[Federal Register Volume 82, Number 162 (Wednesday, August 23, 2017)]
[Notices]
[Pages 40026-40044]
[FR Doc No: 2017-17810]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81422; File No. SR-GEMX-2017-37]

Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing
of Proposed Rule Change To Adopt New Corporate Governance and Related
Processes Similar to Those of the Nasdaq Exchanges

August 17, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on August 7, 2017, Nasdaq GEMX, LLC (``GEMX'' or ``Exchange'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule

change as described in Items I, II, and III below, which Items have
been prepared by the Exchange. The Commission is publishing this notice
to solicit comments on the proposed rule change from interested
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    Exchange's proposed [sic] rule change (the ``Proposed Rule
Change'') in connection with the proposed merger (the ``Merger'') with
a newly-formed Delaware limited liability company under the Exchange's
ultimate parent, Nasdaq, Inc., resulting in the Exchange as the
surviving entity. Following the Merger, the Exchange's board and
committee structure, and all related corporate governance processes,
will be harmonized with that of the three other registered national
securities exchanges and self-regulatory organizations owned by Nasdaq,
Inc., namely: The NASDAQ Stock Market LLC (``NSM''), NASDAQ PHLX LLC
(``Phlx''), and NASDAQ BX, Inc. (``BX'' and together with NSM and Phlx,
the ``Nasdaq Exchanges'').
    In connection with the Merger and as discussed more fully below,
the Exchange proposes to adopt new organizational documents that set
forth a corporate governance framework and related processes that are
substantially similar in all material respects to those of the Nasdaq
Exchanges.
    The Exchange intends to implement the Proposed Rule Change no later
than by the end of Q4 2017. The Exchange will alert its members in the
form of a Regulatory Alert to provide notification of the
implementation date.
    The text of the proposed rule change is available on the Exchange's
Web site at www.ise.com, at the principal office of the Exchange, and
at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange was recently acquired by Nasdaq, Inc. (``HoldCo'').\3\
Following the acquisition, the Exchange has continued to operate as a
separate self-regulatory organization (``SRO'') and continues to have
separate rules, membership rosters, and listings, distinct from the
rules, membership rosters, and listings of the Nasdaq Exchanges as well
as from ISE and MRX. The Exchange now proposes to harmonize the
corporate governance framework of the Exchange with that of the Nasdaq
Exchanges, and submits this Proposed Rule Change to seek the
Commission's approval of various changes to the Exchange's
organizational documents and Rules that are necessary in connection
with the Merger, as described below.
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    \3\ On June 30, 2016, HoldCo acquired all of the capital stock
of U.S. Exchange Holdings, Inc., the Exchange's indirect parent
company (the ``Acquisition''). As a result, the Exchange, in
addition to its affiliates Nasdaq ISE, LLC (``ISE'') and Nasdaq MRX,
LLC (``MRX''), became a wholly-owned subsidiary of HoldCo, and also
became an affiliate of NSM, Phlx, and BX through common, ultimate
ownership by HoldCo. HoldCo is the ultimate parent of the Exchange.
See Securities Exchange Act Release No. 78119 (June 21, 2016), 81 FR
41611 (June 27, 2016) (SR-ISEGemini-2016-05).
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    The proposed changes consist of: (1) Deleting the Exchange's
current Second Amended and Restated Limited Liability Company Agreement
(the ``Current LLC Agreement'') in its entirety and replacing it with a
new limited liability company agreement (the ``LLC Agreement'') that is
based on the limited liability company agreement of NSM, (2) deleting
the Exchange's current Constitution (``Current Constitution'' and
together with the Current LLC Agreement, the ``Current Governing
Documents'') in its entirety and replacing it with a new set of by-laws
(the ``Bylaws'' and together with the LLC Agreement, the ``New
Governing Documents'') that is based on the by-laws of NSM, and (3)
making minor clarifying changes to its rules, as discussed below.\4\
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    \4\ The Exchange's affiliates, ISE and MRX, have submitted or
will submit nearly identical proposed rule changes. See Securities
Exchange Release No. 81263 (July 31, 2017), 82 FR 36497 (August 4,
2017) (SR-ISE-2017-32) (ISE Approval Order).
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    All of the proposed changes are designed to align the Exchange's
corporate governance framework to the existing structure at the Nasdaq
Exchanges, particularly as it relates to board and committee structure,
nomination and election processes, and related governance practices.\5\
The Exchange is not proposing any amendments to its ownership structure
and International Securities Exchange Holdings, Inc. (``ISE Holdings'')
will remain as the Exchange's sole limited liability company member
(``Sole LLC Member'') and owner of 100% of the Exchange's limited
liability company interests. Furthermore, the Exchange is not proposing
any amendments to its trading rules at this time relating to the Merger
other than the minor clarifying changes and technical amendments as
noted below.
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    \5\ The new LLC Agreement and Bylaws are based in form and
substance on The NASDAQ Stock Market LLC's Second Amended Limited
Liability Company Agreement (the ``NSM LLC Agreement'') and By-Laws
(the ``NSM Bylaws''). Additionally, the majority of provisions in
the organizational documents of Phlx and BX were also based on those
of NSM with differences that relate mainly to disciplinary processes
(for Phlx) or to corporate structure (for BX). Notwithstanding, the
vast majority of the new governance framework and processes proposed
herein are materially identical to those of all three Nasdaq
Exchanges.
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A. The Merger

    In order to effectuate the proposed changes above, the Exchange
proposes to merge with a Delaware limited liability company
(``NewCo''), newly-formed as a wholly-owned subsidiary of ISE Holdings,
resulting in the Exchange as the surviving entity. Specifically,
pursuant to the Delaware Limited Liability Company Act, as amended from
time to time (the ``LLC Act''), NewCo would be formed under ISE
Holdings upon filing a certificate of formation with the Secretary of
State of the State of Delaware (``DE Secretary of State'').
Subsequently, the Exchange would enter into an agreement and plan of
merger with NewCo (the ``Merger Agreement''), under which NewCo would
merge into the Exchange, with the Exchange surviving the Merger. The
Merger Agreement contemplates that the merged limited liability company
(i.e. the Exchange) would have a new LLC Agreement and new Bylaws,
which would be attached to the Merger Agreement. Then, a certificate of
merger would be filed with the DE Secretary of State, which will
effectuate the Merger at the time of filing. The new LLC Agreement and
the new Bylaws would also become effective at the time of filing the
certificate of merger. Under the LLC Act, the Merger is subject to
approval by the Exchange Board and by ISE Holdings as the Sole LLC
Member. The Exchange represents that it has obtained or will obtain the
necessary approvals prior to filing the certificate of merger with the
DE Secretary of State.

    Following the Merger, the Exchange proposes to be governed by the
New Governing Documents in accordance with the LLC Act. The specific
changes effected by the New Governing Documents to the current
documents are discussed in the following sections.

B. Limited Liability Company Agreement

    Following the Merger, the Exchange proposes to adopt the LLC
Agreement,\6\ which would replace the Current LLC Agreement.\7\ The
proposed LLC Agreement reflects the expectation that the Exchange will
be operated with a governance structure substantially similar to that
of the Nasdaq Exchanges, and substantially mirrors the provisions found
in the NSM LLC Agreement other than as specifically noted herein.\8\
Schedule B of the LLC Agreement describes the proposed ownership of the
Exchange's limited liability company interests, which ownership
structure is identical to that currently in place. ISE Holdings would
remain as the Sole LLC Member (and a member of the Exchange within the
meaning of the LLC Act) and the sole owner of 100% of the limited
liability company interests of the Exchange. Except as specified below,
the proposed changes do not affect the manner of the Exchange's
operations or governance structure.
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    \6\ The proposed LLC Agreement was filed as part of the Proposed
Rule Change as Exhibit 5B.
    \7\ The Current LLC Agreement was filed as part of the Proposed
Rule Change as Exhibit 5A.
    \8\ See the Second Amended Limited Liability Company Agreement
of The NASDAQ Stock Market LLC (the ``NSM LLC Agreement''). The
Second Amended Limited Liability Company Agreement of NASDAQ PHLX
LLC (the ``Phlx LLC Agreement'') is also based on and is
substantially similar to the NSM LLC Agreement. BX is a Delaware
corporation and is governed by a Certificate of Incorporation, not
an LLC Agreement. However, the board structure is identical across
the Nasdaq Exchanges and therefore, BX's Second Restated Certificate
of Incorporation (the ``BX COI'') contains substantially similar
governance provisions as the NSM LLC Agreement and Phlx LLC
Agreement.
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    Section 1 of the LLC Agreement, titled ``Name,'' specifies the name
of the surviving entity of the Merger as the name of the Exchange.
Section 2 of the LLC Agreement, titled ``Principal Business Office,''
provides for the principal business office of the Exchange and such
other location as may hereafter be determined by the Board.\9\
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    \9\ In June 2017, the Exchange relocated its office from 60
Broad Street in New York to One Liberty Plaza in New York.
Accordingly, Section 2 of the proposed LLC Agreement now reflects
the new One Liberty Plaza address as the principal business office
of the Exchange instead of the old 60 Broad address. Similarly,
Schedule B of the proposed LLC Agreement, which includes the mailing
address of the Exchange's Sole LLC Member, also reflects the new One
Liberty Plaza address instead of 60 Broad as the Sole LLC Member's
mailing address.
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    Sections 3 and 4 of the LLC Agreement, titled ``Registered Office''
and ``Registered Agent,'' specifies the place of the Exchange's
registered office and the entity acting as its registered agent, which
is the same place and entity used by the Nasdaq Exchanges.\10\ The
Exchange proposes to replace its current registered office and agent
set forth in Section 1.5 of the Current LLC Agreement with the
registered office and agent used by the Nasdaq Exchanges for
administrative efficiency. This change will not have any material
substantive effect on the current operations or the governance of the
Exchange.
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    \10\ See NSM LLC Agreement, Sections 3 and 4; Phlx LLC
Agreement, Section 3; and BX COI, Article Second.
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    Section 5 of the LLC Agreement, titled ``Sole LLC Member,''
provides that the mailing address of the Sole LLC Member is set forth
on Schedule B of the LLC Agreement. As noted above, ISE Holdings will
remain as the Sole LLC Member of the Exchange.
    Section 6 of the LLC Agreement, titled ``Certificates,'' refers to
the filing of the Certificate of Merger with respect to the Merger.
Such provision acknowledges and confirms that such filings, which were
necessary for the merger to be effected, were authorized by the
Exchange. This Section additionally sets forth those person(s) who have
the authority to file any other certificates with the Delaware
Secretary of State on behalf of the Exchange pursuant to the LLC Act.
This provision is purely administrative in nature and therefore will
have no material substantive effect on the current operations or the
governance of the Exchange.
    Section 7 of the LLC Agreement, titled ``Purposes,'' discusses the
Exchange's business purpose, which provides that the Exchange may
engage in any lawful act or activity for which limited liability
companies may be formed under the LLC Act and any and all activities
necessary or incidental to the foregoing. Without limiting these
general powers, proposed Section 7 also specifically provides that the
Exchange's business would include actions that support its regulatory
responsibilities under the Act, including: (i) Supporting the
operation, regulation, and surveillance of the national securities
exchange operated by the Exchange, (ii) preventing fraudulent and
manipulative acts and practices, promoting just and equitable
principles of trade, fostering cooperation and coordination with
persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, removing impediments to and perfecting the mechanisms of a
free and open market and a national market system, and, in general,
protecting investors and the public interest, (iii) supporting the
various elements of the national market system pursuant to Section 11A
of the Act and the rules thereunder, (iv) fulfilling the Exchange's
self-regulatory responsibilities as set forth in the Act, and (v)
supporting such other initiatives as the Board may deem appropriate.
Section 7 mirrors the Section 7 of the NSM LLC Agreement, and is
similar to the language in Section 1.3 of the Current LLC Agreement of
the Exchange.
    Section 8 of the LLC Agreement, titled ``Powers,'' discusses the
general powers of the Exchange, the Board and the officers of the
Exchange. Specifically, the Exchange, the Board and the officers on
behalf of the Exchange (i) shall have and exercise all powers
necessary, convenient or incidental to accomplish its purposes as set
forth in Section 7 of the LLC Agreement and (ii) shall have and
exercise all of the powers and rights conferred upon limited liability
companies formed pursuant to the LLC Act. Section 8 is based on Section
8 of the NSM LLC Agreement, and is similar to the provisions in the
Current LLC Agreement and the Current Bylaws.\11\
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    \11\ See Current LLC Agreement, Sections 5.1 and 5.7 and Current
Constitution, Sections 3.1 and 4.1.
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    Section 9 of the LLC Agreement, titled ``Management,'' sets forth
the proposed management structure of the Exchange. Section 9(a)
pertains to the Board of the Exchange and provides that the Board will
manage the Exchange's business and affairs, similar to the provisions
in Section 5.1 of the Current LLC Agreement.\12\ By adopting new
Section 9(a), the Exchange proposes to mirror the board structure of
the Nasdaq Exchanges.\13\ The Exchange proposes to add language to
indicate that the Sole LLC Member may determine at any time in its sole
and absolute discretion the number of Directors \14\ to constitute the
Board.\15\ The authorized number of

