[Federal Register Volume 78, Number 148 (Thursday, August 1, 2013)]
[Notices]
[Pages 46622-46643]
[FR Doc No: 2013-18474]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70050; File No. 10-209]

Application of Topaz Exchange, LLC for Registration as a National
Securities Exchange; Findings, Opinion, and Order of the Commission

July 26, 2013.

I. Introduction

    On July 3, 2012, Topaz Exchange, LLC (``Topaz Exchange'' or
``Exchange'') submitted to the Securities and Exchange Commission
(``Commission'') an Application for Registration as a National
Securities Exchange (``Form 1 Application'') \1\ under Section 6 of the
Securities Exchange Act of 1934 (``Act'').\2\ On December 19, 2012,
Topaz Exchange submitted Amendment No. 1 to its Form 1 Application.\3\
On December 31, 2012, Topaz Exchange submitted Amendment No. 2 to its
Form 1 Application.\4\ Notice of the Form 1 Application, as modified by
Amendment Nos. 1 and 2, was published for comment in the Federal
Register on March 7, 2013.\5\ The Commission received four comment
letters regarding the Form 1 Application.\6\ Topaz Exchange submitted a
detailed response to comments on July 11, 2013.\7\ On July 11, 2013,
Topaz Exchange submitted Amendment No. 3 to the Form 1 Application.\8\
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    \1\ On March 1, 2013, the Commission issued an order granting
Topaz Exchange exemptive relief, subject to certain conditions, in
connection with the filing of its Form 1 Application. See Securities
Exchange Act Release No. 69011, 78 FR 14844 (March 7, 2013). Because
Topaz Exchange's Form 1 Application was incomplete without the
exemptive relief, the date of filing of such application is March 1,
2013. Id.
    \2\ 15 U.S.C. 78f.
    \3\ Amendment No. 1, among other things, includes changes to the
Limited Liability Company Agreement of Topaz Exchange, LLC (``Topaz
Exchange LLC Agreement'') and the Constitution of Topaz Exchange,
LLC (``Topaz Exchange Constitution'') concerning board composition
and size, the initial director election process, and the use of
regulatory funds. Amendment No. 1 also includes revisions to
proposed rules of Topaz Exchange to remove rules relating to complex
orders; to respond to comments on the Form 1 application from
Commission staff; and to reflect recent changes to comparable rules
of International Securities Exchange, LLC (``ISE''). Amendment No. 1
further provides additional descriptions in the Form 1 Application
regarding proposed allocation procedures, auction mechanisms,
execution of qualified contingent crosses, and the interim and
initial director election processes, and removes references to
complex orders.
    \4\ Amendment No. 2, among other things, provides updated
information regarding the board of directors of ISE and the
Corporate Governance Committee of ISE and includes information
regarding Longitude S.A., a newly incorporated affiliate of Topaz
Exchange, which information includes the Articles of Incorporation
and financial information for Longitude S.A. Finally, Amendment No.
2 provides an updated organizational chart that reflects the
affiliates of Topaz Exchange.
    \5\ See Securities Exchange Act Release No. 69012 (March 1,
2013), 78 FR 14847 (``Notice'').
    \6\ See Letter from Angelo Evangelou, Associate General Counsel,
Chicago Board Options Exchange, Incorporated, to Elizabeth M.
Murphy, Secretary, Commission, dated April 23, 2013 (``CBOE
Letter''); Letter from Jeffrey S. Davis, Vice President and Deputy
General Counsel, NASDAQ OMX Group, Inc., to Elizabeth M. Murphy,
Secretary, Commission, dated April 25, 2013 (``NASDAQ Letter'');
Letter from Janet McGinness, EVP and Corporate Secretary, NYSE
Euronext, General Counsel, NYSE Markets, to Elizabeth M. Murphy,
Secretary, Commission, dated May 10, 2013 (``NYSE Euronext Letter
I''); and Letter from Janet McGinness, EVP and Corporate Secretary,
NYSE Euronext, General Counsel, NYSE Markets, to Elizabeth M.
Murphy, Secretary, Commission, dated June 20, 2013 (``NYSE Euronext
Letter II'').
    \7\ See Letter from Michael Simon, General Counsel and
Secretary, Topaz Exchange, to Elizabeth M. Murphy, Secretary,
Commission, dated July 10, 2013 (``Topaz Exchange Response
Letter'').
    \8\ Amendment No. 3, among other things, includes changes to
proposed Topaz Exchange rules to respond to concerns raised by the
commenters and to reflect changes to comparable ISE rules since the
filing of Amendment No. 1. The changes are discussed below in
Section II.D. Amendment No. 3 also provides further descriptions or
updates information in the Form 1 Application. The changes proposed
in Amendment No. 3 are not substantive, are consistent with the
existing rules of other registered national securities exchanges, or
are responsive to the concerns of the commenters and do not raise
any new or novel regulatory issues.
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II. Discussion

    Under Sections 6(b) and 19(a) of the Act,\9\ the Commission shall
by order grant an application for registration as a national securities
exchange if the Commission finds, among other things, that the proposed
exchange is so organized and has the capacity to carry out the purposes
of the Act and can comply, and can 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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    \9\ 15 U.S.C. 78f(b) and 15 U.S.C. 78s(a), respectively.
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    As discussed in greater detail below, the Commission finds that
Topaz Exchange's application for exchange registration meets the
requirements of the Act and the rules and regulations thereunder.
Further, the Commission finds that the proposed rules of Topaz Exchange
are consistent with Section 6 of the Act in that, among other things,
they assure a fair representation of the exchange's 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, or
with a broker or dealer; \10\ and that they are designed to prevent
fraudulent and manipulative acts and practices, 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, and remove impediments to and perfect the mechanisms of a
free and open market and a national market system and, in general,
protect investors and the public interest and are not designed to
permit unfair discrimination between customers, issuers, or broker-
dealers.\11\ Finally, the Commission finds that Topaz Exchange's
proposed rules do not impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act.\12\
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    \10\ See 15 U.S.C. 78f(b)(3).
    \11\ See 15 U.S.C. 78f(b)(5).
    \12\ See 15 U.S.C. 78f(b)(8).
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A. Overview of Ownership of Topaz Exchange

    Topaz Exchange is structured as a Delaware limited liability
company

(``LLC''), and is a wholly-owned subsidiary of International Securities
Exchange Holdings, Inc. (``ISE Holdings'').\13\ In December 2007, ISE
Holdings became a direct, wholly-owned subsidiary of various German
companies and Swiss companies \14\ through an intermediary holding
company, U.S. Exchange Holdings, Inc. (``U.S. Exchange Holdings'').\15\
U.S. Exchange Holdings is wholly-owned by a German stock corporation,
Eurex Frankfurt AG (``Eurex Frankfurt''). Eurex Frankfurt is a wholly-
owned subsidiary of a Swiss stock corporation, Eurex Zurich AG (``Eurex
Zurich''), which, in turn, was in 2007 jointly owned by Deutsche
B[ouml]rse and SWX Swiss Exchange AG (``SWX'') \16\ (``Eurex
Acquisition''). In 2012, SWX transferred its interest in Eurex Zurich
to a Swiss subsidiary of Deutsche B[ouml]rse (``Deutsche B[ouml]rse
Acquisition''), such that Eurex Zurich is now jointly owned by Deutsche
B[ouml]rse (together with Eurex Frankfurt, the ``German companies'')
and EGD (together with Eurex Zurich, the ``Swiss companies,'' and the
Swiss companies and the German companies are referred to collectively
as the ``Non-U.S. Upstream Owners,'' and collectively with U.S.
Exchange Holdings, the ``Upstream Owners''). As Deutsche B[ouml]rse
holds a 100% direct ownership interest in EGD, it therefore holds a
100% indirect ownership interest in Eurex Zurich.
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    \13\ Following any Commission grant of registration to Topaz
Exchange, ISE Holdings will be: (1) The sole holding company of two
registered national securities exchanges, ISE and Topaz Exchange;
and (2) the holder of a 31.54% ownership interest of a holding
company, DE Holdings, that in turn owns two registered national
securities exchanges, EDGX Exchange, Inc. (``EDGX'') and EDGA
Exchange, Inc. (``EDGA''). See Exhibit C to Topaz Exchange Form 1
Application, Section R (``Organizational Chart of Affiliates of
Deutsche B[ouml]rse AG'').
    \14\ See Organizational Chart of Affiliates of Deutsche
B[ouml]rse, Exhibit C. Section R. to Topaz Exchange Form 1
Application.
    \15\ See Securities Exchange Act Release No. 56955 (December 13,
2007), 72 FR 71979 (December 19, 2007) (File No. SR-ISE-2007-101)
(order approving a transaction in which ISE Holdings became a
wholly-owned indirect subsidiary of Eurex Frankfurt) (``Eurex
Acquisition Order'').
    \16\ At the time, SWX was owned by SWX Group AG (later became
part of SIX Group AG), which in turn was owned by Verein SWX Swiss
Exchange. In 2008, SWX changed its name to SIX. In 2012, SIX
transferred its interest to Eurex Global Derivatives AG (``EGD'').
See Securities Exchange Act Release No. 66834 (April 19, 2012), 77
FR 24752 (April 25, 2012) (File Nos. SR-EDGA-2012-08; SR-EDGX-2012-
07; and SR-ISE-2012-21) (order approving a transaction in which
Eurex Frankfurt became a wholly-owned indirect subsidiary of
Deutsche B[ouml]rse) (``Deutsche B[ouml]rse Acquisition Order'').
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B. Governance of Topaz Exchange

