[Federal Register Volume 82, Number 194 (Tuesday, October 10, 2017)]
[Notices]
[Pages 47055-47062]
[FR Doc No: 2017-21669]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81802; File No. SR-GEMX-2017-37]

Self-Regulatory Organizations; Nasdaq GEMX, LLC; Order Granting
Approval of a Proposed Rule Change, as Modified by Amendment No. 1
Thereto, To Adopt New Corporate Governance and Related Processes
Similar to Those of the Nasdaq Exchanges

October 3, 2017.

I. Introduction

    On August 7, 2017, Nasdaq GEMX, LLC (``GEMX'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ proposed rule changes to
its corporate governance documents and trading rules to align its
corporate governance framework to the structure of other exchanges
owned by its ultimate parent company, Nasdaq, Inc. The proposed rule
change was published for comment in the Federal Register on August 23,
2017.\3\ The Commission received no comments on the proposal. On
September 20, 2017, the Exchange filed Amendment No. 1 to the proposed
rule change.\4\ This order approves the proposed rule change, as
modified by 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 No. 81422 (August 17,
2017), 82 FR 40026 (``Notice'').
    \4\ In Amendment No. 1, the Exchange made a technical correction
to a typographical error in proposed By-Law Article III, Section
5(c). When the Exchange filed Amendment No. 1 with the Commission,
it also submitted Amendment No. 1 to the public comment file for SR-
GEMX-2017-37 (available at: https://www.sec.gov/comments/sr-gemx-2017-37/gemx201737.htm). Because Amendment No. 1 does not materially
alter the substance of the proposed rule change or raise unique or
novel regulatory issues, it is not subject to notice and comment.
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II. Background

    On June 21, 2016, the Commission approved a proposed rule change
relating to a corporate transaction in which Nasdaq, Inc. would become
the ultimate parent of GEMX (the ``Nasdaq Acquisition''), Nasdaq ISE,
LLC (``ISE''), and Nasdaq MRX, LLC (``MRX,'' and together with GEMX and
ISE, the ``ISE Exchanges'').\5\ On June 30, 2016, pursuant to this
transaction, Nasdaq, Inc. acquired all of the capital stock of U.S.
Exchange Holdings, Inc. (``Exchange Holdings''), and thereby became the
indirect, ultimate parent of the ISE Exchanges.\6\ Nasdaq, Inc. is also
the ultimate parent of NASDAQ BX, Inc. (``BX''), The NASDAQ Stock
Market LLC (``Nasdaq''), and NASDAQ PHLX LLC (``Phlx'' and, together
with Nasdaq and BX, the ``Nasdaq Exchanges'').\7\ The Commission notes
that the corporate governance documents of GEMX, specifically its
Second Amended and Restated Limited Liability Company Agreement
(``Current LLC Agreement'') and its Constitution (``Current
Constitution'' and, together with the Current LLC Agreement, the
``Current Governing Documents'') are rules of the Exchange, as are the
governing documents of GEMX's Upstream Owners,\8\ which include certain
provisions that are designed to maintain the independence of GEMX's
self-regulatory functions (as well as the self-regulatory functions of
the Upstream Owners' other self-regulatory subsidiaries, i.e., the
Nasdaq Exchanges).\9\
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    \5\ See Securities Exchange Act Release No. 78119 (June 21,
2016), 81 FR 41611 (June 27, 2016) (SR-ISE-2016-11; SR-ISEGemini-
2016-05; SR-ISEMercury-2016-10) (``Nasdaq Acquisition Order'')
(order approving Nasdaq, Inc.'s acquisition of ISE (f/k/a
International Securities Exchange, LLC), GEMX (f/k/a ISE Gemini,
LLC), and MRX (f/k/a ISE Mercury, LLC)).
    \6\ See Notice, supra note 3, at 40027 n.3. Exchange Holdings is
the sole owner of ISE Holdings, Inc. (``ISE Holdings,'' and together
with Exchange Holdings and Nasdaq, Inc., the ``Upstream Owners''),
which is the sole owner of 100% of the Exchange's limited liability
company interests. See id. at 40027; see also Nasdaq Acquisition
Order, supra note 5, at 41611. ISE Holdings is also the sole direct
owner of ISE and MRX. See Nasdaq Acquisition Order, supra note 5, at
41611.
    \7\ See Notice, supra note 3, at 40027. See also Nasdaq
Acquisition Order, supra note 5, at 41611. As a result of this
transaction, the ISE Exchanges and the Nasdaq Exchanges became
affiliates. See Nasdaq Acquisition Order, supra note 5, at 41611
n.8.
    \8\ See Nasdaq Acquisition Order, supra note 5, at 41612.
    \9\ See, e.g., Nasdaq Acquisition Order, supra note 5, at 41612-
13.
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    The Exchange intends to effect a merger with a newly-formed
Delaware limited liability company (``Merger'') under Nasdaq, Inc. that
would result in GEMX as the surviving entity with new corporate
governance documents. In connection with that Merger, the Exchange
proposes various changes to its corporate governance documents and
rules (``Rules'').\10\ Specifically, the Exchange proposes to: (1)
Delete the Exchange's Current LLC Agreement in its entirety and replace
it with the New LLC Agreement, which is based on the limited liability
company agreement of Nasdaq; \11\ (2) delete the Exchange's Current
Constitution in its entirety and replace it with the New By-Laws, which
are based on the by-laws of Nasdaq; \12\ and (3) amend certain of its
Rules to reflect the replacement of the Current Governing Documents
with the New Governing Documents.\13\
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    \10\ The Rules as proposed to be amended pursuant to the
proposed rule change are referred to herein as the ``New Rules.''
    \11\ See Notice, supra note 3, at 40027 n.5.
    \12\ Id.
    \13\ The Exchange's affiliates, ISE and MRX, have submitted
nearly identical proposed rule changes. The Commission approved the
ISE proposal, and the MRX proposal has been published for public
notice and comment. See Securities Exchange Act Release Nos. 81263
(July 31, 2017), 82 FR 36497 (August 4, 2017) (SR-ISE-2017-32)
(``ISE Governance Order'') and 81795 (October 2, 2017) (SR-MRX-2017-
18).
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    The Exchange represents that the proposed changes are designed to
align the Exchange's corporate governance framework with the existing
structure of the Nasdaq Exchanges, particularly as it relates to the
board and committee structure, nomination and election processes, and
related governance practices.\14\ The Exchange also represents that it
is not proposing any amendments to its ownership structure. The
Exchange does not propose any amendments to the governing documents of
its Upstream Owners.\15\ Thus, the provisions in the governing
documents of these entities, which were designed to maintain the
independence of GEMX's self-regulatory functions, would remain
unchanged. The Exchange also represents that it is not proposing any
amendments to its Rules at this time, other than minor clarifying
changes and technical amendments to reflect the changes to its
governing documents as described in more detail below.\16\ The Exchange
states that it intends to implement its proposed rule change no later
than by the end of the fourth quarter of 2017.\17\
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    \14\ See Notice, supra note 3, at 40027.
    \15\ See generally id.
    \16\ See id. at 40027 and 40041-42.
    \17\See id. at 40027. The Exchange also states that it will
alert its members in the form of a regulatory alert to provide
notification of the implementation date. Id.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 1, is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\18\ Specifically, as
discussed in more detail below, the Commission finds that the proposed
rule change is consistent with Sections 6(b)(1) and 6(b)(3) of the
Act,\19\ which require, among other things, that a

national securities exchange be so organized and have the capacity to
carry out the purposes of the Act, and to comply and enforce compliance
by its members and persons associated with its members, with the
provisions of the Act, the rules and regulation thereunder, and the
rules of the exchange, and assure the fair representation of its
members and persons associated with its members in the selection of its
directors and administration of its affairs, and provide that one of
more directors shall be representative of issuers and investors and not
be associated with a member of the exchange, broker, or dealer.
Further, the Commission finds that the proposed rule change is
consistent with Section 6(b)(5) of the Act,\20\ 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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    \18\ In approving these proposed rule changes, the Commission
has considered the proposed rules' impact on efficiency, competition
and capital formation. 15 U.S.C. 78c(f).
    \19\ 15 U.S.C. 78f(b)(1) and (b)(3).
    \20\ 15 U.S.C. 78f(b)(5).
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A. Ownership of the Exchange