Directors may be increased or decreased by the Sole LLC Member at any
time in its sole and absolute discretion, upon notice to all Directors,
but no decrease in the number of Directors shall shorten the term of
any incumbent Member Representative Director. This language mirrors
Section 9(a) of the NSM LLC Agreement. In addition, the exact
composition of the Board is subject to the requirements in the Bylaws
relating to independence and fair representation of members, which are
described in detail below.
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    \12\ See also Current Constitution, Section 3.1.
    \13\ See NSM LLC Agreement, Section 9; Phlx LLC Agreement,
Section 8; and BX COI, Article Fifth.
    \14\ ``Director'' will be defined as the persons elected or
appointed to the board of directors from time to time in accordance
with the LLC Agreement and the Bylaws, in their capacity as managers
of the Exchange. See proposed Bylaw Article I(j), which is based on
NSM Bylaw Article I(i).
    \15\ See proposed LLC Agreement, Section 9(a). In contrast, the
Current Governing Documents have specific limits on the size of the
Board in that the Exchange is required to have no less than eight
and no more than sixteen directors. See Current LLC Agreement,
Section 5.2 and Current Constitution, Section 3.2(a).
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Fair Representation of Members
    The Exchange proposes in Section 9(a), similar to the Nasdaq
Exchanges, that at least 20% of the Directors would be Member
Representative Directors.\16\ Member Representative Directors are
elected or appointed after having been nominated by a Member Nominating
Committee \17\ composed of representatives of the Exchange members or
by Exchange members in the manner described in the proposed Bylaws.\18\
Currently, there are six directors on the Board who are officers,
directors or partners of Exchange members, and are elected by a
plurality of the holders of Exchange Rights \19\ (the ``Exchange
Directors''),\20\ of which at least: (i) One must be elected by a
plurality of the holders of Primary Market Maker (``PMM'') Exchange
Rights, (ii) one must be elected by a plurality of holders of
Competitive Market Maker (``CMM'') Exchange Rights, and (iii) one must
be elected by a plurality of holders of Electronic Access Member
(``EAM'') Exchange Rights; provided, however, that the number of each
type of Exchange Director will always be equal to one another.\21\ The
Exchange adopted the current board structure as it relates to Exchange
Directors to comply with Section 6(b) of the Act, which provides that
the Exchange must, among other things, assure fair representation of
its members (here, the PMMs, CMMs, and EAMs) in the selection of its
directors and administration of its affairs (the ``fair representation
requirement'').\22\ Therefore, the Exchange believes that the Exchange
Directors serve the same function on the current Board as ``Member
Representative Directors'' on the boards of the Nasdaq Exchanges in
that the Exchange Directors give members a voice in the Exchange's use
of self-regulatory authority.\23\ The Exchange further believes that
the new Board structure will still provide for the fair representation
of its members because the new structure is well-established as meeting
the fair representation requirement.\24\
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    \16\ See NSM LLC Agreement, Section 9; Phlx LLC Agreement,
Section 8; BX Bylaws, Section 4.3. ``Member Representative
Director'' will be defined as a Director who has been elected or
appointed after having been nominated by the Member Nominating
Committee or by an Exchange Member. A Member Representative Director
may, but is not required to be, an officer, director, employee, or
agent of an Exchange Member. See proposed Bylaw Article I(r), which
is based on NSM Bylaw Article I(q).
    \17\ See proposed Section 6(b) of Bylaw Article III. ``Member
Nominating Committee'' will be defined as the Member Nominating
Committee appointed pursuant to the Bylaws. See proposed Bylaw
Article I(q), which is based on NSM Bylaw Article I(p).
    \18\ The Commission has previously found that the requirement in
the NSM LLC Agreement that 20% of the directors shall be ``Member
Representative Directors'' and the means by which they are elected
by the members provides for the fair representation of members in
the selection of directors and administration of NSM consistent with
the requirement in Section 6(b) of the Act. See Securities Exchange
Act Release No. 53128 (Jan. 13, 2006), 71 FR 3550 (January 23, 2006)
(Order Granting Registration as a National Securities Exchange).
    \19\ See Rule 300 Series. ``Exchange Rights'' means the PMM
Rights, CMM Rights and EAM Rights collectively. See Rule 100(a)(17).
PMM Rights, CMM Rights and EAM Rights have the meaning set forth in
Article VI of the Current LLC Agreement. See Rules 100(a)(12),
100(a)(15) and 100(a)(36). See also Current Constitution, Section
13.1(n). PMMs, CMMs, and EAMs represent the three classes of
membership on the Exchange. See Current Constitution, Sections
13.1(f), 13.1(j) and 13.1(y).
    \20\ These directors are defined as ``Industry Directors'' in
Section 3.2(b)(i) of the Current Constitution, but will be referred
to herein as ``Exchange Directors.''
    \21\ See Current Constitution, Section 3.2(b). Section 3.2(b)
further requires that the Board be composed of at least 30% Exchange
Directors.
    \22\ See Section 6(b)(3) of the Act, 15 U.S.C. 78f(b)(3). Upon
granting the Exchange's application for registration as a national
securities exchange, the Commission found that the board composition
requirements related to the Exchange Directors satisfied the
principles of fair representation as required by Section 6(b) the
Act. See Securities Exchange Act Release No. 70050 (July 26, 2013),
78 FR 46622 (August 1, 2013) (Order Granting Registration as a
National Securities Exchange) (hereinafter, ``GEMX Approval
Order'').
    \23\ Currently, the six Exchange Directors comprise 37.5% of the
sixteen-member Board.
    \24\ See note 18 above.
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    By adopting the new Board structure set forth in the New Governing
Documents, the Exchange is proposing to replace the Exchange Director
positions and all related concepts thereto,\25\ with Member
Representative Director positions and all related concepts that will be
further discussed below. In particular, there are a number of
provisions related to the Exchange Rights set forth in the Current
Governing Documents that will not carry over into the New Governing
Documents because they relate to the trading rights and privileges of
the Exchange members.\26\ It should be noted that on GEMX, the Exchange
Rights do not convey any ownership rights, and only provide for voting
rights for representation on the Board (i.e., through the Exchange
Directors) and confers the ability to transact on the Exchange.\27\
Because the Exchange Director positions will not be reflected in the
New Governing Documents for the reasons discussed above, the Exchange
believes that the remaining provisions in the Current Governing
Documents that relate to the trading rights of its members are more
appropriately located in the Rules than in its organizational
documents. Already, all of the provisions governing the trading
privileges associated with the Exchange Rights that are located in the
Current Governing Documents are also substantially set forth in the
Rules,\28\ and the Exchange is not proposing any changes to those rules
or to any of its trading rules in connection with the Merger except as
noted below. As described in more detail below, the Exchange will amend
its Rules only (i) to clarify any Rules that refer back to the Current
LLC Agreement or the Current Constitution in the rule text or (ii) to
relocate in the rulebook any provisions in the Current Governing
Documents related to the trading privileges of the Exchange Rights
holders that are not expressly set forth in the Rules. As such, the
holders of Exchange Rights will continue to have the same trading

privileges they currently hold as PMMs, CMMs and EAMs under the
Exchange Rules and the proposed Board structure of the Exchange will
not change any trading privileges. Virtually all of the proposed
changes regarding the removal of Exchange Director positions and
related concepts from the Exchange's organizational documents are
corporate in nature, and are intended simply to conform the
organizational documents with those of the Nasdaq Exchanges in order to
harmonize the Exchange's board structure with its affiliates. The
proposed changes will primarily affect current board composition
requirements, the current nomination and election processes of the
directors and the current committee composition requirements. These
provisions are outlined in detail in the proposed Bylaws of the
Exchange, which will be discussed below.
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    \25\ Related concepts include: ``CMM Right,'' ``Competitive
Market Maker,'' ``EAM Right,'' ``Electronic Access Member,''
``Exchange Rights,'' ``Industry Directors'' (defined herein as
``Exchange Directors''), ``PMM Rights,'' ``Primary Market Maker,''
and ``Voting Rights.'' See Current Constitution, Section 13 for the
definitions.
    \26\ See Current LLC Agreement, Article VI and Current
Constitution, Article XII. The Exchange also notes that it is not
carrying over the termination provisions in Section 6.4 of the
Current LLC Agreement into the New Governing Documents as these
generally relate to the voting rights associated with the Exchange
Rights, and therefore will no longer be applicable for the reasons
discussed above.
    \27\ See Current LLC Agreement, Sections 6.1 and 6.3 and Rules
300 and 302(c); see also GEMX Approval Order.
    \28\ For example, Exchange members holding PMM and CMM Rights
may seek appointment to become market makers in one or more options
classes traded on the Exchange, which entitles them to enter
quotations and orders into the Exchange's trading system. See Rules
100(a)(34), 100(a)(42) and Rule 800 series; see also Sections
12.1(a) and 12.2(a) of the Current Constitution. Exchange members
holding EAM Rights are entitled to enter orders into the Exchange's
trading system and clear Exchange transactions. See Rules 100(a)(9)
and 100(a)(34); see also Section 12.3(a) of the Current
Constitution. The Exchange Rights may not be leased and are not
transferable except in the event of a change in control of an
Exchange member or corporate reorganization involving an Exchange
member. See Rule 302(c); see also Current LLC Agreement, Section 6.4
and Current Constitution, Sections 12.1(b), 12.2(b), and 12.3(b).
There is no limit on the number of Exchange Rights issued by GEMX.
See Rule 300(a); see also Current LLC Agreement, Section 6.1.
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    New Section 9(a) of the LLC Agreement also proposes that all
Directors other than the Member Representative Directors shall be
elected by the Sole LLC Member in the manner described in the proposed
Bylaws. Mirroring Section 9(a) of the NSM LLC Agreement, each Director
elected, designated or appointed by the Sole LLC Member shall hold
office until a successor is elected and qualified or until such
Director's earlier death, resignation, expulsion or removal. As noted
above, Member Representative Directors shall be elected in accordance
with the Bylaws. Each Director shall execute and deliver an instrument
accepting such appointment and agreeing to be bound by all the terms
and conditions of the LLC Agreement and the Bylaws. A Director need not
be an Exchange member.
    The Exchange is also proposing to adopt substantially similar
provisions set forth in Section 9 of the NSM LLC Agreement with respect
to the Powers of the Board, the By-Laws, the Meeting of the Board of
Directors, Quorum; LLC Acts of the Board and Electronic
Communications.\29\ The section discussing the Powers of the Board is
similar to the current provisions in the Current Constitution in that
the Board is vested with the power to do any and all acts necessary or
for the furtherance of the purposes described in the LLC Agreement,
including all powers, statutory or otherwise.\30\ The Board also has
the power to bind the Exchange and delegate powers.\31\ As discussed in
the Bylaws section below, the Bylaws proposed to be adopted by the
Exchange, the Sole LLC Member and the Board in Section 9(c) of the LLC
Agreement will replace the Current Constitution of the Exchange.
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    \29\ See proposed Sections 9(b) through (f) of the Exchange's
LLC Agreement.
    \30\ See Current Constitution, Section 3.1.
    \31\ See Current LLC Agreement, Section 2.2 (providing that the
Sole LLC Member does not have the power to bind the Exchange, said
power being vested solely and exclusively in the Board) and Current
Constitution, Sections 3.1, 4.12 and 5.1.
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    The Meeting of the Board of Directors subsection contains standard
Delaware limited liability company provisions governing regular and
special meetings of the board, and related notice provisions. Similar
language is found in Section 3.6 of the Current Constitution, and the
Exchange is proposing to streamline these administrative procedures
across the Nasdaq Exchanges. The Exchange also proposes to add a
provision in this subsection that all meetings of the Board of
Directors of the Exchange (and any committees of the Exchange)
pertaining to the self-regulatory function of the Exchange (including
disciplinary matters) or relating to the structure of the market which
the Exchange regulates shall be closed to all persons other than
members of the Board of Directors and officers, staff, counsel or other
advisors whose participation is necessary or appropriate to the proper
discharge of such regulatory functions and any representatives of the
Commission. The proposed language also prohibits members of the Sole
LLC Member's board of directors who are not also members of the
Exchange's board of directors or any officers, staff, counsel or
advisors of the Sole LLC Member who are not also officers, staff,
counsel or advisors of the Exchange from participating in such
meetings.\32\
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    \32\ The proposed language on board and committee meeting
participation in Section 9(d) is not in the governing documents of
the Nasdaq Exchanges, but is retained from Section 3.2(d) of the
Current Constitution and is intended to help maintain the
independence of the Exchange's self-regulatory functions.
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    The subsections, Quorum; LLC Acts of the Board and Electronic
Communications, contain standard Delaware limited liability company
provisions governing quorum rules for Board actions, Board action by
unanimous written consent, and how Board and committee members may
participate in Board and committee meetings, as applicable. The
Exchange notes that these provisions are similar in all material
respects to those in the Current Governing Documents \33\ and relate
primarily to the administrative processes of the Board. Therefore, the
Exchange is proposing to streamline these processes across the Nasdaq
Exchanges for the sake of efficiency.
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    \33\ See Current Constitution, Sections 3.6 and 3.7.
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    Section 9(g) of the LLC Agreement generally discusses the standing
committees and provides that the Board may designate one or more
committees. By adopting new Section 9(g), the Exchange is proposing to
delete the current committees set forth in Article V of the Current
Constitution and adopt the standing committees similar to those of the
Nasdaq Exchanges. Article V of the Current Constitution provides for
the following committees: An Executive Committee, a Corporate
Governance Committee, a Finance and Audit Committee, a Compensation
Committee, and such other additional committees as may be established
by Board resolution. Article V also provides for a nominating
committee, which is a committee of the Exchange and not the Board, and
nominates the Exchange Directors for election to the Board (the
``Exchange Director Nominating Committee''). The Exchange proposes to
replace these rules with ``Committees Composed Solely of Directors''
and ``Committees Not Composed Solely of Directors'' at newly proposed
and named Bylaw Article III. The details of those committees will be
discussed below in the Bylaws section.
    The Exchange proposes to adopt substantially similar provisions set
forth in Section 9(g) of the NSM LLC Agreement with respect to the
standing committees.\34\ First, as set forth in proposed subsection
(g)(i), the Board may designate one or more Directors as alternate
members of any committee who may replace any absent or disqualified
member at any meeting of the committee. Second, in proposed subsection
(g)(ii), the Committee members shall hold office for such period as may
be fixed by a resolution adopted by the Board. Any member of a
committee may be removed from such committee only by the Board.
Vacancies shall be filled by the Board. Third, in proposed subsection
(g)(iii), each committee may adopt its own rules of procedure and may
meet at stated times or on such notice as such committee may determine.
Each committee shall be required to keep regular minutes of its
meetings and report the same to the Board when required. Fourth, in
proposed subsection (g)(iv), a majority of the committee shall
constitute a quorum and the vote of a majority present shall be an act
of the committee. Finally, in proposed subsection (g)(v), to the extent
provided in the resolution of the Board, any committee that consists

