[Federal Register Volume 76, Number 64 (Monday, April 4, 2011)]
[Notices]
[Pages 18591-18613]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-7935]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64144; File No. SR-NYSEAmex-2011-18]
Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing of
Proposed Rule Change Relating to the Formation of a Joint Venture
Between the Exchange, Its Ultimate Parent NYSE Euronext, and Seven
Other Entities To Operate an Electronic Trading Facility for Options
Contracts
March 29, 2011.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on March 23, 2011, NYSE Amex LLC (the ``Exchange'' or
``NYSE Amex'') filed with the Securities and Exchange Commission (the
``Commission'' or ``SEC'') the proposed rule change as described in
Items I and II below, which Items have been prepared by the self-
regulatory organization. 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\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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[[Page 18592]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to form a joint venture between the Exchange,
its ultimate parent NYSE Euronext, a Delaware corporation, and the
following entities (each, a ``Founding Firm''): Citadel Securities LLC
(``Citadel''); Goldman, Sachs & Co. (``Goldman Sachs''); Banc of
America Strategic Investments Corporation (``BAML''); Citigroup
Financial Strategies, Inc. (``Citigroup''); Datek Online Management
Corp. (``TD Ameritrade''); UBS Americas Inc. (``UBS''); and Barclays
Electronic Commerce Holdings Inc. (``Barclays''). The joint venture
will operate an electronic trading facility (the ``Options Exchange'')
that will engage in the business of listing for trading options
contracts permitted to be listed on a national securities exchange (or
facility thereof) and related activities. The Options Exchange will be
operated as a ``facility'' (as such term is defined in Section 3(a)(2)
of the Securities Exchange Act of 1934 (the ``Act'')) of the Exchange,
which will act as the self-regulatory organization (``SRO'') for the
Options Exchange. The Options Exchange will be operated by NYSE Amex
Options LLC (the ``Company''), a Delaware limited liability company
formed by NYSE Euronext, the Exchange and the Founding Firms and
jointly owned by the Exchange and the Founding Firms. The text of the
proposed rule change, consisting of the proposed Limited Liability
Company Agreement of the Company (the ``LLC Agreement'') and a proposed
Members Agreement of the Company setting forth certain additional terms
(the ``Members Agreement''), is available at the Exchange, the
Commission's Public Reference Room, on the Commission's Web site at
http://www.sec.gov, and on http://www.nyse.com. The LLC Agreement is
the source of the Company's governance and operating authority and,
therefore, functions in a similar manner as articles of incorporation
and by-laws function for a corporation.
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 self-regulatory organization
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 those 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 parts 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 is submitting this Proposed Rule Change to the
Commission in connection with the proposed formation of a joint venture
between the Exchange, its ultimate parent NYSE Euronext and the
Founding Firms. The joint venture will operate an electronic trading
facility, the Options Exchange, that will engage in the business of
listing for trading options contracts permitted to be listed on a
national securities exchange (or facility thereof) and related
activities.\4\ The Options Exchange will be operated as a ``facility''
(as such term is defined in Section 3(a)(2) of the Act) of the
Exchange, which will act as the SRO for the Options Exchange. The
Options Exchange will be operated by the Company, the Exchange and the
Founding Firms and jointly owned by the Exchange and the Founding
Firms. The Exchange will have regulatory responsibility for the
activities of the Options Exchange. The Exchange represents that it has
adequate funds to discharge all regulatory functions related to the
Options Exchange.
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\4\ The activities of the Options Exchange are further described
in Section 3.1(b) of the LLC Agreement.
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The LLC Agreement is the source of the Company's governance and
operating authority and, therefore, functions in a similar manner as
articles of incorporation and by-laws function for a corporation. No
changes to the Exchange's existing rules will be necessary in
connection with the establishment of the Company and the operation of
the Options Exchange.
Summary
This section contains a summary of certain provisions in the
operative documents of the Company. The provisions are more fully
described in the sections following the summary.
Structure of the Company
As a limited liability company, ownership of the Company is
represented by limited liability company interests in the Company
(``Interests''). The holders of interests are referred to as the
members of the Company (the ``Members''). The Interests represent
equity interests in the Company and entitle the holders thereof to
participate in the Company's allocations and distributions. Initially,
NYSE Amex will own 100% of the preferred non-voting Interests
(``Preferred Interests'') and 47.2% of the Common Interests,\5\ as
Class A Common Interests. The Founding Firms will own the remaining
52.8% of the Common Interests, as Class B Common Interests, and no
single Founding Firm (including its affiliates) will own Class B Common
Interests comprising more than 19.9% of the issued and outstanding
Common Interests. The 52.8% ownership of Class B Common Interests will
initially be allocated as follows: 14.95% to each of Citadel and
Goldman Sachs; 5.0% to each of BAML, Citigroup and TD Ameritrade; 4.9%
to UBS; and 3.0% to Barclays.\6\
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\5\ Common Interests consist of Class A Common Interests and
Class B Common Interests.
\6\ Following the effective date of this Proposed Rule Change,
additional Class B Common Interests will be issued to the Founding
Firms based, in part, on each Founding Firm's contribution to the
annual volume of the Options Exchange from October 1, 2009 to
December 31, 2010, as described further under the heading ``Volume-
Based Equity Plan''. The Exchange represents that this issuance of
shares to the Founding Firms will not result in any Member (alone or
together with its affiliates) other than NYSE Amex exceeding the
19.9% Maximum Percentage (as defined below).
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Capital Contributions
Members may be subject to both voluntary and mandatory capital
calls. Mandatory capital calls may be issued by the board of directors
of the Company (the ``Board''), up to a cap, if the Company requires
funds to maintain its status as a facility of an SRO or for other
regulatory compliance purposes. In addition, during the first two years
after the Company is formed, the Board, with the approval of a simple
majority vote of the Board, may solicit voluntary capital calls up to a
cap. In addition, a Supermajority Vote of the Board \7\ will be able to
approve: (i) Any voluntary capital call during the first two years
[[Page 18593]]
after the Company is formed in excess of the cap, (ii) any voluntary
capital call after the two-year anniversary of the formation of the
Company, and (iii) any voluntary capital call that is necessary for the
Company to maintain its status as a facility of an SRO or any other
regulatory compliance purposes and that is in excess of the cap for
mandatory capital calls. Any Member that fails to participate in a
mandatory capital call may be subject to certain customary sanctions.
Any Member that fails to participate in a voluntary capital call will
be diluted in its equity holdings.
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\7\ A ``Supermajority Vote,'' as defined in the LLC Agreement,
means, with respect to matters submitted to the Board at a validly
called and validly noticed meeting, (x) for so long as NYSE Amex's
percentage ownership of Common Interests equals or exceeds fifteen
percent (15%), (A) the affirmative vote of more than fifty percent
(50%) of the directors designated by NYSE Amex entitled to vote
thereon and present in person or by proxy and (B) the affirmative
vote of more than fifty percent (50%) of those directors designated
by Founding Firms entitled to vote thereon and present in person or
by proxy, and (y) for so long as NYSE Amex's percentage ownership of
Common Interests is less than fifteen percent (15%), the affirmative
vote of more than fifty percent (50%) of all directors entitled to
vote thereon and present in person or by proxy (which excess of
fifty percent (50%) must include more than two-thirds (\2/3\) of
those directors designated by Founding Firms and NYSE Amex in the
aggregate entitled to vote thereon and present in person or by
proxy).
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Term and Termination
The Company will continue in perpetual existence until dissolved
pursuant to the LLC Agreement or the Delaware Limited Liability Company
Act, as amended (the ``Delaware LLC Act''). The LLC Agreement includes
customary provisions for the dissolution of the Company and an orderly
liquidation of its business.
Ownership Limitations
No Member, other than NYSE Amex, will be permitted to hold Common
Interests in excess of nineteen and nine-tenths percent (19.9%) of the
issued and outstanding Common Interests or any lower percentage that
may be imposed under applicable law. Any Member that holds Common
Interests in excess of 19.9% will be required to dispose of their
excess Common Interests following a procedure outlined below under the
heading ``Ownership Limitations''. In addition, any such excess
interests will be deemed non-voting until they are transferred to a
Member or another person or entity in whose hands they would not be in
excess of 19.9% of the issued and outstanding Common Interests and who
may vote such Common Interests under applicable law.
Members and Membership
Members will be required to comply with Federal securities laws (to
the extent such laws relate to the Company) and cooperate with the SEC
and NYSE Amex, pursuant to NYSE Amex's regulatory authority. As
explained more fully in the description of Section 7.6 of the LLC
Agreement under the heading ``Members and Membership'' below, the
Members may, upon the affirmative written consent of NYSE Amex (in its
capacity as SRO) and a Supermajority Vote of the Board (excluding the
vote of the director designated by the Member subject to sanction),
suspend or terminate a Member's voting privileges in the event: (i) The
Member has materially violated a Regulatory Matters Provision (as
defined below) in the LLC Agreement or any applicable law; (ii) the
Member is subject to any applicable ``statutory disqualification''
(within the meaning of Section 3(a)(39) of the Act); or (iii) such
action is necessary or appropriate in the public interest or for the
protection of investors.
Persons or entities may become Members by acquiring Common
Interests from an existing Member either pursuant to the transfer
provisions described below or with approval by a Supermajority Vote.
A Member may seek to be treated as a ``Restricted Member'' to
comply with any legal restrictions applicable to its holdings of Common
Interests. A Restricted Member will be subject to restrictions on the
distributions it receives and its Common Interests may be deemed non-
voting. This election may be reversed in certain circumstances.
Governance
Day-to-day operations of the Company and the management of its
business and affairs will be delegated to the Company's officers and to
NYSE Group, Inc. (``NYSE Group''), a subsidiary of NYSE Euronext, in
accordance with a services agreement (the ``NYSE Euronext Agreement'')
between NYSE Group and the Company. Under the NYSE Euronext Agreement,
NYSE Group will agree to provide the Options Exchange with a broad
range of operational and support services.
The Board will be responsible for the oversight of the Company's
officers and of NYSE Group's performance under the NYSE Euronext
Agreement. The Board will consist of thirteen members. Each Founding
Firm so authorized pursuant to the LLC Agreement will have the right to
designate one director to the Board--for a total of six directors
designated by Founding Firms--and NYSE Amex will have the right to
designate the remaining seven directors. The LLC Agreement outlines the
basic qualifications of the directors and specifies grounds for their
removal.
Most decisions of the Board will be taken by a simple majority
vote; however, a specified list of actions will require the approval of
a Supermajority Vote. An action requiring a simple majority vote of the
Board may be taken even if none of the directors appointed by Founding
Firms have voted in favor of such an action. Most matters subject to a
Supermajority Vote will be essentially commercial and business issues,
such as the offering of additional equity to new investors, certain
capital calls and other dilutive measures, or the sale or liquidation
of the business. Matters relating to market governance, surveillance,
discipline, regulatory compliance, and similar oversight issues will
not be subject to Supermajority Vote.