    GEMX is currently structured as a Delaware limited liability
company (``Delaware LLC'') \21\ and, as discussed above, is a wholly-
owned subsidiary of ISE Holdings. ISE Holdings, in turn is a wholly-
owned subsidiary of Exchange Holdings, which is wholly-owned by Nasdaq,
Inc. Pursuant to the Current LLC Agreement, ISE Holdings is defined as
the Sole LLC Member.\22\ As the Sole LLC Member, ISE Holdings may
assign all (but not less than all) of its interest in the Exchange,
subject to prior approval by the Commission pursuant to the rule filing
procedures under Section 19 of the Act.\23\
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    \21\ See Current LLC Agreement.
    \22\ See id. The Current Constitution also defines ISE Holdings
as the Sole LLC Member of the Exchange and permits assignment of its
LLC interest as provided in the Current LLC Agreement. See Current
Constitution, Section 1.1.
    \23\ See Current LLC Agreement, Section 7.1.
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    Pursuant to the proposed rule change, GEMX will be merged with a
newly formed Delaware LLC, whereby GEMX will be the surviving entity,
governed by the New Governing Documents. ISE Holdings will continue to
be the direct owner of GEMX and will be defined as the ``Company
Member'' or ``Sole LLC Member'' in the New LLC Agreement and New By-
Laws.\24\ Additionally, pursuant to the New LLC Agreement, ISE Holdings
will not be permitted to assign, in whole or in part, its limited
liability company interest in the Exchange, unless such transfer or
assignment is filed with and approved by the Commission pursuant to the
rule filing procedures under Section 19 of the Act.\25\
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    \24\ See New LLC Agreement, Schedule A; and New By-Laws, Article
I(f).
    \25\ See New LLC Agreement, Section 20. Pursuant to Section 7.1
of the Current LLC Agreement, ISE Holdings may only assign all (but
not less than all) of its ownership interest, and any assignment of
ISE Holdings' interest in GEMX would similarly be subject to
approval by the Commission pursuant to the rule filing procedures
under Section 19 of the Act.
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    The Commission believes that the proposed restrictions on ISE
Holdings' assignment of its ownership interest in GEMX, taken together
with restrictions on voting and ownership limitations in the governing
documents of GEMX's Upstream Owners that were previously approved by
the Commission,\26\ are designed to minimize the potential that a
person could improperly interfere with, or restrict the ability of, the
Commission or GEMX to effectively carry out its regulatory oversight
responsibilities under the Act. The Commission also notes that the
restrictions on transfer of ownership interest in the Exchange will be
similar to those currently in place. In this regard, the Commission
believes the proposed rule change is consistent with Section 6(b)(1) of
the Act \27\ 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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    \26\ See Nasdaq Acquisition Order, supra note 5, at 41612-17
(discussing provisions, including voting and ownership limitations,
in the governing documents of Nasdaq, Inc. and other Upstream Owners
that are designed to maintain the independence of their self-
regulatory subsidiaries); Securities Exchange Act Release No. 53705
(April 21, 2006), 71 FR 25260, 25262-63 (April 28, 2006) (``ISE
HoldCo Order'') (order approving SR-ISE-2006-04) (discussing voting
and ownership limitations in the governing documents of ISE
Holdings); Securities Exchange Act Release No. 70050 (July 26,
2013), 78 FR 46622, 46622-23, 46625, 46627-29 (August 1, 2013)
(``GEMX Approval Order'') (granting GEMX's application for
registration as a national securities exchange and discussing the
provisions in the governing documents of ISE Holdings and other
Upstream Owners that are designed to preserve the self-regulatory
function of GEMX); and Securities Exchange Act Release No. 76998
(January 29, 2016), 81 FR 6066, 6067, 6069, 6071-73 (February 4,
2016) (``Mercury Exchange Approval'') (approving the registration of
ISE Mercury, LLC as a national securities exchange and discussing
the provisions in the governing documents of ISE Holdings and other
Upstream Owners that are designed to preserve the self-regulatory
function of the national securities exchanges they control, which
includes GEMX).
    \27\ 15 U.S.C. 78(b)(1).
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B. Governance of the Exchange

    The Exchange proposes to replace certain provisions pertaining to
governance of the Exchange with related provisions that are based on
provisions currently in the Nasdaq LLC Agreement and Nasdaq By-
Laws.\28\ These changes include, among others, provisions governing:
The composition of the Exchange's board of directors (``Board'' or
``Board of Directors,'' and each member of the Board of Directors a
``Director''); the process for nominating, electing, and removing
Directors; the filling of vacancies on the Exchange's Board; the
Exchange's board committee structure; and regulatory independence of
the Exchange.\29\
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    \28\ See Notice, supra note 3, at 40033-36.
    \29\ See id.
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1. Board of Directors: Powers and Composition
    Under the New Governing Documents, and consistent with the Current
LLC Agreement,\30\ the business and affairs of the Exchange will be
managed under the discretion of its Board, which will be vested with
the power to do any and all acts necessary or for the furtherance of
the purposes described in the New LLC Agreement, including fulfilling
the Exchange's self-regulatory responsibilities as set forth in the
Act.\31\ The new Board will also have the power to bind the Exchange
and delegate powers,\32\ as it does today.\33\
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    \30\ See Current LLC Agreement, Article II, Section 2.2 and
Article V, Sections 5.1 and 5.7; and Current Constitution, Article
III, Section 3.1.
    \31\ See New LLC Agreement, Sections 7, 8, and 9(a).
    \32\ See New LLC Agreement, Section 9(b).
    \33\ See Current LLC Agreement, Article II, Section 2.2; and
Current Constitution, Article V, Section 5.1.
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    ISE Holdings, as the Sole LLC Member, may determine at any time, in
its sole and absolute discretion, the number of Directors to constitute
the Board of Directors.\34\ However, at least 20% of the Directors must
be ``Member Representative Directors'' \35\ and the