solely of one or more Directors shall have and may exercise all the
powers and authority of the Board in the management of the business and
affairs of the Exchange. The Exchange also proposes in subsection
(g)(v) to limit such committee from having the powers of the Board with
respect to approving any matters pertaining to the self-regulatory
function of the Exchange or relating to the structure of the market
which the Exchange regulates.\35\ Such committee or committees shall
have such name or names as may be determined from time to time by
resolution adopted by the Board. Further, in the absence or
disqualification of a member of a committee composed solely of
Directors, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such members constitute a
quorum, may unanimously appoint another member of the Board to act at
the meeting in the place of any such absent or disqualified member. The
foregoing provisions are similar to the language found in Section 5.1
of the Current Constitution.
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    \34\ See proposed LLC Agreement, Section 9(g)(i)-(v).
    \35\ This limitation is based on substantially similar language
in Section 5.2(ii) of ISE Mercury's current Constitution, and is
intended to assure the fair administration and governance of the
Exchange. The Exchange does not have this limitation in Section 5.2
of its Current Constitution with respect to any Board committees set
up by Board resolution, and is therefore proposing to follow the
more current ISE Mercury standard.
---------------------------------------------------------------------------

    Similar to Section 3.9 of the Current Constitution, proposed
Section 9(h) provides that the compensation of Directors shall be fixed
by the Board. This language mirrors the provisions in Section 9(h) of
the NSM LLC Agreement. The Removal and Resignation of Directors
language in proposed Section 9(i) also mirrors Section 9(i) of the NSM
LLC Agreement, and is similar to the resignation and removal language
in Section 5.4 of the Current LLC Agreement and Sections 3.4 and 3.5 of
the Current Constitution. The Directors as Agents language in proposed
Section 9(j) provides that the Directors are agents of the Exchange and
mirrors Section 9(j) of the NSM LLC Agreement.
    Section 10, titled ``Officers,'' the Exchange proposes to adopt
identical language regarding officer appointments found in Section 10
of the NSM LLC Agreement, which provisions are similar in nature to the
existing provisions in Article IV of the Current Constitution.
    Section 11, titled ``Limited Liability,'' contains standard
Delaware limited liability company language on the limitation of
liability of the Sole LLC Member and the Directors in the manner
permitted under the LLC Act. The proposed language is similar to the
limitation of liability language found in the Current LLC Agreement
\36\ and mirrors Section 11 of the NSM LLC Agreement.
---------------------------------------------------------------------------

    \36\ See Current LLC Agreement, Sections 2.3 and 5.8.
---------------------------------------------------------------------------

    Sections 12 through 14 of the LLC Agreement, which are virtually
identical to Sections 12 through 14 of the NSM LLC Agreement, are
equity-related provisions that encompass the topics of capital
contributions, additional capital contributions, and allocations of
profits and losses. These provisions set forth the basic economic
arrangement of the Sole LLC Member and remain consistent with the
economic arrangement under the Current Governing Documents.\37\
Proposed Section 15, which relates to distributions, provides that ISE
Holdings, as the Sole LLC Member, is generally entitled to all
distributions made by the Exchange. Similar to Section 3.3 of the
Current LLC Agreement, however, proposed Section 15 also contains a
stipulation that (i) the Exchange shall not be required to make a
distribution to the Sole LLC Member on account of its interest in the
Exchange if such distribution would violate the LLC Act or any other
applicable law or is otherwise required to fulfill the regulatory
functions or responsibilities of the Exchange, and (ii) Regulatory
Funds shall not be used for non-regulatory purposes, but rather shall
be used to fund the legal, regulatory and surveillance operations of
the Exchange and the Exchange shall not make a distribution to the Sole
LLC Member using Regulatory Funds.\38\ ``Regulatory Funds'' means fees,
fines, or penalties derived from the regulatory operations of the
Exchange. ``Regulatory Funds'' shall not be construed to include
revenues derived from listing fees, market data revenues, transaction
revenues, or any other aspect of the commercial operations of the
Exchange, even if a portion of such revenues are used to pay costs
associated with the regulatory operations of the Exchange.\39\ This
provision is designed to preclude the Exchange from using its authority
to raise Regulatory Funds for the purpose of benefitting its Sole LLC
Member.
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    \37\ See Current LLC Agreement, Sections 3.1 and 3.2.
    \38\ The Nasdaq Exchanges will each separately file proposed
rule changes to harmonize the distribution provisions in their
respective governing documents with the language the Exchange
proposes for Section 15, specifically to add the language imported
from Section 3.3 of the Exchange's Current LLC Agreement.
    \39\ See proposed LLC Agreement, Schedule A.
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    Similar to Section 4.1 of the Current LLC Agreement, Section 16 of
the LLC Agreement, titled ``Books and Records,'' sets forth certain
information relating to general administrative matters with respect to
the books and records of the Exchange. Specifically, the Board shall
keep or cause to be kept complete and accurate books of account and
records with respect to the Exchange's business. The books of the
Exchange shall at all times be maintained by the Board. The Exchange's
books of account shall be kept using the method of accounting
determined by the Sole LLC Member. Further, the Exchange's independent
auditor shall be an independent public accounting firm selected by the
Board.\40\ Finally, the Exchange proposes to retain some of the
existing concepts on books and records from Section 4.1(b) of the
Current LLC Agreement in the new Section 16.\41\ First, the books of
account and records with respect to the Exchange's business must be
kept within the United States. Second, other than as provided in
Section 16 with respect to the Commission, all confidential information
pertaining to the self-regulatory function of the Exchange (including
but not limited to disciplinary matters, trading data, trading
practices and audit information) contained in the books and records of
the Exchange shall: (i)Not be made available to any persons other than
to those officers, directors, employees and agents of the Exchange that
have a reasonable need to know the contents thereof; (ii) be retained
in confidence by the Exchange and the officers, directors, employees
and agents of the Exchange; and (iii) not be used for any non-
regulatory purposes.\42\ Nothing in the

LLC Agreement shall be interpreted as to limit or impede the rights of
the Commission to access and examine such confidential information
pursuant to the federal securities laws and the rules and regulations
thereunder, or to limit and impede the ability of any officers,
directors, employees or agents of the Exchange to disclose such
confidential information to the Commission.
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    \40\ See Section 16 of the NSM LLC Agreement for substantially
similar provisions.
    \41\ These concepts are generally not in the governing documents
of the Nasdaq Exchanges, and relate to where the Exchange's books
and records must be maintained and who may access such books and
records, in particular those that contain confidential information
pertaining to the self-regulatory function of the Exchange. While
Phlx has a requirement under Section 15 of the Phlx LLC Agreement to
keep its books and records in the United States, neither BX nor NSM
has this requirement under their respective governing documents.
Furthermore, none of the Nasdaq Exchanges have in their governing
documents a provision that explicitly sets forth the Commission's
right to access their books and records. The Nasdaq Exchanges will
each separately file proposed rule changes to harmonize the books
and records provisions in their respective governing documents with
the language the Exchange proposes for Section 16.
    \42\ The proposed language that all confidential information
pertaining to the self-regulatory function of the Exchange not be
used for any non-regulatory purposes is copied from Section
4.1(b)(iii) of ISE Mercury's current LLC Agreement. In contrast,
Section 4.1(b)(iii) of the Exchange's Current LLC Agreement
prohibits the usage of such information for any non-commercial
purposes. The Exchange is proposing to use the more current ISE
Mercury standard to emphasize the independence of the Exchange's
regulatory function from its commercial interests.
---------------------------------------------------------------------------

    Section 17, titled ``Reports,'' is being added to mirror the
language of the NSM LLC Agreement, and requires the Board, after the
end of each fiscal year, to use reasonable efforts to cause the
Exchange's independent accountants, if any, to prepare and transmit to
the Sole LLC Member any tax information that the Sole LLC Member may
reasonably need to prepare its federal, state and local income tax
returns for such fiscal year.\43\ Section 18, titled ``Other
Business,'' is standard language in the Delaware limited liability
company context and merely states that the Sole LLC Member and any
Director, officer, employee or agent of the Exchange may engage in
other business and that the Exchange has no rights to such other
business or the proceeds derived therefrom. The Exchange is proposing
to mirror the language found in Section 18 of the NSM LLC Agreement.
---------------------------------------------------------------------------

    \43\ See Section 17 of the NSM LLC Agreement for identical
provisions.
---------------------------------------------------------------------------

    Section 19, titled ``Exculpation and Indemnification,'' is based on
Section 19 of the NSM LLC Agreement. Similar to the provisions in
Article VI of the Current Constitution, the language provides for the
exculpation and indemnification of ISE Holdings and any officer,
Director, employee or agent of the Exchange or of the affiliate of ISE
Holdings. Section 20, titled Assignment, is based on Section 20 of the
NSM LLC Agreement, but retains similar transfer restrictions from
Section 7.1 of the Current LLC Agreement on any assignments by the Sole
LLC Member and prohibits the Sole LLC Member from transferring or
assigning its limited liability company interest in the Exchange,
unless the Commission approves such transfer or assignment pursuant to
a rule filing under Section 19 of the Act.\44\ Section 21, titled
``Dissolution,'' sets forth the events which will cause the dissolution
of the Exchange, as prescribed by mandatory provisions of the LLC Act
or as otherwise agreed among the parties, and is based on Section 21 of
the NSM LLC Agreement. The proposed language is similar to the language
currently in Section 7.2 of the Current LLC Agreement.
---------------------------------------------------------------------------