In the event that there are two or fewer directors designated by
Founding Firms or in the event that Founding Firms cease to own, in the
aggregate, at least twenty percent (20%) of the outstanding Common
Interests, most of the matters subject to a Supermajority Vote will
cease to require approval by a simple majority of Founding Firms, and
will instead require only a simple majority of the Board. In addition,
in the event that the Founding Firms cease to own, in the aggregate, at
least fifteen percent (15%) of the outstanding Common Interests, only
actions that would have a materially and disproportionally
disadvantageous effect on the Founding Firms will require a
Supermajority Vote.
If NYSE Amex's equity interest falls below fifteen percent (15%),
NYSE Amex will lose the right to appoint one (or more) directors (as
necessary to result in a board evenly split between NYSE Amex and
Founding Firms). A Founding Firm may also lose its right to appoint a
director under a variety of circumstances.
The Company will have a Founding Firm Advisory Committee (the
``Advisory Committee''), which will advise the Board on certain
matters, including new products and market structure.
Transfers of Interests
Transfers of Common Interests will be governed by customary
provisions and subject to certain restrictions. In particular, Founding
Firms wishing to transfer their Common Interests will be subject to
certain limitations on the amount of Common Interests they may transfer
in each year. NYSE Amex will have an initial right of first offer to
purchase Common Interests that a Founding Firm intends to transfer, at
a price at least equal to their fair market value. In the event NYSE
Amex does not exercise its right of first offer, the transferring
Founding Firm will have the right, subject to certain conditions, to
sell its Common Interests to NYSE Amex at a price equal to their fair
market value or to sell its Common Interests to a third party. In
addition, following the tenth anniversary of the formation of the
Company, NYSE Amex will have the right to buy some or all of the Class
B Common Interests from the Founding Firms at a price equal to their
fair market value.
[[Page 18594]]
In the event NYSE Amex intends to transfer any of its Common
Interests, the Founding Firms will have certain rights of first offer
to purchase these Common Interests. However, no Founding Firm will be
able to acquire Common Interests in this way if such acquisition would
result in the Founding Firm's equity holdings exceeding nineteen and
nine tenths percent (19.9%) of the total equity of the Company.
In the event that NYSE Amex acquires any Class B Common Interests,
such Class B Common Interests will automatically be converted into
Class A Common Interests. Similarly, in the event any Founding Firms
acquire Class A Common Interests, such Class A Common Interests will be
automatically converted into Class B Common Interests.
Subject to certain conditions, Members will be obligated to
transfer their Common Interests where another Member, acting along or
together with other Members, intends to make a transfer of 75% of the
then-outstanding Common Interests and the Board, by Supermajority Vote,
approves the sale of the Company to a person or entity who is not an
affiliate of the Company.
Redemptions of Interests
The Board may, by Majority Vote,\8\ redeem the equity interests of
a Founding Firm under specified circumstances, such as (i) a transfer
of equity interests by such Founding Firm to certain entities specified
in the LLC Agreement, (ii) such Founding Firm's failure to satisfy a
certain minimum volume threshold in connection with the Plan (as
defined below) during certain twelve-month periods or (iii) such
Founding Firm's entry into certain economic arrangements as further
detailed below under the heading ``Redemption of Interests'' coupled
with such Founding Firm's failure to satisfy a certain minimum volume
threshold in connection with the Plan during certain three-month
periods.
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\8\ A ``Majority Vote'' is defined as (i) with respect to
matters submitted to the Board at a validly called meeting, the
affirmative vote by those directors representing greater than fifty
percent (50%) of the directors entitled to vote thereon and present
in person or by proxy at such meeting, including, in the event that
NYSE Amex's percentage ownership of Common Interests exceeds fifteen
percent (15%), the affirmative vote of directors representing
greater than fifty percent (50%) of the NYSE Amex directors that are
present in person or by proxy at the meeting and (ii) with respect
to matters submitted to Members at a validly called meeting, the
affirmative vote of those Members holding greater than fifty percent
(50%) of the Common Interests entitled to vote thereon and present
in person or by proxy at such meeting.
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Certain Regulatory and Compliance Matters
The LLC Agreement includes regulatory provisions that govern the
actions of the Company, the Member, NYSE Group, NYSE Euronext, NYSE
Amex, as SRO for the Options Exchange, and the employees and directors
of each of these entities. The Company, NYSE Euronext, NYSE Group, each
Member and the officers, directors, agents and employees of each of
these entities will be required to comply with Federal securities laws
and cooperate with the SEC and NYSE Amex, pursuant to NYSE Amex's
regulatory authority. In addition, the Board will adopt corporate
compliance policies that will govern the conduct of employees.
NYSE Amex, as SRO for the Options Exchange, will have broad
authority to direct any action that it deems necessary or appropriate
to fulfill its obligations as an SRO.
Volume-Based Equity Plan
A volume-based equity plan (the ``Plan'') will be in place for an
initial period of five (5) years and three (3) months following the
formation of the Company, pursuant to which each Founding Firm will be
entitled to receive, for no additional consideration, a predetermined
amount of new Class B Common Interests (``Annual Incentive Shares'')
based on the degree to which such Founding Firm has satisfied certain
minimum volume requirements. The Plan may reallocate the equity
interests of the Founding Firms among each other. However, the Plan
will not affect the equity holdings of NYSE Amex and the Plan will not
increase or decrease the aggregate equity interest of the Founding
Firms relative to NYSE Amex. The Company will not allocate Annual
Incentive Shares to a Founding Firm if such allocation would result in
the Founding Firm holding Common Interests representing in excess of
nineteen and nine tenths percent (19.9%) of the total equity of the
Company, or any lower percentage that may be imposed under applicable
law.
Confidentiality
Members will be subject to customary confidentiality obligations
with respect to information relating to the Company or any Member.
Customary exceptions to these obligations will allow disclosure of
information to the SEC or to NYSE Amex in its capacity as an SRO.
Capital Contributions
Regulatory Capital Contributions
At any time, and from time to time, the Board may require each of
the Members to participate on a pro rata basis in accordance with each
Member's Common Interests in calls for additional capital contributions
to the Company that may be necessary for the Company to ensure that the
Options Exchange maintains, and complies with any regulatory
requirements applicable to, its status as a facility of an SRO pursuant
to the Act or to satisfy any other regulatory obligation (any such
capital call, a ``Regulatory Capital Call'', and each such
contribution, a ``Regulatory Capital Contribution''). The Board must
provide each Member with not less than thirty (30) days written notice
of such Regulatory Capital Call, which notice shall specify (i) the
aggregate dollar amount of the Regulatory Capital Call and the
individual dollar amount required to be contributed by such Member;
(ii) the date by which the Regulatory Capital Contribution must be
made; (iii) such Member's percentage ownership of the Common Interests
as of the date of the notice; and (iv) the reason for the Regulatory
Capital Call.\9\
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\9\ Regulatory Capital Contributions required to be made to the
Company by the Members cannot exceed $5,000,000 in the aggregate in
any thirty-six (36)-month period following the effective date of the
LLC Agreement (the ``Regulatory Capital Call Cap'').
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Voluntary Capital Contributions
At any time during the period commencing on the effective date of
the LLC Agreement, and ending on the second anniversary of that
effective date, the Board may solicit the Members to make one or more
additional capital contributions to the Company (each such
solicitation, a ``Voluntary Capital Call'', and each such contribution,
a ``Voluntary Capital Contribution'') for the benefit of the Company,
up to an amount not to exceed $5,000,000 in the aggregate in any twelve
(12) month period following the effective date of the LLC Agreement
(the ``Voluntary Capital Call Cap''). Notwithstanding the foregoing,
however, the Board may, by Supermajority Vote, among other things,
solicit Voluntary Capital Contributions at any time, if such Voluntary
Capital Contribution is necessary for the Company to ensure that the
Options Exchange maintains, and complies with any regulatory
requirements applicable to, its status as a facility of an SRO pursuant
to the Act or to satisfy any other regulatory obligation, to the extent
of any amount exceeding the Regulatory
[[Page 18595]]
Capital Call Cap. No Member shall have any obligation at any time to
make any Voluntary Capital Contribution.
Non-Funding Members
Any Member that fails to make its Regulatory Capital Contribution
on or before the payment due date or any Member that elects to
participate in a Voluntary Capital Call but subsequently fails to make
its Voluntary Capital Contribution on or before the payment due date,
as applicable, will be considered a ``Non-Funding Member.'' The unpaid
subscription amount will bear interest payable to the Company equal to
a specified default interest rate, from and after the applicable
payment due date and until such non-payment has been cured by the Non-
Funding Member or the Non-Funded Interest (as defined below) has been
purchased by another Member or other person or entity as described in
the following paragraph. No such interest paid by a Non-Funding Member
to the Company will be treated as a capital contribution but will be
treated as interest income of the Company.
In addition to the foregoing, upon thirty (30) days written notice
by the Company to any Member that becomes a Non-Funding Member (and
provided that such non-payment has not been cured by the Non-Funding
Member within such 30-day period), the Board, in its sole discretion,
may (i) sell to any of the other Members, on a pro rata basis, all or
any portion of (A) in the case of a Voluntary Capital Call, the Common
Interests that the Non-Funding Member would have received had the
amount requested been paid in full and (B) in the case of a Regulatory
Capital Call, the amount of Common Interests corresponding to the
amount requested (in both cases, ``Non-Funded Interests''); or (ii) in
the event that the entire amount of Non-Funded Interests of the Non-
Funding Member is not acquired by the Members pursuant to clause (i)
above, so notify the Members and designate one or more persons or
entities (subject to the agreement of such persons or entities), which
may include Members, to acquire all or any portion of the Non-Funding
Member's Non-Funded Interests not so acquired; provided that (A) any
purchase of such Non-Funded Interest by any Member, in whole or in
part, shall result in a corresponding increase to such Member's Common
Interest and (B) any purchase of such Non-Funded Interest by a party
that is not a Member shall be treated as a transfer by the Non-Funding
Member to such person and shall be subject to conditions and
limitations in the LLC Agreement relating to admission of Members and
transfers of Interests.
Term and Termination
Pursuant to Section 2.3 of the LLC Agreement, the Company shall
continue in perpetual existence until dissolved pursuant to the LLC
Agreement or the Delaware LLC Act. However, Section 12.1 of the LLC
Agreement provides that the Company may be dissolved in the event of
(i) a Supermajority Vote by the Board to that effect, (ii) the sale or
other disposition of all or substantially all of the Company's assets
and the receipt of all consideration therefrom, or (iii) the entry of a
decree of judicial dissolution under Section 18-802 of the Delaware LLC
Act (involving a situation where it is not reasonably practicable to
carry on the business in conformity with a limited liability company
agreement); provided that no Member may make an application for the
dissolution of the Company pursuant to Section 18-802 of the Delaware
LLC Act without approval by a Supermajority Vote of the Board. The
dissolution of the Company will be effective as of the day on which the
event occurs giving rise to the dissolution, but the Company will not
terminate until the winding up of the Company has been completed, the
assets of the Company have been distributed as provided in Section 12.2
of the LLC Agreement (see following paragraph) and the Certificate of
Formation of the Company has been canceled.
