Daily Rules, Proposed Rules, and Notices of the Federal Government
On July 23, 2008, the New York Stock Exchange LLC ("NYSE"), a New York limited liability company, filed with the Commission, pursuant to Section 19(b)(1) of the Act
On January 17, 2008, NYSE Euronext, Amex, Amex's parent companies (The Amex Membership Corporation ("MC") and its direct wholly-owned subsidiary, AMC Acquisition Sub, Inc.), and several other entities created by NYSE Euronext and Amex in connection with the Mergers entered into an agreement ("Merger Agreement") to effect a series of mergers ("Mergers") as a result of which the successor to Amex, to be renamed "NYSE Alternext US LLC" ("NYSE Alternext US"), will become a
Upon completion of the Mergers and the Related Transactions, NYSE Alternext US will continue operating as a national securities exchange registered under Section 6 of the Act.
Currently, all Regular Members and Options Principal Members
Amex filed a proposed rule change to permit the Mergers and the Related Transactions and to accommodate the transformation of Amex from a wholly-owned subsidiary of MC
In addition, the NYSE filed a proposed rule change to amend certain organizational documents of NYSE Euronext, NYSE Group, and NYSE Regulation; the Trust Agreement of the NYSE Group Trust I ("Trust Agreement");
After careful review, the Commission finds that the proposed rule changes are consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.
As noted above, the Mergers and the Related Transactions will result in NYSE Euronext (and NYSE Group)
The Commission believes that the current market for cash equity and standardized options trading venues is highly competitive. Existing exchanges face significant competition from other exchanges and non-exchange entities, such as alternative trading systems, that trade the same or similar financial instruments.
The NYSE Alternext US Operating Agreement will provide that NYSE Group, which will be the sole member of NYSE Alternext US, may not transfer or assign its limited liability company interest in NYSE Alternext US in whole or in part, to any person or entity, unless such transfer or assignment shall be filed with and approved by the Commission under Section 19 of the Act and the rules promulgated thereunder.
The Amended and Restated Certificate of Incorporation of NYSE Euronext ("NYSE Euronext Charter"), in turn, imposes limits on direct and indirect changes in control, which are designed to prevent any shareholder from exercising undue control over the operation of its SRO subsidiaries and to ensure that its SRO subsidiaries and the Commission are able to carry out their regulatory responsibilities under the Act.
Further, the current NYSE Euronext Charter provides that for so long as NYSE Euronext directly or indirectly controls the NYSE, NYSE Market Inc. ("NYSE Market"), NYSE Arca, NYSE Arca Equities, Inc. ("NYSE Arca Equities") or any facility of NYSE Arca, the NYSE Euronext board of directors cannot waive the voting and ownership limits above the 20% threshold for any person if such person or its related persons is a member or member organization of the NYSE, an ETP Holder of NYSE Arca Equities, or an OTP Holder or an OTP Firm of NYSE Arca.
The Commission finds that the proposed changes to NYSE Euronext Bylaws and the proposed restrictions on transfer and assignment of NYSE Group's limited liability company interest in NYSE Alternext US, together with the existing restrictions on transfer and assignment of NYSE Euronext's ownership interest in NYSE Group and the existing ownership and voting limitations in NYSE Euronext's Certificate, are designed to prevent any person or entity from exercising undue control over the operation of NYSE Alternext US. These proposed changes are also designed to ensure that NYSE Alternext US and the Commission are able to carry out their regulatory obligations under the Act and thereby minimize the potential that a person or entity could improperly interfere with or restrict the ability of the Commission or NYSE Alternext US to effectively carry out their respective regulatory oversight responsibilities under the Act.