    \44\ BX has a similar provision in Section 9.4(c) of the BX
Bylaws, which restricts HoldCo, as BX's sole shareholder, from
transferring any shares of stock to any entity unless such transfer
is filed and approved by the Commission pursuant to a rule filing.
In contrast, Section 20 of the NSM LLC Agreement allows HoldCo, as
NSM's sole LLC member, to assign NSM's limited liability company
interest solely to an affiliate of HoldCo, but does not require
approval by the Commission for such assignments. Phlx follows the
NSM model. As such, Phlx and NSM will each separately file a
proposed rule change to harmonize their assignment provisions with
the Exchange's proposal hereunder.
---------------------------------------------------------------------------

    Sections 22 through 28 of the proposed LLC Agreement contain
general provisions which are relatively standard in Delaware limited
liability company agreements.\45\ These provisions include: A benefits
of agreement clause, a severability clause, an entire agreement clause,
a binding agreement clause, a governing law clause, an amendment
provision and a notice provision. The Exchange notes that its members
are acknowledged in proposed Section 22 as holding rights under the LLC
Agreement and included as third-party beneficiaries to the LLC
Agreement as is similarly provided in Section 22 of the NSM LLC
Agreement.
---------------------------------------------------------------------------

    \45\ For example, see Sections 22 through 28 of the NSM LLC
Agreement and Sections 22 through 28 of the Phlx LLC Agreement.
---------------------------------------------------------------------------

    Section 27, titled ``Amendments,'' provides that the LLC Agreement
may be amended by a resolution adopted by the Board and a written
agreement executed and delivered by the Sole LLC Member, and further
provides that all such amendments to the LLC Agreement will not become
effective until filed with, or filed with and approved by, the
Commission, as required under Section 19 of the Exchange Act and the
rules promulgated thereunder.\46\
---------------------------------------------------------------------------

    \46\ This provision is based in concept on Section 6-9 of the
Phlx Bylaws, which requires Phlx to file any amendments to the Phlx
Bylaws with the Commission. The Phlx LLC Agreement, however, does
not have a similar requirement for amendments to the Phlx LLC
Agreement. As well, neither BX nor NSM has filing requirements for
amendments in their respective governing documents. Therefore, the
Nasdaq Exchanges will each separately file proposed rule changes
with the Commission to add this requirement in (as applicable): the
Phlx LLC Agreement, the BX COI, the BX Bylaws, the NSM LLC Agreement
and the NSM Bylaws.
---------------------------------------------------------------------------

    The Exchange proposes to add a new Schedule A to the LLC Agreement,
which contains key definitions used in the LLC Agreement. The Exchange
also proposes a section on rules of construction further explaining the
definitions in proposed Schedule A.

C. Bylaws

    The Exchange proposes to adopt the Bylaws,\47\ which would replace
the Exchange's Current Constitution.\48\ The Bylaws reflect the
expectation that the Exchange will be operated with governance
structures similar to those of the Nasdaq Exchanges. Accordingly, the
Exchange proposes to adopt Bylaws that set forth the same corporate
governance framework and related processes as those contained in the
Bylaws of the Nasdaq Exchanges. Article I of the Bylaws, titled
``Definitions,'' contains key definitions used in the Bylaws, and are
based on the defined terms used in NSM Bylaw Article I.
---------------------------------------------------------------------------

    \47\ The proposed Bylaws were filed as part of the Proposed Rule
Change as Exhibit 5D.
    \48\ The Current Constitution was filed as part of the Proposed
Rule Change as Exhibit 5C.
---------------------------------------------------------------------------

Nomination and Election Process
    Article II of the Bylaws, titled ``Annual Election of Member
Representative Directors and Other Actions by Exchange Members,''
mirrors the language in NSM Bylaw Article II,\49\ and contains key
provisions regarding the processes for the nomination and election of
Member Representative Directors. As discussed in the LLC Agreement
section above, the Exchange is proposing to replace the Exchange
Directors with Member Representative Directors to harmonize its board
structure with the Nasdaq Exchanges. The proposed nomination and
election process for Member Representative Directors described in new
Article II would replace the current processes for the Exchange
Directors set forth in the Current Governing Documents.
---------------------------------------------------------------------------

    \49\ Phlx and BX also have the identical nomination and election
processes for their Member Representative Directors. See Phlx Bylaw
Article II and Section 4.4 of the BX Bylaws.
---------------------------------------------------------------------------

Current Nomination and Election Process
    Under the current nomination and election process, nominees for
election of the Exchange Directors are selected each year by the
Exchange Director Nominating Committee (which is not a Board committee
but composed of three Exchange member representatives).\50\ A

petition process will also allow holders of the Exchange Rights to
nominate alternate candidates for consideration as Exchange
Directors.\51\ At an annual meeting of the holders of Exchange Rights,
the Exchange Directors are elected by a plurality of the votes cast at
the meeting by the holders of Exchange Rights entitled to vote
thereon.\52\ Following the full nomination, petition, and voting
process, each Exchange Director holds office for a term of two
years.\53\
---------------------------------------------------------------------------

    \50\ See Current Constitution, Section 3.10(a). With respect to
the Exchange Director Nominating Committee process, the Secretary of
the Exchange, on behalf of the Exchange Director Nominating
Committee, will circulate a memorandum to all holders of Exchange
Rights soliciting interest in presenting Exchange Director
candidates to the Exchange Director Nominating Committee. Shortly
after the receipt of candidate submissions, the Exchange Director
Nominating Committee will conduct a short interview with each
candidate. Following all interviews, the Exchange Director
Nominating Committee, by majority vote, will select its Exchange
Director candidates and the Secretary of the Exchange will inform
the holders of Exchange Rights of the Exchange Director Nominating
Committee's selections.
    \51\ See Current Constitution, Section 3.10(a). Specifically, in
addition to the Exchange Director nominees named by the Nominating
Committee, persons eligible to serve as such may be nominated for
election to the Board by a petition, signed by the holders of not
less than 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 Exchange member, alone or together with its
affiliates, may account for more than fifty percent (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 fifty percent (50%) limitation shall be disregarded.
Id.
    \52\ See Current Constitution, Sections 2.1 and 2.5. A holder of
Exchange Rights, together with any affiliate, may not exercise the
voting rights (i.e., voting to elect the Exchange Directors)
associated with more than twenty percent (20%) of the outstanding
Exchange Rights. See Current LLC Agreement, Section 6.3(b).
    \53\ See Current Constitution, Section 3.2(c).
---------------------------------------------------------------------------

    Specifically pursuant to Section 3.2(c) of the Current
Constitution, the Exchange Directors are divided into two classes,
designated as Class I and Class II directors. Each of Class I and Class
II is comprised of half of the Exchange Directors. The Exchange
Directors of each class holds office until their successors are duly
elected and qualified. At each annual meeting of the holders of
Exchange Rights, the successors of the class of Exchange Directors
whose term expires at that meeting will be elected by the Exchange
Rights holders to hold office for a term expiring at the annual meeting
held in the second year following the year of their election, and until
their successors are elected and qualified.\54\ No Exchange Director
may serve more than three consecutive terms, and after a two-year
hiatus, may be eligible to serve as an Exchange Director again.\55\
---------------------------------------------------------------------------

    \54\ Id.
    \55\ See Current Constitution, Sections 3.2(e). The Exchange
does not impose term limits on Non-Industry Directors.
---------------------------------------------------------------------------

Proposed Nomination and Election Process
    The Exchange is proposing to adopt identical nomination and
election processes as the Nasdaq Exchanges as set forth in proposed
Bylaw Article II, Section 1 so that Member Representative Directors
would be elected to the Board on an annual basis.\56\ For each annual
election, the Board would select a Record Date \57\ and an Election
Date.\58\ The Record Date would be at least 10 days but not more than
60 days prior to the Election Date. The Member Nominating Committee,
consisting of representatives of the Exchange members, would create a
list of one or more candidates for each Member Representative Director
position (the ``List of Candidates'') on the Board to be elected on the
Election Date. Promptly after selection of the Election Date, in a
notice transmitted to the Exchange members and in a prominent location
on a publicly accessible Web site, the Exchange (i) shall announce the
Election Date and the List of Candidates, and (ii) shall describe the
procedures for Exchange members to nominate candidates for election at
the next annual meeting. In the event of a Contested Election, the
Exchange shall also send its members the List of Candidates and a
formal notice of the Election Date, which notice shall be sent by the
Exchange at least 10 days but no more than 60 days prior to the
Election Date to the Exchange members that were Exchange members on the
Record Date, by any means, including electronic transmission, as
determined by the Board or committee thereof.
---------------------------------------------------------------------------

    \56\ See Section 1 of NSM Bylaw Article II, Section 2-1 of the
Phlx Bylaws and Section 4.4 of the BX Bylaws. Currently, the
Exchange Directors are elected for two-year terms.
    \57\ ``Record Date'' will be defined as a date selected by the
Board for the purpose of determining the Exchange members entitled
to vote for the election of Member Representative Directors on an
Election Date in the event of a Contested Election. See proposed
Bylaw Article I(bb), which is based on NSM Bylaw Article I(aa).
    ``Contested Election'' will be defined as an election for one or
more Member Representative Directors for which the number of
candidates on the List of Candidates exceeds the number of positions
to be elected. See proposed Bylaw Article I(g), which is based on
NSM Bylaw Article I(ee).
    \58\ ``Election Date'' will be defined as a date selected by the
Board on an annual basis, on which the Exchange members may vote
with respect to Member Representative Directors in the event of a
contested election. See proposed Bylaw Article I(k), which is based
on NSM Bylaw Article I(j).
---------------------------------------------------------------------------

    An additional candidate may be added to the List of Candidates by
any Exchange member that submits a timely and duly executed written
nomination to the Secretary of the Exchange. To be timely, an Exchange
member's notice would have to be delivered to the Secretary at the
principal executive offices of the Exchange not later than the close of
business on the 90th day nor earlier than the close of business on the
120th day prior to the first anniversary of the preceding year's
Election Date, provided however that in the event that the Election
Date is more than 30 days before or more than 70 days after such
anniversary date, notice by the Exchange member must be so delivered
not earlier than the close of business on the 120th day prior to such
Election Date and not later than the close of business on the later of
the 90th day prior to such Voting Election or the tenth day following
the day on which public announcement of such Election Date is first
made by the Exchange. Such Exchange member's notice shall set forth:
(i) As to the person whom the Exchange member proposes to nominate for
election as a Member Representative Director, all information relating
to that person that is required to be disclosed in solicitations of
proxies for election of directors in an election contest, or is
otherwise required, in each case pursuant to Regulation 14A under the
Act and the rules thereunder (and such person's written consent to be
named in the List of Candidates as a nominee and to serving as a
Director if elected); (ii) a petition in support of the nomination duly
executed by the Executive Representatives \59\ of 10% or more of all
Exchange members; and (iii) the name

and address of the Exchange members making the nomination. The Exchange
may require any proposed nominee to furnish such other information as
it may reasonably require to determine the eligibility of such proposed
nominee to serve as a Member Representative Director.
---------------------------------------------------------------------------

    \59\ ``Executive Representative'' will be defined as an
individual appointed by an Exchange member to represent, vote, and
act for the Exchange member in all the affairs of the Exchange;
provided, however, that other representatives of an Exchange member
may also serve on the Board or committees of the Exchange or
otherwise take part in the affairs of the Exchange. If an Exchange
member is also a member of FINRA, the Exchange executive
representative shall be the same person appointed to serve as the
FINRA executive representative. An Exchange member may change its
executive representative or appoint a substitute for its executive
representative upon giving notice thereof to the Exchange Secretary
via electronic process or such other process as the Exchange may
prescribe. An executive representative of an Exchange member or a
substitute shall be a member of senior management and registered
principal of the Exchange member. Each executive representative
shall maintain an Internet electronic mail account for communication
with the Exchange and shall update firm contact information as
prescribed by the Exchange. Each member shall review and, if
necessary, update its executive representative designation and
contact information in the manner prescribed by the Exchange. See
proposed Bylaw Article I(l), which is based on NSM Bylaw Article
I(k) and NSM Rule 1150.
---------------------------------------------------------------------------