Section 12.2 of the LLC Agreement provides that, upon the
termination and dissolution of the Company, the Board must take all
steps necessary and proper to effect an orderly liquidation of the
Company's business and shall apply and distribute the net proceeds of
such liquidation in the following order of priority: (a) First, to
creditors, including Members who are creditors (but excluding
liabilities to Members for distributions under Section 18-606 of the
Delaware LLC Act), to the extent otherwise permitted by applicable law,
in satisfaction of liabilities of the Company (other than contingent,
conditional or unmatured liabilities for which reserves are established
by the Board), whether by payment or the making of reasonable provision
for payment thereof, (b) second, to the establishment of any reserves
determined by the Board to be reasonably necessary or appropriate to
provide for any contingent, conditional or unmatured Company
liabilities and obligations (which reserves may be paid over to a bank
or trust company, as escrow agent, to be held by such escrow agent for
the purpose of disbursing such reserves in payment of the referenced
liabilities and obligations) and, at the expiration of such period as
the Board shall deem advisable, to pay over the balance thereafter
remaining for distribution, (c) third, to the holder of Preferred
Interests, to the extent of the Priority Claim (as defined below), and
(d) finally, subject to such other arrangements as the Members may
agree, to the Members, pro rata, in accordance with their percentage
ownership of Common Interests; subject to any applicable limitations
imposed by a Member's maximum percentage of distributions as provided
in Section 7.5 of the LLC Agreement or such other arrangements as the
Members may agree. In the latter situation, any distribution so limited
shall be made to the other Members in proportion to their respective
percentage ownership of Common Interests.
The ``Priority Claim'' is the right of the Preferred Interest
holder, upon any liquidation, dissolution or sale of the Company or
other similar event, to receive the sum of (i) the amount of the non-
cash capital contribution for the Preferred Interests identified on
Schedule A-1 to the Amended and Restated Contribution Agreement dated
as of February 22, 2011, by and among NYSE Euronext, the Company and
the Members (the ``Contribution Agreement''), reduced by the amount(s)
paid by the Company (x) in respect of any redemptions of Preferred
Interests pursuant to Section 11.5(a) of the LLC Agreement as described
herein under ``Redemption of Interests'' or (y) pursuant to Section
3.2(i) of the Members Agreement relating to certain redemptions of
Class B Common Interests plus (ii) any unpaid amount that has accrued
on the Preferred Interests. In any winding up and dissolution of the
Company, NYSE Amex may elect to receive Company property-in-kind,
provided that the fair market value of such property-in-kind will be
determined by a Supermajority Vote of the Board or, if the Board is
unable to so agree, pursuant to an appraisal thereof by an independent
valuation firm approved by a Supermajority Vote of the Board. To the
extent the fair market value of the Company property distributed to
NYSE Amex is in excess of the amount it would otherwise receive under
Section 12.2 of the LLC Agreement, it shall make a cash payment to the
Company in the amount of the difference, with the proceeds to be
distributed, pro rata, to all the Members other than NYSE Amex.
Section 12.4 of the LLC Agreement establishes that, upon the
occurrence of an event of dissolution as described
[[Page 18596]]
above, the Company shall be dissolved unless, within fifteen (15) days
of such event, those Members representing greater than fifty percent
(50%) of the Common Interests agree in writing to continue the business
of the Company.
Ownership Limitations
Section 4.9 of the LLC Agreement provides that no Member (other
than NYSE Amex alone or, subject to receipt of SEC approval pursuant to
the rule filing process under Section 19(b) of the Act, together with
its Permitted Transferees \10\) shall be permitted to own or vote
(alone or together with its affiliates), directly or indirectly, Common
Interests in excess of the lower of (x) nineteen and nine-tenths
percent (19.9%) of the then issued and outstanding Common Interests
(the ``19.9% Maximum Percentage'') or (y) the maximum amount of Common
Interests such Member (alone or together with its affiliates) may own
or vote under applicable law and without subjecting the Company to
material regulatory obligations or material liabilities or a reasonable
likelihood of material regulatory obligations or material liabilities
arising as a result of the extent of such ownership or voting interest
(such maximum Common Interests a Member (alone or together with its
affiliates) may own or vote under this clause (y), the ``Alternate
Maximum Percentage'', and the amount in excess thereof or in excess of
the 19.9% Maximum Percentage, as applicable, ``Excess Interests'').
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\10\ A ``Permitted Transfer'' is defined in the LLC Agreement as
(i) any transfer of Interests by any Member among any of its
affiliates, (ii) any transfer by merger, consolidation or similar
business combination or through the acquisition of substantially all
of the assets and liabilities of the transferring party (except for
a transfer to a person or entity whose assets subsequent to the
transfer would be comprised principally of Interests) or (iii) any
transfer required under, or effected to enable a Member to be in
compliance with, applicable law or the requirements of a
governmental authority or any SRO. Any transferee under clauses (i)
and (ii) of the previous sentence is a ``Permitted Transferee,'' and
any transferee under clause (iii) of the previous sentence is a
``Required Transferee.''
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In the event that the Company believes that a Member other than
NYSE Amex (alone or together with its affiliates) has or may, as a
result of then-contemplated events, in the near future, have Excess
Interests (other than as a result of exceeding the 19.9% Maximum
Percentage), the Company shall provide such Member with notice of this
belief, setting forth the basis for the Company's position, and the
Company and such Member shall discuss in good faith the proposed
determination. If the Company and such Member agree that such Member
(alone or together with its affiliates) holds Excess Interests (other
than as a result of exceeding the 19.9% Maximum Percentage), the Member
must, within a reasonable period after such agreement is reached,
implement remedial measures including those described in the paragraph
immediately below. If the Company and a Member fail to reach agreement
as to whether the Member (alone or together with its affiliates) holds
Excess Interests (other than as a result of exceeding the 19.9% Maximum
Percentage), the Company shall be entitled to bring a dispute
resolution proceeding in accordance with the dispute resolution
provisions in Article XV of the LLC Agreement to resolve the dispute;
and in the event the Company prevails in any such dispute resolution
proceeding, the applicable Interests shall be deemed to be Excess
Interests for purposes of the remedial measures described in the
paragraph immediately below. In the event a Member (alone or together
with its affiliates) holds Excess Interests as a result of exceeding
the 19.9% Maximum Percentage, the Member shall, subject to applicable
law, implement the remedial measures described in the paragraph
immediately below and such Excess Interests shall automatically and
immediately constitute Non-voting Common Interests \11\ as described in
and subject to the paragraph immediately below.
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\11\ ``Non-voting Common Interests'' are defined in the LLC
Agreement as Class B Common Interests (i) designated as non-voting
at the time of issuance; (ii) deemed to be non-voting pursuant to
Section 7.5(b) or Section 7.5(d) of the LLC Agreement; or (iii) held
by a Member, constituting Common Interests in excess of the 19.9%
Maximum Percentage, absent SEC approval.
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A Member (alone or together with its affiliates) that (x) holds
Excess Interests as a result of exceeding the 19.9% Maximum Percentage
or (y) pursuant to the paragraph immediately above, agrees that it
holds or is found to hold Excess Interests as a result of exceeding the
applicable Alternate Maximum Percentage shall promptly implement the
following remedial measures accordingly and in a manner consistent with
the LLC Agreement and applicable law: (i) the offer of such Excess
Interests at a price equal to the pro rata portion of the fair market
value of the Member's (or its affiliates', if applicable) Common
Interests attributable to the Excess Interests: first, to the remaining
Members (other than NYSE Amex) pro rata in accordance with their
relative Common Interests; second, if the remaining Members do not
purchase all such Excess Interests, to NYSE Amex; and third, if NYSE
Amex does not purchase all such Excess Interests, to any other person
or entity approved by NYSE Amex (which approval must not be
unreasonably withheld, conditioned or delayed), subject to the
conditions and limitations in the LLC Agreement on the admission of
Members, (ii) subject to applicable law, retention of the Excess
Interests as Non-voting Common Interests, pursuant to the provisions of
Section 7.5 of the LLC Agreement on Restricted Members (as defined and
discussed below), or (iii) except in the case of Excess Interests
arising as a result of such Member (alone or together with its
affiliates) exceeding the 19.9% Maximum Percentage, any other remedial
action discussed in good faith by the Member and the Company, in each
case, as determined by the relevant Member to be least burdensome. A
Member's Excess Interests arising as a result of such Member (alone or
together with its affiliates) exceeding the 19.9% Maximum Percentage
shall automatically and immediately constitute, absent regulatory
approval (including SEC approval pursuant to the rule filing process
under Section 19(b) of the Act) to the contrary, Non-voting Common
Interests and the Aggregate Class A Voting Allocation and Aggregate
Class B Voting Allocation (each as defined below) shall be adjusted
accordingly. Such an adjustment may have the effect of concentrating
the Common Interest Percentages of the other Members. The requirements
of this provision shall be applied iteratively in the event that any
such adjustment would result in any Member (alone or together with its
affiliates) exceeding the 19.9% Maximum Percentage. Subject to
applicable law, Excess Interests of a Member that constitute Non-voting
Common Interests solely as a result of such Member (alone or together
with its affiliates) exceeding the 19.9% Maximum Percentage shall cease
to constitute Non-voting Common Interests (and the Aggregate Class A
Voting Allocation and Aggregate Class B Voting Allocation shall be
adjusted accordingly) in the event that, and to the extent that, (I)
such Member (or, if applicable, its affiliates) transfers, in
accordance with Article XI (Transfers) of the LLC Agreement, such
Excess Interests to another Member or third party that (taking into
account such Excess Interests then being transferred) does not hold
Common Interests that would constitute Excess Interests in the hands of
such transferee Member or third party due to such transferee Member or
third party (in each case, alone or together with its affiliates)
exceeding the 19.9% Maximum
[[Page 18597]]
Percentage or (II) such Excess Interests cease to be Excess Interests
(due to such Member (alone or together with its affiliates) exceeding
the 19.9% Maximum Percentage) because of a reduction in such Member's
Common Interest Percentage.\12\ Notwithstanding the foregoing, nothing
in Section 4.9 of the LLC Agreement limits Section 7.5 of the LLC
Agreement (Restricted Members) or the ability of a Member to make a
Restricted Member Election (as defined below), which shall impose
separate and additional limitations with respect to Common Interests
covered thereby. NYSE Amex may assign to one of its affiliates the
right to purchase Excess Interests pursuant to clause (i) of this
paragraph, subject to providing notice to, and receiving approval from,
the SEC under Section 19(b) of the Act.
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\12\ ``Common Interest Percentage'' is defined in the LLC
Agreement as (i) with respect to NYSE Amex or a transferee of Class
A Common Interests, the product of (w) the Aggregate Class A
Economic Allocation multiplied by (x) a fraction, (A) the numerator
of which shall be the number of Class A Common Interests then held
by NYSE Amex or the transferee and (B) the denominator of which
shall be the number of Class A Common Interests then held NYSE Amex
and all such transferees, and (ii) with respect to any Founding Firm
or a transferee of Class B Common Interests, the product of (y) the
Aggregate Class B Economic Allocation multiplied by (z) a fraction,
(A) the numerator of which shall be the number of Class B Common
Interests then held by such Founding Firm or the transferee,
including, for the purpose of determining any economic entitlement
or entitlement to designate a director, any Non-voting Common
Interests and (B) the denominator of which shall be the number of
Class B Common Interests then held by all Founding Firms and all
such transferees, including, for the purpose of determining any
economic entitlement or entitlement to designate a director, any
Non-voting Common Interests.
