-regulatory purposes or to make distributions to the 
stockholder.\70\
---------------------------------------------------------------------------

    \70\ See proposed BYX Rule 15.2; proposed BZX Rule 15.2; 
proposed EDGA Rule 15.2; proposed EDGX Rule 15.2. The proposed rule 
further provides that such regulatory revenues will be applied to 
fund the legal and regulatory operations of the Exchange (including 
surveillance and enforcement activities), or, as the case may be, 
will be used to pay restitution and disgorgement of funds intended 
for customers (except in the event of liquidation of the Exchange, 
in which case Bats Global Markets Holdings, with respect to BYX and 
BZX, and Direct Edge, with respect to EDGA and EDGX, will be 
entitled to the distribution of the remaining assets of the 
Exchange). The Exchanges state that this provision is similar to a 
provision in the Current Bylaws and also to CBOE Rule 2.51, except 
that, unlike CBOE Rule 2.51, the proposed rule explicitly states 
that regulatory funds may not be distributed to the stockholder. See 
BYX Notice, 82 FR at 42138-39; BZX Notice, 82 FR at 42192; EDGA 
Notice, 82 FR at 42217; and EDGX Notice, 82 FR at 42164. See also 
BYX Current Bylaws, Article X, Section 4; BZX Current Bylaws Article 
X, Section 4; EDGA Current Bylaws, Article X, Section 4; EDGX 
Current Bylaws, Article X, Section 4.
---------------------------------------------------------------------------

    The Commission believes that the provisions discussed in this 
section, which are designed to help ensure the independence of each 
Exchange's regulatory function and facilitate the ability of each 
Exchange to carry out its responsibility and operate in a manner 
consistent with the Act, are appropriate and consistent with the 
requirements of the Act, particularly with Section 6(b)(1), which 
requires, in part, an exchange to be so organized and have the capacity 
to carry out the purposes of the Act.\71\
---------------------------------------------------------------------------

    \71\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------

    The Commission believes that the proposed provisions relating to 
the books and records of each Exchange are designed to maintain the 
independence of the Exchanges' self-regulatory function, and are 
consistent with the Act. The Commission notes that these provisions are 
substantially similar to those the Commission has previously found to 
be consistent with the Act in the context of the corporate governance 
structures of other exchanges.\72\ The Commission also notes that the 
governing documents of CBOE Holdings and CBOE V previously approved by 
the Commission provide that all books and records of the Exchanges 
reflecting confidential information pertaining to the self-regulatory 
function of the

[[Page 48296]]

Exchanges will be subject to confidentiality restrictions.\73\
---------------------------------------------------------------------------

    \72\ See, e.g., MIAX Exchange Order, 77 FR at 73071.
    \73\ See Transaction Order, 81 FR at 93991-92.
---------------------------------------------------------------------------

    The Commission finds that the proposed process regarding amendments 
to the Proposed Certificates and Proposed Bylaws is consistent with 
Section 6(b)(1) of the Act, because it reflects the obligation of the 
Board to ensure compliance with the rule filing requirements under the 
Act. Additionally, the Commission finds these changes to be consistent 
with Section 19(b)(1) of the Act and Rule 19b-4 thereunder,\74\ which 
require that a self-regulatory organization file with the Commission 
all proposed rules, as well as all proposed changes in, additions to, 
and deletions of its existing rules. These provisions clarify that 
amendments to the Proposed Certificates and Proposed Bylaws constitute 
proposed rule changes within the meaning of Section 19(b)(2) of the Act 
and Rule 19b-4 thereunder, and are subject to the filing requirements 
of Section 19 of the Act and the rules and regulations thereunder.
---------------------------------------------------------------------------

    \74\ 15 U.S.C. 78f(b)(1); 17 CFR 240.19b-4.
---------------------------------------------------------------------------

    The Commission also finds that the prohibition on the use of 
regulatory fees or fines to fund non-regulatory purposes or to make 
distributions to the stockholder is consistent with Section 6(b)(1) of 
the Act,\75\ because it is designed to further each Exchange's ability 
to effectively comply with its statutory obligations and is designed to 
ensure that the regulatory authority of the Exchange is not improperly 
used.\76\ This restriction on the use of regulatory funds is intended 
to preclude each Exchange from using its authority to raise regulatory 
funds for the purpose of benefiting its stockholder.\77\
---------------------------------------------------------------------------

    \75\ 15 U.S.C. 78f(b)(1).
    \76\ See, e.g., ISE Order, 82 FR at 36505 (approving a 
prohibition on the use of regulatory fines, fees, or penalties to 
pay dividends). See also CBOE Demutualization Order, 75 FR at 30089 
(approving CBOE Rule 2.51).
    \77\ See BYX Notice, 82 FR at 42138; BZX Notice, 82 FR at 42192; 
EDGA Notice, 82 FR at 42217; EDGX Notice, 82 FR at 42164.
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C. Related Rule Amendments

    Each Exchange proposes to amend its rules in conjunction with the 
changes in the Proposed Bylaws.\78\ Specifically, each Exchange 
proposes to update certain cross-references to the bylaws in its rules 
and to move certain definitions from the bylaws to the rules.\79\
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    \78\ See BYX Notice, 82 FR at 42139; BZX Notice, 82 FR at 42192-
93; EDGA Notice, 82 FR at 42218; EDGX Notice, 82 FR at 42165.
    \79\ See proposed BYX Rules 1.1, 2.10, and 8.6; proposed BZX 
Rules 1.1, 2.10, and 8.6; proposed EDGA Rules 1.1, 2.10, and 8.6; 
proposed EDGX Rules 1.1, 2.10, and 8.6. The Exchanges also propose 
to move the prohibition on the use of regulatory revenues for non-
regulatory purposes from the Current Bylaws to the rules. See supra 
note 70 and accompanying text.
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    The Commission finds that these proposed rule changes are 
consistent with the Act in that they are necessary to update cross-
references and certain defined terms in the rules and would assist 
Exchange Members and the public in understanding the Exchanges' rules.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\80\ that the proposed rule changes (SR-BatsBYX-2017-19; SR-
BatsBZX-2017-55; SR-BatsEDGA-2017-22; and SR-BatsEDGX-2017-35), each as 
modified by its respective Amendment No. 1, be, and hereby are, 
approved.
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    \80\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\81\
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    \81\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-22387 Filed 10-16-17; 8:45 am]
BILLING CODE 8011-01-P