After the Mergers and the Related Transactions, NYSE Alternext US will become an indirect wholly-owned subsidiary of NYSE Euronext and a direct wholly-owned subsidiary of NYSE Group. Although these entities are not SROs and, therefore, will not themselves carry out regulatory functions, their activities with respect to the operation of NYSE Alternext US must be consistent with, and not interfere with, NYSE Alternext US's self-regulatory obligations. Proposed changes to the NYSE Euronext Bylaws, the NYSE Group Charter, the Second Amended and Restated Bylaws of NYSE Group ("NYSE Group Bylaws"), and the Trust Agreement will make applicable to NYSE Alternext US
In particular, the NYSE Euronext Bylaws and NYSE Group Charter will specify, as applicable, that NYSE Euronext and NYSE Group and their respective officers, directors and employees whose principal place of business and residence is outside of the United States shall be deemed to irrevocably submit to the jurisdiction of the United States federal courts and the Commission for the purposes of any suit, action, or proceeding pursuant to the United States federal securities laws and the rules and regulations thereunder, commenced or initiated by the Commission arising out of, or relating to, the activities of the NYSE Alternext US.
The Commission believes that the NYSE Euronext Bylaws, the NYSE Group Charter, the NYSE Group Bylaws, and the Trust Agreement as amended to accommodate the Mergers and Related Transactions, are designed to facilitate NYSE Alternext US's ability to fulfill its self-regulatory obligations and are, therefore, consistent with the Act. In particular, the Commission believes these changes are consistent with Section 6(b)(1) of the Act,
Under Section 20(a) of the Act
Following the Mergers and the Related Transactions, the governance structure of NYSE Alternext US will be substantially similar to that of the NYSE. The Board of Directors of NYSE Alternext US ("NYSE Alternext US Board") will be composed of a number of directors as determined by NYSE Group from time to time, as sole owner of NYSE Alternext US. In addition, the NYSE Alternext US Board will be composed as follows: (i) a majority of the directors of the NYSE Alternext US Board will be US Persons
NYSE Group will appoint or elect as Non-Affiliated Directors the candidates nominated by the nominating and governance committee of NYSE Euronext ("NYSE Euronext NGC") (such candidates the "Non-Affiliated Director candidates").
The Non-Affiliated Director candidates that the NYSE Alternext US DCRC recommends to the NYSE Euronext NGC will be announced to NYSE Alternext US member organizations. Within two weeks after the announcement, NYSE Alternext US members may nominate candidates for Non-Affiliated Director by written petition filed with NYSE Alternext US. A valid petition must be, among other things, endorsed by at least 10 percent of the signatures eligible to endorse a candidate.
If no petitions are submitted within two weeks after the dissemination of the report of the NYSE Euronext NGC, the NYSE Euronext NGC will nominate the candidates for Non-Affiliated Directors that the NYSE Alternext US DCRC initially recommended. If one or more valid petitions are submitted, NYSE Alternext US members will be allowed to vote on the entire group of potential candidates. Each member organization will have one vote per trading license or permit held by it.
Amex has represented that immediately following the Mergers and the Related Transactions, the NYSE Alternext US Board will have five directors, one of which will be a Non-Affiliated Director selected by NYSE Group from among the six Industry Governors serving on the Amex Board immediately prior to the Mergers.
The NYSE Alternext US Board may create one or more committees composed of NYSE Alternext US directors.
The Commission finds that the proposed governance structure of NYSE Alternext US is consistent with the Act, and in particular that the proposed composition of the NYSE Alternext US Board is consistent with Section 6(b)(1) of the Act, which requires, among other things, that a national securities exchange be organized to carry out the purposes of the Act and comply with the requirements of the Act. The Commission previously has stated its belief that the inclusion of public, non-
The fair representation requirement in Section 6(b)(3) of the Act is intended to give members a voice in the selection of the exchange's directors and the administration of its affairs. The Commission finds that the requirement that at least twenty percent of the NYSE Alternext US Directors be Non-Affiliated Directors, and the process for selecting such Non-Affiliated Directors, are designed to ensure the fair representation of NYSE Alternext US members on the NYSE Alternext US Board. The Commission believes that the method for selecting the Non-Affiliated Directors allows members to have a voice in NYSE Alternext US's use of its self-regulatory authority. As detailed above, the NYSE Alternext US DCRC is composed solely of persons associated with NYSE Alternext US members and is selected after appropriate consultation with NYSE Alternext US members. In addition, the proposed NYSE Alternext US Operating Agreement includes a process by which members can directly petition and vote for representation on the NYSE Alternext US Board. The Commission therefore finds that the process for selecting the Non-Affiliated Directors to the NYSE Alternext US Board is consistent with Section 6(b)(3) of the Act.