1. Topaz Exchange Board of Directors
    The board of directors of Topaz Exchange (``Topaz Exchange Board''
or ``Board'') will be its governing body and will possess all of the
powers necessary for the management of its business and affairs,
including governance of Topaz Exchange as a self-regulatory
organization (``SRO'').\17\ Topaz Exchange will be governed by a board
of directors comprised of no fewer than 8, but no more than 16,
directors.\18\ Specifically:
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    \17\ See Topaz Exchange Constitution, Article III, Section 3.1.
    \18\ See Topaz Exchange Constitution, Article III, Section
3.2(a).
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     At least 50% of Topaz Exchange Board must be comprised of
Non-Industry Directors; \19\
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    \19\ See Topaz Exchange Constitution, Article III, Section
3.2(b)(ii). In no event shall the number of Non-Industry Directors
constitute less than the number of Industry Directors. ISE Holdings,
Inc. may, in its sole discretion, elect one additional director who
shall meet the requirements of Non-Industry Directors, except that
such person was employed by Topaz Exchange at any time during the
three-year period prior to his or her initial election. See Topaz
Exchange Constitution, Article III, Section 3.2(b)(iv). This
provision is similar to a provision in ISE's Constitution and has
been used in the past to place a former president/chief executive
officer of ISE on its board of directors (``ISE Board'').
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     At least one of the Non-Industry Directors must be a
Public Director; \20\
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    \20\ See Topaz Exchange Constitution, Article III, Section
3.2(b)(ii).
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     Topaz Exchange Board will include the President/Chief
Executive Officer as a director; \21\ and
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    \21\ See Topaz Exchange Constitution, Article III, Section
3.2(b)(iii).
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     At least 30% of Topaz Exchange Board must be officers,
directors or partners of Topaz Exchange members, and must be elected by
a plurality of holders of Exchange Rights (``Industry Directors''), of
which at least one must be elected by a plurality of holders of Primary
Market Maker (``PMM'') Exchange Rights, one must be elected by a
plurality of holders of Competitive Market Maker (``CMM'') Exchange
Rights, and one must be elected by a plurality of holders of Electronic
Access Member (``EAM'') Exchange Rights, provided that the number of
each type of Industry Director shall always be equal to one
another.\22\
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    \22\ See Topaz Exchange Constitution, Article III, Section
3.2(b)(i).
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    As part of the process to elect members of the Board, the
Nominating Committee will nominate the proposed Industry Directors and
the Corporate Governance Committee \23\ or ISE Holdings will nominate
the proposed Non-Industry Directors.\24\ A petition process will allow
Topaz Exchange members to nominate alternative candidates for
consideration as Industry Directors.\25\ At the first annual meeting
and at each annual meeting thereafter, ISE Holdings will elect all of
the members of the Topaz Exchange Board (except the Industry Directors
which are elected by Topaz Exchange members \26\), but it will be
required to do so in compliance with the compositional requirements for
the Board outlined in the Topaz Exchange Constitution.
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    \23\ See infra Section II.B.2. for a description of Topaz
Exchange's Nominating Committee and Corporate Governance Committee.
    \24\ See, e.g., Topaz Exchange Constitution, Article III,
Section 3.10(a)-(b). ISE Holdings, as the Sole LLC Member of Topaz
Exchange, is permitted to petition the Corporate Governance
Committee to propose alternative Non-Industry Directors and Public
Directors. See Topaz Exchange Constitution, Article III, Section
3.10(b)(ii).
    \25\ See, e.g., Topaz Exchange Constitution, Article III,
Section 3.10(a)(ii). Specifically, as proposed in Amendment No. 1,
in addition to the Industry Director nominees named by the
Nominating Committee, persons eligible to serve as such may be
nominated for election to the Topaz Exchange Board by a petition,
signed by the holders of not less than five percent (5%) of the
outstanding Exchange Rights of the series entitled to elect such
person if there are more than eighty (80) Exchange Rights in the
series entitled to vote, ten percent (10%) of the outstanding rights
of such series entitled to elect such person if there are between
eighty (80) and forty (40) Exchange Rights in the series entitled to
vote, and twenty-five percent (25%) of the outstanding Exchange
Rights of such series entitled to elect such person if there are
less than forty (40) Exchange Rights in the series entitled to vote.
For purposes of determining whether a person has been nominated for
election by petition by the requisite percentage, no Topaz Exchange
member, alone or together with its affiliates, may account for more
than 50% of the signatures of the holders of outstanding Exchange
Rights of the series entitled to elect such person, and any such
signatures by such Exchange Members, alone or together with its
affiliates, in excess of such 50% limitation shall be disregarded.
Id. This process is identical to the process in place at ISE. See
ISE Constitution, Article III, Section 3.10(a)(ii).
    \26\ See Topaz Exchange Constitution, Article III, Sections
3.2(b)(i) and (c).
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    The Commission believes that the requirement in the Topaz Exchange
Constitution that at least 30% of the directors be Industry Directors
and the means by which they will be chosen by Topaz Exchange members
\27\ provide for the fair representation of members in the selection of
directors and the administration of Topaz Exchange and therefore is
consistent with Section 6(b)(3) of the Act.\28\ 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.'' As the Commission previously has noted,
this statutory requirement helps to ensure that members have a voice in
the exchange's use of self-regulatory authority, and that the exchange
is administered in a way that is equitable to all those persons who
trade on its market or through its facilities.\29\ In addition, with
respect to the requirement that the number of Non-Industry Directors,
including at least one Public Director, will at all times be at least
50% of the Board, the Commission believes that the proposed composition
of the Topaz Exchange Board satisfies the requirements of Section
6(b)(3) of the Act.\30\
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    \27\ Id.
    \28\ 15 U.S.C. 78f(b)(3).
    \29\ See, e.g., Securities Exchange Act Release Nos. 53128
(January 13, 2006), 71 FR 3550 (January 23, 2006) (File No. 10-131)
(order granting the exchange registration of Nasdaq Stock Market,
Inc.) (``Nasdaq Order''); and 58375 (August 18, 2008), 73 FR 49498
(August 21, 2008) (File No. 10-182) (order granting the exchange
registration of BATS Exchange, Inc.) (``BATS Order''). See also
Securities Exchange Act Release No. 53382 (February 27, 2006), 71 FR
11251 (March 6, 2006) (File No. SR-NYSE-2005-77) (``NYSE/Archipelago
Merger Approval Order'').
    \30\ 15 U.S.C. 78f(b)(3). See also Securities Exchange Act
Release No. 68341, p.8, (December 3, 2012), 77 FR 73065, 73067
(December 7, 2012) (File No. 10-207) (order granting the
registration of Miami International Securities Exchange, LLC)
(``MIAX Order'') and Regulation of Exchanges and Alternative Trading
Systems, Securities Exchange Act Release No. 40760 (December 8,
1998), 63 FR 70844 (December 22, 1998) (``Regulation ATS Release'').
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Interim Board
    After Topaz Exchange is granted registration by the Commission, but
prior to commencing operations, ISE Holdings, as the sole shareholder
of Topaz Exchange,\31\ will appoint an interim board of directors for
Topaz Exchange that will serve only until the first annual meeting
(``Interim Topaz Exchange Board''). The Interim Topaz Exchange Board
will include the same individuals as the then-serving ISE Board and
will consist of 15 directors: the President/Chief Executive Officer
Director; \32\ 6 Industry Directors; and 8 Non-Industry Directors.\33\
Topaz Exchange represents that it anticipates that there will be a
significant overlap between its membership and the membership of
ISE.\34\ Topaz Exchange further represents that it does not expect to
receive a meaningful number of applications for membership from non-ISE
members during the tenure of the Interim Topaz Exchange Board.\35\
Thus, the 6 interim Industry Directors to be appointed to the Topaz
Exchange Board likely will have been elected by Topaz Exchange members
in their capacity as ISE members.\36\
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    \31\ See infra Section II.C.1. for a discussion of the ownership
of Topaz Exchange.
    \32\ See Exhibit J to Topaz Exchange Form 1 Application.
    \33\ See Exhibit J to Topaz Exchange Form 1 Application. See
also Amendment No. 3.
    \34\ See Exhibit L to Topaz Exchange Form 1 Application. Based
on discussions with ISE members, Topaz Exchange represented that it
currently expects that Topaz Exchange's membership will consist
substantially of current ISE members, including, but not limited to,
those ISE members that have representatives serving as industry
directors on the ISE Board. See Exhibit J to Topaz Exchange Form 1
Application.
    \35\ See Exhibit J to Topaz Exchange Form 1 Application.
    \36\ See id.
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    These interim Industry Directors will serve until the first initial
Topaz Exchange Board is elected pursuant to the full nomination,
petition, and voting process set forth in the Topaz Exchange
Constitution and described above.\37\ Topaz Exchange will complete such
process as promptly as possible and within 90 days after its
application for registration as a national securities exchange is
granted by the Commission.\38\
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    \37\ See Topaz Exchange Constitution, Article III, Sections
3.2(c) and 3.10; see also Exhibit J to Topaz Exchange Form 1
Application.
    \38\ See Exhibit J to Topaz Exchange Form 1 Application.
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    The Commission believes that the process for electing the interim
Topaz Exchange Board, as proposed, is consistent with the requirements
of the Act, including that the rules of the exchange assure fair
representation of the exchange's members in the selection of its
directors and administration of its affairs.\39\ The Interim Topaz
Exchange Board will be filled by current ISE Board members (which
currently include Industry Directors who were elected by current ISE
members) until the first annual meeting of Topaz Exchange. As noted
above, Topaz Exchange represents that it anticipates that there will be
significant overlap between the initial members of Topaz Exchange and
the current members of ISE.\40\ Topaz Exchange further represents that
it will complete the full nomination, petition, and voting process as
set forth in the Topaz Exchange Constitution,\41\ as promptly as
possible and within 90 days of when Topaz Exchange's application for
registration as a national securities exchange is granted.\42\ As noted
above, as part of this process, members of Topaz Exchange will be able
to petition for alternative candidates to be considered for Industry
Director positions.\43\ This process will provide persons who are
approved as members of Topaz Exchange after the effective date of this
Order with the opportunity to participate in the selection of the
Industry Directors within 90 days of when Topaz Exchange's application
for registration as a national securities exchange is granted.
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    \39\ See 15 U.S.C. 78f(b)(3). Topaz Exchange's proposed timeline
for the interim Topaz Exchange Board process comports with the
interim board process recently approved by the Commission for the
Boston Options Exchange (``BOX'') and Miami International Securities
Exchange, LLC (``MIAX''). BOX, which previously operated as a
facility of NASDAQ OMX BX, Inc., recently was granted registration
as a national securities exchange. See Securities Exchange Act
Release No. 66871 (April 27, 2012), 77 FR 26323 (May 3, 2012) (File
No. 10-206) (``BOX Order''). NASDAQ OMX BX recently received
approval for a new options market. See Securities Exchange Act
Release No. 67256 (June 26, 2012), 77 FR 39277 (July 2, 2012) (File
No. SR-BX-2012-030) (``BX Order''). MIAX recently was granted
registration as a national securities exchange. See MIAX Order,
supra note 30.
    \40\ Topaz Exchange will have a streamlined waive-in process for
existing ISE members to apply for membership on Topaz Exchange. See
Topaz Exchange Rule 302(a).
    \41\ See, e.g., Topaz Exchange Constitution, Article III,
Section 3.10(a)-(b).
    \42\ See Topaz Exchange Constitution, Article III, Sections
3.2(c) and 3.10.
    \43\ See Topaz Exchange Constitution, Article III, Section
3.10(a)(ii).
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    The Commission believes that the Interim Topaz Exchange Board
process is designed to provide member representation sufficient to
allow Topaz Exchange to commence operations for an interim period prior
to going through the process to elect a new Board pursuant to the full
nomination, petition, and voting process set forth in the Topaz
Exchange Constitution.

2. Exchange Committees

    Topaz Exchange will have a number of Board committees,\44\
including an Executive Committee (consisting of six directors,
including three Non-Industry Directors),\45\ a Finance and Audit
Committee (consisting of between three and five directors, all of whom
must be Non-Industry Directors),\46\ a Compensation Committee
(consisting of between three and five directors, all of whom must be
Non-Industry Directors),\47\ and a Corporate Governance Committee
(consisting of at least three directors, all of whom must be Non-
Industry Directors),\48\ and such other additional committees as may be
approved by the Topaz Exchange Board.\49\
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    \44\ See Topaz Exchange Constitution, Article V, Section 5.1(a).
    \45\ See Topaz Exchange Constitution, Article V, Section 5.2.
    \46\ See Topaz Exchange Constitution, Article V, Section 5.5.
    \47\ See Topaz Exchange Constitution, Article V, Section 5.6.
    \48\ See Topaz Exchange Constitution, Article V, Section 5.4.
    \49\ See Topaz Exchange Constitution, Article V, Section 5.1(a).
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    Topaz Exchange also will have a Nominating Committee, which will be
a

committee of Topaz Exchange and not a committee of the Board.\50\ The
Nominating Committee will be composed of three industry
representatives, and will be responsible for nominating candidates for
Industry Director positions.\51\ As noted above, there will be a
petition process by which members of Topaz Exchange can nominate their
own nominees for the Industry Director positions.\52\ These nomination
processes are consistent with processes that the Commission has
approved for other exchanges.\53\
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    \50\ See Topaz Exchange Constitution, Article V, Section 5.3.
    \51\ See id. The Interim Topaz Exchange Board shall appoint the
initial members of the Nominating Committee in accordance with the
qualifications prescribed in Section 5.3 of the Topaz Exchange
Constitution.
    \52\ See Topaz Exchange Constitution, Article III, Section
3.10(a)(ii). See also supra note 25 and accompanying text.
    \53\ See, e.g., ISE Constitution, Articles III and V, Sections
3.10 and 5.3; MIAX By-laws Articles II and V, Sections 2.4 and 5.3.
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    The Commission believes that Topaz Exchange's proposed committees,
which are similar to committees maintained by other exchanges,\54\ are
designed to help enable Topaz 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.\55\
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    \54\ See, e.g., MIAX Order, supra note 30, and BOX Order, supra
note 39.
    \55\ 15 U.S.C. 78f(b)(1).
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C. Regulation of Topaz Exchange

    When Topaz Exchange commences operations as a national securities
exchange, Topaz Exchange will have all the attendant regulatory
obligations under the Act. In particular, Topaz Exchange will be
responsible for the operation and regulation of its trading system and
the regulation of its members. Certain provisions in the Topaz Exchange
and ISE Holdings governance documents are designed to facilitate the
ability of Topaz Exchange and the Commission to fulfill their
regulatory and oversight obligations under the Act. The discussion
below summarizes some of these key provisions.
1. Ownership Structure: Ownership and Voting Limitations
    As noted above in Section II.A, Topaz Exchange will be structured
as a Delaware LLC and will be a wholly-owned subsidiary of ISE Holdings
\56\ following any Commission grant of registration to Topaz Exchange
as a national securities exchange.\57\ ISE Holdings is owned by German
companies and Swiss companies through an intermediary holding company,
U.S. Exchange Holdings.\58\ ISE Holdings' governing documents impose
limits on any direct or indirect change in control of ISE Holdings,
which are to be enforced through the creation of a statutory trust.\59\
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    \56\ The Topaz Exchange LLC Agreement provides that ISE Holdings
may not assign its interest in Topaz Exchange unless such assignment
is subject to prior approval by the Commission pursuant to the rule
filing procedure under Section 19 of the Act. See Topaz Exchange LLC
Agreement, Section 7.1 (Assignments; Additional LLC Members).
    \57\ See supra note 13 and accompanying text.
    \58\ See supra note 14 and accompanying text.
    \59\ See Article FOURTH, Section III.(c) of the Amended and
Restated Certificate of Incorporation of International Securities
Exchange Holdings, Inc. (``ISE Holdings Certificate''). See infra
notes 72-74 and 110-114 and accompanying text for a discussion of
the statutory trust.
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    First, ISE Holdings' governing documents prohibit any Topaz
Exchange member (alone or together with its Related Persons \60\) from
owning more than 20% of any class of Voting Shares of ISE Holdings.\61\
A second limit prohibits any other person (alone or together with its
related persons) from owning more than 40% of any class of Voting
Shares of ISE Holdings.\62\ A third limit prohibits any person (alone
or together with its Related Persons) from voting or causing the voting
of shares representing more than 20% of the voting power of the then
outstanding Voting Shares of ISE Holdings.\63\ As described more fully
below, if a person exceeds an ISE Holdings' ownership or voting limit,
a majority of the capital stock of ISE Holdings that has the right by
its terms to vote in the election of the ISE Holdings board of
directors (``ISE Holdings Board'') or on other matters (other than
matters affecting the rights, preferences or privileges of the capital
stock) automatically will be transferred to a Delaware statutory trust
(``Trust'').\64\
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    \60\ See ISE Holdings Certificate, Article FOURTH, Section III
for the definition of ``Related Persons.''
    \61\ See id. for the definition of ``Voting Shares.''
    \62\ See ISE Holdings Certificate, Article FOURTH, Section
III.(a)(i).
    \63\ See ISE Holdings Certificate, Article FOURTH, Section
III.(b). See also Second Amended and Restated Bylaws of ISE Holdings
(``ISE Holdings Bylaws''), Article XI, Section 11.1(b).
    \64\ See ISE Holdings Certificate, Article FOURTH, Section
III.(c). See also infra notes 72-75 and accompanying text for a
discussion of the Trust and the related Trust Agreement.
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    Consistent with the governance structure of other exchanges, ISE
Holdings' Board may waive the 40% ownership limitation and the 20%
voting restriction for persons other than Topaz Exchange members,
subject to certain specified conditions,\65\ but such waiver will not
be effective unless approved by the Commission.\66\
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    \65\ The ISE Holdings Certificate allows the ISE Holdings Board
to waive the ISE Holdings ownership and voting limits pursuant to an
amendment to the ISE Holdings Bylaws, provided that the ISE Holdings
Board makes certain determinations. See ISE Holdings Certificate,
Article FOURTH, Sections III.(a)(i)(A), III.(a)(i)(B) and
III.(b)(i). Article XI of the ISE Holdings Bylaws was adopted in
connection with the Eurex Acquisition (see supra note 15 and
accompanying text), when ISE LLC was the sole national securities
exchange controlled by ISE Holdings. See Eurex Acquisition Order,
supra note 15. Article XI, Section 11.1(b) was subsequently amended
to apply to any Controlled National Securities Exchange, which will
include Topaz Exchange.
    \66\ See ISE Holdings Certificate, Article FOURTH, Sections
III.(a)(i)(A) and III.(b)(i). Article XI of the ISE Holdings Bylaws,
which originally was adopted in connection with the Eurex
Acquisition (see supra note 15 and accompanying text for a
description of the Eurex Acquisition), waives the ISE Holdings
ownership and voting limits to allow the Upstream Owners to own and
vote all of the common stock of ISE Holdings. Article XI, Section
11.1(b) states that, in waiving the ISE Holdings ownership and
voting limits to permit the Upstream Owners to own and vote the
capital stock of ISE Holdings, the ISE Holdings Board has
determined, with respect to each Upstream Owner, that: (i) Such
waiver will not impair the ability of ISE Holdings and each
``Controlled National Securities Exchange'' (i.e., any national
securities exchange or facility thereof controlled, directly or
indirectly, by ISE Holdings, including ISE, EDGA, EDGX, and as a
result of this Order, Topaz Exchange) to carry out their respective
functions and responsibilities under the Act; (ii) such waiver is in
the best interests of ISE Holdings, its stockholders, and each
Controlled National Securities Exchange; (iii) such waiver will not
impair the ability of the Commission to enforce the Act; (iv)
neither the Upstream Owner nor any of its related persons is subject
to a statutory disqualification (within the meaning of Section
3(a)(39) of the Act, 15 U.S.C. 78c(a)(39)); and (v) neither the
Upstream Owner nor any of its related persons is a member of such
Controlled National Securities Exchange.
---------------------------------------------------------------------------