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In the event that material regulatory obligations or material
liabilities of the Company arise as a result of a Member (alone or
together with its affiliates) holding Excess Interests (other than as a
result of exceeding the 19.9% Maximum Percentage) and such material
obligations or liabilities may be mitigated by the Member becoming a
Restricted Member pursuant to Section 7.5(a) of the LLC Agreement, the
Member will be deemed to have elected to become a Restricted Member
upon such obligation or liability arising; provided that, to the extent
permitted under applicable law and consistent with the proviso in
Section 7.5(a)(iii) of the LLC Agreement relating to the reversal of an
election to be treated as a Restricted Member, the Member may revoke
such election to be a Restricted Member in connection with either (i)
the sale of such Member's Interests or (ii) any other remedial action
taken by such Member, each as described in the preceding paragraph.
Members and Membership
Section 7.3 of the LLC Agreement provides that, except as otherwise
provided in Article XI (Transfers) of the LLC Agreement (discussed
below), persons or entities that acquire Common Interests or Preferred
Interests in accordance with the terms of, and subject to the
restrictions provided in, the LLC Agreement may be admitted from time
to time as new Members by Supermajority Vote of the Board, subject to
the following: (a) Any new Member must make a capital contribution in
such amount and on such terms as the Board deems appropriate based upon
the needs of the Company, the net value of its assets, the Company's
financial condition, and the benefits anticipated to be realized by
such additional Member; and (b) the additional Member must agree to be
bound by the terms of the LLC Agreement and the Members Agreement. In
addition, pursuant to Section 7.4 of the LLC Agreement, each Member
must maintain commercially reasonable policies and procedures, taking
into account the structure and organization of its operations, to
prevent disclosure of confidential information of the Company by any
director, alternate director, observer to the Board or any committee of
the Board or member of the Advisory Committee (as defined below) to any
other individual appointed by such Member to perform a similar role
with respect to, or who is an officer or employee of, a Specified
Entity.\13\ Any individual designated to be a director, alternate
director, observer to the Board or any committee of the Board, or
member of the Advisory Committee may be required to acknowledge in
writing the foregoing requirements.
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\13\ ``Specified Entity'' is defined in the LLC Agreement as (i)
any U.S. securities option exchange (or facility thereof) or U.S.
alternative trading system on which securities option contracts are
executed (other than NYSE Amex or any of its affiliates) that lists
for trading any option contract that competes with a contract listed
for trading on the Options Exchange or a contract that is
contemplated by the then-current business plan of the Company to be
listed for trading by the Options Exchange within ninety (90) days
of such date, (ii) any person or entity that owns or controls a U.S.
securities option exchange or U.S. alternative trading system
described in clause (i), and (iii) any affiliate of a person or
entity described in clause (i) or (ii) above; provided that, in the
event of a change in applicable law permitting the execution of
transactions in exchange-listed securities options otherwise than on
a national securities exchange or facility thereof (including, but
not limited to, internalization of orders for exchange-listed
securities options or the execution of such orders on an alternative
trading system), (x) a system operated by or on behalf of a Founding
Firm or its affiliates for purposes of the internalization or
crossing of: (i) Orders of customers of such Founding Firm or its
affiliates, (ii) orders of such Founding Firm or its affiliates or
(iii) orders routed from a retail broker-dealer or retail brokerage
unit, shall not be considered a Specified Entity and (y) in addition
to the matters covered in clause (x), NYSE Amex and the Founding
Firms will negotiate in good faith the terms of an exception from
the definition of Specified Entity for any alternative trading
system owned solely by an individual Founding Firm or its affiliates
that performs order crossing in a manner that does not substantially
compete with the Options Exchange in terms of market share and other
relevant factors.
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As referenced above, the number of Class A Common Interests and
Class B Common Interests that will be issued and outstanding to the
initial Members will result in (i) the percentage of the aggregate
number of Common Interests represented by the Class A Common Interests
(the ``Aggregate Class A Economic Allocation'') initially being equal
to 47.2% and (ii) the percentage of the aggregate number of Common
Interests represented by the Class B Common Interests (the ``Aggregate
Class B Economic Allocation'') initially being equal to 52.8%. The
Class A Common Interests will also initially represent 47.2% of the
aggregate number of Common Interests entitled to vote (such percentage,
the ``Aggregate Class A Voting Allocation'' and together with the
Aggregate Class A Economic Allocation, the ``Aggregate Class A
Allocation''), while the Class B Common Interests will initially
represent 52.8% of the aggregate number of Common Interests entitled to
vote (such percentage, the ``Aggregate Class B Voting Allocation'' and
together with the Aggregate Class B Economic Allocation, the
``Aggregate Class B Allocation''). From time to time, the Aggregate
Class A Economic Allocation and the Aggregate Class A Voting Allocation
shall be separately or together subject to adjustment upwards or
downwards, as applicable, in accordance with the provisions of the LLC
Agreement and/or the Members Agreement, as will the Aggregate Class B
Economic Allocation and the Aggregate Class B Voting Allocation.
Restricted Members
Section 7.5 of the LLC Agreement provides that each Member (other
than NYSE Amex alone or together with its Permitted Transferees) then
owning (alone or together with its affiliates) any Excess Interests
(other than as a result of exceeding the 19.9% Maximum Percentage) or
then owning an Interest entitling that Member to distributions in
excess of the Member's Maximum Percentage (as defined below) of the
distributions (the ``Capped Distribution Amount'') then being made to
all Members may from time to time make an irrevocable election
(``Restricted Member Election'') (but subject to
[[Page 18598]]
reversal under certain specific circumstances), by written notice to
the Company, to be treated for purposes of the LLC Agreement as a
``Restricted Member,'' solely with respect to such Excess Interests or
Capped Distribution Amount. ``Maximum Percentage'' means, for a Member,
the lesser of the 19.9% Maximum Percentage and such Member's Alternate
Maximum Percentage, if any. With respect to each Restricted Member, for
so long as the election to be a Restricted Member remains in effect:
(i) In the event of any distribution of Class B Common Interests,
at the request of that Restricted Member by written notice to the
Company, the Restricted Member will receive in lieu of Class B Common
Interests, at the Company's sole option based on a Majority Vote of the
disinterested directors, either (x) the cash equivalent of such
distribution to be paid by the Company within ninety (90) days of the
date such distribution would have otherwise been made, and the
allocations of net profits and losses shall be adjusted accordingly to
reflect each Member's share of such distribution or (y) a promissory
note from the Company (i) in a principal amount equivalent to the
amount of such distribution; (ii) having a maturity determined by
Supermajority Vote of the disinterested directors not to exceed 5
years; and (iii) having additional commercially reasonable terms to be
determined by Supermajority Vote of the disinterested directors that
are consistent with customary market practice (provided that the
Company shall not enter into any contractual restrictions that
specifically and directly limit the Company's ability to repay or
redeem such promissory note except as required under applicable law),
and the allocations of net profits and losses shall be adjusted
accordingly to reflect each Member's share of such distribution;
(ii) In the event of any distribution that is not a distribution of
Class B Common Interests, and if such Restricted Member has so elected,
then the amount of any distribution that would otherwise be made to the
Restricted Member in excess of the Capped Distribution Amount shall be
distributed to all other Members who are entitled to participate in
such distribution on a pro rata basis with respect to the Common
Interests held by such Members and the allocations of net profits and
losses shall be adjusted accordingly to reflect each Member's share of
such distribution; provided that with respect to any Restricted Member,
including in the event that such distribution permits any Member to
elect to be treated as a Restricted Member and such Member so elects,
the distributions to any such Restricted Member shall not exceed the
Capped Distribution Amount; and
(iii) Such Restricted Member agrees to transfer the proceeds of any
transfer of Common Interests by that Restricted Member (taking into
account any proceeds received by the Restricted Member for previous
transfers) in excess of the Restricted Member's Maximum Percentage of
the proceeds of such transfer of Common Interests to all other Members
who are not Restricted Members on a pro rata basis with respect to the
number of Common Interests held by such Members; provided that with
respect to any Restricted Member, including in the event that such
transfer permits any Member to elect to be treated as a Restricted
Member and such Member so elects, the amount transferred to any such
Restricted Member shall be limited so as to not cause the Restricted
Member's total ownership interest to exceed the Restricted Member's
Maximum Percentage or the Capped Distribution Amount, as applicable.
An election to become a Restricted Member will be binding upon the
Restricted Member and its direct and indirect transferees, provided,
however, that the Restricted Member, in its capacity as a Member and a
Restricted Member, may (x) upon written notice to the Company at any
time and without precondition, reverse its election with respect to
paragraph (ii) above and (y) only under the following circumstances,
reverse its election to be treated as a Restricted Member upon written
notice to the Company:
(A) The Restricted Member owns such Restricted Member's Maximum
Percentage or less of the Common Interests then issued and outstanding
(in which case such reversal may occur without any further consent of
the Board or any other condition precedent);
(B) With the written approval of the Board granted in the sole
discretion of the majority of the disinterested directors; or
(C) The Restricted Member provides the Board with appropriate
written notice that such Common Interests have been transferred to the
extent permissible under the LLC Agreement (1) as part of a widespread
public or private offering where no single transferee (together with
its affiliates) acquires more than 2% of the total Common Interests,
(2) to an underwriter for the purpose of underwriting a widely
distributed public or private offering, (3) in one or more open market
transactions effected on a stock exchange, electronic communication
network or similar execution system, or in the over-the-counter market
(which may include a sale to one or more broker-dealers acting as
market makers or otherwise intending to resell the Common Interests
sold to them in accordance with their normal business practices), (4)
to an acquirer which has acquired control of a majority of the total
Common Interests, or (5) with the written approval of the U.S. Board of
Governors of the Federal Reserve System or its staff.
Common Interests with a voting interest in excess of the Maximum
Percentage of the then issued and outstanding Common Interests of each
Member who elects to be treated as a Restricted Member will be deemed
Non-voting Common Interests, and the Aggregate Class A Voting
Allocation and Aggregate Class B Voting Allocation will be adjusted
accordingly. Non-voting Common Interests will not be included in
determining whether the requisite percentage in interest of the Members
have consented to, approved, adopted or taken any action pursuant to
the LLC Agreement. Except as provided in this paragraph, Non-voting
Common Interests will be identical in all regards to all other Common
Interests held by Members.
A Member may elect to become a Restricted Member with respect to
any of its Class B Common Interests, even if such Class B Common
Interests do not constitute Excess Interests. Upon such election, such
Class B Common Interests shall be deemed Non-voting Common Interests
and the provisions of the preceding paragraph will apply with respect
to such Member, provided that such Member may only reverse such
election under the circumstances described in subparagraph (C) above.