The Floor Officials, Senior Floor Officials, and Exchange Officials in place at Amex immediately prior to the Mergers
Amex proposes to amend Rule 21 to reflect the fact that the NYSE Alternext US Board will not have a category of directors who are required to spend a substantial portion of their time on the trading floor. Any director that spends a substantial part of his time on the floor shall still serve as a Senior Floor Official, and one of these directors will be appointed as the Senior Supervisory Officer (rather than the Vice-Chairman of Amex). However, if there is no director that spends a substantial part of his time on the floor, one of the Senior Floor Officials will be appointed as the Senior Supervisory Officer (thus, an Exchange Official that spends a substantial part of his time on the floor will be appointed as the Senior Supervisory Officer). Rule 21, as amended, also will allow qualified NYSE Alternext US employees who spend a substantial portion of their time on the trading floor to be appointed to serve as Floor Officials. Further, the CEO or Chief Regulatory Officer ("CRO") (or their respective designee), rather than the Chairman of Amex, will be responsible for appointing such officials and making other appointments under the rule (subject to the other requirements of the rule).
Amex also is proposing to amend Rule 21 and other rules referencing Floor Governors to reflect the elimination of that category of member on the Amex Board. Amex proposes that Senior Floor Officials replace the Floor Governors in most cases when the reference to Floor Governor relates to the approval or review of activities on the trading floor and the chairing of certain committees (
The Commission finds that these changes are consistent with the Act, including Section 6(b)(1) of the Act,
Following the Mergers, all trading rights appurtenant to either Regular Memberships or Options Principal Members existing immediately prior to the Mergers will be cancelled.
To ensure continuity of trading following the Mergers, persons and entities who were authorized to trade on Amex prior to the Mergers, including (i) owners, lessees or nominees of Regular Memberships or OPMs, (ii) limited trading permit holders, and (iii) associate members, will be deemed to have satisfied applicable requirements necessary to receive an 86 Trinity Permit. 86 Trinity Permits will authorize owners, lessees or nominees of Regular Memberships or OPMs, limited trading permit holders and associate members who were authorized to trade on Amex prior to the Mergers, to trade the products which they were previously authorized to trade and, subject to meeting the qualifications currently in place for trading products which they previously were not authorized to trade, to trade such other products.
Because 86 Trinity Permits will be made available to all persons authorized to trade on Amex prior to the Mergers (such persons will be deemed to have satisfied the applicable requirements), as well as to other persons that meet such requirements, and because such requirements will be the same as the current requirements for membership in the Amex rules, the Commission finds that proposed procedures for NYSE Alternext US making available 86 Trinity Permits will provide fair access to NYSE Alternext US and are consistent with the Act and in particular with Sections 6(b)(2) and 6(b)(5) of the Act.
Amex is proposing to replace current Rule 345, the Rules of Procedures in Disciplinary Matters, and the disciplinary provisions in the Amex Constitution with proposed NYSE Alternext US Rules 475, 476 and 477.
Under proposed NYSE Alternext US Rules 476 and 477, initial disciplinary hearings will be held before a Hearing Panel that will be composed of at least three persons: A Hearing Officer,
Any review of a disciplinary decision shall be conducted by the NYSE Alternext US Board or the NYSE Regulation Committee, in the sole discretion of the NYSE Alternext US Board. Upon review, and with the advice of the NYSE Regulation Committee, the NYSE Alternext US Board, by the affirmative vote of a majority of the NYSE Alternext US
The NYSE Regulation Committee referenced in the proposed NYSE Alternext US rules is the NYSE Regulation Committee for Review. The NYSE Regulation Bylaws currently provide for the creation of a Committee for Review that is charged with performing certain functions with respect to the NYSE, including hearing appeals for disciplinary decisions.