number of ``Non-Industry Directors,'' including at least one ``Public
Director'' and at least one ``issuer representative'' (or if the Board
consists of ten or more Directors, at least two issuer
representatives), must equal or exceed the sum of the number of
Industry Directors and Member Representative Directors.\36\
Additionally, up to two Staff Directors may be elected to the
Board.\37\ A Director may not be subject to a statutory
disqualification.\38\ A Director will be removed upon a determination
by the Board, by a majority vote of the remaining Directors, that the
Director no longer satisfies the classification for which the Director
was elected and that the Director's continued service on the Board
would violate the board composition requirements.\39\
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    \34\ See New LLC Agreement, Section 9(a).
    \35\ See id. A ``Member Representative Director'' will be
defined as a Director who has been elected or appointed after having
been nominated by the Member Nominating Committee or by an Exchange
Member pursuant to the New By-Laws and may be, but is not required
to be, an officer, director, employee, or agent of an Exchange
Member. See New By-Laws, Article I(r).
    \36\ See New By-Laws, Article III, Section 2(a). A ``Non-
Industry Director'' will be defined as a Director (excluding an
officer of the Exchange serving as a Director (``Staff Director''))
who is (i) a Public Director; (ii) an officer, director, or employee
of an issuer of securities listed on the Exchange; or (iii) any
other individual who would not be an Industry Director. See New By-
Laws, Article I(w). A ``Public Director'' will be defined as a
Director who has no material business relationship with a broker or
dealer, the Exchange or its affiliates, or FINRA. See New By-Laws,
Article I(z). An ``Industry Director'' will be defined as a Director
with direct ties to the securities industry as a result of
connections to a broker-dealer, the Exchange or its affiliates,
FINRA, or certain service providers to such entities. See Notice,
supra note 3, at 40035 n.78. See also New By-Laws, Article I(m).
    \37\ See New By-Laws, Article I(m); see also Notice, supra note
3, at 40036 n.81 and accompanying text.
    \38\ See New By-Laws, Article III, Section 2(a).
    \39\ See New By-Laws, Article III, Section 2(b). If the
remaining term of office of a removed Director is not more than six
months, the Board will not be deemed to be in violation of the
Article III, Section 2(a) composition requirements during the
vacancy by virtue of such vacancy. See id.
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    As discussed in more detail below,\40\ the current Board was
elected at the Exchange's 2017 annual election of its Board (the ``2017
Annual Election,'' and such Board the ``2017 Board''), which was held
on June 19, 2017, pursuant to the Current Governing Documents. When the
New Governing Documents become operative, the 2017 Board will appoint a
Nominating Committee and a Member Nominating Committee.\41\ The Member
Nominating Committee will nominate candidates for each Member
Representative Director position on the Board,\42\ as well as nominate
candidates for appointment by the Board for each vacant or new position
on a committee that is to be filled with a ``Member Representative
member'' \43\ under the New By-Laws.\44\ If an Exchange Member \45\
submits a timely and duly executed written nomination to the Secretary
of the Exchange, additional candidates may be added to the List of
Candidates \46\ for the Member Representative Director positions.\47\
These candidates, together with candidates nominated by the Member
Nominating Committee, will then be presented to Exchange Members for
election.\48\ The Nominating Committee will nominate candidates for all
other vacant or new Director positions on the Board.\49\
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    \40\ See infra notes 61-64, 66-67, and accompanying text.
    \41\ See Notice, supra note 3, at 40037. The Nominating
Committee will consist of no fewer than six and no more than nine
members. The number of Non-Industry members on the Nominating
Committee shall equal or exceed the number of Industry members on
the Nominating Committee. If the Nominating Committee consists of
six members, at least two shall be Public members, and if the
Nominating Committee consists of seven or more members, at least
three shall be Public members. The Member Nominating Committee shall
consist of no fewer than three and no more than six members. All
members of the Member Nominating Committee shall be a current
associated person of a current Exchange Member, and the Board will
appoint such individuals after appropriate consultation with
representatives of Exchange Members. See New By-Laws, Article III,
Sections 6(b)(i) and (iii). See also Notice, supra note 3, at 40040
(discussing the compositional requirements for, and responsibilities
of, the Nominating Committee and Member Nominating Committee).
    An ``Industry member'' will be a member of any committee
appointed by the Board that is associated with a broker-dealer as
defined in the New By-Laws, Article I(n). A ``Non-Industry member''
will be defined as a member of any committee appointed by the Board
who is (i) a Public member; (ii) an officer or employee of an issuer
of securities listed on the Exchange; or (iii) any other individual
who would not be an Industry member. See New By-Laws, Article I(x).
A ``Public member'' will be defined as a member of any committee
appointed by the Board who has no material business relationship
with a broker or dealer, the Exchange or its affiliates, or FINRA.
See New By-Laws, Article I(aa).
    \42\ Pursuant to the New By-Laws, Member Representative
Directors shall be elected to the Board on an annual basis. See New
By-Laws, Article II, Section 1(a).
    \43\ Pursuant to the New By-Laws, a ``Member Representative
member'' will be defined as a member of any committee appointed by
the Board who has been elected or appointed after having been
nominated by the Member Nominating Committee pursuant to the By-
Laws. See New By-Laws, Article I(s). As discussed further below, the
required inclusion of such representatives on certain committees,
and the process by which they are to be selected, is designed to
comply with the fair representation requirements of Section 6(b)(3)
of the Act. See infra note 98 and accompanying text. See also
Notice, supra note 3, at 40034-35, 40042.
    The Exchange states that the new Member Nominating Committee is
responsible for: (i) The nomination for election of Member
Representative Directors to the Board and (ii) the nomination for
appointment of Member Representative members to the committees
requiring such members. See Notice, supra note 3, at 40040.
    \44\ See New By-Laws, Article III, Section 6(b).
    \45\ ``Exchange Member'' will be defined as any registered
broker or dealer that has been admitted to membership in the
national securities exchange operated by GEMX. See New By-Laws,
Article 1(u).
    \46\ ``List of Candidates'' will be defined as the list of
candidates for Member Representative Director positions to be
elected on an Election Date. See New By-Laws, Article 1(p).
    ``Election Date'' will be defined as a date selected by the
Board on an annual basis, on which Exchange Members may vote with
respect to Member Representative Directors in the event of a
Contested Election. See New By-Laws, Article 1(k). See also infra
note 48 for the definition of ``Contested Election.''
    \47\ See New By-Laws, Article II, Section 1(b). See also Notice,
supra note 3, at 40033.
    \48\ If there is only one candidate for each Member
Representative Director position to be elected on the annual
election date, the Member Representative Directors shall be elected
by ISE Holdings as the Sole LLC Member. If, as a result of the
nomination and petition process, there are more Member
Representative Directors candidates than the number of positions to
be elected, each Exchange Member shall have the right to cast one
vote for each Member Representative Director, and the candidates who
receive the most votes shall be elected to the Member Representative
Director positions. An Exchange Member, however, either alone or
together with its affiliates, may not cast votes representing more
than 20% of the votes cast for a candidate. See New By-Laws, Article
II, Section 1(c) and Section 2. See also New By-Laws, Article 1(g)
(defining ``Contested Election'' as an election for one or more
Member Representative Directors for which the number of candidates
on the List of Candidates exceeds the number of positions to be
elected).
    Under the Exchange's Current Governing Documents, at least 30%
of the directors on the Board are officers, directors, or partners
of Exchange members (currently, six directors), and are elected by a
plurality of the holders of Exchange Rights (the ``Industry
Directors,'' or, as referred to herein, ``Exchange Directors''), of
which at least one must be elected by holders of PMM Rights, one
must be elected by holders of CMM Rights, and one must be elected by
holders of EAM Rights; provided, however, that the number of each
type of Exchange Director will always be equal to one another. See
Notice, supra note 3, at 40029. See also Current Constitution,
Article III, Section 3.2. The Exchange states that this current
structure was adopted to comply with the fair representation
requirements of Section 6(b) of the Act. See Notice, supra note 3,
at 40029. Because they give members a voice in the Exchange's use of
its self-regulatory authority, the Exchange believes that Exchange
Directors serve the same function as Member Representative Directors
on the boards of the Nasdaq Exchanges. See id.
    The Exchange notes that the Commission has previously found the
Nasdaq LLC Agreement's (1) 20% Member Representative Director
requirement, and (2) election process, provide fair representation
of Nasdaq members, consistent with the requirements of Section 6(b)
of the Act. See Notice, supra note 3, at 40029 n.18 (citing
Securities Exchange Act Release No. 53128 (January 13, 2006), 71 FR
3550, 3553 (January 23, 2006) (``Nasdaq Exchange Order'') (granting
the exchange registration of Nasdaq Stock Market, Inc.). The
Commission notes that the Board compositional requirements and the
process for electing Member Representative Directors in the New
Governing Documents are based on the parallel requirements in the
Nasdaq LLC Agreement and are identical to those recently approved by
the Commission for ISE. See ISE Governance Order, supra note 13, at
36499-501.
    \49\ See New By-Laws, Article III, Section 6(b).
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    The Commission believes that the proposed composition of the
Exchange's Board satisfies the requirements in