The LLC Agreement specifies that, absent SEC approval, the Excess
Interests of a Member (other than NYSE Amex alone or together with its
affiliates) arising as a result of such Member (alone or together with
its affiliates) exceeding the 19.9% Maximum Percentage shall
immediately and automatically constitute Non-voting Common Interests.
Section 7.6 of the LLC Agreement provides that the Company and, to
the extent it relates to the Company, each Member, agrees to comply
with the Federal securities laws and the rules and regulations
promulgated thereunder and to cooperate with NYSE Amex pursuant to its
regulatory authority and with the SEC. Furthermore, each Member must
take into consideration whether its actions would cause the Options
Exchange or the Company to
[[Page 18599]]
engage in conduct that fosters and does not interfere with NYSE Amex's
or the Company's ability to carry out their respective responsibilities
under the Act and to prevent fraudulent and manipulative acts and
practices, promote just and equitable principles of trade, foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, protect investors and the public interest. The
Members may, upon (A) the affirmative written consent of NYSE Amex (in
its capacity as SRO) and (B) a Supermajority Vote of the Board
(excluding the vote of the director designated by the Member subject to
sanction), suspend or terminate a Member's voting privileges, including
the ability to designate directors pursuant to Section 8.1(d) of the
LLC Agreement in the event: (i) The Member has materially violated any
``Regulatory Matters Provision'' \14\ or any applicable law; (ii) the
Member is subject to any applicable ``statutory disqualification''
(within the meaning of Section 3(a)(39) of the Act); or (iii) such
action is necessary or appropriate in the public interest or for the
protection of investors. Prior to any suspension or termination, (x)
the Company will deliver to the Member a written notice specifying in
reasonable detail the basis for such proposed suspension or termination
and (y) representatives of the Member will be given an opportunity to
address the Board regarding such proposed suspension or termination
prior to the Board voting thereon. In the event of a suspension or
termination, the director (if any) designated by such Member will
immediately cease to be a director and the authorized number of
directors will be reduced accordingly.
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\14\ A ``Regulatory Matters Provision'' is defined in the LLC
Agreement as any of Section 4.9 of the LLC Agreement with respect to
provisions related to the 19.9% Maximum Percentage; Section 7.6 of
the LLC Agreement relating to Member compliance with the federal
securities laws and cooperation with NYSE Amex pursuant to its
regulatory authority and with the SEC; Section 8.1(d)(i) of the LLC
Agreement relating to designation of directors to the Board;
Sections 8.1(e)(ii) and 8.1(e)(iii) of the LLC Agreement relating to
a director's suspension or removal in certain circumstances; Section
8.1(h) of the LLC Agreement relating to the qualification of
directors; Section 8.1(m) of the LLC Agreement relating to director
compliance with the federal securities laws and cooperation with
NYSE Amex pursuant to its regulatory authority and with the SEC;
Section 9.3 of the LLC Agreement prohibiting Members from entering
voting trust agreements with respect to their Common Interests;
Section 11.8 of the LLC Agreement relating to (i) notice and rule
filing requirements to the SEC on any acquisition of Interests that
results in a Member's ownership of Common Interests reaching certain
threshold levels and (ii) requirements regarding direct and indirect
ownership of the Company; Section 13.2(c) of the LLC Agreement
granting NYSE Amex and the SEC access to the books and records of
the Company; Section 14.1(j) of the LLC Agreement providing for the
confidentiality of Confidential Information (as defined below)
pertaining to the self-regulatory functions of NYSE Amex; Section
14.1(k) of the LLC Agreement granting NYSE Amex and the SEC access
to confidential information; Section 16.1 of the LLC Agreement
relating to regulatory approvals and compliance; or Section 16.10 of
the LLC Agreement relating to amendments to the LLC Agreement and
the requirement to file such amendments with the SEC.
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Article IX of the LLC Agreement provides that meetings of the
Members may be called by (i) the Board or (ii) by a Member or Members
holding not less than thirty-five percent (35%) of the then issued and
outstanding Common Interests. Written or printed notice stating the
place, day and hour of the meeting and, in the case of a special
meeting of the Members, describing the purposes for which the meeting
is called shall be delivered not fewer than ten (10) days, but not more
than sixty (60) days, before the date of the meeting. Such notice must
include an agenda specifying in reasonable detail the matters to be
discussed at the meeting and identifying any specific items to be
considered that require a Supermajority Vote. Except as otherwise
provided in the LLC Agreement or under applicable law, Members which
both (x) represent greater than forty-five percent (45%) of the Common
Interests outstanding and are entitled to vote at such time and (y)
constitute an absolute majority of Members entitled to vote at such
time, represented in person or by proxy, shall constitute a quorum of
Members for purposes of conducting business. Except as otherwise
required by the LLC Agreement or applicable law, resolutions of the
Members at any meeting of Members shall be adopted by Majority Vote of
the Members at such meeting at which a quorum is present.
Section 9.3 of the LLC Agreement prohibits Members from entering
into voting trust agreements with respect to their Common Interests.
Governance of the Company
Section 8.1(a) of the LLC Agreement establishes the Board, which
will be a ``manager'' of the Company within the meaning of the Delaware
LLC Act. Each director shall be entitled to one vote. Section 8.1(b) of
the LLC Agreement provides that the Board shall delegate the day-to-day
operation of the Company and the management of the business and affairs
of the Company to the officers of the Company and NYSE Group, a wholly-
owned subsidiary of NYSE Euronext, in accordance with the NYSE Euronext
Agreement pursuant to which NYSE Group will perform certain information
technology, operational, financial, compliance, management and other
general corporate support services for the Company (except as otherwise
provided in the LLC Agreement). The Board shall oversee the conduct and
performance of the duties so delegated.
Pursuant to Section 8.1(c) of the LLC Agreement, the authorized
number of directors is thirteen (13) as of the effective date of the
LLC Agreement. The Board may be expanded by Supermajority Vote of the
Board to include any number of independent directors as may be required
by applicable law, provided that in the event the Board is so expanded,
the Board shall determine, by Supermajority Vote, applicable
independence criteria in accordance with, among other appropriate
considerations, the requirements of applicable law which shall include,
for this purpose, SEC guidelines, if any, regarding such criteria. The
directors shall be appointed by the Members as described in the
immediately following paragraphs and shall hold office until their
respective successors are elected and qualified or until their earlier
death, resignation or removal. In the event that the Company is not
required to appoint independent directors, the Company will authorize
one individual to be designated by NYSE Amex to participate as a non-
voting observer in meetings of the Board, so long as the Options
Exchange is operated as a facility of NYSE Amex.
Under Section 8.1(d) of the LLC Agreement, each Member agrees that
it shall vote all of such Member's Common Interests and any other
voting equity securities of the Company over which that Member has
voting control and shall take all other actions reasonably necessary or
desirable within that Member's control (whether in the Member's
capacity as a Member, director, member of a Board committee or officer
or otherwise, and including attendance at meetings in person or by
proxy for purposes of obtaining a quorum and execution of written
consents in lieu of meetings), and the Company shall take all necessary
and desirable actions within its control (including calling special
Board and Member meetings), so that the following persons shall be
elected to the Board:
(i) Up to seven (7) representatives designated by NYSE Amex who
shall initially be as specified in the LLC Agreement and, after the
effective date of the LLC Agreement, such other persons who are
designated by NYSE
[[Page 18600]]
Amex from time to time pursuant to this clause (i), one of whom may, in
NYSE Amex's sole discretion, be the chief executive officer of the
Company; provided that (x) upon any expansion of the Board to include
any independent directors as described above, for so long as NYSE
Amex's percentage ownership of Common Interests equals or exceeds
fifteen percent (15%), NYSE Amex shall have the right to designate a
number of additional directors equal to the aggregate number of
independent directors added to the Board pursuant to Section 8.1(c) of
the LLC Agreement or, if fewer, the largest number of additional
directors allowable under applicable law, and the authorized number of
directors shall be correspondingly increased and (y) upon any expansion
of the Board to include any additional directors appointed by Members
other than NYSE Amex pursuant to the LLC Agreement, NYSE Amex shall
have the right to designate a number of additional directors equal to
the aggregate number of directors so added to the Board and the
authorized number of directors shall be correspondingly increased;
provided, further, that each individual designated by NYSE Amex to
serve as a director shall be reasonably acceptable to the Founding
Firms; and provided, further, that NYSE Amex will appoint at least such
number (not to exceed seven (7) directors) as is necessary to ensure
that no single Founding Firm's designees to the Board constitute twenty
percent (20%) or a greater percentage of the total number of directors
on the Board; and
(ii) One (1) representative designated by each Founding Firm
authorized to designate a representative pursuant to Section 8.1(d)(ii)
of the LLC Agreement, who shall initially be as specified in the LLC
Agreement and, after the effective date of the LLC Agreement, such
other person who is designated by such Founding Firm from time to time
pursuant to this clause (ii); provided that each individual designated
by the Founding Firms to serve as a director shall be reasonably
acceptable to NYSE Amex; provided, further, that if such Founding
Firm's percentage ownership of Common Interests falls below, in the
case of Goldman Sachs and Citadel, five percent (5%), and in all other
cases, three percent (3%), the individual designated by such Founding
Firm shall immediately cease to be a director, such Founding Firm shall
cease to be authorized to designate a director, and the authorized
number of directors shall be reduced accordingly; provided, further,
that if such Founding Firm's Class B Common Interests are subject to
redemption, the Board (A) may require the individual designated by such
Founding Firm to resign, (B) may permanently, or for such shorter
period as the Board may designate, disqualify such Founding Firm from
designating representatives to the Board pursuant to this clause (ii),
and (C) pursuant to subclause (A) or (B) above, reduce the authorized
number of directors accordingly; provided that the affected director
shall not be authorized to participate in any such decision by the
Board;
(iii) In the event the Board is expanded to include independent
directors as described above and NYSE Amex's percentage ownership of
Common Interests equals or exceeds fifteen percent (15%), NYSE Amex
shall designate one-half of the total number of independent directors
to be so included, in consultation with the Founding Firms, and the
Founding Firms shall designate one-half of the total number of
independent directors to be so included, in consultation with NYSE
Amex; provided that if the number of independent directors to be so
included is odd, NYSE Amex shall designate a number of independent
directors that is equal to the number of independent directors
designated by the Founding Firms plus one; provided further that if (A)
two or fewer Members have the right to designate a director pursuant to
clause (ii) above or (B) the aggregate Common Interests held by all
Founding Firms, excluding any Non-voting Common Interests, falls below
fifteen percent (15%) of the then issued and outstanding Common
Interests, NYSE Amex shall have the exclusive right to designate all of
the independent directors. The independent directors designated by NYSE
Amex and the Founding Firms shall be subject to approval by a
Supermajority Vote of the Board. In the event that NYSE Amex's
percentage ownership of Common Interests is less than fifteen percent
(15%), the independent directors shall be appointed by mutual agreement
of NYSE Amex and a majority of the Founding Firms; and
(iv) If and for so long as NYSE Amex's then-current percentage
ownership of Common Interests is less than fifteen percent (15%), the
number of directors designated by NYSE Amex shall be decreased to a
number equal to the then-current number of directors designated by
Founding Firms, the aggregate number of representatives of the Board to
be designated by NYSE Amex shall be decreased accordingly, and the
number of directors shall be reduced accordingly, until such time as
either (x) one or more Founding Firms become eligible to designate a
director, in which case the aggregate number of representatives of the
Board to be designated by NYSE Amex shall simultaneously be increased
to a number equal to the number of directors designated by Founding
Firms or (y) NYSE Amex's then-current percentage ownership of Common
Interests again equals or exceeds fifteen percent (15%), in which case
the aggregate number of representatives of the Board to be designated
by NYSE Amex shall be increased to a number equal to the number of
directors designated by Founding Firms plus one (1) and, in each case,
the number of directors shall be increased accordingly.