    The Topaz Exchange LLC Agreement and Topaz Exchange Constitution do
not include change of control provisions that are similar to those in
the ISE Holdings Certificate and ISE Holdings Bylaws. However, the
Topaz Exchange LLC Agreement and the Topaz Exchange Constitution
explicitly provide that ISE Holdings is the Sole LLC Member of Topaz
Exchange.\67\ ISE Holdings is permitted under the Topaz Exchange LLC
Agreement to assign all but not less than all of its interest in Topaz
Exchange (and therefore no longer would be its sole owner), but the
assignment of all of ISE Holdings' interest in Topaz Exchange will be
subject to the rule filing procedures under Section 19 of the Act.\68\
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    \67\ See Topaz Exchange LLC Agreement, Article II, Section 2.1
and Topaz Exchange Constitution Article I, Section 1.1 (both of
which define ``Sole LLC Member'' to mean ISE Holdings, as the sole
member of Topaz Exchange).
    \68\ See 15 U.S.C. 78s; see also Topaz Exchange LLC Agreement,
Article VII, Section 7.1 and Topaz Exchange Constitution, Article I,
Section 1.1.
---------------------------------------------------------------------------

    As detailed above, ISE Holdings is owned by various Upstream
Owners, none of which have similar ownership

and voting limits in their governing documents. To facilitate
compliance with the ISE Holdings ownership and voting limits, the
Upstream Owners have committed to take reasonable steps necessary to
cause ISE Holdings to be in compliance with the ISE Holdings ownership
and voting limits. These commitments are contained in the governing
documents for U.S. Exchange Holdings \69\ and in corporate resolutions
for the non-U.S. Upstream Owners.\70\
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    \69\ For a U.S. Upstream Owner, the U.S. Exchange Holdings
Certificate provides that, for so long as U.S. Exchange Holdings
directly or indirectly controls a Controlled National Securities
Exchange, U.S. Exchange Holdings will take reasonable steps
necessary to cause ISE Holdings to be in compliance with the ISE
Holdings' ownership and voting limits. See U.S. Exchange Holdings
Certificate, Article THIRTEENTH.
    \70\ See, e.g., Form of German Parent Corporate Resolutions
(2007 Resolution Section (4)), Exhibit B to Topaz Exchange Form 1
Application. In its Form 1 Application, Topaz Exchange included
these supplemental resolutions that each of the current Non-U.S.
Upstream Owners of Topaz Exchange has adopted that, in part,
incorporate provisions regarding the ownership and voting limits
(``Topaz Exchange Resolutions'') in the same manner and to the same
extent as prior corporate resolutions signed by the Non-U.S.
Upstream Owners apply to ISE (``2007 Resolutions''). The Topaz
Exchange Resolutions were signed by the Non-U.S. Upstream Owners and
extend to Topaz Exchange the commitments that the then non-U.S.
upstream owners made in the 2007 Resolutions with respect to ISE.
For example, Topaz Exchange represented in Exhibit B to its Form 1
Application that Deutsche B[ouml]rse AG Executive Board executed its
corporate resolution on November 10, 2009.
    Since 2007, U.S. Exchange Holdings' governing documents and the
non-U.S. upstream owners' 2007 Resolutions have been updated, where
appropriate, to reflect changes in corporate structure and ownership
as described herein. In 2010, to effect the registrations of EDGA
and EDGX as national securities exchanges, and to maintain ISE
Holdings' ownership and voting limits, as well as the independence
of the regulatory function of EDGA and EDGX, the U.S. Exchange
Holdings governing documents and the 2007 Resolutions were
supplemented by each of the then non-U.S. upstream owners through
supplemental resolutions (``DirectEdge Resolutions'') that applied
the commitments of the 2007 Resolutions to EDGA and EDGX, as
affiliates of ISE, see supra note 13, in the same manner and to the
same extent as the 2007 Resolutions applied to ISE and the U.S.
Exchange Holdings governing documents were updated to apply
prospectively to any other national securities exchange that ISE
Holdings may control, either directly or indirectly, including, but
not limited to, ISE, EDGA and EDGX. See Securities Exchange Act
Release No. 61698 (March 12, 2010), 75 FR 13151 (March 18, 2010)
(File Nos. 10-194 and 10-196) (order granting the exchange
registration of EDGA and EDGX) (``DirectEdge Exchanges Order''). The
Commission also approved changes to U.S. Exchange Holdings' and ISE
Holdings' governing documents to apply these governing documents to
any prospective national securities exchange that U.S. Exchange
Holdings or ISE Holdings, as applicable, directly or indirectly
controlled. See Securities Exchange Act Release Nos. 59135 (December
22, 2008), 73 FR 79954 (December 30, 2008) (``ISE Holdings Order'')
and 61498 (February 4, 2010), 75 FR 7299 (February 18, 2010) (``U.S.
Exchange Holdings Order'').
    In 2012, new resolutions were executed by EGD, a Swiss
corporation, when it became a wholly-owned subsidiary of Deutsche
B[ouml]rse, and thus a Non-U.S. Upstream Owner of ISE, EDGA and
EDGX. See Deutsche B[ouml]rse Acquisition Order, supra note 16.
---------------------------------------------------------------------------

    Further, in connection with the Eurex Acquisition, ISE implemented
the Trust pursuant to a Trust Agreement (``2007 Trust Agreement'') \71\
among ISE Holdings, U.S. Exchange Holdings, trustees (``Trustees''),
and a Delaware trustee, which agreement has been subsequently amended
to take into account subsequent acquisitions, including the current
transaction.\72\
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    \71\ The term of the Trust is perpetual, provided that ISE
Holdings directly or indirectly controls a national securities
exchange or a facility thereof, which would include Topaz Exchange.
    \72\ See Eurex Acquisition Order, supra note 15, at Section
II.C., for a more detailed description of the Trust. By its terms,
the 2007 Trust Agreement related solely to ISE Holdings' ownership
of ISE LLC, and not to any other national securities exchange that
ISE Holdings might control, directly or indirectly. In 2010, the
Commission approved proposed rule changes that revised the 2007
Trust Agreement to replace references to ISE with references to any
Controlled National Securities Exchange (the 2007 Trust Agreement,
as thereby amended, is referred to herein as the ``2009 Trust
Agreement''). See ISE Holdings Order and U.S. Exchange Holdings
Order, supra note 70; see also DirectEdge Exchanges Order, supra
note 70; 2009 Trust Agreement, Articles I and II, Sections 1.1 and
2.6.
    Thus, the 2009 Trust Agreement will apply to Topaz Exchange upon
the Commission's granting its registration as a national securities
exchange because it is controlled directly by ISE Holdings. Except
for the expanded scope, the 2009 Trust Agreement was substantially
similar to the 2007 Trust Agreement. In 2012, the Commission
approved a proposed rule change that revised the 2009 Trust
Agreement to replace references to a former owner, SIX, to the new
owner, EGD (the 2009 Trust Agreement, as thereby amended, is
referred to herein as the ``2012 Trust Agreement''). See Deutsche
B[ouml]rse Acquisition Order, supra note 16, for more detailed
information on the addition of EGD as a Non-U.S. Upstream Owner of
ISE, EDGA, and EDGX. Except for reflecting a new Upstream Owner of
ISE Holdings, the 2012 Trust Agreement was substantially similar to
the 2009 Trust Agreement.
---------------------------------------------------------------------------

    The current agreement (``2012 Trust Agreement'') serves, in part,
to effectuate the ownership and voting limits for ISE Holdings in the
event that a person obtains an ownership or voting interest in excess
of the limits established in the ISE Holdings Certificate without prior
Commission approval. To accomplish that purpose, for as long as ISE
Holdings controls, directly or indirectly, a national securities
exchange, including Topaz Exchange, the Trust would accept, hold and
dispose of Trust Shares \73\ on the terms and subject to the conditions
set forth therein.\74\ Specifically, if any person's ownership
percentage exceeds the ownership limits or any person's voting control
percentage exceeds the voting limits without Commission approval, the
Excess Shares will be transferred automatically to the Trust pursuant
to the terms prescribed in the ISE Holdings Certificate.\75\ The Trust
then would accept the Excess Shares and hold them for the benefit of
the trust beneficiary, U.S. Exchange Holdings, who has the right to
reacquire the Excess Shares either when a person no longer exceeds the
ownership or voting limits or when such excess ownership percentage or
voting control percentage is approved by the Commission in accordance
with ISE Holdings Certificate.\76\
---------------------------------------------------------------------------

    \73\ Under the Trust, the term ``Trust Shares'' means either
Excess Shares or Deposited Shares, or both, as the case may be. The
term ``Excess Shares'' means that a person obtained an ownership or
voting interest in ISE Holdings in excess of the ownership and
voting limits pursuant to Article FOURTH of the ISE Holdings
Certificate, for example, through ownership of one of the Non-U.S.
Upstream Owners or U.S. Exchange Holdings, without obtaining the
approval of the Commission. The term ``Deposited Shares'' means
shares that are transferred to the Trust pursuant to the Trust's
exercise of the Call Option. Under the Trust, the term ``Call
Option'' means the option granted by the Trust beneficiary to the
Trust to call the Voting Shares as set forth in Section 4.2 therein.
See infra Section II.C.2.b for further discussion of the Call
Option.
    \74\ See 2012 Trust Agreement, Article IV, Section 4.1; see also
ISE Holdings Certificate, Article FOURTH, Section III.(c); Eurex
Acquisition Order, supra note 15, at 72 FR 71982 n.37 and
accompanying text.
    \75\ See id.
    \76\ See 2012 Trust Agreement, Article IV, Section 4.1(f). In
addition, as discussed in Section II.C.2.b below, the Trust also may
accept, hold and dispose of Trust Shares in connection with the Call
Option. Section 4.2(h) of the 2012 Trust Agreement governs when the
Trustees can transfer Deposited Shares in connection with the Call
Option. Section 4.3(a) of the 2012 Trust Agreement further permits
the Trustees, upon receipt of written instructions from the Trust
Beneficiary, to sell Trust Shares to a person or persons whose
ownership percentage or voting control percentage will not violate
the ownership or voting limits.
---------------------------------------------------------------------------