Section 6(b)(3) of the Act,\50\ 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.\51\ 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,\52\ 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.\53\ As it
has previously stated, the Commission believes that public directors
can provide unbiased perspectives, which may enhance the ability of the
Board to address issues in a non-discriminatory fashion and foster the
integrity of the Exchange.\54\
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    \50\ 15 U.S.C. 78f(b)(3).
    \51\ The Commission also notes that it previously found the
compositional requirements for the board of directors of Nasdaq,
upon which GEMX's proposed requirements are based, to be consistent
with Act. See Nasdaq Exchange Order, supra note 48, at 3553. See
also ISE Governance Order, supra note 13, at 36500-01 (approving
identical requirements for ISE).
    \52\ See, e.g., Regulation of Exchanges and Alternative Trading
Systems, Securities Exchange Act Release No. 40760 (December 8,
1998), 63 FR 70844 (December 22, 1998).
    \53\ See, e.g., Securities Exchange Act Release No 68341
(December 3, 2012), 77 FR 73065, 73067 (December 7, 2012) (``MIAX
Exchange Order'') (granting the exchange registration of the Miami
International Securities Exchange LLC).
    \54\ See, e.g., Securities Exchange Act Release No. 53382
(February 27, 2006), 71 FR 11251, 11261 (March 6, 2006) (order
approving the New York Stock Exchange, Inc.'s business combination
with Archipelago Holdings, Inc.); Nasdaq Exchange Order, supra note
48, at 3553; and Securities Exchange Act Release No. 62716 (August
13, 2010), 75 FR 51295, 51298 (August 19, 2010) (approving the
application of BATS Y-Exchange, Inc. for registration as a national
securities exchange); and ISE Governance Order, supra note 13, at
36501.
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    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.''
\55\ The Commission also believes that the proposed requirement that at
least 20% of the Directors be Member Representative Directors, and the
means by which they will be chosen by Exchange Members, is consistent
with Section 6(b)(3) of the Act.\56\ As the Commission previously has
noted, this statutory requirement helps to ensure that members have a
voice in the Exchange's use of its self-regulatory authority, and that
the Exchange is administered in a way that is equitable to all those
persons who trade on its markets or through its facilities.\57\ In
addition, the Commission believes that the requirement that at least
one director be a Public Director and one an issuer representative
satisfies the requirements of Section 6(b)(3) of the Act.\58\
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    \55\ Id.
    \56\ 15 U.S.C. 78f(b)(3).
    \57\ See, e.g., Nasdaq Exchange Order, supra note 48; Securities
Exchange Act Release No. 58375 (August 18, 2008), 73 FR 49498
(August 21, 2008) (order granting the exchange registration of BATS
Exchange, Inc.); and ISE Governance Order, supra note 13, at 36501.
    \58\ 15 U.S.C. 78f(b)(3).
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2. Transition From Current Board Election Process to the New Election
Process
    In its filing, the Exchange states that, when it was acquired by
Nasdaq, Inc., there were a number of harmonizing changes to its Board
that resulted in a complete overlap of directors on the Boards of GEMX
and the Nasdaq Exchanges (the ``Post-Acquisition Board'').\59\ GEMX
also states its belief that the Post-Acquisition Board satisfied the
composition requirements contained in both the Current Constitution and
the New By-Laws.\60\ The Exchange states that the terms of the
Directors on the Post-Acquisition Board ended at the 2017 Annual
Election,\61\ and that all of the Directors on the 2017 Board are
Directors that served on the Post-Acquisition Board. The Exchange
believes that the 2017 Board satisfies both the board composition
requirements in the Current Governing Documents, as well as in the New
Governing Documents,\62\ and that once the New Governing Documents
become operative, no additional actions with respect to the 2017 Board
will be required under the Delaware Limited Liability Company Act.\63\
Pursuant to the proposal, the 2017 Board will serve until the
Exchange's first annual election of Directors in 2018 (``2018 Board'')
in accordance with the processes under the New Governing Documents.\64\
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    \59\ See Notice, supra note 3, at 40036.
    \60\ See id.
    \61\ The Exchange states that it held its 2017 Annual Election
on June 19, 2017, in accordance with the nomination, petition, and
voting processes set forth in the Current Governing Documents. See
id.
    \62\ The Commission notes that if the Board of Directors in
place at the time the New Governing Documents become effective does
not satisfy the requirements in the New Governing Documents, the
Exchange would need to comply with the procedures for removing
Directors and filling vacancies pursuant to the New Governing
Documents. See, e.g., supra notes 39, 42, and 47-49 and accompanying
text.
    \63\ See Notice, supra note 3, at 40036. As discussed above, the
Exchange proposes that, if approved, the New Governing Documents
would be made effective no later than by the end of the fourth
quarter of 2017. See id. at 40027; see also supra note 16 and
accompanying text.
    \64\ See Notice, supra note 3, at 40037.
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    The Commission believes the Exchange's proposal to allow the 2017
Board to continue serving until the 2018 Board would be elected
pursuant to the process in the New Governing Documents is consistent
with the Act, and in particular Section 6(b)(3) of the Act.\65\ The
Exchange states that, although the 2017 Board was not nominated or
voted upon in accordance with the New Governing Documents, it believes
that the composition of the 2017 Board is consistent with the Act, as
it still provides for the fair representation of members and has one or
more directors that are representative of issuers and investors and not
associated with a member of the exchange, broker, or dealer.
Specifically, the Exchange states that six Directors are officers,
directors, or partners of Exchange members, and were elected by a
plurality of the holders of ``Exchange Rights,'' as required by Section
3.2(b) of the Current Constitution.\66\ These Exchange Directors were
subject to the full petition and voting process by membership in
accordance with Articles II and III of the Current Constitution, which
process the Commission previously found to satisfy the requirements of
the Act.\67\ The Exchange believes that the Exchange Directors serve
the same function as the Member Representative Directors under the
proposed board structure, as both directorships give Exchange members a
voice in the Exchange's use of its self-

regulatory authority.\68\ The Exchange also notes that only its
corporate governance structure would change under the proposed rule
change, and that its membership has remained substantially the same
both before and after the 2017 Annual Election.\69\ Additionally, the
Commission notes that, under the Current Governing Documents, the 2017
Board is required to include one Director that is a ``Public
Director.'' \70\
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    \65\ See supra notes 50-58 and accompanying text (discussing the
requirements of Section 6(b)(3) and the Commission's belief that the
compositional requirements for the Board of Directors, and the
process for electing such Directors under the New Governing
Documents, are consistent with those requirements).
    \66\ See Notice, supra note 3, at 40029 and 40032-33 (discussing
the Exchange's current process for the nomination and election of
Directors, including the Exchange Directors). See also supra note
48.
    ``Exchange Rights'' currently means, collectively, PMM Rights,
CMM Rights, and EAM Rights, which are the trading and other rights
associated with the Exchange's three classes of membership. See Rule
100(a)(17); Current LLC Agreement, Article VI; and Current
Constitution, Section 13.1(n). See also Rules 100(a)(12),
100(a)(15), and 100(a)(36); and Current Constitution, Sections
13.1(f), 13.1(j), and 13.1(y). Under the New Rules, ``Exchange
Rights'' will be defined in New Rule 100(a)(20) as the PMM Rights,
CMM Rights, and EAM Rights, which will be defined in New Rules
100(a)(41), 100(a)(12), and 100(a)(16), respectively, and as
discussed further below. See infra Section III.C. (discussing
amendments to the Exchange's Rules).
    \67\ See Notice, supra note 3, at 40036; GEMX Approval Order,
supra note 26.
    \68\ See Notice, supra note 3, at 40036.
    \69\ See id.
    \70\ See Current Constitution, Section 3.2(b).
    Pursuant to the Exchange's Current Constitution, a ``Public
Director'' means a non-industry representative who has no material
relationship with a broker or dealer or any affiliate of a broker or
dealer or the Exchange or any affiliate of the Exchange. See Current
Constitution, Sections 3.2(b) and 13.1(z).
    The term ``non-industry representative'' means any person who
would not be considered an ``industry representative,'' as well as
(i) a person affiliated with a broker or dealer that operates solely
to assist the securities-related activities of the business of non-
member affiliates, or (ii) an employee of an entity that is
affiliated with a broker or dealer that does not account for a
material portion of the revenues of the consolidated entity, and who
is primarily engaged in the business of the non-member entity. See
Current Constitution, Section 13.1(u).
    The term ``industry representative'' means a person who is an
officer, director, or employee of a broker or dealer or who has been
employed in any such capacity at any time within the prior three (3)
years, as well as a person who has a consulting or employment
relationship with or has provided professional services to the
Exchange and a person who had any such relationship or provided any
such services to the Exchange at any time within the prior three (3)
years. See Current Constitution, Section 13.1(r).
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3. Committees of the Board
    Pursuant to the New By-Laws, the Exchange may establish committees
composed solely of Directors. Specifically, the Exchange may establish
an Executive Committee and a Finance Committee, and shall establish a
Regulatory Oversight Committee (``ROC'').\71\ The Exchange shall also
establish certain committees not composed solely of Directors.
Specifically, the Exchange shall establish a Nominating Committee and a
Member Nominating Committee, which would be elected on an annual basis
by ISE Holdings, as the Sole LLC Member,\72\ and a Quality of Markets
Committee (``QMC'').\73\ The New LLC Agreement will provide that, to
the extent provided in the resolution of the Board, any committee that
consists solely of one or more Directors shall have and may exercise
all the powers and the authority of the Board in the management of the
business and affairs of the Exchange.\74\ The powers of any such
committee would, however, be limited with respect to approving any
matters pertaining to the self-regulatory function of the Exchange or
relating to the structure of the market the Exchange regulates.\75\
---------------------------------------------------------------------------