* An individual associated with a member organization of NYSE Alternext US that engages in a business involving substantial direct contact with securities customers;
* An individual associated with a member organization of NYSE Alternext US that is registered as a specialist and spends a substantial part of his or her time on the trading floor of NYSE Alternext US;
* An individual associated with a member organization of NYSE Alternext US not registered as a specialist that spends a majority of his or her time on the trading floor of NYSE Alternext US and has as a substantial part of his business the execution of transactions on the trading floor of NYSE Alternext US for other than his or her own account or the account of his NYSE Alternext US member organization; and
* An individual associated with a NYSE Alternext US Member Organization not registered as a specialist that spends a majority of his or her time on the trading floor of NYSE Alternext US and has as a substantial part of his or her business the execution of transactions on the trading floor of NYSE Alternext US for his own account or the account of his or her NYSE Alternext US Member Organization.
The Commission finds that the changes proposed to the disciplinary procedures are consistent with the Act, in particular Sections 6(b)(6) and 6(b)(7) of the Act.
Amex proposes to adopt proposed NYSE Alternext US General and Floor Rule 1(a), which provides that, without prior Commission approval, NYSE Alternext US or any entity with which it is affiliated shall not, directly or indirectly, acquire or maintain an ownership interest in a member organization. In addition, a member organization shall not be or become an affiliate of NYSE Alternext US, or an affiliate of any affiliate of NYSE Alternext US.
The Commission is concerned about potential for unfair competition and conflicts of interest between an exchange's self-regulatory obligations and its commercial interests that could exist if an exchange were to otherwise become affiliated with one of its members, as well as the potential for unfair competitive advantage that the affiliated member could have by virtue of informational or operational advantages, or the ability to receive preferential treatment.
NYSE Euronext currently owns a broker-dealer, Arca Securities that is also a member organization of Amex. After the closing of the Mergers and Related Transactions, NYSE Euronext's ownership of NYSE Alternext US and Arca Securities would cause Arca Securities to be an affiliate of NYSE Alternext US, and, absent prior Commission approval, would violate the provisions in proposed NYSE Alternext US General and Floor Rule 1(a) that prohibit: (i) NYSE Alternext US or any
Arca Securities operates as a facility of each of NYSE and NYSE Arca that provides outbound routing from each exchange to other market centers, including Amex, subject to certain conditions.
Recognizing that the Commission has previously expressed concern regarding the potential for conflicts of interest in instances where a member firm is affiliated with an exchange to which it is routing orders,
* First, Amex states that NYSE, FINRA, and NYSE Alternext US will enter into an agreement pursuant to Rule 17d-2 under the Act.
* Second, NYSE Regulation will monitor Arca Securities for compliance with NYSE Alternext US's trading rules, and will collect and maintain certain related information.
* Third, Amex states that NYSE Regulation has agreed with Amex that it will provide a report to NYSE Alternext US's CRO, on a quarterly basis, that: (i) Quantifies all alerts (of which NYSE Regulation is aware) that identify Arca Securities as a participant that has potentially violated NYSE Alternext US or Commission rules, and (ii) quantifies the number of all investigations that identify Arca Securities as a participant that has potentially violated NYSE Alternext US or Commission rules.
* Fourth, Amex proposes a rule that will require NYSE Euronext, as the holding company owning both NYSE Alternext US and Arca Securities, to establish and maintain procedures and internal controls reasonably designed to ensure that Arca Securities does not develop or implement changes to its system, based on non-public information obtained regarding planned changes to the NYSE Alternext US systems as a result of its affiliation with NYSE Alternext US, until such information is available generally to similarly situated members of NYSE Alternext US in connection with the provision of inbound order routing to NYSE Alternext US.
* Fifth, Amex proposes that routing from Arca Securities to NYSE Alternext US, in Arca Securities' capacity as a facility of NYSE and NYSE Arca, be authorized for a pilot period of twelve months.
In the past, the Commission has expressed concern that the affiliation of an exchange with one of its members raises potential conflicts of interest, and the potential for unfair competitive advantage.
Amex has proposed five conditions applicable to Arca Securities routing activities, which are enumerated above. The Commission believes that these conditions mitigate its concerns about potential conflicts of interest and unfair competitive advantage. In particular, the Commission believes that FINRA's oversight of Arca Securities,
Under the Act, an exchange must be organized and have the capacity to carry out the purposes of the Act.