    Although ISE Holdings is not independently responsible for
regulation of Topaz Exchange, its activities with respect to the
operation of Topaz Exchange must be consistent with, and must not
interfere with, the self-regulatory obligations of Topaz Exchange.\77\
As described above, the provisions applicable to direct and indirect
changes in control of ISE Holdings and Topaz Exchange, as well as the
voting limitation, are designed to help prevent any owner of ISE
Holdings from exercising undue influence or control over the operation
of Topaz Exchange and to help assure that Topaz Exchange is able to
effectively carry out its regulatory obligations under the Act. In
addition, these limitations are designed to address the conflicts of
interests that might result from a member of a national securities
exchange owning interests in the

exchange. As the Commission has noted in the past, however, a member's
interest in an exchange, including an entity that controls an exchange,
could become so large as to cast doubts on whether the exchange may
fairly and objectively exercise its self-regulatory responsibilities
with respect to such member.\78\ A member that is a controlling
shareholder of an exchange could seek to exercise that controlling
influence by directing the exchange to refrain from, or the exchange
may hesitate to, diligently monitor and conduct surveillance of the
member's conduct or diligently enforce the exchange's rules and the
federal securities laws with respect to conduct by the member that
violates such provisions. As such, these requirements are designed to
minimize the potential that a person or entity can improperly interfere
with or restrict the ability of Topaz Exchange to effectively carry out
its regulatory oversight responsibilities under the Act.
---------------------------------------------------------------------------

    \77\ See also infra Section II.C.2. (Regulatory Independence).
    \78\ See, e.g., DirectEdge Exchanges Order, supra note 70, and
BATS Order, supra note 29; see also MIAX Order, supra note 30.
---------------------------------------------------------------------------

    The Commission believes that Topaz Exchange's and ISE Holdings'
proposed ownership and voting limitation provisions, coupled with the
provisions in U.S. Exchange Holdings' governing documents, the Topaz
Exchange Resolutions and the 2012 Trust Agreement described above,\79\
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.\80\ In particular, these requirements are
designed to minimize the potential that a person could improperly
interfere with or restrict the ability of the Commission or Topaz
Exchange to effectively carry out their regulatory oversight
responsibilities under the Act.\81\
---------------------------------------------------------------------------

    \79\ See supra notes 69-70, and accompanying text.
    \80\ 15 U.S.C. 78f(b)(1).
    \81\ In addition, the 2012 Trust Agreement, like the 2007 and
2009 Trust Agreements, is consistent with the provisions that other
entities that directly or indirectly own or control a SRO have
instituted and that have been approved by the Commission. See, e.g.,
Securities Exchange Act Release No. 55293 (February 14, 2007), 72 FR
8033 (February 22, 2007) (File No. SR-NYSE-2006-120) (order relating
to the combination between NYSE Group, Inc. and Euronext N.V.). See
also Eurex Acquisition Order, supra note 15, at 72 FR 71986 n.111.
---------------------------------------------------------------------------

2. Regulatory Independence and Oversight
a. ISE Holdings
    Although ISE Holdings itself will not itself carry out regulatory
functions, its activities with respect to the operation of Topaz
Exchange must be consistent with, and not interfere with, the self-
regulatory obligations of Topaz Exchange.\82\ In this regard, Topaz
Exchange and ISE Holdings' respective corporate documents include
certain provisions that are designed to maintain the independence of
the Topaz Exchange's self-regulatory function.\83\ These provisions are
substantially similar to those included in the governing documents of
other exchanges that recently have been granted registration.\84\
Specifically:
---------------------------------------------------------------------------

    \82\ See, e.g., BOX Order, supra note 39, and DirectEdge
Exchanges Order, supra note 70.
    \83\ See supra note 66, noting that the ISE Holdings Certificate
and the ISE Holdings Bylaws were revised in 2010 to cover any
Controlled National Securities Exchange, which would include Topaz
Exchange.
    \84\ See, e.g., BOX Order, supra note 39, and MIAX Order, supra
note 30.
---------------------------------------------------------------------------

     The directors, officers, and employees of ISE Holdings
must give due regard to the preservation of the independence of the
self-regulatory function of Topaz Exchange and must not take actions
that would interfere with the effectuation of decisions by the Topaz
Exchange Board relating to its regulatory functions (including
disciplinary matters) or that would adversely affect the ability of
Topaz Exchange to carry out its responsibilities under the Act.\85\
---------------------------------------------------------------------------

    \85\ See ISE Holdings Bylaws, Article I, Section 1.5. Similarly,
Article V, Section 5.1(b) of the Topaz Exchange LLC Agreement
requires each Topaz Exchange Board director to take into
consideration the effect that his or her actions would have on the
ability of Topaz Exchange to carry out its responsibilities under
the Act and on the ability of Topaz Exchange to engage in conduct
that fosters and does not interfere with Topaz 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 or assist in the removal of impediments to or
perfection of the mechanisms for a free and open market and a
national market system; and in general to protect investors and the
public interest.
---------------------------------------------------------------------------

     ISE Holdings must comply with federal securities laws and
the rules and regulations promulgated thereunder, and must cooperate
with Topaz Exchange and the Commission pursuant to, and to the extent
of, their respective regulatory authority. In addition, ISE Holdings'
officers, directors, and employees must comply with federal securities
laws and the rules and regulations thereunder and agree to cooperate
with Topaz Exchange and the Commission pursuant to their respective
regulatory authority.\86\
---------------------------------------------------------------------------

    \86\ See ISE Holdings Certificate, Article TENTH. ISE Holdings
also shall take reasonable steps necessary to cause its agents to
cooperate with Topaz Exchange and the Commission pursuant to their
respective regulatory authority. ISE Holdings Certificate, Article
THIRTEENTH.
---------------------------------------------------------------------------

     ISE Holdings, and its officers, directors, employees, and
agents are deemed to irrevocably submit to the jurisdiction of the U.S.
federal courts, the Commission, and Topaz Exchange, for purposes of any
suit, action, or proceeding pursuant to U.S. federal securities laws,
and the rules and regulations thereunder, arising out of, or relating
to, Topaz Exchange's activities.\87\
---------------------------------------------------------------------------

    \87\ See ISE Holdings Bylaws, Article I, Section 1.4.
---------------------------------------------------------------------------

     All books and records of Topaz Exchange containing
confidential information pertaining to the self-regulatory function of
Topaz Exchange (including but not limited to confidential information
regarding disciplinary matters, trading data, trading practices and
audit information) shall be retained in confidence by Topaz Exchange
and its officers, directors, employees and agents and will not be used
by Topaz Exchange for any commercial purpose and shall not be made
available to persons other than those officers, directors, employees
and agents that have a reasonable need to know the contents
thereof.\88\
---------------------------------------------------------------------------

    \88\ See Topaz Exchange LLC Agreement, Article VI, Section
4.1(b) and ISE Holdings Certificate, Article ELEVENTH. ISE Holdings
LLC Agreement also provides that all books and records of Topaz
Exchange reflecting confidential information pertaining to the self-
regulatory function of Topaz Exchange will be subject to
confidentiality restrictions. See ISE Holdings Certificate, Article
ELEVENTH. The requirement to keep such information confidential
shall not limit or impede the Commission's ability to access and
examine such information or limit or impede the ability of officers,
directors, employees, or agents of ISE Holdings to disclose such
information to the Commission. See id.
---------------------------------------------------------------------------

     The books and records of Topaz Exchange and ISE Holdings
must be maintained in the United States \89\ and, to the extent they
are related to the operation or administration of Topaz Exchange, ISE
Holdings books and records will be subject at all times to inspection
and copying by the Commission.\90\
---------------------------------------------------------------------------

    \89\ See Topaz Exchange LLC Agreement, Article IV, Section 4.1
and ISE Holdings Bylaws, Article I, Section 1.3.
    \90\ See ISE Holdings Certificate, Article TWELFTH.
---------------------------------------------------------------------------

     Furthermore, to the extent that they are related to the
activities of Topaz Exchange, the books, records, premises, officers,
directors, and employees of ISE Holdings will be deemed to be the
books, records, premises, officers, directors, and employees of Topaz
Exchange, for purposes of, and subject to oversight pursuant to, the
Act.\91\
---------------------------------------------------------------------------

    \91\ See id.
---------------------------------------------------------------------------

     ISE Holdings will take necessary steps to cause its
officers, directors, and employees, prior to accepting a position as an
officer, director, or employee (as

applicable) to consent in writing to the applicability of provisions
regarding books and records, confidentiality, jurisdiction, and
regulatory obligations, with respect to their activities related to
Topaz Exchange.\92\
---------------------------------------------------------------------------

    \92\ See ISE Holdings Bylaws, Article I, Section 1.6.
---------------------------------------------------------------------------

     ISE Holdings Certificate and ISE Holdings Bylaws require
that, so long as ISE Holdings controls Topaz Exchange, any changes to
those documents be submitted to the Topaz Exchange Board, and, if such
change is required to be filed with, or filed with and approved by, the
Commission before it may be effective pursuant to Section 19 of the Act
and the rules thereunder, such change shall not be effective until
filed with, or filed with and approved by, the Commission.\93\
---------------------------------------------------------------------------

    \93\ See ISE Holdings Certificate, Article FOURTEENTH; and ISE
Holdings Bylaws, Article X; see also supra notes 67-68 and
accompanying text discussing a similar provision for Topaz Exchange.
---------------------------------------------------------------------------

b. Upstream Owners
    Although the Upstream Owners will not carry out any regulatory
functions, the activities of each of the Upstream Owners with respect
to the operation of Topaz Exchange must be consistent with, and not
interfere with, the self-regulatory obligations of Topaz Exchange. The
2007 Resolutions, as supplemented by the supplemental Resolutions for
Topaz Exchange, the U.S. Exchange Holdings Certificate, and the U.S.
Exchange Holdings Bylaws include certain provisions that are designed
to maintain the independence of the self-regulatory function of Topaz
Exchange, enable Topaz Exchange to operate in a manner that complies
with the U.S. federal securities laws, including the objectives and
requirements of Sections 6(b) and 19(g) of the Act,\94\ and facilitate
the ability of Topaz Exchange, and the Commission to fulfill their
regulatory and oversight obligations under the Act. Specifically:
---------------------------------------------------------------------------

    \94\ 15 U.S.C. 78f(b) and 15 U.S.C. 78s(g).
---------------------------------------------------------------------------

     Each such Non-U.S. Upstream Owner and U.S. Exchange
Holdings will comply with the U.S. federal securities laws and the
rules and regulations thereunder and cooperate with the Commission and
Topaz Exchange.\95\ Also, each board member, officer, and employee of
the Non-U.S. Upstream Owners, and of U.S. Exchange Holdings, in
discharging his or her responsibilities, must comply with the U.S.
federal securities laws and the rules and regulations thereunder, and
must cooperate with the Commission and Topaz Exchange.\96\
---------------------------------------------------------------------------

    \95\ See, e.g., Form of German Parent Corporate Resolutions
(2007 Resolution Section (1) and Topaz Exchange Resolution Section
(2)(a)); and U.S. Exchange Holdings Certificate, Article ELEVENTH.
    \96\ See, e.g., Form of German Parent Corporate Resolutions
(2007 Resolution Sections (7)(a) and (8)(a) and Topaz Exchange
Resolution Sections (2)(b) and (2)(c)); U.S. Exchange Holdings
Certificate, Article TENTH. The Resolutions also provide that each
Non-U.S. Upstream Owner will take reasonable steps necessary to
cause each person who subsequently becomes a board member of the
Non-U.S. Upstream Owner to agree in writing to certain matters
included in the Resolutions. See, e.g., Form of German Parent
Corporate Resolutions (2007 Resolution Section (7) and Topaz
Exchange Resolution Section (2)(b)).
---------------------------------------------------------------------------

     In discharging his or her responsibilities as a board
member of a Non-U.S. Upstream Owner, or of U.S. Exchange Holdings, each
such member must, to the fullest extent permitted by applicable law,
take into consideration the effect that the actions of the Upstream
Owner or U.S. Exchange Holdings, as applicable, will have on the
ability of Topaz Exchange to carry out its responsibilities under the
Act.\97\ In addition, each of the Non-U.S. Upstream Owners and U.S.
Exchange Holdings, and their board members, officers, and employees,
must give due regard to the preservation of the independence of the
self-regulatory function of Topaz Exchange (or in the case of the Non-
U.S. Upstream Owners, that they will take reasonable steps necessary to
cause their officers and employees involved in the activities of Topaz
Exchange to give due regard to preserving the independence of the self-
regulatory functions of Topaz Exchange).\98\
---------------------------------------------------------------------------

    \97\ See, e.g., Form of German Parent Corporate Resolutions
(2007 Resolution Section (7)(f) and Topaz Exchange Resolution
Section (2)(b)); and U.S. Exchange Holdings Certificate, Article
TENTH.
    \98\ See, e.g., Form of German Parent Corporate Resolutions
(2007 Resolution Sections (5), (7)(d), and (8)(d) and Topaz Exchange
Resolution Section (2)); and U.S. Exchange Holdings Certificate,
Article TWELFTH.
---------------------------------------------------------------------------

     The Non-U.S. Upstream Owners (along with their respective
board members, officers, and employees), and U.S. Exchange Holdings
agree to keep confidential, to the fullest extent permitted by
applicable law, all confidential information pertaining to the self-
regulatory function of Topaz Exchange, including, but not limited to,
confidential information regarding disciplinary matters, trading data,
trading practices and audit information, contained in the books and
records of Topaz Exchange and not use such information for any
commercial purposes.\99\
---------------------------------------------------------------------------