    \71\ See New By-Laws, Article III, Section 5.
    The Exchange states that the proposed provisions relating to the
standing committees are substantially similar to the provisions in
Section 9(g) of the Nasdaq LLC Agreement with respect to standing
committees. See Notice, supra note 3, at 40030.
    \72\ See New By-Laws, Article III, Section 6(b). See also supra
note 41 (describing the compositional requirements of these
committees).
    The Board may also designate additional committees consisting of
one or more Directors or other persons. See New LLC Agreement,
Section 9(g).
    \73\ See New By-Laws, Article III, Section 6(c). See also infra
note 98 and accompanying text (describing the compositional
requirements of the QMC).
    \74\ See New LLC Agreement, Section 9(g)(v).
    \75\ See id. See also Notice, supra note 3, at 40031. The
Exchange notes that the proposed limitation is based on
substantially similar language in Section 5.2(ii) of MRX's
Constitution and is intended to assure the fair administration and
governance of the Exchange. The Exchange does not have this
limitation in Section 5.2 of its Current Constitution with respect
to any Board committees set up by Board resolution, and is therefore
proposing to follow the more current MRX standard. See Notice, supra
note 3, at 40031 n.35.
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    The Exchange proposes that the Executive Committee be an optional
committee, to be appointed only if deemed necessary by the Board.\76\
Because the Executive Committee will have the powers and authority of
the Board in the management of the business and affairs of the Exchange
between meetings of the Board, its composition must reflect that of the
Board. Accordingly, if established, the number of Non-Industry
Directors on the Executive Committee must equal or exceed the number of
Industry Directors and the percentages of Public Directors and Member
Representative Directors must be at least as great as the corresponding
percentages on the Board as a whole.\77\
---------------------------------------------------------------------------

    \76\ See New By-Laws, Article III, Section 5(a).
    \77\ See id.
---------------------------------------------------------------------------

    The Board would retain oversight of the financial operations of the
Exchange instead of delegating these functions to a standing committee,
but would have the option to appoint a Finance Committee at the Board's
discretion.\78\ The Finance Committee would advise the Board with
respect to the oversight of the financial operations and conditions of
the Exchange, including recommendations for the Exchange's annual
operating and capital budgets and proposed changes to the rates and
fees charged by the Exchange.
---------------------------------------------------------------------------

    \78\ See New By-Laws, Article III, Section 5(b).
---------------------------------------------------------------------------

    The Exchange proposes to eliminate its current Finance and Audit
Committee and to have the committee's functions performed by Nasdaq,
Inc.'s Audit Committee (``Nasdaq Audit Committee''), which is composed
of at least three directors of Nasdaq, Inc., all of whom must satisfy
the standards for independence set forth in Section 10A(m) of the Act
\79\ and Nasdaq's rules.\80\ The Exchange notes that the Nasdaq Audit
Committee has broad authority to review the financial information that
will be provided to shareholders of Nasdaq, Inc. and others; systems of
internal controls; and audit, financial reporting, and legal and
compliance processes.\81\ The Exchange states that, to the extent the
current Finance and Audit Committee oversees the Exchange's financial
reporting process, its activities are duplicative of the activities of
the Nasdaq Audit Committee, which is also charged with providing
oversight over financial reporting and independent auditor selection
for Nasdaq, Inc. and all of its subsidiaries.\82\ The Exchange also
notes that the unconsolidated financial statements of the Exchange will
still be prepared for each fiscal year.\83\
---------------------------------------------------------------------------

    \79\ See U.S.C. 78j-1(m).
    \80\ See Nasdaq, Inc. By-Laws, Section 4.13(g).
    The current Finance and Audit Committee must be composed of at
least three (3) and not more than five (5) directors, all of whom
must be non-industry representatives and must be ``financially
literate'' as determined by the Board. See Current Constitution,
Article V, Section 5.5.
    \81\ See Notice, supra note 3, at 40038.
    \82\ See id.
    \83\ See id. The Commission notes that registered national
securities exchanges have an ongoing requirement to comply with the
requirements of Form 1, which include filing audited financial
statements with the Commission on an annual basis. See Form 1,
General Instructions A.2 and Exhibit I, 17 CFR 249.1; and 17 CFR
240.6a-2(b)(1) (requiring a national securities exchange to file
each year, as an amendment to its Form 1, Exhibit I (which requires
a Form 1 applicant to file audited financial statements), as of the
latest fiscal year of the exchange).
---------------------------------------------------------------------------

    The Exchange will also have a Regulatory Oversight Committee
(``ROC'') under the New Governing Documents, which will have broad
authority to oversee the adequacy and effectiveness of the Exchange's
regulatory and self-regulatory responsibilities.\84\ The ROC will
consist of three members, each of whom must

be a Public Director and an ``independent director,'' as defined in
Nasdaq Rule 5605.\85\
---------------------------------------------------------------------------

    \84\ See New By-Laws, Article III, Section 5(c). Currently, the
Exchange's regulatory oversight activities are performed by the
Exchange's Corporate Governance Committee, which will not exist
under the new governance structure. See Notice, supra note 3, at
40039-40.
    The Exchange also states that regulatory oversight functions
formerly performed by the Finance and Audit Committee may be assumed
by the ROC, and that like the ROCs of the Nasdaq Exchanges, the GEMX
ROC, because of its broad authority to oversee the adequacy and
effectiveness of the Exchange's self-regulatory responsibilities,
will be able to maintain oversight over controls in tandem with the
Nasdaq Audit Committee's overall oversight responsibilities. See id.
at 40038.
    \85\ See New By-Laws, Article III, Section 5(c).
---------------------------------------------------------------------------

    Pursuant to the New By-Laws, the Exchange will also have a Chief
Regulatory Officer (``CRO''), as it does currently.\86\ The new CRO
will have general responsibility for the supervision of the regulatory
operations of the Exchange and will meet with the ROC in executive
session at regularly scheduled meetings of the ROC, and at any time
upon request of the CRO or any member of the ROC.\87\
---------------------------------------------------------------------------

    \86\ See Notice, supra note 3, at 40041 (noting that, although
not expressly in its Current Governing Documents, the position of
Chief Regulatory Officer has long existed at the Exchange). See also
New By-Laws, Article IV, Section 7.
    In addition to the CRO, pursuant to the New LLC Agreement, the
Exchange's officers will include: A Chief Executive Officer, a
President, Vice Presidents, a Chief Regulatory Officer, a Secretary,
an Assistant Secretary, a Treasurer, and an Assistant Treasurer. See
New By-Laws, Article IV, Sections 4-11.
    \87\ See New By-Laws, Article IV, Section 7. The CRO may also
serve as the General Counsel of the Exchange. Id.
---------------------------------------------------------------------------