Section 8.1(e)(i) of the LLC Agreement provides that a director may
be removed as a director at any time and for any reason by the Board,
pursuant to the written request of the person(s) or entit(ies) entitled
to designate such director as discussed above. A director may also be
removed for cause (as defined in the LLC Agreement) by Majority Vote of
the Board; provided that (i) representatives of the Member entitled to
designate such director shall be given the opportunity to speak to the
Board regarding such proposed removal prior to the Board voting on the
removal of such director and (ii) the affected director shall not be
authorized to participate in any such decision by the Board. In the
event that a director designated by a Founding Firm fails to attend a
majority of Board meetings during any 12-month period, the Board may
require that Founding Firm to designate a replacement director.
In addition, Section 8.1(e)(ii) of the LLC Agreement provides that
the Board may, by Supermajority Vote (excluding the vote of the
directors designated by the Member subject to sanction), suspend or
terminate a director's service as such to the Company in the event: (A)
the director has materially violated any Regulatory Matters Provision
or any applicable law or (B) such action is necessary or appropriate in
the public interest or for the protection of investors. Prior to any
such suspension or termination, (x) the Board shall deliver to the
Founding Firm that appointed the director a written notice specifying
in reasonable detail the basis for the proposed suspension or
termination and (y) representatives of the Founding Firm shall be given
an opportunity to address the Board regarding such proposed suspension
or termination prior to the Board voting thereon. In the event of such
suspension or termination, the individual designated by the Founding
Firm shall immediately cease to be a director and
[[Page 18601]]
the resulting vacancy shall be filled pursuant to Section 8.1(f) of the
LLC Agreement (as discussed below).
Section 8.1(e)(iii) of the LLC Agreement provides that any director
who becomes subject to any applicable ``statutory disqualification''
(within the meaning of Section 3(a)(39) of the Act) shall be deemed to
have automatically resigned from the Board.
Pursuant to Section 8.1(f) of the LLC Agreement, in the event that
any director designated pursuant to the terms of the LLC Agreement for
any reason ceases to serve as a director during his or her term of
office, the resulting vacancy shall be filled by a representative
designated by the person or persons entitled to designate such
director.
Pursuant to Section 8.1(g) of the LLC Agreement, each Founding Firm
will be permitted to appoint an alternate director, who will have the
right to serve, act and vote as the director designated by that
Founding Firm in the absence of the principal director from time to
time in cases of necessity. The alternate will be permitted to attend
all meetings of the Board even if the principal director is present at
such meetings (it being understood that in such case the alternate will
attend as an observer and shall not have the right to act or vote as a
director at any such meeting). In the event a director is removed
pursuant to Section 8.1(e)(ii) of the LLC Agreement as described above,
the then-appointed alternate to such director shall immediately cease
to be an alternate and shall, instead, become a director (unless the
related Founding Firm appoints another person as its director, in which
case the alternate shall remain an alternate). In the event a director
is removed pursuant to Section 8.1(d)(ii) of the LLC Agreement as
described above, any alternate to such director will immediately cease
to be an alternate and will not become a director. To the extent a
Founding Firm lacks representation on the Board, that Founding Firm
shall have the right to appoint a non-voting observer to the Board.
Section 8.1(h) of the LLC Agreement outlines the basic
qualifications of directors and alternate directors. Each individual
designated to the Board as a director or as an alternate, prior to
serving on the Board, must certify in writing to the Company that he or
she is not subject to a ``statutory disqualification'' within the
meaning of Section 3(a)(39) of the Act. Each Founding Firm, prior to
designating an individual to the Board (as a director, alternate or
observer) must certify in writing to the Company that such individual
is not then a director (or an alternate director or observer to the
board or any committee of the board), officer or employee of a
``Specified Entity,'' which is defined, as of any date, as (i) any U.S.
securities option exchange (or facility thereof) or U.S. alternative
trading system on which securities option contracts are executed (other
than NYSE Amex or any of its affiliates) that lists for trading any
option contract that competes with a contract listed for trading on the
Options Exchange or a contract that is contemplated by the then-current
business plan of the Company to be listed for trading by the Options
Exchange within ninety (90) days of such date, (ii) any person or
entity that owns or controls a U.S. securities option exchange or U.S.
alternative trading system described in clause (i), and (iii) any
affiliate of a person or entity described in clause (i) or (ii) above;
provided that, in the event of a change in applicable law permitting
the execution of transactions in exchange-listed securities options
otherwise than on a national securities exchange or facility thereof
(including, but not limited to, internalization of orders for exchange-
listed securities options or the execution of such orders on an
alternative trading system), (x) a system operated by or on behalf of a
Founding Firm or its affiliates for purposes of the internalization or
crossing of: (i) orders of customers of such Founding Firm or its
affiliates, (ii) orders of such Founding Firm or its affiliates or
(iii) orders routed from a retail broker-dealer or retail brokerage
unit, shall not be considered a Specified Entity and (y) in addition to
the matters covered in clause (x), NYSE Amex and the Founding Firms
will negotiate in good faith the terms of an exception from the
definition of Specified Entity for any alternative trading system owned
solely by an individual Founding Firm or its affiliates that performs
order crossing in a manner that does not substantially compete with the
Options Exchange in terms of market share and other relevant factors.
In the event an individual designated by a Founding Firm or appointed
as an alternate becomes a member of the board of directors or similar
governing body of a Specified Entity, that individual shall immediately
cease to be a director, alternate or observer, as applicable, and the
resulting vacancy shall be filled pursuant to the applicable procedures
described above.
As provided in Section 8.1(i) of the LLC Agreement, a quorum of the
Board for purposes of conducting business consists of a combination of
the directors representing greater than fifty percent (50%) of the
votes of all directors who are elected and entitled to vote on such
matter under the LLC Agreement, including, in the case of any matter
subject to a Supermajority Vote, a combination of directors
representing greater than fifty percent (50%) of the votes of all
directors designated by Founding Firms. At all times when the Board is
conducting business at a meeting of the Board, a quorum must be present
at such meeting. If a quorum shall not be present at any meeting of the
Board, then the directors present at the meeting may adjourn the
meeting from time to time, without notice other than announcement at
the meeting, until a quorum is present, provided that if, at any duly
called meeting wherein a matter subject to a Supermajority Vote is
being considered, a quorum is not met solely due to the fact that a
requisite number of Founding Firm directors are not present, such
meeting shall be rescheduled on, absent exigent circumstances, at least
three (3) business days' prior written notice of such rescheduled
meeting and, for purposes of such rescheduled meeting, the absence of
the requisite number of Founding Firm directors shall not prevent the
Board from taking action by Supermajority Vote. A director may vote or
be present at a meeting either in person or by proxy.
The matters specified on Schedule 8.1(i)(v) of the LLC Agreement
may only be taken (whether by the Company or any subsidiary) with
approval by a Supermajority Vote of the Board; provided that any matter
excepted from that schedule by any item on the schedule shall be deemed
to be excepted from all items on the schedule except where expressly
covered by another item on such schedule. Certain matters specified in
Schedule 8.1(i)(v) of the LLC Agreement do not require a Supermajority
Vote where NYSE Amex, acting in its capacity as an SRO, requires that
such action be taken. These matters are (i) material amendments to the
LLC Agreement or any other governing document of the Company or any
subsidiary; (ii) approval of a capital expenditure (other than those
approved in connection with the annual budget) that in the aggregate
would exceed $3 million, (iii) entering into, amending in any material
respect or terminating any material contract and (iv) any material
change to fees charged by the Options Exchange. In the event that at
any given time, (A) two or fewer Founding Firms have the right to
designate a director or (B) the aggregate
[[Page 18602]]
number of Class B Common Interests held by all Founding Firms,
excluding Non-voting Common Interests, falls below twenty percent (20%)
of the then issued and outstanding Common Interests, the list of
matters that may be taken only with approval by a Supermajority Vote of
the Board shall include only those actions specified in items 8, 12,
15, 16, 24 and 25 on Schedule 8.1(i)(v) of the LLC Agreement,\15\
provided that in the event that the aggregate number of Class B Common
Interests held by all Founding Firms, excluding Non-voting Common
Interests, falls below fifteen percent (15%) of the then issued and
outstanding Common Interests, a Supermajority Vote of the Board on such
actions shall only be required to the extent that any such action would
have a materially and disproportionately disadvantageous effect on the
economic or voting rights of the Founding Firms; provided further that
a material change to the pricing of the NYSE Euronext Agreement,
subject to the provisions therein, that is not in good faith
consideration of (i) documented additional or enhanced services
(subject to such additional or enhanced services being provided at
cost) or (ii) a documented increase in the aggregate cost of the
services provided thereunder (net of any reductions in other costs of
services provided thereunder) will per se be deemed to have a
materially and disproportionately disadvantageous effect on the
economic rights of Founding Firms.
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\15\ The six specified items are (1) material amendments to or
termination of any of the NYSE Euronext Agreement; (2) material
amendments to the LLC Agreement or any other governing document of
the Company or any subsidiary (including to increase/decrease the
number or makeup of the directors) other than any amendment directed
by NYSE Amex in its capacity as an SRO in accordance with Section
16.1(a) of the LLC Agreement; (3) approval of any material related
party transactions except (i) any transaction or arrangement that
has been approved pursuant to a different item on Schedule 8.1(i)(v)
of the LLC Agreement or explicitly excluded from approval by any
item on that schedule, (ii) participation in any cash pooling
program of NYSE Euronext and any of its affiliates, or (iii) any
transaction or arrangement that requires the Company or any
subsidiary to receive services under the NYSE Euronext Agreement;
(4) approval of any dividend policy and any declaration, allocation
or distributions of profits or capital other than a tax distribution
and other than pursuant to the terms of the LLC Agreement or a Board
adopted (by Supermajority Vote) dividend policy (and for the
avoidance of doubt, other than the payment of the annual coupon on
the Preferred Interest); (5) any action that would be likely to
result in material change in the legal or tax structure of the
Company or any subsidiary or entering into any new business that
would subject the Options Exchange to a regulatory regime that
previously it was not subject to and that would impose on Members,
in their capacity as members, material additional regulatory
obligations; and (6) any material change to fees charged by the
Options Exchange other than any amendment directed by NYSE Amex in
its capacity as an SRO in accordance with Section 16.1(a) of the LLC
Agreement, to fund the operations and/or the regulation of the
Options Exchange. An action directed by NYSE Amex in accordance with
Section 16.1(a) of the LLC Agreement includes any action NYSE Amex
deems necessary or appropriate to fulfill its obligations as an SRO
and is not limited to those actions required by applicable law.