    For purposes of determining whether a person has been nominated for
election by petition by the requisite percentage, no Exchange member,
alone or together with its affiliates, may account for more than 50% of
the signatures endorsing a particular candidate, and any such
signatures by such Exchange member, alone or together with its
affiliates, in excess of such 50% limitation shall be disregarded.\60\
---------------------------------------------------------------------------

    \60\ This 50% limitation is not in the governing documents of
the Nasdaq Exchanges but is based on the existing 50% limitation
found in Section 3.10(a)(ii) of the Current Constitution. The
existing 50% limitation caps the signature count by member class
(i.e., 50% of the signatures of the holders of Exchange Rights of
the series entitled to elect such person). Because the fair
representation directors will no longer be elected separately by
each member class but by the Exchange members as a whole, it is also
no longer necessary to apply a separate 50% limitation on each class
of members.
---------------------------------------------------------------------------

    If by the date on which an Exchange member may no longer submit a
timely nomination, there is only one candidate for each Member
Representative Director position to be elected on the Election Date,
the Member Representative Directors will be elected by ISE Holdings as
the Sole LLC Member from the List of Candidates. In the event of a
Contested Election, the Exchange would conduct a vote to determine the
candidates on the List of Candidates in accordance with proposed
Section 2 of Bylaw Article II, which mirrors the language found in
Section 2 of the NSM Bylaw Article II.
    If there is a Contested Election, each Exchange member would have
the right to cast one vote for each Member Representative Director
position to be filled; provided, however, that any such vote must be
cast for a person on the List of Candidates. However, an Exchange
member, either alone or together with its affiliates, may not cast
votes representing more than 20% of the votes cast for a candidate, and
any votes cast by the Exchange member, either alone or together with
its affiliates, in excess of such 20% limitation would be
disregarded.\61\ The votes would be cast by written ballot, electronic
transmission or any other means as set forth in a notice to the
Exchange members sent by the Exchange prior to the Election Date. Only
votes received prior to 11:59 p.m. Eastern Time on the Election Date
would count for the election of a Member Representative Director. The
persons on the List of Candidates who receive the most votes would be
elected to the Member Representative Director positions.
---------------------------------------------------------------------------

    \61\ This is the same as the 20% voting limitation included in
Section 6.3(b) of the Exchange's Current LLC Agreement. See note 52
above.
---------------------------------------------------------------------------

    New Section 3 of Bylaw Article II proposes that if a Member
Representative Director position becomes vacant prior to the expiration
of such person's term, or it an increase in the size of the Board
results in the creation of a new Member Representative Director
position, the Sole LLC Member will elect a person from a list of
candidates prepared by the Member Nominating Committee to fill such
vacancy, except that if the remaining term of office for the vacant
Director position is less than six months, no replacement will be
required. The proposal would replace the current process for filling
Exchange Director vacancies on the Board,\62\ and mirrors Section 3 of
NSM Bylaw Article II. Finally, new Section 4 of Bylaw Article II,
copied from Section 4 of NSM Bylaw Article II, proposes that the
Exchange will not be required to hold meetings of the Exchange
members.\63\
---------------------------------------------------------------------------

    \62\ See Current Constitution, Section 3.3.
    \63\ In contrast, the Current Constitution requires that an
annual meeting of the holders of Exchange Rights be held for the
purpose of electing Exchange Directors to fill expiring terms. See
Current Constitution, Section 2.1. As noted above for the proposed
process, the Exchange members may vote in the event of a Contested
Election, through a balloting process without a formal meeting.
---------------------------------------------------------------------------

    Related to the proposed changes to the Exchange's nomination and
election process described above, the Exchange also proposes to create
a Member Nominating Committee, which would replace the current Exchange
Director Nominating Committee in nominating candidates for director
positions that meet the fair representation requirement (i.e., the
proposed Member Representative Directors). In addition, the new Member
Nominating Committee would nominate candidates for committee positions
that meet the fair representation requirement (i.e., the ``Member
Representative members'').\64\ Similar to the Member Representative
Directors on the Board, the function of Member Representative members
is to provide members a voice in the administration of the Exchange's
affairs, specifically on certain committees that are responsible for
providing advice on any matters pertaining to the Exchange's self-
regulatory function or relating to the market structure which the
Exchange regulates. The Exchange will therefore require that at least
20% of the persons serving on any such committees be individuals who
will have been appointed by the Member Nominating Committee and be
representative of the Exchange's membership in order to ensure that its
members have the opportunity to formally provide input on matters that
are important to them.\65\ New Section 6(b) of Bylaw Article III, which
is copied from Section 6(b) of NSM Bylaw Article III, proposes that the
Member Nominating Committee would nominate candidates for each Member
Representative Director position on the Board, and would also nominate
candidates for appointment by the Board for positions on any committees
with positions reserved for Member Representative members. The Member
Nominating Committee would consist of no fewer than three and no more
than six members. All members of the Member Nominating Committee would
be a current associated person of a current Exchange member. The Board
would appoint such individuals after appropriate consultation with the
Exchange members. Member Nominating Committee members would be
appointed annually by the Board and may be removed by a majority vote
of the Board.
---------------------------------------------------------------------------

    \64\ ``Member Representative member'' will be defined as a
member of any committee appointed by the Board who has been elected
or appointed after having been nominated by the Member Nominating
Committee pursuant to the Bylaws. See proposed Bylaw Article I(s),
which is based on NSM Bylaw Article I(r).
    \65\ Under the Proposed Rule Change, the new Quality of Markets
Committee, whose primary function is to provide advice on industry-
wide market issues, will be required to be composed of at least 20%
Member representative members. The Quality of Markets Committee is
discussed in detail below.
---------------------------------------------------------------------------

    The Exchange believes that the proposed process for selecting
Member Representative Directors, together with the requirement in the
proposed LLC Agreement that the Board be comprised of at least 20%
Member Representative Directors as discussed in the LLC Agreement
section above, will continue to provide for a fair representation of
its members on the Board. Similar to the nomination and election
process currently in place, proposed Bylaw Article II includes a
process by which members can directly petition and vote for
representation on the Board. The Exchange also believes that proposed
process for selecting Member Representative members, together with
requirements in the proposed Bylaws that certain committees such as the
Quality of Markets Committee be composed of at least 20% Member
Representative members, will continue to provide for fair
representation of its members in the administration of the

Exchange's affairs. In addition, the proposed Member Nominating
Committee would be composed solely of persons associated with Exchange
members, similar to the current Exchange Director Nominating Committee,
and is selected after consultation with representatives of Exchange
members. The Commission has previously approved rule changes for
substantially similar board nomination and election processes for the
Nasdaq Exchanges.\66\
---------------------------------------------------------------------------

    \66\ See, e.g., Securities Exchange Act Release No. 53128 (Jan.
13, 2006), see note 18 above; Securities Exchange Act Release No.
58324 (August 7, 2008), 73 FR 46936 (August 12, 2008) (SR-BSE-2008-
02, -23, -25, SR-BSECC-2001-01) (Order Approving a Proposal by BX to
Amend and Restate its COI and its Constitution to Reflect its
Acquisition by the NASDAQ OMX Group); and Securities Exchange Act
Release No. 59794 (April 20, 2009), 74 FR 18761 (April 24, 2009)
(SR-Phlx-2009-17) (Order Approving Proposed Rule Change Relating to
the Nomination and Election of Candidates for Governor and
Independent Governor).
---------------------------------------------------------------------------

Board Composition
    The Exchange is proposing to adopt Article III of the Bylaws,
titled ``Board of Directors,'' which is based on NSM Bylaw Article III.
Section 1 of Bylaw Article III proposes that if any Director position
other than a Member Representative Director position becomes vacant,
whether because of death, disability, disqualification, removal, or
resignation, the Nominating Committee (discussed below) shall nominate,
and the Sole LLC Member shall select, a person satisfying the
classification (Industry, Non-Industry, or Public Director), if
applicable, for the directorship to fill such vacancy.
    Section 2(a) of Bylaw Article III sets forth the proposed Board
composition requirements and provides that a Director may not be
subject to a statutory disqualification. The Exchange is proposing to
replace the current Board qualification requirements with the ones set
forth in the new Section 2(a), which mirrors the qualifications
language in Section 2(a) of NSM Bylaw Article III. This proposed change
to the current Board composition is in addition to the proposal
discussed in the LLC Agreement section above to give the Sole LLC
Member discretion to determine the size of the Board from time to
time.\67\
---------------------------------------------------------------------------

    \67\ See proposed Section 9(a) of the LLC Agreement.
---------------------------------------------------------------------------

    Currently, the number of directors on the Board must be no less
than eight and no more than sixteen \68\ and in no event shall the
number of Exchange Directors constitute less than 30% of the members of
Board and in no event shall the number of directors who meet the
qualifications of ``non-industry representatives'' as set forth in the
Current Constitution \69\ constitute less than the number of Exchange
Directors.\70\ Furthermore, the Board must be composed as follows: (i)
At least 50% directors who meet the qualifications of ``non-industry
representatives'' \71\ and elected by ISE Holdings as the Sole LLC
Member, at least one (1) of whom must meet the qualifications of
``Public Director,'' \72\ (ii) one (1) director, who is the President
and Chief Executive Officer of the Exchange (the ``CEO Director''),\73\
(iii) at least 30% Exchange Directors, as described above, and (iv) one
(1) Former Employee Director, who may be elected by the Sole LLC Member
in its sole and absolute discretion.\74\
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    \68\ See Current Constitution, Section 3.2(a). Currently, the
Board is comprised of sixteen directors.
    \69\ The term ``non-industry representative'' means any person
who would not be considered an ``industry representative,'' as well
as (i) a person affiliated with a broker or dealer that operates
solely to assist the securities-related activities of the business
of non-member affiliates, or (ii) an employee of an entity that is
affiliated with a broker or dealer that does not account for a
material portion of the revenues of the consolidated entity, and who
is primarily engaged in the business of the non-member entity. See
Current Constitution, Section 13.1(u).
    The term ``industry representative'' means a person who is an
officer, director or employee of a broker or dealer or who has been
employed in any such capacity at any time within the prior three (3)
years, as well as a person who has a consulting or employment
relationship with or has provided professional services to the
Exchange and a person who had any such relationship or provided any
such services to the Exchange at any time within the prior three (3)
years. See Current Constitution, Section 13.1(r).
    \70\ See Current Constitution, Section 3.2(a).
    \71\ See Current Constitution, Section 3.2(b).
    \72\ ``Public Director'' means is a non-industry representative
who has no material relationship with a broker or dealer or any
affiliate of a broker or dealer or the Exchange or any affiliate of
the Exchange. See Current Constitution, Section 3.2(b) and Sections
13.1(z) and (aa).
    \73\ See Current Constitution, Section 3.2(b). The President and
Chief Executive Officer of the Exchange is elected by the Board and
will be nominated by the Board for a directorship by virtue of his
or her office. See Current Constitution, Section 4.6(a). The
President and Chief Executive Officer will only serve on the Board
for so long as such person remains the President and Chief Executive
Officer. See Current Constitution, Section 3.2(e).
    \74\ The Former Employee Director is a director who meets the
requirements of a ``non-industry representative,'' except that such
person was employed by the Exchange at any time during the three (3)
year period prior to his or her initial election. The Exchange is
not required under its Current Constitution to fill this director
position. See Current Constitution, Section 3.2(b).
---------------------------------------------------------------------------

    The Exchange is proposing to replace the aforementioned Board
composition with the board structure in place at the Nasdaq Exchanges.
As is the case with the Nasdaq Exchanges, the proposed Board
composition would be required to reflect a balance among ``Industry
Directors,'' ``Member Representative Directors,'' and ``Non-Industry
Directors,'' including ``Public Directors.'' \75\ The new Board
structure would be as follows:
---------------------------------------------------------------------------

    \75\ See Section 2(a) of NSM Bylaw Article III, Section 3-2(a)
of Phlx Bylaws and Section 4.3 of BX Bylaws.
---------------------------------------------------------------------------

     At least twenty percent (20%) of the directors on the
Board would be ``Member Representative Directors;'' \76\
---------------------------------------------------------------------------