    The ROC will assess the Exchange's regulatory performance, assist
the Board in reviewing the regulatory plan and the overall
effectiveness of the Exchange's regulatory functions, review the
Exchange's regulatory budget and inquire into the adequacy of resources
available in the budget for regulatory activities, and be informed
about the compensation and promotion or termination of the CRO.\88\
---------------------------------------------------------------------------

    \88\ See New By-Laws, Article III, Section 5(c).
---------------------------------------------------------------------------

    The Exchange also proposes that the Internal Audit Department of
Nasdaq, Inc. (``Nasdaq Internal Audit Department'') would report to the
Board on all Exchange-related internal audit matters and direct such
reports to the new ROC.\89\ In addition, to ensure that the Board
retains authority to direct the Nasdaq Internal Audit Department's
activities with respect to the Exchange, the Nasdaq Internal Audit
Department's written procedures will stipulate that the ROC may, at any
time, direct the Nasdaq Internal Audit Department to conduct an audit
of a matter of concern and report the results of the audit both to the
ROC and the Nasdaq Audit Committee.\90\
---------------------------------------------------------------------------

    \89\ See Notice, supra note 3, at 40039 & n.104 (citing the
Regulatory Oversight Committee Charter of Nasdaq, Phlx, and BX,
available at http://ir.nasdaq.com/corporate-governance-document.cfm?DocumentID=1097).
    \90\ See id. at 40039.
---------------------------------------------------------------------------

    The Exchange also proposes to eliminate its current Compensation
Committee and its Corporate Governance Committee.\91\ The Compensation
Committee is primarily charged with reviewing and approving
compensation policies and plans for the Chief Executive Officer and
other senior executive officers of the Exchange.\92\ Under the new
governance structure, the functions of the Compensation Committee will
be performed by Nasdaq, Inc.'s management compensation committee or, to
the extent that policies, programs, and practices must be established
for any Exchange officers or employees who are not also officers or
employees of Nasdaq, Inc., the full Board.\93\ The Corporate Governance
Committee is primarily charged with: (i) Nominating candidates for all
vacant or new non-industry representative positions on the Board, (ii)
overseeing the Exchange's regulatory activities and program, and (iii)
overseeing and evaluating the governance of the Exchange.\94\ Under the
new governance structure, the functions of the Corporate Governance
Committee will be performed by the new Nominating Committee, the new
ROC, or, if required, the full Board.\95\
---------------------------------------------------------------------------

    \91\ See id. at 40039-40.
    \92\ See id. at 40039. See also Current Constitution, Section
5.6.
    \93\ See Notice, supra note 3, at 40039.
    \94\ See id. See also Current Constitution, Section 5.4.
    \95\ See Notice, supra note 3, at 40039-40.
---------------------------------------------------------------------------

    As discussed above, the Nominating Committee and Member Nominating
Committee will have responsibility for, among other things, nominating
candidates for election to the Board. On an annual basis, the members
of these committees will nominate candidates for the succeeding year's
respective committees to be elected by ISE Holdings.\96\
---------------------------------------------------------------------------

    \96\ See New By-Laws, Article III, Section 6(b). See also supra
notes 42-49 and accompanying text. Additional candidates for the
Member Nominating Committee may be nominated and elected by Exchange
Members pursuant to a petition process. See supra notes 45-48 and
accompanying text.
    The Commission notes that under the New By-Laws, the Member
Nominating Committee shall nominate candidates for each Member
Representative Director position to be elected by Exchange Members
or the Sole LLC Member, and for appointment by the Board for each
vacant or new position on any committee that is to be filled with a
Member Representative member. See New By-Laws, Article III, Section
6.
---------------------------------------------------------------------------

    Finally, the Quality of Markets Committee (``QMC'') will have the
following functions: (i) To provide advice and guidance to the Board on
issues relating to the fairness, integrity, efficiency, and
competitiveness of the information, order handling, and execution
mechanisms of the Exchange from the perspective of investors, both
individual and institutional, retail firms, market making firms, and
other market participants; and (ii) to advise the Board with respect to
national market system plans and linkages between the facilities of the
Exchange and other markets.\97\ At least 20% of the QMC must be
composed of Member Representative members, and the Non-Industry members
on the QMC must equal or exceed the sum of Industry members and Member
Representative members.\98\
---------------------------------------------------------------------------

    \97\ See New By-Laws, Article III, Section 6(c)(i).
    \98\ See New By-Laws, Article III, Section 6(c)(ii). See also
Notice, supra note 3, at 40040.
    The Exchange also states that the function of Member
Representative members on committees is to provide members a voice
in the administration of the Exchange's affairs on certain
committees that are responsible for providing advice on any matters
pertaining to the Exchange's self-regulatory function or relating to
its market structure. See Notice, supra note 3, at 40034. In order
to ensure that its members have the opportunity to formally provide
input on matters that are important to them, the Exchange states
that at least 20% of the persons serving on any such committees will
be individuals who will have been appointed by the Member Nominating
Committee and will be representative of the Exchange's membership.
See id.
---------------------------------------------------------------------------

    The Commission believes that the Exchange's proposed committees,
which are similar to the committees maintained by other exchanges,\99\
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.\100\ The Commission further believes that
the 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 the Exchange's
affairs.\101\
---------------------------------------------------------------------------

    \99\ See, e.g., Nasdaq By-Laws Article III, Sections 5-6; BX By-
Laws, Article IV, Sections 4.13-14; Phlx By-Laws, Article V,
Sections 5-2 to -3; ISE By-Laws Article III, Sections 5-6.
    \100\ 15 U.S.C. 78f(b)(1).
    \101\ See 15 U.S.C. 78f(b)(3).
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4. Regulatory Independence
    Certain provisions in GEMX's Current Governing Documents, and those
of its Upstream Owners, are designed to help maintain the independence
of the regulatory functions of the Exchange.\102\ The New Governing
Documents similarly include provisions designed to help maintain the
independence of the regulatory functions of GEMX,\103\ which

provisions are substantially similar to those included in the governing
documents of other exchanges.\104\ Specifically:
---------------------------------------------------------------------------

    \102\ See, e.g., GEMX Approval Order, supra note 26, at 46627-
29, Nasdaq Acquisition Order, supra note 5, at 41613-16; Securities
Exchange Act Release No. 56955 (December 13, 2007), 72 FR 71979
(December 19, 2007) (SR-ISE-2007-101) (order approving acquisition
of ISE Holdings by Eurex Frankfurt); and ISE HoldCo Order, supra
note 26, at 25263-64.
    \103\ See Notice, supra note 3, at 40042. The Commission notes
that the Exchange did not propose any amendments to the governing
documents of its Upstream Owners.
    \104\ See, e.g., Nasdaq Exchange Order, supra note 48; MIAX
Exchange Order, supra note 53; Mercury Exchange Approval, supra note
26; ISE Governance Order, supra note 13.
---------------------------------------------------------------------------

     The Exchange Board will be required, when evaluating any
proposal, to take into account all factors that the Board deems
relevant, including, without limitation, (1) the potential impact on:
The integrity, continuity, and stability of the national securities
exchange operated by the Exchange and the other operations of the
Exchange; the ability to prevent fraudulent and manipulative acts and
practices; and investors and the public, and (2) whether such proposal
would promote just and equitable principles of trade, foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, or assist in the removal of
impediments to or the perfection of the mechanisms for a free and open
market and a national market system.\105\
---------------------------------------------------------------------------

    \105\ See New By-Laws, Article III, Section 3. See also Notice,
supra note 3, at 40037. Article III, Section 3 of the New By-Laws
sets forth the factors to be considered by the Board when evaluating
any proposal. See New By-Laws, Article III, Section 3. Further, the
Exchange states that Article III, Section 3 of the New By-Laws
recognizes the Exchange's status as a self-regulatory organization,
and the provisions of Section 3, taken together, are designed to
reinforce the notion that the Exchange is not solely a commercial
enterprise, but rather a self-regulatory organization registered
pursuant to, and subject to the obligations imposed by, the Act. See
Notice, supra note 3, at 40037.
---------------------------------------------------------------------------