Amex has proposed several measures designed to ensure that NYSE Alternext US can meet its obligations under the Act and that its regulatory functions are independent of its market operations and other commercial interests. First, NYSE Alternext US will enter into a regulatory contract with NYSE Regulation ("NYSE Regulation RSA"), under which NYSE Alternext US will contract with NYSE Regulation to perform all of NYSE Alternext US's regulatory functions on NYSE Alternext US's behalf. However, FINRA may perform some of the regulatory functions contracted out to NYSE Regulation pursuant to a separate multi-party regulatory services agreement by and among NYSE Regulation, NYSE Group, FINRA, and NYSE Alternext US ("New Multi-Party FINRA RSA").
Finally, NYSE Euronext has agreed to provide adequate funding to NYSE Regulation to conduct its regulatory activities with respect to NYSE, NYSE Arca and, from and after closing of the transaction, NYSE Alternext US.
The Commission finds that Amex's proposed regulatory structure is consistent with the Act, including Section 6(b)(1) of the Act,
At the same time, NYSE Alternext US, unless relieved by the Commission of its responsibility,
The Commission notes that upon the consummation of the Mergers and the Related Transactions, NYSE Alternext US will no longer have a Regulatory Oversight Committee ("ROC"). Instead, NYSE Alternext US will contract with NYSE Regulation to perform all of its regulatory functions. The Commission believes that it is consistent with the Act for NYSE Alternext US to eliminate its ROC and instead contract with NYSE Regulation to perform its regulatory functions because the governance of NYSE Regulation will provide a comparable level of independence that a ROC would provide. In particular, all directors on the board of NYSE Regulation (other than its CEO) are, and will be, required to be independent of management of NYSE Euronext and its subsidiaries, as well as of NYSE, NYSE Arca, and NYSE Alternext US members and listed companies. In addition, a majority of the members of the NYSE Regulation board must be directors that are not also directors of NYSE Euronext.
Finally, the Commission believes that NYSE Euronext's commitment to provide adequate funding to NYSE Regulation to conduct its regulatory activities is designed to ensure that NYSE Alternext US can perform its obligations under the Act.
Amex requests to be relieved from the undertakings adopted by the Amex Board on December 4, 2004 and approved by the Commission as part of an Amex proposed rule change filed
The Commission believes it is consistent with the Act for Amex to be relieved from its Undertakings. With respect to Sections 1 and 2 of the Undertakings, the Commission believes that NYSE Alternext US arrangements for contracting out regulatory services through the NYSE Regulation RSA and the New Multi-Party FINRA RSA
In its proposed rule change, the NYSE proposes to amend the definitions of "member" and "member organization" in the NYSE Euronext Independence Policy to refer to relevant sections of the Act
The Commission finds that these changes are consistent with the Act. The proposed changes to the definition of "member" and "member organization" will harmonize the use of those terms across all three SROs owned by NYSE Euronext for purposes of determining the independence of NYSE Euronext directors (and the directors of its subsidiary SROs). The Commission believes that a one year "look-back" period, together with the other criteria for determining the independence of NYSE Euronext directors will continue to provide for director independence consistent with the Act.
The Commission finds good cause, pursuant to Section 19(b)(2) of the Act,
In Amendment No. 4, Amex proposes to reflect those changes to the Amex Rules that had occurred since the filing of the proposed rule change that are necessary to accurately describe the current Amex Rules and show the proposed changes, as applicable. Amex also proposes to make certain clarifying, technical and non-substantive changes to the text of the proposed rule change. Amendment No. 4 also includes a revised description of the parties to the New Multi-Party FINRA RSA, and a revised description of the merger between the current parent companies of Amex.
Accordingly, the Commission finds good cause for approving the Amex's proposal, as modified by Amendment Nos. 1 and 4, on an accelerated basis, pursuant to Section 19(b)(2) of the Act.
Interested persons are invited to submit written data, views, and arguments concerning Amendment No. 4 to File No. SR-Amex-2008-62, including whether Amendment No. 4 is consistent with the Act. Comments may be submitted by any of the following methods:
* Use the Commission's Internet comment form (
* Send an e-mail to
* Send paper comments in triplicate to Secretary, Securities and Exchange Commission, and 100 F Street, NE., Washington, DC 20549-1090.