    \76\ See proposed LLC Agreement, Section 9(a). ``Member
Representative Director'' will be defined as a Director who has been
elected or appointed after having been nominated by the Member
Nominating Committee or by an Exchange Member. A Member
Representative Director may, but is not required to be, an officer,
director, employee, or agent of an Exchange member. See proposed
Bylaws, Article I(r), which is based on NSM Bylaw Article I(q).
---------------------------------------------------------------------------

     The number of ``Non-Industry Directors'' \77\ would equal
or exceed the sum of the number of ``Industry Directors'' \78\ and
``Member Representative Directors'' \79\
---------------------------------------------------------------------------

    \77\ ``Non-Industry Director'' will be defined as a Director
(excluding Staff Directors) who is (i) a Public Director; (ii) an
officer, director, or employee of an issuer of securities listed on
the Exchange; or (iii) any other individual who would not be an
Industry Director. See proposed Bylaws, Article I(w), which is based
on NSM Bylaw Article I(v).
    \78\ An ``Industry Director'' will be a person with direct ties
to the securities industry as a result of connections to a broker-
dealer, the Exchange or its affiliates, FINRA, or certain service
providers to such entities. Specifically, an ``Industry Director''
will be defined as a Director (excluding Staff Directors), who (i)
is or has served in the prior three years as an officer, director,
or employee of a broker or dealer, excluding an outside director or
a director not engaged in the day-to-day management of a broker or
dealer; (ii) is an officer, director (excluding an outside
director), or employee of an entity that owns more than ten percent
of the equity of a broker or dealer, and the broker or dealer
accounts for more than five percent of the gross revenues received
by the consolidated entity; (iii) owns more than five percent of the
equity securities of any broker or dealer, whose investments in
brokers or dealers exceed ten percent of his or her net worth, or
whose ownership interest otherwise permits him or her to be engaged
in the day-to-day management of a broker or dealer; (iv) provides
professional services to brokers or dealers, and such services
constitute 20 percent or more of the professional revenues received
by the Director or 20 percent or more of the gross revenues received
by the Director's firm or partnership; (v) provides professional
services to a director, officer, or employee of a broker, dealer, or
corporation that owns 50 percent or more of the voting stock of a
broker or dealer, and such services relate to the director's,
officer's, or employee's professional capacity and constitute 20
percent or more of the professional revenues received by the
Director or member or 20 percent or more of the gross revenues
received by the Director's or member's firm or partnership; or (vi)
has a consulting or employment relationship with or provides
professional services to the Exchange or any affiliate thereof or to
FINRA (or any predecessor) or has had any such relationship or
provided any such services at any time within the prior three years.
See proposed Bylaws Article I(m), which is based on NSM Bylaw
Article I(l).
    \79\ See proposed Section 2(a) of Bylaw Article III.

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

     The Board would include at least one ``Public Director''
\80\ and at least one issuer representative (or if the Board consists
of ten or more Directors, at least two issuer representatives);
---------------------------------------------------------------------------

    \80\ Id. ``Public Director'' will be defined as a Director who
has no material business relationship with a broker or dealer, the
Exchange or its affiliates, or FINRA. See proposed Bylaw Article
I(z), which is based on NSM Bylaw Article I(y).
---------------------------------------------------------------------------

     Up to two officers of the Exchange (``Staff Directors'')
may be elected to the Board.\81\
---------------------------------------------------------------------------

    \81\ See proposed Bylaw Article I(m). Staff Directors will not
be considered as either Industry or Non-Industry Directors.
---------------------------------------------------------------------------

    Under Section 2(b) of the proposed Bylaws, which mirrors Section
2(b) of NSM Bylaw Article III, a Director would be disqualified and
removed immediately upon a determination by the Board, by a majority
vote of the remaining Directors, (a) that the Director no longer
satisfies the classification for which the Director was elected; and
(b) that the Director's continued service as such would violate the
compositional requirements of the Board set forth in proposed Section
2(a). Thus, for example, if a Public Director became employed by a
broker-dealer and the Board thereby had an inadequate number of Public
Directors, the Director would be disqualified and removed. If a
Director is disqualified and removed, and the remaining term of office
of such Director at the time of termination is not more than 6 months,
a replacement for the Director is not required until the next annual
meeting. Analogous disqualification provisions exist for committee
members.\82\
---------------------------------------------------------------------------

    \82\ See proposed Section 4(b) of Bylaw Article III, which
mirrors the language in Section 4(b) of NSM Bylaw Article III.
---------------------------------------------------------------------------

    Upon the Acquisition, there were a number of harmonizing changes to
the Board,\83\ which resulted in a complete overlap of directors on the
boards of the Exchange, NSM, Phlx and BX. Specifically, there were
eight (8) directors meeting the qualifications of ``non-industry
representatives'' under the Current Constitution and ``Non-Industry
Directors'' under each of the Nasdaq Exchanges' Bylaws.\84\
Furthermore, two of these directors also met the compositional
requirements of ``Public Directors'' under the Current Constitution and
under the Bylaws of each Nasdaq Exchange.\85\ The Chief Executive
Officer appointed upon the Acquisition by the Sole LLC Member became a
Board member by virtue of his office under the current Constitution,
and also met the qualifications of ``Staff Director'' under each of the
Nasdaq Exchange Bylaws. Five of the six Exchange Directors serving on
the Board immediately prior to the Acquisition remained on the Board
post-Acquisition. One Exchange Director was appointed by the Exchange
Director Nominating Committee and elected to the Board upon the
Acquisition due to his predecessor being term limited out under the
Current Constitution. The Board therefore satisfied the composition
requirements in the Current Constitution that at least 50% of directors
be ``non-industry representatives,'' and at least 30% be Exchange
Directors. The six Exchange Directors also served as ``Member
Representative Directors'' on the Nasdaq Exchange boards, therefore
satisfying the 20% Member Representative Director requirement under
their Bylaws. Finally, one additional director was appointed to the
``Former Employee Director'' seat of the Board by the Sole LLC Member,
meeting the qualifications for such directorship and also meeting the
qualifications of ``Staff Director'' under each of the Nasdaq Exchange
Bylaws. As such, the post-Acquisition Board satisfied the composition
requirements contained both in the Current Constitution and in the
proposed Bylaws.
---------------------------------------------------------------------------

    \83\ These changes consisted of the resignations of all
directors, other than the Exchange Directors, sitting on the Board
immediately prior to the consummation of the Acquisition, and the
appointments of Nasdaq designees to fill these vacancies on the
Board. The changes were effected through a series of unanimous
written consents by the Board, as well as unanimous written consents
by the Exchange Director Nominating Committee and the Corporate
Governance Committee. The Exchange represents that these changes
were effected in accordance with the Current Governing Documents.
    \84\ These eight directors also sat on the three Nasdaq Exchange
boards immediately prior to the Acquisition.
    \85\ In addition, the current Board also satisfies the
requirement under the Nasdaq Exchange Bylaws that the board be
composed of at least one Public Director and at least one (or two,
if the board consists of ten or more directors) issuer
representatives.
---------------------------------------------------------------------------

    The terms of the directors on the post-Acquisition Board ended at
the 2017 annual meeting of the Exchange Members and Sole LLC Member
(``2017 Annual Election''), which was held on June 19, 2017 to elect
the current Board and coincided with the 2017 annual elections of the
Nasdaq Exchange boards. The Exchange held the 2017 Annual Election to
elect the current Board in accordance with the nomination, petition and
voting processes set forth in the Current Governing Documents. Once the
New Governing Documents become operative, no additional actions will be
required under the LLC Act with respect to the current Board. All of
the directors on the current Board are existing directors who served on
the post-Acquisition Board and, similar to the post-Acquisition Board
as described above, the current Board satisfies the board composition
requirements both in the Current Governing Documents and in the New
Governing Documents.\86\ Even though the current Board was not
nominated or voted upon in accordance with New Governing Documents, the
Exchange believes that the current Board is consistent with the Act in
that it still provides for the fair representation of members and has
one or more directors that are representative of issuers and investors
and not associated with a member of the exchange, broker, or dealer.
First, six Exchange Directors, who are officers, directors or partners
of Exchange members as required by Section 3.2(b) of the Current
Constitution, were nominated by the Exchange Director Nominating
Committee and elected to the current Board by a plurality of the
holders of the Exchange Rights. These Exchange Directors were subject
to the full petition and voting process by membership in accordance
with Articles II and III of the Current Constitution, which process the
Commission has already found as satisfying the principles of fair
representation as required by Section 6(b) of the Act.\87\ Furthermore
as noted above, the Exchange believes that the Exchange Directors serve
the same function as the Member Representative Directors under the
proposed board structure in that both directorships give Exchange
members a voice in the Exchange's use of self-regulatory authority. The
Exchange notes that only the corporate governance structure is changing
under the Proposed Rule Change, and that the Exchange's membership has
remained substantially the same both before and after the 2017 Annual
Election.
---------------------------------------------------------------------------

    \86\ See Current Constitution, Section 3.2; proposed LLC
Agreement, Section 9(a); and proposed Bylaw Article III, Section
2(a).
    \87\ See GEMX Approval Order.
---------------------------------------------------------------------------

    Second, eight directors who meet the requirements of non-industry
representatives under the Current Constitution as well as Non-Industry
Directors under the proposed Bylaws were nominated by the existing
Corporate Governance Committee and elected by the Sole LLC Member to
the current Board. Further, at least three of these directors are
Public Directors or issuer representatives, consistent with the
composition requirements under the Current Constitution and proposed
Bylaws. The current Board therefore reflects a balance among the six
Exchange Directors (i.e., Member Representative Directors) and the
eight

non-industry representative directors (i.e., Non-Industry Directors,
including Public Directors or issuer representatives). The Exchange's
Chief Executive Officer was also elected to the current Board by the
Sole LLC Member, thereby satisfying the composition requirements of CEO
Director and Staff Director under the Current Constitution and proposed
Bylaws.
    For the annual elections starting in 2018 and subject to approval
by the Commission, the Exchange will hold its annual elections in
accordance with the processes contemplated in the New Governing
Documents and as such, the 2017 Board will serve until the 2018 annual
election. Specifically upon the Merger, the 2017 Board will appoint a
Nominating Committee (as discussed in detail below) and a Member
Nominating Committee, and such committees would nominate candidates for
the 2018 annual election pursuant to the procedures set forth in
proposed Bylaw Article I (for Member Representative Directors) and in
proposed Section 9(a) of the LLC Agreement and proposed Bylaw Article
III (for all other Directors).
    Section 3 of Bylaw Article III, which is copied from Section 3 of
NSM Bylaw Article III, contains standard provisions for a Delaware
limited liability company governing the appropriateness of reliance by
Directors upon the records of the Exchange. Section 3 also recognizes
the Exchange's status as an SRO by providing that the Board, when
evaluating any proposal, shall, to the fullest extent permitted by
applicable law, take into account all factors that the Board deems
relevant, including, without limitation, (i) the potential impact
thereof on the integrity, continuity and stability of the national
securities exchange operated by the Exchange and the other operations
of the Exchange, on the ability to prevent fraudulent and manipulative
acts and practices and on investors and the public, and (ii) whether
such would promote just and equitable principles of trade, foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to and
facilitating transactions in securities or assist in the removal of
impediments to or perfection of the mechanisms for a free and open
market and a national market system. Taken together, these provisions
are designed to reinforce the notion that the Exchange is not solely a
commercial enterprise but rather an SRO registered pursuant to the Act
and subject to the obligations imposed by the Act.
Standing Committees
    The proposed new Sections 4, 5 and 6 of Bylaw Article III, which
are based on Sections 4, 5 and 6 of the NSM Bylaw Article III, would
include provisions governing the composition and authority of various
standing committees established by the Board. Proposed new Section 4 of
Bylaw Article III would require prospective committee members, who are
not Directors, to provide the Secretary of the Exchange with certain
information to classify a committee member as an Industry member,\88\ a
Member Representative member,\89\ a Non-Industry member,\90\ or a
Public member.\91\ Analogous new provisions are also proposed for
prospective Directors.\92\
---------------------------------------------------------------------------