     All books and records of GEMX reflecting 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) shall be retained in
confidence by GEMX and its officers, directors, employees and agents;
shall not be made available to persons other than to those officers,
directors, employees, and agents of GEMX that have a reasonable need to
know; and will not be used for any non-regulatory purpose.\106\
---------------------------------------------------------------------------

    \106\ The corresponding provision in GEMX's Current LLC
Agreement prohibits the use of confidential information for any
commercial purpose. See Current LLC Agreement, Article IV, Section
4.1(b). The Exchange proposes to modify the standard to prohibit the
use of such information for any non-regulatory purpose. See Notice,
supra note 3, at 40031 n.42; New LLC Agreement, Section 16. The
Exchange states that this change is intended to replicate Section
4.1(b)(iii) of MRX's LLC Agreement, to emphasize the independence of
the Exchange's regulatory function from its commercial interests.
See Notice, supra note 3, at 40031 n. 42.
    The Exchange is not proposing that GEMX, and the Board on behalf
of GEMX, shall not have the right to keep confidential from ISE
Holdings, as the Sole LLC Member, any information that the Board
would otherwise be permitted to keep confidential from the Sole LLC
Member pursuant to Section 18-305(c) of the Delaware Limited
Liability Company Act, 6 Del. C. Sec.  18-101. Additionally, the
Exchange is not proposing that ISE Holdings, as the Sole LLC Member
and the Exchange's authorized representative, shall have an explicit
right to examine the Exchange's books, records, and documents during
normal business hours. See Notice, supra note 3, at 40031. Although
such provisions are in the Nasdaq LLC Agreement (see Nasdaq LLC
Agreement, Section 16), they are not in the Current Governing
Documents of GEMX.
    The Commission believes that the proposed provisions relating to
the books and records of the Exchange are designed to maintain the
independence of GEMX's 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. See, e.g., MIAX Exchange
Order, supra note 53; Mercury Exchange Approval, supra note 26; ISE
Governance Order, supra note 13.
    The Commission also notes that the governing documents of GEMX's
Upstream Owners provide that all books and records of GEMX
reflecting confidential information pertaining to the self-
regulatory function of the Exchange will be subject to
confidentiality restrictions. See Certificate of Incorporation of
ISE Holdings, Article Eleventh; Certificate of Incorporation of U.S.
Exchange Holdings, Article Fourteenth; By-Laws of Nasdaq, Inc.,
Article XII, Section 12.1(b).
---------------------------------------------------------------------------

     The Exchange proposes that, as is currently the case, the
books and records of GEMX must be maintained in the United States \107\
and are subject at all times to examination by the Commission pursuant
to the federal securities laws and the rules and regulations
thereunder.\108\
---------------------------------------------------------------------------

    \107\ See New LLC Agreement, Section 16; see also Current LLC
Agreement, Article IV, Section 4.1.
    \108\ See New LLC Agreement, Section 16. The Commission notes
that, as is currently the case, the requirement to keep such
information confidential shall not limit the Commission's ability to
access and examine such information or limit the ability of
officers, directors, employees, or agents of GEMX to disclose such
information to the Commission. See id. See also Current LLC
Agreement, Article IV, Section 4.1(b).
    The Exchange states that certain provisions in Section 16 of the
New LLC Agreement are substantially similar to provisions in Section
16 of the Nasdaq LLC Agreement. See Notice, supra note 3, at 40031
n.40. The Exchange also states that it is retaining in the New LLC
Agreement certain provisions from its Current LLC Agreement that are
not in the governing documents of the Nasdaq Exchanges, such as
those relating to where the Exchange's books and records must be
maintained and who may access the books and records, in particular
those books and records that contain confidential information
pertaining to the self-regulatory function of the Exchange. See
Notice, supra note 3, at 40031 & n. 41.
    GEMX also states that the Nasdaq Exchanges will separately file
proposed rule changes to harmonize the books and records provisions
in their respective governing documents with the language in Section
16 of the New LLC Agreement. See Notice, supra note 3, at 40031
n.41.
---------------------------------------------------------------------------

     Under the New LLC Agreement and New By-Laws, 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.\109\
---------------------------------------------------------------------------

    \109\ See New LLC Agreement, Section 27; New By-Laws, Article
VIII, Section 1.
    The Commission notes that, although the Current Constitution and
Current LLC Agreement do not include a similar, explicit requirement
regarding the filing of amendments pursuant to Section 19 of the
Act, the Current Constitution and Current LLC Agreement, as rules of
the Exchange, are nonetheless subject to the requirements of Section
19 of the Act and the rules and regulations thereunder.
    Additionally, pursuant to the New By-Laws, either the Sole LLC
Member or the vote of a majority of the whole Board may enact
amendments to the By-Laws, and the Board may adopt emergency by-
laws.
---------------------------------------------------------------------------

     Additionally, as is currently the case pursuant to the
Current LLC Agreement,\110\ Section 15 of the New LLC Agreement would
prohibit the Exchange from using Regulatory Funds to pay
dividends.\111\
---------------------------------------------------------------------------

    \110\ See Current LLC Agreement, Article III, Section 3.3.
    \111\ Specifically, pursuant to Section 15 of the New LLC
Agreement, Regulatory Funds shall not be used non-regulatory
purposes, but rather shall be used to fund the legal, regulatory,
and surveillance operations of the Exchange, and the Exchange shall
not make a distribution to the Sole LLC Member using Regulatory
Funds. See New LLC Agreement, Section 15.
    Consistent with Section 3.3 of the Current LLC Agreement,
Schedule A of the New LLC Agreement defines ``Regulatory Funds'' as
fees, fines, or penalties derived from the regulatory operations of
the Exchange. However, Regulatory Funds do not include revenues
derived from listing fees, market data revenues, transaction
revenues, or any other aspect of the commercial operations of the
Exchange even if a portion of such revenues are used to pay costs
associated with the regulatory operations of the Exchange. See New
LLC Agreement, Schedule A.
    GEMX states that the Nasdaq Exchanges will separately file
proposed rule changes to harmonize the distribution provisions in
their respective governing documents with the language in Section 15
of the New LLC Agreement. See Notice, supra note 3, at 40031 n. 38.
---------------------------------------------------------------------------

    The Commission believes that the provisions discussed in this
section, which are designed to help ensure the independence of the
Exchange's regulatory function and facilitate the ability of the
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.\112\
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    \112\ 15 U.S.C. 78f(b)(1).
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    The Commission finds that proposed process regarding amendments to
the New Governing Documents 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,\113\ 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 New Governing Documents 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.
---------------------------------------------------------------------------

    \113\ Id.; 17 CFR 240.19b-4.
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    The Commission also finds that the prohibition on the use of
regulatory fines, fees, or penalties to fund dividends is consistent
with Section 6(b)(1) of the Act, because it will further the 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.\114\ This restriction on the use of regulatory funds
is intended to preclude the Exchange from using its authority to raise
Regulatory Funds for the purpose of benefiting its shareholders.\115\
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    \114\ See, e.g., Securities Exchange Act Release No. 51029
(January 12, 2005), 70 FR 3233, 3241 (January 21, 2005) (SR-ISE-
2004-29) (approving an ISE rule interpretation that requires that
revenues received from regulatory fees or regulatory penalties be
segregated and applied to fund the legal, regulatory, and
surveillance operations of the Exchange and not used to pay
dividends to the holders of Class A Common Stock).
    \115\ See Notice, supra note 3, at 40031.
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C. Related Rule Amendments