    \99\ See, e.g., Form of German Parent Corporate Resolutions
(2007 Resolution Sections (6), (7)(e) and (8)(e) and Topaz Exchange
Resolution Section (2)); and U.S. Exchange Holdings Certificate,
Article FOURTEENTH.
     The Commission believes that any non-regulatory use of such
information would be for a commercial purpose. See DirectEdge
Exchanges Order, supra note 70, at 75 FR 13155 n.53.
---------------------------------------------------------------------------

     The books and records of the Non-U.S. Upstream Owners
related to the activities of Topaz Exchange must at all times be made
available for, and the books and records of U.S. Exchange Holdings must
be subject at all times to, inspection and copying by the Commission
and Topaz Exchange.\100\
---------------------------------------------------------------------------

    \100\ See, e.g., Form of German Parent Corporate Resolutions
(2007 Resolution Section (3) and Topaz Exchange Resolution Section
(2)(a)); and U.S. Exchange Holdings Certificate, Article FIFTEENTH.
See infra Section II.C.2.c for a discussion of the 2009 Procedure
through which the Swiss companies would make available their books
and records relating to the activities of the Topaz Exchange.
---------------------------------------------------------------------------

     Books and records of U.S. Exchange Holdings related to the
activities of Topaz Exchange will be maintained within the United
States.\101\
---------------------------------------------------------------------------

    \101\ See U.S. Exchange Holdings Certificate, Article FIFTEENTH.
---------------------------------------------------------------------------

     For so long as each of the Non-U.S. Upstream Owners or
U.S. Exchange Holdings directly or indirectly controls Topaz Exchange,
the books, records, officers, directors (or equivalent), and employees
of each of the Non-U.S. Upstream Owners or of U.S. Exchange Holdings
will be deemed to be the books, records, officers, directors, and
employees of Topaz Exchange, as applicable.\102\ And, for so long as
U.S. Exchange Holdings directly or indirectly controls Topaz Exchange,
the premises of U.S. Exchange Holdings will be deemed to be the
premises of Topaz Exchange.\103\
---------------------------------------------------------------------------

    \102\ See, e.g., Form of German Parent Corporate Resolutions
(2007 Resolution Sections (3) and (8)(c) and Topaz Exchange
Resolution Sections (2)(a) and (2)(c)); and U.S. Exchange Holdings
Certificate, Article FIFTEENTH.
    \103\ See U.S. Exchange Holdings Certificate, Article FIFTEENTH.
---------------------------------------------------------------------------

     To the extent involved in the activities of Topaz
Exchange, each of the Non-U.S. Upstream Owners, its board members,
officers, and employees, irrevocably submit to the jurisdiction of the
U.S. federal courts and the Commission for purposes of any suit, action
or proceeding arising out of, or relating to, the activities of Topaz
Exchange to the extent such board member, officer or employee are
involved in the activities of Topaz Exchange.\104\ Likewise, U.S.
Exchange Holdings, its officers, directors, and employees whose
principal place of business and residence is outside of the United
States, to the extent such director, officer, or employee is involved
in the activities of Topaz Exchange, irrevocably submit to the

jurisdiction of the U.S. federal courts and the Commission for purposes
of any suit, action or proceeding pursuant to the U.S. federal
securities laws, and the rules or regulations thereunder, commended or
initiated by the Commission arising out of, or relating to, the
activities of Topaz Exchange.\105\
---------------------------------------------------------------------------

    \104\ See, e.g., Form of German Parent Corporate Resolutions
(2007 Resolution Sections (2), (7)(b), and (8)(b) and Topaz Exchange
Resolution Section (2)).
    \105\ See U.S. Exchange Holdings Bylaws, Article VI, Section 16.
---------------------------------------------------------------------------

     The 2007 Resolutions, as supplemented by the Topaz
Exchange Resolutions, and the U.S. Exchange Holdings Certificate and
the U.S. Exchange Holdings Bylaws each require that any change to the
applicable document (including any action by the Non-U.S. Upstream
Owners that would have the effect of amending or repealing the Topaz
Exchange Resolutions or the 2007 Resolutions) must be submitted to the
Topaz Exchange Board.\106\ If such change must be filed with, or filed
with and approved by, the Commission under Section 19 of the Act,\107\
and the rules thereunder, then such change shall not be effective until
filed with, or filed with and approved by, the Commission.\108\
---------------------------------------------------------------------------

    \106\ See, e.g., Form of German Parent Corporate Resolutions
(Topaz Exchange Resolution Section (3)); U.S. Exchange Holdings
Certificate, Article SIXTEENTH; and U.S. Exchange Holdings Bylaws,
Article VI, Section 9.
    \107\ 15 U.S.C. 78s.
    \108\ See, e.g., Form of German Parent Corporate Resolutions
(Topaz Exchange Resolution Section (3)); U.S. Exchange Holdings
Certificate, Article SIXTEENTH; and U.S. Exchange Holdings Bylaws,
Article VI, Section 9. The requirement to submit changes to the
Topaz Exchange Board endures for as long as U.S. Exchange Holdings
directly or indirectly controls Topaz Exchange. See U.S. Exchange
Holdings Bylaws, Article VI, Section 9.
---------------------------------------------------------------------------

    The 2012 Trust Agreement, in addition to enforcing the ownership
and voting limits,\109\ also serves to effectuate compliance with the
other commitments made under the Topaz Exchange Resolutions, which
incorporate the 2007 Resolutions. To accomplish that purpose, the Trust
would determine whether a Material Compliance Event \110\ has occurred
or is continuing. The Trust would determine whether the occurrence and
continuation of a Material Compliance Event requires the exercise of
the Call Option.\111\ The Trust holds a Call Option over the capital
stock of ISE Holdings that may be exercised if a Material Compliance
Event has occurred and continues to be in effect, and upon such
exercise, the Trust Beneficiary \112\ and ISE Holdings, as applicable,
will take such actions as are necessary to transfer, or cause the
transfer to the Trust of a majority of the Voting Shares then
outstanding.\113\ The Trust will transfer Deposited Shares from the
Trust back to the Trust Beneficiary, as provided in Section 4.2(h)
therein, only if no Material Compliance Event is continuing or,
notwithstanding its continuation, the Trustees determine that the
retention of the Deposited Shares could not reasonably be expected to
address the continuing Material Compliance Event, provided that the
determination is filed with, or filed with and approved by, the
Commission.\114\
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    \109\ See supra notes 61-63 and 73-76 and accompanying text for
a discussion of the ownership and voting limits.
    \110\ Under the 2012 Trust Agreement, a ``Material Compliance
Event'' is any state of facts, development, event, circumstance,
condition, occurrence, or effect that results in the failure of any
of the Non-U.S. Upstream Owners to adhere to its respective
commitments under the Resolutions adopted by the respective Non-U.S.
Upstream Owners, in any material respect. See 2012 Trust Agreement,
Article I, Section 1.1.
    \111\ See supra note 73.
    \112\ Under the Trust, the term ``Trust Beneficiary'' means U.S.
Exchange Holdings.
    \113\ See 2012 Trust Agreement, Article IV, Section 4.2.
Specifically, if a Material Compliance Event occurs and continues to
be in effect, the Trustees must take certain actions, including,
after a specified cure period, the exercise of a Call Option for a
transfer of the majority of capital stock of ISE Holdings that has
the right by its terms to vote in the election of the ISE Holdings
Board or on other matters.
    \114\ See 2012 Trust Agreement, Article IV, Section 4.2.
---------------------------------------------------------------------------

    The Commission believes that the provisions discussed above in
Sections II.C.2.a. and b., which are designed to help maintain the
independence of Topaz Exchange's regulatory function and help
facilitate the ability of Topaz Exchange to carry out its regulatory
responsibilities 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.\115\ Whether Topaz Exchange operates in compliance with the
Act, however, depends on how it and ISE Holdings in practice implement
the governance and other provisions that are the subject of this
Order.\116\
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    \115\ 15 U.S.C. 78f(b)(1).
    \116\ The Commission has noted that it is reviewing the various
standards and processes it uses to facilitate the registration of
national securities exchanges and other entities required to
register with the Commission and may issue a concept release
designed to collect relevant information to evaluate aspects of
these registration standards and processes, including the policy
objectives of registration, and how best to achieve those policy
objectives through registration and other means, and the relative
benefits and costs of the various means available. See Securities
Exchange Act Release No. 65543 (October 12, 2011), 76 FR 65784,
65786 fn. 13 (October 24, 2011).
---------------------------------------------------------------------------

    Further, Section 19(h)(1) of the Act \117\ provides the Commission
with the authority ``to suspend for a period not exceeding twelve
months or revoke the registration of [an SRO], or to censure or impose
limitations upon the activities, functions, and operations of [an SRO],
if [the Commission] finds, on the record after notice and opportunity
for hearing, that [the SRO] has violated or is unable to comply with
any provision of [the Act], the rules or regulations thereunder, or its
own rules or without reasonable justification or excuse has failed to
enforce compliance'' with any such provision by its members (including
associated persons thereof).\118\ If Commission staff were to find, or
become aware of, through staff review and inspection or otherwise,
facts indicating any violations of the Act, including without
limitation Sections 6(b)(1) \119\ and 19(g)(1),\120\ these matters
could provide the basis for a disciplinary proceeding under Section
19(h)(1) of the Act.\121\
---------------------------------------------------------------------------

    \117\ See 15 U.S.C. 78s(h)(1).
    \118\ See id.
    \119\ See 15 U.S.C. 78f(b)(1)
    \120\ See 15 U.S.C. 78s(g)(1).
    \121\ See 15 U.S.C. 78s(h)(1).
---------------------------------------------------------------------------

    Even in the absence of the provisions described above, under
Section 20(a) of the Act,\122\ any person with a controlling interest
in Topaz Exchange would be jointly and severally liable with and to the
same extent that Topaz Exchange is liable under any provision of the
Act, unless the controlling person acted in good faith and did not
directly or indirectly induce the act or acts constituting the
violation or cause of action. In addition, Section 20(e) of the Act)
\123\ creates aiding and abetting liability for any person who
knowingly provides substantial assistance to another person in
violation of any provision of the Act or rule thereunder. Further,
Section 21C of the Act authorizes the Commission to enter a cease-and-
desist order against any person who has been ``a cause of'' a violation
of any provision of the Act through an act or omission that the person
knew or should have known would contribute to the violation.\124\ These
provisions are applicable to all entities controlling Topaz Exchange,
including the Trust, ISE Holdings, U.S. Exchange Holdings, and the Non-
U.S. Upstream Owners.
---------------------------------------------------------------------------

    \122\ See 15 U.S.C. 78t(a).
    \123\ See 15 U.S.C. 78t(e).
    \124\ See 15 U.S.C. 78u-3(a).
---------------------------------------------------------------------------

c. Swiss Resolutions and Procedure With FINMA
    As discussed more fully in the Eurex Acquisition Order,\125\ Swiss
law is designed to protect Swiss sovereignty concerns and prohibits the
direct delivery of information from the Swiss

owners of Topaz Exchange to the Commission or Topaz Exchange with
respect to the activities of Topaz Exchange. In light of the Swiss
penal code,\126\ the Swiss companies agreed to make their books and
records relating to the activities of ISE, EDGA and EDGX available for
inspection and copying by the Commission through FINMA.\127\ The Swiss
companies made the same agreement in connection with the Eurex
Acquisition, and agreed to do so again with respect to the Topaz
Exchange prior to the grant of registration to Topaz Exchange as a
national securities exchange.\128\ In November 2009, the Commission and
FINMA both approved and signed the Undertaking Relating to the
Oversight of Affiliated Markets (``2009 Undertaking'') pursuant to
which FINMA undertook to serve as a conduit for the delivery of
information between the Commission and the Swiss owners of ISE Holdings
(``Procedure'') \129\ for any national securities exchange registered
under Section 6 of the Act that ISE Holdings controls or would, in the
future, control, directly or indirectly.\130\
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    \125\ See supra note 15.
    \126\ Art. 271 of the Swiss penal code, ``Prohibited acts for a
foreign state,'' states, in part: ``Whoever, without being
authorized, performs acts for a foreign state on Swiss territory
that are reserved to an authority or an official, whoever performs
such acts for a foreign party or another foreign organization,
whoever aids and abets such acts, shall be punished with
imprisonment and, in serious cases, sentenced to the penitentiary.''
    \127\ In 2007, the Swiss Federal Banking Commission (``SFBC'')
(the predecessor to FINMA) undertook to serve as a conduit for the
delivery of information between the Commission and the Swiss
companies relating to the activities of ISE. On January 1, 2009, the
SFBC, the Swiss Federal Office of Private Insurance and the Swiss
Anti-Money Laundering Control Authority merged to form FINMA, a new
consolidated financial regulator for Switzerland. In 2009, a new
undertaking was expanded to cover EDGA and EDGX and any future U.S.
exchanges controlled by ISE Holdings. The 2009 undertaking became
effective after the Commission approved the Form 1 applications of
EDGA and EDGX. See DirectEdge Exchanges Order, supra note 70. The
2009 undertaking covers all U.S. markets that currently are, or in
the future may be, controlled by ISE Holdings. Accordingly, by its
terms, the new undertaking from 2009 also would apply to the
activities of Topaz Exchange upon its registration. See http://www.sec.gov/about/offices/oia/oia_bilateral/switzerland_sfbc.pdf.
    \128\ See supra note 15. The forms of these agreements are
included as part of the Form 1 Application. Form of Swiss Parent
Corporate Resolutions; see also Form of EGD Corporate Resolutions.
Based on the representation of Topaz Exchange in the submission of
its Form 1 Application to the Commission, the resolutions were
signed by the respective Swiss companies prior to the grant of
registration by the Commission. See Exhibit B to Topaz Exchange Form
1 Application and Amendment No. 3.
    \129\ Where necessitated by Swiss law, the Procedure provides:
(1) If the Commission makes a request to any of the Swiss Upstream
Owners for information related to the activities of a U.S. Market,
including books and records related to the activities of such U.S.
Market, FINMA shall deliver to the Commission without delay any
responsive information provided to FINMA by the Swiss Upstream
Owners; (2) written requests for information, including books and
records, related to the activities of a U.S. Market shall be made by
the Commission directly to the Swiss Upstream Owners, and FINMA
would be copied on any such requests; and (3) a FINMA staff member
shall participate in any oral exchanges between the Commission and
any of the Swiss Upstream Owners. As used in the 2009 Undertaking,
``U.S. Markets'' means ISE, EDGX, EDGA, and any national securities
exchange registered under Section 6 of the Act that ISE Holdings
may, in the future, control, directly or indirectly. See 2009
Undertaking, paragraph 6.
    Notwithstanding this Procedure, the Swiss Upstream Owners remain
fully responsible for meeting all of their obligations as owners of
a U.S. securities exchange, to be set forth in binding corporate
resolutions.
    \130\ FINMA serves as a conduit for the delivery of information
and for participation in oral exchanges between the Commission and
the Swiss companies, and would serve in that capacity for Topaz
Exchange. The 2009 Undertaking explicitly states that it covers
changes in Swiss companies that become future direct or indirect
owners of the U.S. Markets. Specifically, when SIX Swiss Exchange
AG's transferred its interest to the newly formed Swiss corporation,
EGD, EGD was covered by the 2009 Undertaking. See supra note 16.
---------------------------------------------------------------------------