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Pursuant to Section 8.3 of the LLC Agreement, the Board will
establish on the effective date of the LLC Agreement the Advisory
Committee comprised of natural persons having the capacity to provide
advice to the Board, which advice the Board will consider in good faith
but shall not be bound by, with respect to subjects identified by the
Board from time to time, including new products and market structure.
The authorized number of Advisory Committee members is initially
nine (9), but may be increased or decreased by Majority Vote of the
Board; provided, that at all times each Founding Firm shall be entitled
to have one (1) representative on the Advisory Committee (except as
otherwise provided in the LLC Agreement). The Advisory Committee
members shall be appointed by the Members as follows: two (2) Advisory
Committee members appointed by NYSE Amex and one (1) Advisory Committee
member appointed by each Founding Firm. Advisory Committee members
shall hold office until their respective successors are appointed or
until their earlier death, resignation or removal.
Any Advisory Committee member may resign at any time and may be
removed at any time and for any reason by the Board, at the request of
the Member entitled to appoint such Advisory Committee member. In the
event that any Advisory Committee member for any reason ceases to serve
as an Advisory Committee member during his or her term of office, the
resulting vacancy shall be filled by the Member entitled to appoint
such Advisory Committee member.
Each individual designated to the Advisory Committee, prior to
serving on the Advisory Committee, shall certify in writing to the
Company that he or she is not subject to a ``statutory
disqualification'' within the meaning of Section 3(a)(39) of the Act.
Each Founding Firm, prior to designating an individual to the Advisory
Committee shall certify in writing to the Company that such individual
is not then a director (or an alternate director or observer to the
board or any committee of the board), officer or employee of a
Specified Entity. In the event an individual designated to the Advisory
Committee becomes a member of the board of directors or similar
governing body of a Specified Entity, such individual shall immediately
cease to be an Advisory Committee member and the resulting vacancy
shall be filled as described above.
Transfers of Interests
Article XI of the LLC Agreement and Article III of the Members
Agreement contain numerous requirements and restrictions relating to
transfers of Interests by a Member. Section 11.1 of the LLC Agreement
provides that the admission of any substitute Member will not become
effective until (i) the Board gives its written consent, which shall be
deemed given with respect to transfers made in accordance with Section
4.9 of the LLC Agreement relating to ownership limitations and Sections
11.3 and/or 11.4 of the LLC Agreement (whose provisions are discussed
below) and/or Sections 3.2, 3.3 and/or 3.4 of the Members Agreement
(whose provisions are discussed below) and (ii) such substitute Member
and the withdrawing Member and/or the transferor Member, as the case
may be, shall have executed, acknowledged and delivered such
instruments as are required by the Board. Pursuant to Section 11.1 of
the LLC Agreement, the additional or substitute Member shall thereafter
have all of the rights and obligations of a Member and may, in the sole
discretion of the Board, be deemed a Founding Firm and granted all of
the rights and obligations of a Founding Firm. Further, unless approved
by the Board, no transfer of Common Interests shall be permitted, nor
shall any transferee become a beneficial owner of Common Interests
pursuant to a transfer, if that transfer (i) could cause the Company to
be treated as a publicly traded partnership within the meaning of
Section 7704 of the Internal Revenue Code of 1986, as amended (the
``Code''); or (ii) would result in the sale or exchange of fifty
percent (50%) or more of the total Interests in the Company's capital
and profits in one or more transactions in the aggregate within a 12-
month period. No transfer of shares to any person or entity that is a
Sanctioned Person will be permitted. A ``Sanctioned Person'' is a
person or entity that the United States, the United Nations,
Switzerland or the European Union (or any of its member states) has
subjected to economic sanctions such as (i) blocking of assets, (ii)
prohibiting any transactions with or involving such person or entity or
(iii) any other regulatory action that restricts the ability of another
person or entity lawfully to engage in business with,
[[Page 18603]]
make payments or distributions to, or receive payments or contributions
from, such person or entity.
Section 11.2 of the LLC Agreement and Section 3.1 of the Members
Agreement provide that no Member, or any assignee or successor in
interest of any Member, will be permitted to sell, assign or otherwise
transfer any Common Interests to any third party except, (i) in the
case of a transfer of Class A Common Interests or Class B Common
Interests, as applicable, pursuant to Section 4.9 of the LLC Agreement
relating to ownership limitations or Sections 11.3, 11.4 or 11.6 of the
LLC Agreement (whose provisions are discussed below) or Sections 3.3 or
3.4 of the Members Agreement (whose provisions are discussed below) or
(ii) in the case of a transfer of Class B Common Interests, subject to
Section 3.2 of the Members Agreement (whose provisions are discussed
below), with the prior written consent of directors representing a
Majority Vote of the Board without regard to the directors appointed by
the Member or Members seeking such consent (which consent (a) may be
withheld with or without cause in the Board's sole discretion in the
case of a transferee that is not a Qualified Transferee \16\ and (b)
may not be unreasonably withheld, conditioned or delayed in the case of
a transferee that is a Qualified Transferee); provided, in each case,
that no such transfer may be made to any person or entity whose
affiliation with the Company would, as reasonably determined by NYSE
Amex, cause reputational damage to NYSE Amex or any of its affiliates.
In addition, also subject to Section 11.3 of the LLC Agreement, no
transfers of Class B Common Interests shall be permitted to a Specified
Entity; provided, subject to the provisions of Section 11.4(c) of the
LLC Agreement relating to such transfers, Class B Common Interests may
be transferred to a Specified Entity if such transfer is a Permitted
Transfer. No equity securities of the Company may be pledged except on
terms and conditions satisfactory to the Board.
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\16\ A ``Qualified Transferee'' is defined as (i) with respect
to a transfer of Class B Common Interests pursuant to Section 3.2 of
the Members Agreement, any person or entity that meets all of the
following criteria: (a) such person or entity is not a Specified
Entity, (b) the affiliation of such person or entity with the
Company would not, as reasonably determined by NYSE Amex, cause
reputational damage to NYSE Amex or any of its affiliates, and
(c)(I) such person or entity can reasonably be expected to provide
either (A) material liquidity to the Options Exchange or (B) other
material commercial or strategic support to the Company or (II) NYSE
Amex provides its prior written waiver to satisfaction of the
conditions specified in clause (c)(I) of this definition, which
waiver shall not be unreasonably withheld, conditioned or delayed or
(ii) with respect to a transfer of Class A Common Interests pursuant
to Section 3.3(a)(ii) of the Members Agreement, any person or entity
that meets all of the following criteria: (a) the affiliation of
such person or entity with the Company would not, as reasonably
determined by NYSE Amex, cause reputational damage to the Members or
the Company, and (b) such person or entity can reasonably be
expected to provide either (A) material liquidity to the Options
Exchange or (B) other material commercial or strategic support to
the Company.
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Following any transfer of Class A Common Interests or Class B
Common Interests (including redemptions of the latter by the Company),
the Aggregate Class A Allocation, the Aggregate Class B Allocation and
each Member's percentage ownership of the Common Interests will be
adjusted as provided in Section 11.2(b) of the LLC Agreement. Upon any
transfer of Class A Common Interests to the Founding Firms or Class B
Common Interests to NYSE Amex or its affiliates, as applicable, such
Class A Common Interests or Class B Common Interests, as applicable,
shall cease to be Class A Common Interests or Class B Common Interests,
as applicable, and shall instead become Class B Common Interests or
Class A Common Interests, respectively. Unless waived at the discretion
of the Board, an opinion of counsel will be required in connection with
the transfer of Interests by a Member stating that the transfer would
not violate any Federal securities laws or any State or provincial
securities or ``blue sky'' laws (including any investor suitability
standards) applicable to the Company or the Interest to be transferred,
or cause the Company to be required to register as an investment
company under the Investment Company Act of 1940, as amended, or cause
the Company to become a publicly traded partnership under Section 7704
of the Code.
Section 11.3 of the LLC Agreement provides for ``drag-along
rights'' with respect to Common Interests being sold under certain
circumstances. Specifically, if (i) a Member (the ``Selling Member''),
acting alone or together with any other Members, intends to make a
transfer of seventy-five percent (75%) or more of the then-outstanding
Common Interests (other than by a public offering or a transfer to a
Permitted Transferee), and (ii) the Board, by Supermajority Vote,
approves a sale of the Company to a person or entity that is not an
affiliate of the Company (any such transfer of Common Interests, an
``Approved Sale''), then (x) the Selling Member or the Board (as
applicable) may deliver written notice to the Members notifying them of
the exercise of the provisions described in Section 11.3 of the LLC
Agreement, and (y) all the Members (other than the Selling Member(s))
shall be obligated to participate in such transfer on a pro rata basis
and/or to consent to, vote in favor of and raise no objections against
the sale of the Company, as applicable. Additional provisions of
Section 11.3 of the LLC Agreement require each Member to take certain
affirmative actions in connection with an Approved Sale, such as making
certain representations and warranties and to enter into certain
indemnification obligations. Further, each holder of Common Interests
shall, to the extent requested by the Company, pay such holder's pro
rata portion of the expenses incurred by the holders in connection with
an Approved Sale.
Section 11.4(a) of the LLC Agreement provides that the restrictions
on transfers of Interests specified in Article XI of the LLC Agreement
do not apply to Permitted Transfers (other than those restrictions in
Section 11.1(c)(ii) relating to the admission of substitute Members,
those in Section 11.1(d) relating to transfers that could cause the
Company to be treated as a publicly traded partnership or would result
in the sale or exchange of 50% or more of the total Interests in the
Company's capital and profits within a 12-month period, those in
Section 11.2(d) relating to potential violations of Federal, State or
local securities laws or transfers that could cause the Company to be
required to register as an investment company, those in Section 11.8
relating to (i) notice and rule filing requirements to the SEC on any
acquisition of Interests that results in a Member's ownership of Common
Interests exceeding certain thresholds and (ii) requirements regarding
direct and indirect ownership of the Company and the rights triggered
by Section 11.5(b) relating to the Company's right to redeem any or all
of a Member's Class B Common Interests). In the case of a transfer
required under, or effected to enable a Member to be in compliance
with, applicable law or the requirements of a governmental authority or
any SRO, any Founding Firm that is so required to make any such
transfer shall submit the names of any potential transferees to the
Board along with any information reasonably requested by the Board, and
the Board shall identify which, if any, of the rights and obligations
of a Founding Firm such potential transferees would have and any
reasonable and conforming amendments to the LLC Agreement that would be
appropriate as a result thereof and, in the event one of such
transferees actually becomes a transferee pursuant to such transfer,
then that transferee
[[Page 18604]]
shall have the rights and obligations of a Founding Firm so determined
by the Board, provided that (x) the Board shall not unreasonably
withhold, condition or delay its consent to granting such Required
Transferee the rights of a Founding Firm, and (y) the transferring
Founding Firm shall not have an obligation to be responsible for the
performance of such Required Transferee under the LLC Agreement.