    \88\ ``Industry member'' will be defined as a member of any
committee appointed by the Board who (i) is or has served in the
prior three years as an officer, director, or employee of a broker
or dealer, excluding an outside director or a director not engaged
in the day-to-day management of a broker or dealer; (ii) is an
officer, director (excluding an outside director), or employee of an
entity that owns more than ten percent of the equity of a broker or
dealer, and the broker or dealer accounts for more than five percent
of the gross revenues received by the consolidated entity; (iii)
owns more than five percent of the equity securities of any broker
or dealer, whose investments in brokers or dealers exceed ten
percent of his or her net worth, or whose ownership interest
otherwise permits him or her to be engaged in the day-to-day
management of a broker or dealer; (iv) provides professional
services to brokers or dealers, and such services constitute 20
percent or more of the professional revenues received by the
committee member or 20 percent or more of the gross revenues
received by the committee member's firm or partnership; (v) provides
professional services to a director, officer, or employee of a
broker, dealer, or corporation that owns 50 percent or more of the
voting stock of a broker or dealer, and such services relate to the
director's, officer's, or employee's professional capacity and
constitute 20 percent or more of the professional revenues received
by the committee member or 20 percent or more of the gross revenues
received by the committee member's firm or partnership; or (vi) has
a consulting or employment relationship with or provides
professional services to the Exchange or any affiliate thereof or to
FINRA (or any predecessor) or has had any such relationship or
provided any such services at any time within the prior three years.
See proposed Bylaw Article I(n), which is based on NSM Bylaw Article
I(m).
    \89\ ``Member Representative member'' will be defined as a
member of any committee appointed by the Board who has been elected
or appointed after having been nominated by the Member Nominating
Committee pursuant to the Bylaws. See proposed Bylaw Article I(s),
which is based on NSM Bylaw Article I(r).
    \90\ ``Non-Industry member'' will be defined as a member of any
committee appointed by the Board who is (i) a Public member; (ii) an
officer or employee of an issuer of securities listed on the
national securities exchange operated by the Exchange; or (iii) any
other individual who would not be an Industry member. See proposed
Bylaw Article I(x), which is based on NSM Bylaw Article I(w).
    \91\ ``Public member'' will be defined as a member of any
committee appointed by the Board who has no material business
relationship with a broker or dealer, the Exchange or its
affiliates, or FINRA. See proposed Bylaw Article I(aa), which is
based on NSM Bylaw Article I(z).
    \92\ See proposed Section 6(b)(v) of Bylaw Article III, which is
based on Section 6(b)(v) of NSM Bylaw Article III.
---------------------------------------------------------------------------

    Sections 5 and 6 of proposed Bylaw Article III, titled ``Committees
Composed Solely of Directors'' and ``Committees Not Composed Solely of
Directors,'' establishes several standing committees and delineates
their general duties and responsibilities. The proposed committee
structure is modeled substantially on the committee structures of the
Nasdaq Exchanges, and are copied to the extent such committees are
relevant to the Exchange.\93\
---------------------------------------------------------------------------

    \93\ For example, the Exchange does not propose to establish an
Exchange Listing and Hearing Review Council because the Exchange
does not offer any original listings. Similarly, the Exchange does
not propose to establish an Arbitration and Mediation Committee as
the Exchange's arbitration and mediation program is operated by the
Financial Industry Regulatory Authority (``FINRA'') in accordance
with the FINRA rules pursuant to a regulatory services agreement
dated June 10, 2013, as amended (``RSA''). Under the RSA, FINRA
provides a comprehensive dispute resolution program for Exchange
members.
---------------------------------------------------------------------------

    Currently, the standing Board committees of the Exchange are: An
Executive Committee, a Corporate Governance Committee, a Finance and
Audit Committee, a Compensation Committee, and such other additional
committees as may be established by Board resolution.\94\ As discussed
above, the Exchange also has an Exchange Director Nominating Committee,
which is a committee of the Exchange and not the Board. All committee
appointments are made by the Board, and each appointee serves for one
year or until his or her successor is duly appointed.
---------------------------------------------------------------------------

    \94\ See Current Constitution, Article V.
---------------------------------------------------------------------------

Proposed Committees Composed Solely of Directors
    New Section 5 of Bylaw Article III, which copies the language in
Section 5 of NSM Bylaw Article III, provides for an Executive
Committee, a Finance Committee, and a Regulatory Oversight Committee.
Creation of an Executive Committee
    The Exchange proposes to adopt new Section 5(a), which provides
that the Board may appoint an Executive Committee and delineates its
composition and functions. In particular, the proposed Executive
Committee may exercise all the powers and authority of the Board in the
management of the business and affairs of the Exchange between meetings
of the Board. The number of Non-Industry Directors on the Executive
Committee must equal or exceed the number of

Industry Directors on the Executive Committee. The percentage of Public
Directors on the Executive Committee must be at least as great as the
percentage of Public Directors on the whole Board, and the percentage
of Member Representative Directors on the Executive Committee must be
at least as great as the percentage of Member Representative Directors
on the whole Board. Currently, the Executive Committee is a permanent
standing committee of the Board.\95\ Under the new Section 5(a), the
Executive Committee would be an optional committee, to be appointed
only if deemed necessary by the Board. The Exchange's proposal is
similar to all three Nasdaq Exchanges where the Exchange Committee is
optional, at the discretion of the Board.\96\
---------------------------------------------------------------------------

    \95\ The Executive Committee (consisting of six directors, and
with the number of non-industry representatives equaling or
exceeding the number of Exchange Directors) on behalf of the Board
and subject to its control, has all of the powers of the Board
except the power to approve any merger, consolidation, sale or
dissolution of the Exchange. See Current Constitution, Section 5.2.
    \96\ See Section 5(a) of NSM Bylaw Article III, Section 4.13(a)
of the BX Bylaws and Section 5-2(a) of the Phlx Bylaws.
---------------------------------------------------------------------------

Elimination of the Current Finance and Audit Committee
    The Exchange also proposes to adopt new Section 5(b), which
provides that the Board may appoint a Finance Committee and delineates
its composition and functions. In particular, the Finance Committee
will advise the Board with respect to the oversight of the financial
operations and conditions of the Exchange, including recommendations
for the Exchange's annual operating and capital budgets and proposed
changes to the rates and fees charged by the Exchange. By adopting new
Section 5, the Exchange is proposing to eliminate the current Finance
and Audit Committee, and have all of its duties and functions performed
at the Board level, assigned to other proposed Board committees or to
the HoldCo audit committee (the ``HoldCo Audit Committee'').\97\
---------------------------------------------------------------------------

    \97\ See Article IV, Section 4.13(g) of the HoldCo By-Laws. See
also the HoldCo Audit Committee Charter (available at http://ir.nasdaq.com/corporate-governance-document.cfm?DocumentID=195).
---------------------------------------------------------------------------

    Pursuant to its current charter, the Finance and Audit Committee
\98\ is primarily charged with: (i) Oversight of financial operations
of the Exchange; (ii) oversight of the Exchange's financial reporting
process; (iii) oversight of the systems of internal controls
established by management and the Board, and for monitoring compliance
with laws and regulations; (iv) evaluation of independent external
auditors; and (v) direction and oversight of the internal audit
function. Under the new Section 5(b), the Board would retain oversight
of the financial operations of the Exchange instead of delegating these
functions to standing committee, and would have to option to appoint a
Finance Committee at the Board's discretion. The Exchange's proposal is
similar to all three Nasdaq Exchanges where the Finance Committee is
optional, at the discretion of the Board.\99\
---------------------------------------------------------------------------

    \98\ The current Finance and Audit Committee must be composed of
at least three (3) and not more than five (5) directors, all of whom
must be non-industry representatives. See Current Constitution,
Section 5.5. In addition, committee members must be ``financially
literate'' as determined by the Board.
    \99\ See Section 5(b) of NSM Bylaw Article III, Section 4.13(b)
of the BX Bylaws and Section 5-2(b) of the Phlx Bylaws.
---------------------------------------------------------------------------

    Furthermore, the HoldCo Audit Committee also covers the functions
of the current Finance and Audit Committee. The HoldCo Audit Committee
is composed of at least three directors, all of whom must satisfy the
standards for independence set forth in Section 10A(m) of the Act \100\
and Rule 5605 of NSM's listing rules. All committee members must be
able to read and understand financial statements, and at least one
member must have past employment experience in finance or accounting,
requisite professional certification in accounting or any other
comparable experience or background that results in the individual's
financial sophistication.
---------------------------------------------------------------------------

    \100\ See U.S.C. 78j-1(m).
---------------------------------------------------------------------------

    The HoldCo Audit Committee has broad authority to review the
financial information that will be provided to shareholders of HoldCo
and others, systems of internal controls, and audit, financial
reporting and legal and compliance processes. Because HoldCo's
financial statements are prepared on a consolidated basis that includes
the financial results of HoldCo's subsidiaries, including the Exchange
and the other Nasdaq Exchange subsidiaries, HoldCo's audit committee
purview necessarily includes these subsidiaries. The Exchange notes
that unconsolidated financial statements of the Exchange will still be
prepared for each fiscal year in accordance with the requirements set
forth in its application for registration as a national securities
exchange.\101\ To the extent the current Finance and Audit Committee
oversees the Exchange's financial reporting process, its activities are
duplicative of the activities of the HoldCo Audit Committee, which is
also charged with providing oversight over financial reporting and
independent auditor selection for HoldCo and all of its subsidiaries,
including the Exchange and the other Nasdaq Exchange subsidiaries.
Similarly, the HoldCo Audit Committee has general responsibility for
oversight over internal controls, and direction and oversight over the
internal audit function for HoldCo and all of its subsidiaries. Thus,
the responsibilities of the Exchange's Finance and Audit Committee as
it relates to the functions set forth in clauses (ii)-(v) above are
fully duplicated by the responsibilities of the HoldCo Audit Committee.
Accordingly, the Exchange is proposing to allow the elimination of its
Finance and Audit Committee. The Commission has previously approved
similar proposals by the Nasdaq Exchanges to eliminate their respective
audit committees.\102\
---------------------------------------------------------------------------

    \101\ See GEMX Approval Order.
    \102\ See Securities Exchange Act Release No. 60276 (July 9,
2009), 74 FR 34840 (July 17, 2009) (SR-NASDAQ-2009-042); Securities
Exchange Act Release No. 60247 (July 6, 2009), 74 FR 33495 (July 13,
2009) (SR-BX-2009-021); and Securities Exchange Act Release No.
60687 (September 18, 2009), 74 FR 49060 (September 25, 2009) (SR-
Phlx-2009-59).
---------------------------------------------------------------------------

Creation of a Regulatory Oversight Committee
    The Exchange believes, however, that even in light of the HoldCo
Audit Committee's overall responsibilities for internal controls and
the internal audit function, it is nevertheless important for the Board
to maintain its own independent oversight over the Exchange's controls
and internal audit matters relating to the Exchange's operations.
Therefore, the Exchange is proposing to create a Regulatory Oversight
Committee (``ROC'') so that regulatory oversight functions formerly
performed by the Finance and Audit Committee may be assumed by the new
committee.\103\ Like the ROCs of the Nasdaq Exchanges, the new
committee will have broad authority to oversee the adequacy and
effectiveness of the Exchange's regulatory and self-regulatory
organization responsibilities, and will therefore be able to maintain
oversight over controls in tandem with the HoldCo Audit Committee's
overall oversight responsibilities.
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    \103\ See proposed Section 5(c) of Bylaw Article III. The Nasdaq
Exchanges also have Regulatory Oversight Committees, which have the
same authority in all material respects to the proposed ROC. See
Section 5(c) of NSM Bylaw Article III, Section 4.13(c) of the BX
Bylaws and Section 5-2(c) of the Phlx Bylaws.
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    Similarly, it is already a formal practice of HoldCo's Internal
Audit Department, which performs internal audit functions for all
HoldCo subsidiaries, to report to the Nasdaq