    Subject to the terms and conditions relating to the Procedure,
coupled with the fact that under the Topaz Exchange LLC Agreement, all
trading records of Topaz Exchange must be maintained in the United
States,\131\ the Commission believes that the Procedure should not
result in a level of access materially different from that agreed to by
other entities that control U.S. national securities exchanges.\132\
---------------------------------------------------------------------------

    \131\ See Topaz Exchange LLC Agreement, ARTICLE IV, Section 4.1
(Books and Records).
    \132\ See Eurex Acquisition Order, supra note 15, at 72 FR 71984
n.66 and accompanying text; see also DirectEdge Exchanges Order,
supra note 70. If a Non-U.S. Upstream Owner fails to make its books
and record relating to the operation of Topaz Exchange available to
the Commission, the Commission could bring an action under, among
other provisions, Section 17 of the Act, 15 U.S.C. 78q, and Rule
17a-1(b) thereunder, 17 CFR 240.17a-1(b), against Topaz Exchange
pursuant to Section 19(h) of the Act, 15 U.S.C. 78s(h).
---------------------------------------------------------------------------

3. Regulation of Topaz Exchange
    As a prerequisite to the Commission's granting of an exchange's
application for registration, an exchange must be so organized and have
the capacity to carry out the purposes of the Act.\133\ Specifically,
an exchange must be able to enforce compliance by its members, and
persons associated with its members, with the Act and the rules and
regulations thereunder and the rules of the exchange.\134\ The
discussion below summarizes how Topaz Exchange proposes to structure
and conduct its regulatory operations.
---------------------------------------------------------------------------

    \133\ See Section 6(b)(1) of the Act, 15 U.S.C. 78f(b)(1).
    \134\ See id. See also Section 19(g) of the Act, 15 U.S.C.
78s(g).
---------------------------------------------------------------------------

a. Corporate Governance Committee and Finance and Audit Committee
    Topaz Exchange will have a Chief Regulatory Officer (``CRO'') with
general responsibility for supervision of the regulatory operations of
Topaz Exchange. The CRO will report to the Corporate Governance
Committee\135\ and to the President/Chief Executive Officer, although
the Topaz Exchange Board would retain the power to call the CRO to
report directly to the Board as needed, and the CRO may call special
meetings of the Board, as necessary.\136\ The Corporate Governance
Committee will meet regularly with the CRO to review regulatory
matters.
---------------------------------------------------------------------------

    \135\ The Corporate Governance Committee will consist of at
least three directors, all of whom must be Non-Industry Directors.
See Topaz Exchange Constitution, Article V, Section 5.4.
    \136\ See Exhibit L to Topaz Exchange Form 1 Application.
---------------------------------------------------------------------------

    The Corporate Governance Committee will monitor the regulatory
program for sufficiency, effectiveness and independence, and will
oversee trade practices and market surveillance, audits, examinations
and other regulatory responsibilities with respect to members and the
conduct of investigations. The Corporate Governance Committee also will
supervise the CRO; will receive an annual report from the CRO assessing
Topaz Exchange's self-regulatory program for the Board; will recommend
changes that would ensure fair and effective regulation; and will
review regulatory proposals and advise the Board as to whether and how
such changes may impact regulation. The Corporate Governance Committee
will review annually the regulatory budget and specifically inquire
into the adequacy of the resources available in the budget for
regulatory activities. The Corporate Governance Committee will
authorize unbudgeted expenditures for necessary regulatory expenses. In
addition, the Finance and Audit Committee will provide oversight over
the systems of internal controls established by management and the
Board and the Exchange's regulatory and compliance process.\137\
---------------------------------------------------------------------------

    \137\ See Exhibit L to Topaz Exchange Form 1 Application. See
also Amendment No. 3.
---------------------------------------------------------------------------

    The Compensation Committee will set compensation for the CRO. The
Corporate Governance Committee, in its sole discretion, will make
hiring and termination decisions with respect to the CRO, in each case
taking into consideration any recommendations made by the President/
Chief Executive Officer. The Corporate Governance Committee will be
informed about the

compensation of the CRO, including factors affecting changes thereto.
b. Regulatory Funding
    To help assure the Commission that it has and will continue to have
adequate funding to be able to meet its responsibilities under the Act,
Topaz Exchange represented that, prior to commencing operations as a
national securities exchange, ISE Holdings will provide sufficient
funding to Topaz Exchange for the exchange to carry out its
responsibilities under the Act.\138\ Specifically, Topaz Exchange
represented that ISE Holdings will make a cash contribution to Topaz
Exchange of $5 million, in addition to previously provided ``in-kind''
contributions of legal, regulatory and infrastructure-related services
to Topaz Exchange\139\ Topaz Exchange represented in its Form 1
Application that the cash and in-kind contributions to Topaz Exchange
will be adequate to operate Topaz Exchange, including its regulatory
program.\140\ Further, Topaz Exchange, with ISE Holdings as its parent,
will be affiliated with an existing exchange, ISE. Individuals
currently employed by ISE have been providing, and will continue to
provide, services to Topaz Exchange.\141\
---------------------------------------------------------------------------

    \138\ See Exhibit I to Topaz Exchange Form 1 Application.
    \139\ Other applicants for registration as a national securities
exchange have noted in their Form 1 applications similar funding
commitments and representations. BOX Exchange represented that,
prior to launch, BOX Group LLC would allocate sufficient operational
assets, including regulatory infrastructure and industry and
regulatory memberships, along with a $1,000,000 loan to BOX
Exchange. In MIAX, the exchange represented that Miami International
Holdings, Inc. would allocate sufficient operational assets and make
a capital contribution of not less than $2,000,000 into MIAX capital
account prior to launching operations. See, e.g., MIAX Order, supra
note 30.
    \140\ See Exhibit I to Topaz Exchange Form 1 Application.
    \141\ See id.
---------------------------------------------------------------------------

    Topaz Exchange represented in its Form 1 Application that there
will be a written agreement between Topaz Exchange and ISE Holdings
that requires ISE Holdings to provide adequate funding for Topaz
Exchange's operation, including the regulation of Topaz Exchange.\142\
This agreement further provides that ISE Holdings will reimburse Topaz
Exchange for its costs and expenses to the extent Topaz Exchange's
assets are insufficient to meet its costs and expenses.\143\ Excess
funds, as solely determined by Topaz Exchange, will be remitted to ISE
Holdings.\144\ Further, Topaz Exchange will receive all fees, including
regulatory fees and trading fees, payable by Topaz Exchange's members,
as well as any funds received from any applicable market data fees and
OPRA tape revenue.\145\ Regulatory funds, meaning the fees, fines or
penalties derived from the regulatory operations of Topaz Exchange,
will be used to fund the legal, regulatory and surveillance operations
of Topaz Exchange.\146\
---------------------------------------------------------------------------

    \142\ See Amendment No. 3. Both BOX and MIAX also represented in
their Form 1 applications that there would be explicit agreements
with their respective holding companies to provide adequate funding
for the exchanges' operations, including regulation.
    \143\ See Exhibit I to Topaz Exchange Form 1 Application.
    \144\ See id.
    \145\ See id.
    \146\ See id. See also Topaz Exchange LLC Agreement, Article
III, Section 3.3. The Topaz Exchange LLC Agreement defines
``Regulatory Funds'' as fees, fines or penalties derived from the
regulatory operations of the [Topaz Exchange], provided that such
term shall not include revenues derived from listing fees, market
data revenues, transaction revenues or any other aspect of the
commercial operations of the [Topaz Exchange], even if a portion of
such revenues are used to pay costs associated with the regulatory
operations of the [Topaz Exchange]. Id. This definition is
consistent with the rules of other SROs. See, e.g., MIAX LLC
Agreement Section 16; and MIAX By-Laws Article IX, Section 9.4.
---------------------------------------------------------------------------

c. Rule 17d-2 Agreements; Regulatory Contracts with FINRA and ISE
    Section 19(g)(1) of the Act,\147\ among other things, requires
every SRO registered as either a national securities exchange or
national securities association to examine for, and enforce compliance
by, its members and persons associated with its members with the Act,
the rules and regulations thereunder, and the SRO's own rules, unless
the SRO is relieved of this responsibility pursuant to Section 17(d) or
Section 19(g)(2) of the Act.\148\ Rule 17d-2 of the Act\149\ permits
SROs to propose joint plans to allocate regulatory responsibilities
amongst themselves for their common rules with respect to their common
members.\150\ These agreements, which must be filed with and declared
effective by the Commission, generally cover areas where each SRO's
rules substantively overlap, including such regulatory functions as
personnel registration and sales practices. Without this relief, the
statutory obligation of each individual SRO could result in a pattern
of multiple examinations of broker-dealers that maintain memberships in
more than one SRO. Such regulatory duplication would add unnecessary
expenses for common members and their SROs.
---------------------------------------------------------------------------

    \147\ 15 U.S.C. 78s(g)(1).
    \148\ 15 U.S.C. 78q(d) and 15 U.S.C. 78s(g)(2), respectively.
    \149\ See Section 17(d)(1) of the Act and Rule 17d-2 thereunder,
15 U.S.C. 78q(d)(1) and 17 CFR 240.17d-2. Section 17(d)(1) of the
Act allows the Commission to relieve an SRO of certain
responsibilities with respect to members of the SRO who are also
members of another SRO. Specifically, Section 17(d)(1) allows the
Commission to relieve an SRO of its responsibilities to: (i) Receive
regulatory reports from such members; (ii) examine such members for
compliance with the Act and the rules and regulations thereunder,
and the rules of the SRO; or (iii) carry out other specified
regulatory responsibilities with respect to such members.
    \150\ 17 CFR 240.17d-2. Section 19(g)(1) of the Act requires
every SRO to examine its members and persons associated with its
members and to enforce compliance with the federal securities laws
and the SRO's own rules, unless the SRO is relieved of this
responsibility pursuant to Section 17(d) of the Act. Section 17(d)
was intended, in part, to eliminate unnecessary multiple
examinations and regulatory duplication with respect to Common
Members. See Securities Exchange Act Release No. 12935 (October 28,
1976), 41 FR 49091 (November 8, 1976) (``Rule 17d-2 Adopting
Release'').
---------------------------------------------------------------------------

    A 17d-2 plan that is declared effective by the Commission relieves
the specified SRO of those regulatory responsibilities allocated by the
plan to another SRO.\151\ Many SROs have entered into Rule 17d-2
agreements.\152\
---------------------------------------------------------------------------

    \151\ See id.
    \152\ See, e.g., Securities Exchange Act Release Nos. 59218
(January 8, 2009), 74 FR 2143 (January 14, 2009) (File No. 4-575)
(Financial Industry Regulatory Authority, Inc. (``FINRA'')/Boston
Stock Exchange, Inc.); 58818 (October 20, 2008), 73 FR 63752
(October 27, 2008) (File No. 4-569) (FINRA/BATS Exchange, Inc.);
55755 (May 14, 2007), 72 FR 28087 (May 18, 2007) (File No. 4-536)
(National Association of Securities Dealers, Inc. (``NASD'') (n/k/a
FINRA) and Chicago Board of Options Exchange, Inc. (``CBOE'')
concerning the CBOE Stock Exchange, LLC); 55367 (February 27, 2007),
72 FR 9983 (March 6, 2007) (File No. 4-529) (NASD/ISE) (``ISE
Bilateral 17d-2 Plan''); and 54136 (July 12, 2006), 71 FR 40759
(July 18, 2006) (File No. 4-517) (NASD/The Nasdaq Stock Market LLC).
---------------------------------------------------------------------------

    Topaz Exchange has represented to the Commission that it will enter
into the following allocation of regulatory responsibilities pursuant
to Rule 17d-2 of the Act (``17d-2 Plans''),\153\ including the two
existing multiparty plans applicable to options trading:
---------------------------------------------------------------------------

    \153\ Rule 17d-2 under the Act permits SROs to propose joint
plans for the allocation of regulatory responsibilities with respect
to their common members (i.e., 17d-2 plans).
---------------------------------------------------------------------------

     Multiparty 17d-2 Plan for the Allocation of Regulatory
Responsibility for Options Sales Practice Matters;\154\
---------------------------------------------------------------------------

    \154\ See Exhibit L to Topaz Exchange Form 1 Application. See
also Securities Exchange Act Release No. 68363 (December 5, 2012),
77 FR 73711 (December 11, 2012) (File No. S7-966) (notice of filing
and order approving and declaring effective an amendment to the
multiparty 17d-2 plan concerning options-related sales practice
matters).
---------------------------------------------------------------------------

     Multiparty 17d-2 Plan for the Allocation of Regulatory
Responsibility for Options Related Market Surveillance Matters;\155\
and
---------------------------------------------------------------------------

    \155\ See Exhibit L to Topaz Exchange Form 1 Application. See
also Securities Exchange Act Release No. 68362 (December 5, 2012),
77 FR 73719 (December 11, 2012) (File No. 4-551) (notice of filing
and order approving and declaring effective an amendment to the
multiparty 17d-2 plan concerning options-related market
surveillance).