    The Exchange proposes to amend its Rules to reflect the changes to
its constituent documents through the adoption of the New Governing
Documents to replace the Current Governing Documents. The Exchange
states that it is amending its Rules to: (i) Clarify any Rules that
cross-reference the Current Governing Documents in the rule text, since
those documents are being replaced by the New Governing Documents;
\116\ or (ii) relocate in the Rules the definitions for a number of
defined terms used in the Rules that currently refer back to the
Current LLC Agreement or the Current Constitution for their
meanings.\117\
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    \116\ The Exchange states that all such changes are non-
substantive, primarily changing terminology, such as changing the
term ``Constitution'' to ``By-Laws'' and removing references to the
``Current LLC Agreement.'' See id. at 40041.
    \117\ See id. at 40029. The Exchange provides that all the
provisions governing the trading privileges associated with the
Exchange Rights in the Current Governing Documents are substantially
set forth in the Rules. See id. The Commission notes that, currently
on GEMX, the Exchange Rights do not convey any ownership rights and
only provide for voting rights for representation, through Exchange
Directors, on the Board and the ability to transact on the Exchange.
The Exchange represents that, under its Rules, the holders of
Exchange Rights will continue to have the same trading privileges
they currently hold as PMMs, CMMs, and EAMs, and the new Board
structure of the Exchange will not change any trading privileges.
Further, under the New Governing Documents, the holders of Exchange
Rights will continue to have voting rights for representation on the
Board through the election of Member Representative Directors. See
id. at 40029-30.
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    Specifically, the Exchange proposed changes to its Rules to, among
other things:
     Relocate the concept of CMM Rights from the Current LLC
Agreement \118\ to New Rule 100(a)(12), which will state that the term
``CMM Rights'' means the non-transferable rights held by a Competitive
Market Maker.\119\
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    \118\ See Current LLC Agreement, Article VI, Section 6.2(b).
    \119\ CMM Rights are non-transferable rights. The holders of CMM
Rights may not lease or sell these rights. As discussed above, all
Exchange Rights (i.e., PMM, CMM, and EAM Rights) convey only voting
rights and trading privileges on the Exchange. See Notice, supra
note 3, at 40041 n.120.
---------------------------------------------------------------------------

     Relocate to New Rule 100(a)(13) the definition of
``Competitive Market Maker,'' \120\ which is currently only defined in
Section 13.1(f) of the Current Constitution.
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    \120\ The term ``Competitive Market Maker'' (referred to herein
as ``CMM'') will be defined to mean a Member that is approved to
exercise trading privileges associated with CMM Rights. See New Rule
100(a)(13).
    The term ``Member'' means an organization that has been approved
to exercise trading rights associated with Exchange Rights. See
current Rule 100(a)(23); New Rule 100(a)(28).
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     Relocate the concept of EAM Rights to New Rule 100(a)(16),
which will state that the term ``EAM Rights'' means the non-
transferable rights held by an Electronic Access Member.\121\
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    \121\ See supra note 119.
---------------------------------------------------------------------------

     Relocate to New Rule 100(a)(17) the definition of
``Electronic Access Member,'' \122\ which is currently only defined in
Section 13.1(j) of the Current Constitution.
---------------------------------------------------------------------------

    \122\ The term ``Electronic Access Member'' (referred to herein
as ``EAM'') will be defined to mean a Member that is approved to
exercise trading privileges associated with EAM Rights. See New Rule
100(a)(17).
---------------------------------------------------------------------------

     Relocate the definitions for ``Exchange Transaction,''
``good standing,'' and ``System'' from the Current Constitution to the
Rules,\123\ and delete Rule 100(a)(22A), defining ``LLC Agreement,'' as
that term would no longer be used in the Rules, as amended by the
proposed rule change.
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    \123\ ``Exchange Transaction'' would be relocated from Section
13.1(o) of the Current Constitution to New Rule 100(a)(21), ``good
standing'' from Section 13.1(p) of the Current Constitution to New
Rule 100(a)(24), and ``System'' from Section 13.1(dd) of the Current
Constitution to New Rule 100(a)(55).
---------------------------------------------------------------------------

     Relocate the concept of PMM Rights from Article VI of the
Current LLC Agreement to New Rule 100(a)(41), which will state that the
term ``PMM Rights'' means the non-transferable rights held by a Primary
Market Maker.
     Relocate to New Rule 100(a)(42) the definition for
``Primary Market Maker'' \124\ from Section 13.1(y) of the Current
Constitution.
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    \124\ The term ``Primary Market Maker'' (referred to herein as
``PMM'') will be defined to mean a Member that is approved to
exercise trading privileges associated with PMM Rights. See New Rule
100(a)(42).
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    The Commission believes that the proposed changes to GEMX's Rules
are consistent with the Act and, in particular Section 6(b)(1) of the
Act,\125\ which requires among other things that a national securities
exchange be so organized and have the capacity to carry out the
purposes of the Act. The Commission notes that many of the proposed
changes to GEMX's Rules are technical in nature, such as renumbering of
Rules or conforming terminology to reflect the replacement of the
Current Governing Documents with the New Governing Documents. The
Commission also notes that, as described above, the Exchange proposes
to relocate definitions for a number of defined terms used in the Rules
from the Current Governing Documents into the Rules.
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    \125\ 15 U.S.C. 78f(b)(1).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\126\ that the proposed rule change (SR-GEMX-2017-37), as modified
by Amendment No. 1, be, and hereby is, approved.
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    \126\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\127\
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    \127\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-21669 Filed 10-6-17; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 87, Number 245 (Thursday, December 22, 2022)]
[Notices]
[Page 78670]
[FR Doc No: 2022-27851]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. ER23-648-000]

Consolidated Power Co., LLC; Supplemental Notice That Initial
Market-Based Rate Filing Includes Request for Blanket Section 204
Authorization

    This is a supplemental notice in the above-referenced proceeding of
Consolidated Power Co., LLC's application for market-based rate
authority, with an accompanying rate tariff, noting that such
application includes a request for blanket authorization, under 18 CFR
part 34, of future issuances of securities and assumptions of
liability.
    Any person desiring to intervene or to protest should file with the
Federal Energy Regulatory Commission, 888 First Street NE, Washington,
DC 20426, in accordance with Rules 211 and 214 of the Commission's
Rules of Practice and Procedure (18 CFR 385.211 and 385.214). Anyone
filing a motion to intervene or protest must serve a copy of that
document on the Applicant.
    Notice is hereby given that the deadline for filing protests with
regard to the applicant's request for blanket authorization, under 18
CFR part 34, of future issuances of securities and assumptions of
liability, is January 5, 2023.
    The Commission encourages electronic submission of protests and
interventions in lieu of paper, using the FERC Online links at http://www.ferc.gov. To facilitate electronic service, persons with internet
access who will eFile a document and/or be listed as a contact for an
intervenor must create and validate an eRegistration account using the
eRegistration link. Select the eFiling link to log on and submit the
intervention or protests.
    Persons unable to file electronically may mail similar pleadings to
the Federal Energy Regulatory Commission, 888 First Street NE,
Washington, DC 20426. Hand delivered submissions in docketed
proceedings should be delivered to Health and Human Services, 12225
Wilkins Avenue, Rockville, Maryland 20852.
    In addition to publishing the full text of this document in the
Federal Register, the Commission provides all interested persons an
opportunity to view and/or print the contents of this document via the
internet through the Commission's Home Page (http://www.ferc.gov) using
the ``eLibrary'' link. Enter the docket number excluding the last three
digits in the docket number field to access the document. At this time,
the Commission has suspended access to the Commission's Public
Reference Room, due to the proclamation declaring a National Emergency
concerning the Novel Coronavirus Disease (COVID-19), issued by the
President on March 13, 2020. For assistance, contact the Federal Energy
Regulatory Commission at [email protected] or call toll-free,
(886) 208-3676 or TYY,<PHONE_NUMBER>.

    Dated: December 16, 2022.
Debbie-Anne A. Reese,
Deputy Secretary.
[FR Doc. 2022-27851 Filed 12-21-22; 8:45 am]
BILLING CODE 6717-01-P