Exchange boards on all Nasdaq Exchange-related internal audit matters
and to direct such reports to the ROCs of the Nasdaq Exchanges.\104\
The Exchange proposes that the HoldCo Internal Audit Department would
also similarly report to the Exchange Board and direct such reports to
the new ROC. In addition, to ensure that the Exchange Board retains
authority to direct the Department's activities with respect to the
Exchange, the Department's written procedures will to stipulate that
the Exchange's ROC may, at any time, direct the Department to conduct
an audit of a matter of concern to it and report the results of the
audit both to the Exchange ROC and the HoldCo Audit Committee. The
Internal Audit Department is currently required to conduct such audits
upon the request of the Nasdaq Exchange ROCs.
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    \104\ See the Regulatory Oversight Committee Charter of NSM,
Phlx and BX (available at http://ir.nasdaq.com/corporate-governance-document.cfm?DocumentID=1097).
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    To effectuate this change, the Exchange proposes to adopt the new
Section 5(c) providing for a ROC and delineating its composition and
functions. In particular, the proposed ROC's responsibilities will be
to: (i) Oversee the adequacy and effectiveness of the Exchange's
regulatory and self-regulatory organization responsibilities; (ii)
assess the Exchange's regulatory performance; and (iii) assist the
Board and other committees of the Board in reviewing the regulatory
plan and the overall effectiveness of the Exchange's regulatory
functions. In furtherance of its functions, the ROC shall: (A) review
the Exchange's regulatory budget and specifically inquire into the
adequacy of resources available in the budget for regulatory
activities; (B) meet regularly with the Exchange's Chief Regulatory
Officer in executive session; and (C) be informed about the
compensation and promotion or termination of the Chief Regulatory
Officer and the reasons therefor. The Exchange proposes that the ROC
shall consist of three members, each of whom shall be a Public Director
and an ``independent director'' as defined in Rule 5605 of the Rules of
The NASDAQ Stock Market, LLC.
    Given the expansive regulatory and internal oversight of the
proposed ROC and HoldCo Audit Committee, coupled with the oversight and
responsibilities of the full Board and HoldCo's Internal Audit
Department, the Exchange believes that all of the duties and functions
of the eliminated Finance and Audit Committee would continue to be
performed in the new governance structure as proposed herein.
Elimination of the Current Compensation Committee
    By adopting the new Board committees in Section 5, the Exchange
also proposes to eliminate its current Compensation Committee, and to
prescribe that its duties be performed by the HoldCo management
compensation committee or the full Board when required. The
Compensation Committee \105\ is primarily charged with reviewing and
approving compensation policies and plans for the Chief Executive
Officer and other senior executive officers of the Exchange. Under the
Nasdaq governance structure, this function is performed by the HoldCo
management compensation committee or the full boards of the Nasdaq
Exchanges. The HoldCo By-Laws provide that its management compensation
committee (a committee consisting of at least two HoldCo board members
meeting the independence and other eligibility standards in the listing
rules of NSM) considers and recommends compensation policies, programs,
and practices for employees of HoldCo. Because many employees
performing work for the Exchange are also employees of HoldCo, its
compensation committee already performs these functions for such
employees. Moreover, certain of its senior officers are also officers
of HoldCo and other HoldCo subsidiaries because their responsibilities
relate to multiple entities within the HoldCo corporate structure.
Accordingly, HoldCo pays these individuals and establishes compensation
policy for them. Most notably, the current Chief Executive Officer of
the Exchange is also an ``executive officer'' of HoldCo within the
meaning of NSM Rule 5605. Under that rule, the compensation of
executive officers of an issuer of securities, such as the common stock
of HoldCo, that is listed on NSM, must be determined by, or recommended
to the board of directors for determination by, a majority of
independent directors or a compensation committee comprised solely of
independent directors. Accordingly, the HoldCo board of directors and/
or its compensation committee is legally required to establish the
compensation for this individual.
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    \105\ The committee must be composed of at least three and not
more than five directors who must all meet the ``Non-Industry
Director'' qualifications under the Current Constitution. See
Current Constitution, Section 5.6.
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    To the extent that policies, programs, and practices must also be
established for any Exchange officers or employees who are not also
HoldCo officers or employees, the Board would perform such actions
without the use of a compensation committee (but subject to the recusal
of the Staff Directors).\106\ Finally, it should be noted that under
the new Section 5(c) of Bylaw Article III, the ROC of the Board would
be informed about the compensation and promotion or termination of the
Exchange's Chief Regulatory Officer and the reasons therefor, to allow
the ROC to provide oversight over decisions affecting this key officer.
Therefore, the Exchange believes that the duties and functions of the
eliminated Compensation Committee would continue to be performed and
covered in the new corporate governance structure proposed by the New
Governing Documents. The Commission has previously approved proposals
by the Nasdaq Exchanges to eliminate their respective compensation
committees.\107\
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    \106\ As discussed in the proposed Board composition section
above, ``Staff Directors'' would be Exchange directors that are also
serving as officers. Since the Board would not be responsible for
setting the compensation of any Staff Directors who are also
officers of HoldCo, they would be permitted to participate in
discussions concerning compensation of Exchange employees, but would
recuse themselves from a vote on the subject to allow the
determination to be made by directors that are not officers or
employees of the Exchange. If a Staff Director was an officer or
employee of the Exchange but not of HoldCo, that Staff Director
would also absent himself or herself from any deliberations
regarding his or her compensation.
    \107\ See note 102 above.
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Elimination of the Current Corporate Governance Committee
    Finally, the Exchange also proposes to eliminate the current
Corporate Governance Committee, and to prescribe that its duties be
performed by the new Nominating Committee (as discussed below), the new
ROC or by the full Board when required. The Corporate Governance
Committee \108\ is primarily charged with: (i) Nominating candidates
for all vacant or new non-industry representative positions on the
Board, (ii) overseeing the Exchange's regulatory activities and
program, and (iii) overseeing and evaluating the governance of the
Exchange. As discussed below, the Exchange is proposing to establish a
new Nominating Committee that would nominate candidates for all vacant
or new non-Member Representative Director positions on the Board, and
therefore would perform the Non-Industry Director nominating functions
of the current Corporate Governance

Committee.\109\ Furthermore, the new ROC would have to carry out the
regulatory oversight tasks currently within purview of the Corporate
Governance Committee. In particular, the new ROC would (i) oversee the
adequacy and effectiveness of the Exchange's regulatory and self-
regulatory organization responsibilities; (ii) assess the Exchange's
regulatory performance; and (iii) assist the Board and other committees
of the Board in reviewing the regulatory plan and the overall
effectiveness of the Exchange's regulatory functions. Its duties would
include reviewing the Exchange's regulatory budget and inquiring into
the adequacy of resources available in the budget for regulatory
activities; meeting regularly with the Exchange's Chief Regulatory
Officer in executive session; and having oversight over compensation,
hiring and termination decisions affecting this key officer as
discussed above.
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    \108\ The committee must consist of at least three directors,
all of whom are required to meet the ``Non-Industry Director''
standards under the Current Constitution. See Current Constitution,
Section 5.4.
    \109\ See proposed Section 6(b) of Bylaw Article III.
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    As it relates to the general supervision over the corporate
governance of the Exchange, the full Board would perform such functions
without the use of a corporate governance committee, similar to the
boards of the Nasdaq Exchanges.\110\ In particular, the full Board, led
by the Chair of the Board,\111\ would perform annual self-assessments,
oversee annual formal director and Chair evaluations, and periodically
review the allocations of powers between management and the Board.
Therefore, the Exchange believes that the duties and functions of the
eliminated Corporate Governance Committee would continue to be
performed and covered in the new corporate governance structure
proposed by the New Governing Documents.
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    \110\ See the Corporate Governance Guidelines of NSM, Phlx and
BX (available at http://ir.nasdaq.com/corporate-governance-document.cfm?DocumentID=6027).
    \111\ The Board Chair will be an ``independent director'' (i.e.
person other than an officer or employee of HoldCo or its
subsidiaries, including the Exchange) as provided under the listing
rules of NSM and SEC requirements.
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Proposed Committees Not Composed Solely of Directors
    In addition to the proposed Board committees discussed above, new
Section 6 of Bylaw Article III provides for the appointment by the
Board of certain standing committees, not composed solely of Directors,
to administer various provisions of the rules that the Exchange expects
to propose with respect to governance, options trading and member
discipline. By adopting Section 6, the Exchange proposes to eliminate
certain standing committees and have their relevant functions performed
by the new committees, each as described below.
Creation of a Member Nominating Committee
    The new Member Nominating Committee, responsible for: (i) The
nomination for election of Member Representative Directors to the Board
or (ii) the nomination for appointment of Member Representative members
to the committees requiring such members, would replace the Exchange
Director Nominating Committee. The composition requirements of the
Member Nominating Committee are discussed in the Nomination and
Election Process section above.
Creation of a Nominating Committee
    The new Nominating Committee will nominate candidates for all other
vacant or new Director positions on the Board, and therefore, would
perform the non-industry representative nomination function currently
assigned to the Corporate Governance Committee. The Nominating
Committee will consist of no fewer than six and no more than nine
members, and the number of Non-Industry members (i.e. committee members
not associated with broker-dealers) shall equal or exceed the number of
Industry members on the Nominating Committee. If the Nominating
Committee consists of six members, at least two shall be Public
members. If the Nominating Committee consists of seven or more members,
at least three shall be Public members. No officer or employee of the
Exchange shall serve as a member of the Nominating Committee in any
voting or non-voting capacity. No more than three of the Nominating
Committee members and no more than two of the Industry members shall be
current Directors. A Nominating Committee member may not simultaneously
serve on the Nominating Committee and the Board, unless such member is
in his or her final year of service on the Board, and following that
year, that member may not stand for election to the Board until such
time as he or she is no longer a member of the Nominating Committee.
Nominating Committee members will be appointed annually by the Board
and may be removed by a majority vote of the Board.\112\
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    \112\ See Section 6(b) of NSM Bylaw Article III, Section 4.14(b)
of the BX Bylaws and Section 5-3(a) of the Phlx Bylaws for similar
provisions related to the Nominating Committee.
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Creation of a Quality of Markets Committee
    The new Quality of Markets Committee (the ``QMC''), which is
modeled off of the QMCs of the Nasdaq Exchanges,\113\ will have the
following functions: (i) To provide advice and guidance to the Board on
issues relating to the fairness, integrity, efficiency, and
competitiveness of the information, order handling, and execution
mechanisms of the Exchange from the perspective of investors, both
individual and institutional, retail firms, market making firms and
other market participants; and (ii) to advise the Board with respect to
national market system plans and linkages between the facilities of the
Exchange and other markets. The QMC shall include broad representation
of participants in the Exchange, including investors, market makers,
retail firms, and order entry firms. The QMC shall include a number of
Member Representative members that is equal to at least 20% of the
total number of members of the QMC. The number of Non-Industry members
on the proposed QMC shall equal or exceed the sum of the number of
Industry members and Member Representative members. A quorum of the QMC
will consist of a majority of its members, including not less than 50%
of its Non-Industry members, unless this requirement is waived pursuant
to proposed Section 6(c)(iii) of Bylaw Article III.
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    \113\ See Section 6(c) of NSM Bylaw Article III, Section 4.14(c)
of the BX Bylaws and Section 5-3(c) of the Phlx Bylaws.
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Other Proposed Bylaw Provisions
    Proposed Section 7 of Bylaw Article III contains standard
provisions for a Delaware limited liability company requiring recusal
by Directors or committee members subject to a conflict of interest,
and providing for the enforceability of contracts in which a Director
has an interest if appropriately approved or ratified by disinterested
Directors. This language is based on Section 7 of NSM Bylaw Article
III. Proposed Section 8 of Bylaw Article III allows for reasonable
compensation of the Board and committee members, and mirrors Section 8
of NSM Bylaw Article III.
    Bylaw Article IV, titled ``Officers, Agents, and Employees,''
contains provisions governing the Exchange's officers, agents and
employees, and is based on Article IV of the NSM Bylaws. Proposed
Section 1 of Bylaw Article IV provides that the Board may delegate the
duties and powers of any officer of the Exchange to any other officer
or to any Director for a specified period of

time and for any reason that the Board may deem sufficient. Proposed
Section 2 discusses how an officer of the Exchange may resign or may be
removed. Proposed Sections 3 through 11 each specifically provides for
the appointment of a Chair of the Board,\114\ a Chief Executive
Officer, a President, Vice Presidents, a Chief Regulatory Officer, a
Secretary, an Assistant Secretary, a Treasurer, and an Assistant
Treasurer.\115\ The Exchange notes that proposed Section 7 of Bylaw
Article IV specifically provides for a Chief Regulatory Officer, a
position that is not expressly provided for in the Current Governing
Documents, who would have general supervision of the regulatory
operations of the Exchange, including responsibility for overseeing the
Exchange's surveillance, examination, and enforcement functions and for
administering any regulatory services agreements with another SRO to
which the Exchange is a party. The Chief Regulatory Officer shall meet
with the Regulatory Oversight Committee of the Exchange in executive
session at regularly scheduled meetings of such committee, and at any
time upon request of the Chief Regulatory Officer or any member of the
Regulatory Oversight Committee. The Chief Regulatory Officer may also
serve as the General Counsel of the Exchange. The Exchange notes that
while the position of chief regulatory officer has long existed at the