---------------------------------------------------------------------------

     Bilateral 17d-2 Plan with FINRA that would cover, among
other things, general inspection, examination, and enforcement
activity.\156\
---------------------------------------------------------------------------

    \156\ See Exhibit L to Topaz Exchange Form 1 Application. See
also ISE Bilateral 17d-2 Plan, supra note 152.
---------------------------------------------------------------------------

    If the Commission declares effective the amendments to the
multilateral 17d-2 Plans and the new bilateral 17d-2 Plan, another SRO
(often FINRA) would assume certain regulatory responsibility for
members of Topaz Exchange that are also members of the SRO that assumes
the regulatory responsibilities. This regulatory structure would be
consistent with that of other exchanges, including ISE.\157\
---------------------------------------------------------------------------

    \157\ Amendments to the multilateral 17d-2 Plans and the new
bilateral 17d-2 Plan are not before the Commission as part of this
Order and, therefore, the Commission is not acting on them at this
time.
---------------------------------------------------------------------------

    In addition, Topaz Exchange has entered into a third-party
Regulatory Service Agreement (``RSA'') with FINRA.\158\ Under the RSA,
FINRA \159\ will carry out certain specified regulatory activities on
behalf of Topaz Exchange. For example, FINRA, in its capacity as
service provider to Topaz Exchange, will provide member operation
services, including membership application review, conducting market
surveillance investigation services, conducting routine and cause
examination services, assisting Topaz Exchange with disciplinary
proceedings pursuant to Topaz Exchange's rules including conducting
hearings, and providing dispute resolution services to Topaz Exchange
members on behalf of Topaz Exchange. Topaz Exchange, however, will
retain ultimate legal responsibility for the regulation of its members
and market.\160\ This regulatory structure would be consistent with
that of other exchanges.\161\
---------------------------------------------------------------------------

    \158\ See, e.g., Exhibit L to Topaz Exchange Form 1 Application.
    \159\ FINRA executed a single RSA with both ISE and Topaz
Exchange as signatories. The single RSA, however, has two separate
statements of work. The first statement of work describes the
specified regulatory activities that FINRA will carry out on behalf
of ISE. The second statement of work describes the specified
regulatory activities that FINRA will carry out on behalf of Topaz
Exchange.
    \160\ See Amendment No. 3.
    \161\ For example, ISE, EDGA, EDGX and BATS have entered into
17d-2 Plans and RSAs with FINRA.
---------------------------------------------------------------------------

    Topaz Exchange has also entered into a facilities management
agreement (``FMA'') with ISE.\162\ Pursuant to the proposed FMA, ISE
intends to provide to Topaz Exchange certain services, including, for
example, business management services, facilities management services,
IT services, fiscal services, as well as Commission and other
regulatory compliance services and other legal services, such as
surveillance programs, legal programs, systems and other operational
services.\163\ Topaz Exchange, however, will retain ultimate legal
responsibility for the regulation of its members and market.
---------------------------------------------------------------------------

    \162\ See, e.g., Exhibit L to Topaz Exchange Form 1 Application.
The FMA with ISE provides, in part, for the provision of Commission
and other regulatory compliance services.
    \163\ See Exhibit L of Topaz Exchange Form 1 Application; see
also Amendment No. 3.
---------------------------------------------------------------------------

    The Commission believes that it is consistent with the Act for
Topaz Exchange to contract with other SROs to perform certain
examination, enforcement, and disciplinary functions.\164\ These
functions are fundamental elements of a regulatory program, and
constitute core self-regulatory functions. The Commission believes that
both FINRA, as a SRO that provides contractual services to other SROs,
and ISE, as an SRO that currently operates an options exchange, should
have the capacity to perform these functions for Topaz Exchange.\165\
However, Topaz Exchange, unless relieved by the Commission of its
responsibility,\166\ bears the ultimate responsibility for self-
regulatory responsibilities and primary liability for self-regulatory
failures, not the SRO retained to perform regulatory functions on Topaz
Exchange's behalf. In performing these regulatory functions, however,
the SRO retained to perform specified regulatory functions may
nonetheless bear liability for causing or aiding and abetting the
failure of Topaz Exchange to perform its regulatory functions.\167\
Accordingly, although FINRA and ISE will not act on their own behalves
under their respective SRO responsibilities in carrying out these
regulatory services for Topaz Exchange, as the SROs retained to perform
regulatory functions, FINRA and ISE may have secondary liability if,
for example, the Commission finds that the contracted functions are
being performed so inadequately as to cause a violation of the federal
securities laws by Topaz Exchange.
---------------------------------------------------------------------------

    \164\ See, e.g., Regulation ATS Release, supra note 30. See also
Securities Exchange Act Release Nos. 50122 (July 29, 2004), 69 FR
47962 (August 6, 2004) (SR-Amex-2004-32) (order approving rule that
allowed Amex to contract with another SRO for regulatory services)
(``Amex Regulatory Services Approval Order''); 57478 (March 12,
2008), 73 FR 14521 (March 18, 2008) (SR-NASDAQ-2007-004 and SR-
NASDAQ-2007-080) (``NOM Approval Order''); Nasdaq Order, supra note
29; and BATS Order, supra note 29.
    \165\ See, e.g., Amex Regulatory Services Approval Order, supra
note 164; NOM Approval Order, supra note 164; and Nasdaq Order,
supra note 29. The Commission notes that the RSA and FMA are not
before the Commission and, therefore, the Commission is not acting
on them.
    \166\ See supra note 149.
    \167\ For example, if failings by the SRO retained to perform
regulatory functions have the effect of leaving an exchange in
violation of any aspect of the exchange's self-regulatory
obligations, the exchange will bear direct liability for the
violation, while the SRO retained to perform regulatory functions
may bear liability for causing or aiding and abetting the violation.
See, e.g., MIAX Order, supra note 30; BOX Order, supra note 39; and
Securities Exchange Act Release No. 42455 (February 24, 2000), 65 FR
11388 (March 2, 2000) (File No. 10-127) (order granting the exchange
registration of ISE) (``ISE Order'').
---------------------------------------------------------------------------

    As part of its FMA with ISE, Topaz Exchange proposes to use dual
employees to staff its regulatory services program. In other words,
current ISE employees will also serve in a similar capacity for Topaz
Exchange under the FMA. Topaz Exchange represents that the FMA will
contain an obligation on the part of Topaz Exchange and ISE to preserve
the other party's information and materials which are confidential,
proprietary and/or trade secrets and prevent unauthorized use or
disclosure to third parties.\168\
---------------------------------------------------------------------------

    \168\ See Exhibit L to Topaz Exchange Form 1 Application; see
also Amendment No. 3.
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    The Commission believes that the use of ISE employees by Topaz
Exchange is appropriate, as the operations, rules, and management of
ISE and Topaz Exchange will overlap to a considerable degree such that
Topaz Exchange should benefit by leveraging the experience of current
ISE staff. The Commission has approved such arrangements in a similar
context.\169\ However, the Commission expects both ISE and Topaz
Exchange to monitor the workload of their dual employees and supplement
their staffs, if necessary, so that Topaz Exchange maintains sufficient
personnel to allow it to carry out the purposes of the Act and enforce
compliance with the rules of Topaz Exchange and the federal securities
laws.
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    \169\ See, e.g., Securities Exchange Act Release No. 61152
(December 10, 2009), 74 FR 66699 (December 16, 2009) (File No. 10-
191) (order granting registration to C2 Options Exchange) (``C2
Order'').
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D. Trading System

1. Access to Topaz Exchange
    Access to Topaz Exchange will be through the use of Exchange
Rights.\170\ Through an application process, organizations will be
approved to become members of Topaz Exchange

and to exercise trading rights.\171\ Exchange Rights will not convey
any ownership rights, but will provide for voting rights for
representation on the Topaz Exchange Board and will confer the ability
to transact on Topaz Exchange.\172\ Exchange Rights may not be leased
and are not transferable except in the event of a change in control of
a member or corporate reorganization involving a member.\173\ There is
no limit on the number of Exchange Rights issued by Topaz
Exchange.\174\
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    \170\ See Topaz Exchange Rule 300 Series. ``Exchange Rights''
means the PMM Rights, CMM Rights and EAM Rights collectively. See
Topaz Exchange Rule 100(a)(17). PMM Rights, CMM Rights and EAM
Rights have the meaning set forth in Article VI of Topaz Exchange
LLC Agreement. See Topaz Exchange Rules 100(a)(12), 100(a)(15) and
100(a)(36).
    \171\ The term ``Member'' means an organization that has been
approved to exercise trading rights associated with Exchange Rights,
and the term ``Membership'' refers to the trading privileges
associated with Exchange Rights. See Topaz Exchange Rules 100(a)(23)
and 100(a)(24). Under Topaz Exchange Rules 300 and 302(c), Topaz
Exchange shall issue Memberships that confer the ability to transact
on Topaz Exchange, although no rights shall be conferred upon a
Member except those set forth in the Topaz Exchange LLC Agreement or
Topaz Exchange Rules as amended from time to time. A Membership
shall not convey any ownership interest in the Exchange. See Topaz
Exchange Rules 300 and 302(c).
    \172\ See Topaz Exchange Rules 300 and 302(c); see also Topaz
Exchange LLC Agreement, Article VI, Sections 6.1 and 6.3.
    \173\ See Topaz Exchange Rule 302(c). In such case, member
status may be transferred to a qualified affiliate or successor upon
written notice to Topaz Exchange. Id.
    \174\ See Topaz Exchange Rule 300(a); see also Topaz Exchange
LLC Agreement, Article VI, Section 6.1.
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    Membership in Topaz Exchange will be open to any broker-dealer
registered under Section 15(b) of the Act that meets the standards for
membership set forth in the rules of Topaz Exchange.\175\ The
Exchange's denials from, and impositions of conditions upon, becoming
or continuing to be a member may be appealed pursuant to rules
governing hearing and review, described in Section II.E below.\176\ In
addition to its regular membership application process, Topaz Exchange
also will provide a process whereby a current member of ISE in good
standing that is a registered broker-dealer can submit an abbreviated
``waive-in'' application to Topaz Exchange.\177\ This waive-in process
is similar to arrangements in place at other exchanges.\178\
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    \175\ See Topaz Exchange Rule 301.
    \176\ See Topaz Exchange Rule 1700 Series, which incorporates by
reference ISE Rule 1700 Series.
    \177\ See Topaz Exchange Rule 302(a).
    \178\ See, e.g., C2 Options Exchange, Inc. Rule 3.1(c)(1)
(containing a similar expedited waive-in membership process for
members of CBOE).
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    Topaz Exchange will have three classes of membership: (1) PMMs; (2)
CMMs; and (3) EAMs.\179\ PMM and CMMs may seek appointment to become
market makers in one or more options classes traded on the
exchange.\180\ Topaz Exchange proposes to allow firms that register as
market makers to receive special privileges or rights over non-market
maker members, such as participation entitlements for PMMs, if they
satisfy certain affirmative and negative market making obligations on
the exchange.\181\ This is similar to arrangements in place at other
exchanges, such as ISE.\182\
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    \179\ See Topaz Exchange Rule 301(c).
    \180\ See Topaz Exchange Rule 800 Series.
    \181\ See Topaz Exchange Rules 713, 802 and 803. See infra
Section II.D.3.b. for further discussion of market maker privileges
and obligations.
    \182\ See, e.g., ISE Rules 713, 802 and 803 (containing similar
rights and obligations for market makers on ISE). However, some of
Topaz Exchange's proposed access rules differ in some respects from
the rules of ISE. For example, as a result of their differing
membership structures, there is no limit on the number of PMMs that
Topaz Exchange can approve for membership, whereas ISE can appoint
only ten PMMs in total. There will still be only one PMM per options
class on Topaz Exchange. There also will be no limit to the number
of CMMs on Topaz Exchange, whereas ISE can appoint only 160 CMMs in
total. EAM rights, however, will be unlimited on both ISE and Topaz
Exchange. Topaz Exchange's approach is consistent with the rules of
other exchanges that have no limit on the number of exchange rights,
or their functional equivalent, that may be issued by the exchange.
See, e.g., C2 Order, supra note 169.
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    The Commission finds that Topaz Exchange's proposed membership
rules are consistent with the Act, including Section 6(b)(2) of the
Act,\183\ which requires the rules of an exchange to provide that any
registered broker or dealer or natural person associated with a broker
or dealer may become a member of such exchange or associated with a
member thereof. Topaz Exchange's proposed rules with respect to
exchange membership are substantively similar to the rules of other
exchanges.\184\
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    \183\ 15 U.S.C. 78f(b)(2).
    \184\ See, e.g., MIAX Rule 200 Series (``Access'').
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    The Commission notes that pursuant to Section 6(c) of the Act,\185\
an exchange must deny membership to any person, other than a natural
person, that is not a registered broker or dealer, any natural person
that is not, or is not associated with, a registered broker or dealer,
and registered broker-dealers that do not satisfy certain standards,
such as financial responsibility or operational capacity. As a
registered exchange, Topaz Exchange must independently determine if an
applicant satisfies the standards set forth in the Act, regardless of
whether an applicant is a member of another SRO.\186\
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    \185\ 15 U.S.C. 78f(c).
    \186\ See, e.g., MIAX Order, supra note 30, at 77 FR 73074; BOX
Order, supra note 39, at 77 FR 26337; BATS Order, supra note 29, at
73 FR 49502; and Nasdaq Order, supra note 29, at 71 FR 3555.
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    In addition, Topaz Exchange also will allow non-members to access
Topaz Exchange as ``sponsored customers'' of a Topaz Exchange member,
subject to certain rules.\187\ The sponsoring member will be
responsible for implementing policies and procedures to supervise and
monitor the trading of its sponsored users to ensure compliance with
all applicable federal securities laws and rules and Topaz Exchange
rules.\188\ Topaz Exchange's proposed sponsored access rules are
similar to the rules of other exchanges that provide for sponsored
access\189\ and are consistent with Rule 15c3-5 under the Act.\190\
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    \187\ See Topaz Exchange Rule 706, Supplementary Material .01.
    \188\ See Topaz Exchange Rule 706. See also 17 CFR 240.15c3-5.
    \189\ See, e.g., ISE Rule 706; see also MIAX Rule 210.
    \190\ 17 CFR 240.15c3-5.
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2. Linkage
    Topaz Exchange intends to become a participant in the Plan Relating
to Options Order Protection and Locked/Crossed Markets or any successor
plan (``Linkage Plan'').\191\ If admitted as a participant to the
Linkage Plan, other plan participants will be able to send orders to
Topaz Exchange in accordance with the terms of the plan as applied to
Topaz Exchange.
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    \191\ See Exhibit E to Topaz Exchange Form 1 Application,
Section B (``Non-Member Access'') for a discussion of the Linkage
Plan. See also Securities Exchange Act Release No. 60405 (July 30,
2009), 74 FR 39362 (August 6, 2009) (File No. 4-546) (order
approving the National Market System Plan Relating to Options Order
Protection and Locked/Crossed Markets Submitted by the Chicago Board
Options Exchange, Incorporated, International Securities Exchange,
LLC, The NASDAQ Stock Market LLC, NASDAQ OMX BX, Inc., NASDAQ OMX
PHLX, Inc., NYSE Amex LLC, and NYSE Arca, Inc.).
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    Topaz Exchange rules include relevant definitions; establish the
conditions pursuant to which members may enter orders in accordance
with the Linkage Plan; impose obligations on Topaz Exchange regarding
how it must process incoming orders; establish a general standard that
members and Topaz Exchange should avoid trade-throughs; establish
potential regulatory liability for members that engage in a pattern or
practice of trading through other exchanges; and establish obligations
with respect to locked and crossed markets.
    The Commission believes that Topaz Exchange has proposed rules that
are designed to comply with the requirements of the Linkage Plan.\192\
Further, as provided below, before Topaz Exchange can commence
operations as an exchange, it must

become a participant in the Linkage Plan.
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    \192\ See, e.g., Topaz Exchange Rules relating to Intermarket
Linkage in Rule 1900 Series, which incorporates by reference ISE
Rule 1900 Series. See also Amendment No. 3.
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3. Market Makers
a. Registration of Market Makers
    Members of Topaz Exchange may apply to become one of two types of
market maker: PMMs or CMMs (collectively, ``Market Makers''). Market
Makers are entitled to receive certain benefits and privileges in
exchange for fulfilling certain affirmative and negative market-making
obligations.\193\ Each class of Market Maker will receive a specific
level of benefits and privileges in exchange for a specific level of
obligation that such Market Maker assumes to the Topaz Exchange market.
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    \193\ Market Makers' benefits and obligations are discussed in
greater detail in the following section.
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    To begin the process of registering as a PMM or CMM, a member will
be required to file a written application with Topaz Exchange.\194\ In
reviewing a member's application for membership, Topaz Exchange will
consider, among other things, the applicant's market making
ability.\195\ To qualify for registration as a Market Maker, a member
of Topaz Exchange must meet the requirements established in Rule 15c3-1
under the Act \196\ and the general requirements set forth in Topaz
Exchange Rule 800 series, including the minimum financial requirements
of Topaz Exchange Rule 809.\197\ All members who are approved to become
Market Makers will be designated as specialists on Topaz Exchange for
all purposes under the Act and rules thereunder.\198\ Topaz Exchange
will not limit the number of qualifying entities that may become Market
Makers.\199\
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    \194\ See Topaz Exchange Rule 800(b).
    \195\ See id. The provision permitting Topaz Exchange to
consider ``such other factors as [it] deems appropriate'' must be
applied in a manner that is consistent with the Act, including
provisions that prohibit an exchange from acting in an unfairly
discriminatory manner. See 15 U.S.C. 78f(b)(5); see also MIAX Order,
supra note 30, at 77 FR 73074 n.149.
    \196\ 17 CFR 240.15c3-1.
    \197\ See Topaz Exchange Rule 800 Series. See also Topaz
Exchange Rule 1300 Series relating to Net Capital Requirements,
which incorporates by reference ISE Rule 1300 Series.
    \198\ See Topaz Exchange Rule 800(a).
    \199\ See Topaz Exchange Rule 300. See also Exhibit E to Topaz
Exchange Form 1 Application, Section A (``Introduction'').
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    In addition, all ISE market makers in good standing will be
eligible for an Exchange Right in the same membership category in which
they operate on ISE to trade on Topaz Exchange.\200\ For example, a CMM
in good standing on ISE will be eligible to become a CMM on Topaz
Exchange, through the submission and approval of a Topaz Exchange
Waive-In Membership Application.\201\
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    \200\ See Topaz Exchange Rule 302(a).
    \201\ See id. See also Exhibit F to Topaz Exchange Form 1
Application.
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    Once approved, a Market Maker may seek appointment to make markets
in one or more options classes traded on the Topaz Exchange.\202\ Topaz
Exchange will provide non-ISE Members with at least sixty days advance
written notice of the date upon which the Exchange will allocate
options classes and appoint market makers in order to ensure that non-
ISE Members have a reasonable opportunity to participate in those
processes.\203\ A market participant must have completed a membership
application to be eligible to participate in the appointment and
allocation processes.\204\
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    \202\ See Topaz Exchange Rule 802(a).
    \203\ See Topaz Exchange Rule 302(b).
    \204\ See Exhibit E to Topaz Exchange Form 1 Application,
Section A (``Introduction'').
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    Either the Topaz Exchange Board or a committee thereof \205\ will
appoint classes of options contracts traded on Topaz Exchange to Market
Makers taking into consideration: (1) The financial resources available
to the Market Maker; (2) the Market Maker's experience and expertise in
market making or options trading; and (3) the maintenance and
enhancement of competition among Market Makers in each option class to
which they are appointed.\206\ No appointment of a Market Maker will be
without the Market Maker's consent to such appointment, provided that
refusal to accept an appointment may be deemed sufficient cause for
termination or suspension of a market maker's registration.\207\ Topaz
Exchange will appoint a PMM to each options class traded on Topaz
Exchange.\208\ Once appointed, Topaz Exchange will surveil a Market
Maker's activity for continued compliance with all applicable rules and
requirements, which are discussed in more detail below.\209\
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    \205\ See Topaz Exchange Rule 802(a). Topaz Exchange Rule 1700
Series provides the process for hearings, review, and arbitration of
claims by persons economically aggrieved by Topaz Exchange action,
which would include denial of registration as a Market Maker.
    \206\ See id.
    \207\ See id.
    \208\ See Topaz Exchange Rule 802(b).
    \209\ See Topaz Exchange Rule 802(e).
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    The Commission finds that Topaz Exchange's proposed rules for the
registration and appointment of Market Makers are consistent with the
Act. In particular, Topaz Exchange's rules provide an objective process
by which a member could become a Market Maker on Topaz Exchange and
provide for oversight by Topaz Exchange to monitor for continued
compliance by Market Makers with the terms of their application for
such status. The Commission notes that Topaz Exchange's proposed Market
Maker registration and appointment requirements are similar to those of
other options exchanges.\210\
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    \210\ See, e.g., ISE Rules 800 and 801 and MIAX Rule 600
(registration); ISE Rule 802 and MIAX Rule 602 (appointment).
---------------------------------------------------------------------------

b. Market Maker Obligations
    Pursuant to Topaz Exchange rules, Market Makers will be subject to
a number of general obligations. In particular, the transactions of a
Market Maker should constitute a course of dealings reasonably
calculated to contribute to the maintenance of a fair and orderly
market and a Marker Maker should not make bids or offers or enter into
transactions that are inconsistent with such a course of dealings.\211\
A Market Maker has a continuous obligation to engage, to a reasonable
degree under the existing circumstances, in dealings for his own
account when there exists, or it is reasonably anticipated that there
will exist, a lack of price continuity, a temporary disparity between
the supply of and demand for a particular options contract, or a
temporary distortion of the price relationships between options
contracts of the same class.\212\ For all series of option classes
which the Market Maker is appointed, the Market Maker is expected to:
(1) Compete with other Market Makers to improve the market; (2) make
markets that, absent changed market conditions, will be honored for the
number of contracts entered into the Topaz Exchange's system; (3)
update market quotations in response to changed market conditions; (4)
price options contracts fairly by, among other things, bidding and
offering so as to create the prescribed bid/ask differentials.\213\
These provisions are similar to arrangements in place at other options
exchanges.\214\
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    \211\ See Topaz Exchange Rule 803(a).
    \212\ See Topaz Exchange Rule 803(b).
    \213\ See Topaz Exchange Rule 803(b)(1)-(4). Specifically under
Topaz Exchange Rule 803(b)(4), following the opening rotation,
Market Makers must create differences of no more than $5 between the
bid and offer. Prior to the opening rotation, spread differentials
shall be no more than $.25 between the bid and offer for each
options contract for which the bid is less than $2, no more than
$.40 where the bid is at least $2 but does not exceed $5, no more
than $.50 where the bid is more than $5 but does not exceed $10, no
more than $.80 where the bid is more than $10 but does not exceed
$20, and no more than $1 where the bid is $20 or greater, provided
that the Topaz Exchange may establish differences other than the
above for one or more options series.
    \214\ See, e.g., ISE Rules 802 and 803 (containing similar
rights and obligations for market makers on ISE). However, some of
Topaz Exchange's access rules differ in some respect from the rules
of ISE. See also supra note 182.

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    Further, Market Makers must maintain minimum net capital in
accordance with Topaz Exchange rules, including the minimum financial
requirement of Topaz Exchange Rule 809, in addition to the Act and
rules and regulations thereunder.\215\ Market Makers also must maintain
information barriers between their market making activity and Other
Business Activities \216\ that are reasonably designed to prevent the
misuse of material, non-public corporate or market information in the
possession of persons on one side of the barrier from influencing the
conduct of persons on the other side of the barrier.\217\
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    \215\ See Topaz Exchange Rule 1300 Series, which incorporates by
reference ISE Rule 1300 Series; see also Topaz Exchange Rule 809.
    \216\ ``Other Business Activities'' means: (1) Conducting an
investment or banking or public securities business; (2) making
markets in the stocks underlying the options in which it makes
markets; or (3) handling listed options orders as agent on behalf of
Public Customers or broker-dealers; (4) conducting non-market making
proprietary listed options trading activities. See Topaz Exchange
Rule 810(a).
    \217\ See Topaz Exchange Rule 810.
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    Topaz Exchange's rules governing Market Maker quoting obligations
are tailored to the specific class of Market Maker (that is, PMM or
CMM).\218\ Specifically, a PMM will be subject to the highest standard
applicable on Topaz Exchange, as a PMM must enter continuous two-sided
quotations and enter into any resulting transactions in all of the
series listed on the Topaz Exchange of the options classes to which it
is appointed on a daily basis.\219\ PMMs are also required to
participate in the opening rotation.\220\ Although a CMM is not
required to enter quotations in the options classes to which it is
appointed, whenever a CMM does enter a quote in an options class to
which it is appointed, the CMM must then provide continuous quotations
in that class for 60% of the time the options class is open for trading
on the Topaz Exchange.\221\ Further, CMMs may be called upon by a Topaz
Exchange official to submit a single quote or maintain continuous
quotes in one or more series of options class to which the CMM is
appointed whenever, in the judgment of such official, it is necessary