Pursuant to Section 11.4(c) of the LLC Agreement, in the event of a
Permitted Transfer to a Specified Entity by a Founding Firm, the Board
may: (i) Require any individual, alternate or observer appointed by or
representing such Founding Firm to the Board or individual appointed by
such Founding Firm to the Advisory Committee to resign; (ii) disqualify
such Specified Entity from voting for individuals to serve on the Board
or the Advisory Committee (permanently or for such shorter period as
the Board may designate), and (iii) redeem such Specified Entity's
Interests pursuant to Section 11.5(b)(iii) of the LLC Agreement.
Section 3.2(a) of the Members Agreement provides that, each year,
Founding Firms will be able to transfer, outside of a Public Offering,
a certain amount of Class B Common Interests during a the 3-week period
commencing on the day that NYSE Euronext files its Form 10-K with the
SEC (such period, the ``Sale Period''). This provision does not
restrict Permitted Transfers.
Pursuant to Section 3.2(b) of the Members Agreement, NYSE Amex will
deliver to the Founding Firms relevant financial information for
purposes of determining the pro rata portion of fair market value (over
the twelve-calendar-month period ended at the end of the immediately
preceding month) represented by such Class B Common Interests the
Founding Firms seek to transfer. Any Founding Firm that wishes to
transfer any of its transferrable Class B Common Interests will
disclose, by written notice to NYSE Amex and the other Founding Firms,
the amount of Common Interests it intends to transfer. NYSE Amex may,
by written notice to the transferring Founding Firm, elect to offer to
purchase such Common Interests at a price equal to or greater than the
pro rata portion of fair market value (over the twelve-calendar-month
period ended at the end of the immediately preceding month) represented
by such Class B Common Interests. NYSE Amex may, in lieu of
consummating the transfer contemplated hereunder, cause the Company to
redeem any or all of such Common Interests at the same price and on the
same terms and conditions as were negotiated by NYSE Amex and the
transferring Founding Firm. Any redemption by the Company pursuant to
this provision shall be funded exclusively by the Redemption Reserve
(as defined below) until the Redemption Reserve is exhausted, and
thereafter no redemption pursuant to this provision may be made by the
Company.
Pursuant to Section 3.2(c) of the Members Agreement, in the event
that the transferring Founding Firm elects to reject NYSE Amex's offer,
NYSE Amex elects not to make an offer, or the transfer has not occurred
within the specified time period, the transferring Founding Firm may:
(i) Transfer such Common Interests to a third party; provided that
no transferee under this provision, shall acquire the Founding Firm
Right (as defined below) unless, in such transfer, such transferee
acquires all of the Class B Common Interests of the transferring
Founding Firm;
or
(ii) Require that NYSE Amex acquire such Common Interests at a
price equal to the pro rata portion of fair market value (over the
twelve-calendar-month period ended at the end of the immediately
preceding month) represented by such Class B Common Interests (this
right to require NYSE Amex to acquire the Common Interests, the
``Founding Firm Right''). NYSE Amex may cause the Company to redeem any
or all of such Common Interests at the same price and on the same terms
and conditions (as applicable) as were negotiated by NYSE Amex and the
transferring Founding Firm. Any such redemption by the Company pursuant
to this provision shall be funded exclusively by the Redemption Reserve
(as defined below) until the Redemption Reserve shall be exhausted, and
no other funds of the Company may be used to fund any redemption by the
Company pursuant to this provision. Subject to Section 4.9 of the LLC
Agreement, which governs ownership limitations, NYSE Amex may assign to
one of its affiliates the obligation to purchase Common Interests
pursuant to the Founding Firm Right. Upon the acquisition of any Class
B Common Interests by an affiliate pursuant to such an assignment, such
Class B Common Interests will instead become Class A Common Interests
in accordance with Section 11.2 of the LLC Agreement.
Pursuant to Section 3.2(d) of Members Agreement, if (x) a
transferring Founding Firm desires to exercise a Founding Firm Right
and (y) prior to notifying NYSE Amex of its Founding Firm Right, NYSE
Amex has notified in writing such transferring Founding Firm that it
has identified one or more bona fide third party purchasers to which
such Common Interests could be transferred pursuant to Section 3.1 of
the Members Agreement and that are interested in purchasing all of such
transferring Founding Firm's Common Interests (such sale, an
``Alternative Sale''), then such transferring Founding Firm shall
engage in good faith discussions and negotiations with respect to the
sale of the Common Interests; provided that (A) the transferring
Founding Firm shall not be obligated to transfer its Common Interests
at a price less than the fair market value of such Common Interests
(nor will it insist on a higher price than such fair market value) and
(B) such transfer shall be on terms no less favorable to the
transferring Founding Firm than the terms agreed to between NYSE Amex
and such transferring Founding Firm.
Section 3.2(e) of the Members Agreement provides that the
transferring Founding Firm must notify the Company of its intent to
either pursue the Alternate Sale or exercise the Founding Firm Right,
provided that if such transferring Founding Firm determines to pursue
an Alternate Sale, such transferring Founding Firm shall forfeit the
right to exercise the Founding Firm Right with respect to the
applicable Sale Period.
Section 3.2(f) of the Members Agreement provides that NYSE Amex may
elect to acquire any of the Class B Common Interests to be purchased by
it pursuant to Section 3.2 of the Members Agreement by installment
payments: one-third of the purchase price payable upon tender and the
remainder in equal payments made on each of the two succeeding calendar
year anniversaries of such date of tender, with the unpaid portion of
the purchase price bearing interest at a specified rate, reset daily
and payable on each payment date. Notwithstanding any installment
payment, NYSE Amex shall become the owner of the entirety of such Class
B Common Interests and the transferring Founding Firm shall cease to be
a Member of the Company with respect to such Class B Common Interests
upon tender and payment by NYSE Amex of the first installment payment.
In the event that NYSE Amex causes the Company to redeem such Class B
Common Interests pursuant to Sections 3.2(b)(iii) or 3.2(c)(ii) of the
Members Agreement, the Company shall not be entitled to acquire such
Class B
[[Page 18605]]
Common Interests by installment payments.
Section 3.2(h) of the Members Agreement provides that, in the event
that the financial information regarding the Company delivered pursuant
to Section 3.2(b) of the Members Agreement is not provided at least
five (5) business days prior to end of the Sale Period, NYSE Amex shall
have the right to rescind its offer to purchase the Common Interests or
the transferring Founding Firm shall have the right to rescind its
election to exercise its Founding Firm Right, if the initial
determination of the pro rata portion of fair market value (over the
twelve-calendar-month period ended at the end of the immediately
preceding month) represented by the Class B Common Interests the
Founding Firms seek to transfer differs by more than an agreed percent
from the final determination.
A redemption of Class B Common Interests by the Company under
Sections 3.2(b)(iii) or 3.2(c)(ii) of the Members Agreement is required
to be funded by the Redemption Reserve (originally funded by NYSE
Amex). Pursuant to Section 3.2(i) of the Members Agreement, NYSE Amex
has the right to determine the size of the increase in the Aggregate
Class A Allocation (and corresponding decrease in the Aggregate Class B
Allocation) and, thereby, (x) cause the Company to treat such a
redemption as if it were a purchase of Class B Common Interests by NYSE
Amex, by directing an increase in the Aggregate Class A Allocation (and
a corresponding decrease in the Aggregate Class B Allocation) equal to
the entire percentage represented by the Class B Common Interests so
redeemed; (y) cause the Company to treat such a redemption as an
ordinary redemption, by directing only a pro rata increase in the
Aggregate Class A Allocation (and a corresponding decrease in the
Aggregate Class B Allocation) proportional to the aggregate Class A and
Class B allocations; or (z) cause the Company to treat such a
redemption as a hybrid purchase and redemption, by directing a
disproportional increase in the Aggregate Class A Allocation (and a
corresponding decrease in the Aggregate Class B Allocation) that is
less than the entire percentage represented by the redeemed Class B
Common Interests.\17\
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\17\ Consider, by way of example, an Aggregate Class A
Allocation of 60% and an Aggregate Class B Allocation of 40% prior
to a redemption of Class B Common Interests corresponding to 10% of
the aggregate number of Common Interests. If NYSE Amex elected to
treat such a redemption as though it were a purchase of these Class
B Common Interests by NYSE Amex, it could direct an increase in the
Class A Allocation equal to the entire 10% represented by the
redeemed Class B Common Interests. The result would be an Aggregate
Class A Allocation of 70% and an Aggregate Class B Allocation of
30%.
Alternatively, if NYSE Amex elected to treat such a redemption
as an ordinary redemption, the 10% represented by the redeemed Class
B Shares would effectively cease to exist and the Aggregate Class A
Allocation would increase to (60/90)% or 66.6% (and the Aggregate
Class B Allocation would decrease to (30/90)% or 33.3%). NYSE Amex
could cause this result by directing a pro rata increase to the
Aggregate Class A Allocation (and corresponding decrease in the
Aggregate Class B Allocation), proportional to the aggregate Class A
and Class B allocations.
Finally, if NYSE Amex elected a hybrid treatment, it could
direct that the Aggregate Class A Allocation be increased to a value
between 66.6% and 70% (and that the Aggregate Class B Allocation be
correspondingly decreased). As further described below, such a
direction would reduce the Priority Claim by the amount paid in
respect of the allocation in excess of 66.6%.
---------------------------------------------------------------------------
If NYSE Amex elects to receive an upward adjustment of the
Aggregate Class A Allocation Percentage described above, the Priority
Claim of NYSE Amex will be reduced by the amount paid by the Company
that is attributable to the excess of such allocation over the
allocation NYSE Amex would have received on a pro rata basis.
The Company is required to update and distribute to each Member a
revised Members' Schedule reflecting the adjustments made pursuant to
Section 3.2(i) of the Members Agreement. Any Member that would exceed
the 19.9% Maximum Percentage as a result of these adjustments will be
subject to the provisions of Section 4.9(c) of the LLC Agreement.
Section 3.2(j) of the Member's Agreement provides that, in the
event that the effective date of the LLC Agreement occurs on or after
March 11, 2011 and before June 30, 2011, then, solely with respect to
the Sale Period occurring in 2011, (i) the phrase ``during any Sale
Period'' in Section 3.2(a) of the Members Agreement shall be deemed to
be a reference to ``during the 10 day period following the later of (x)
effective date of the LLC Agreement and (y) the day on which NYSE
Euronext files its Form 10-K with the SEC,'' (ii) NYSE Amex and the
Company shall deliver on the effective date of the LLC Agreement the
financial information specified in Section 3.2(b)(i) of the Members
Agreement and required to be delivered by NYSE Amex and the Company,
respectively, prior to or concurrent with the start of the Sale Period,
(iii) any disputes referred to in Section 3.2(b)(i) of the Members
Agreement shall be resolved as promptly as practicable following the
effective date of the LLC Agreement, and (iv) the reference to ``end of
the Sale Period'' in Section 3.2(h) of the Members Agreement shall be
deemed to be a reference to the end of the period referred to in clause
(i) of this paragraph.
Section 3.3 of the Members Agreement provides for a limited ``right
of first offer'' exercisable by each Founding Firm with respect to any
Common Interests NYSE Amex proposes to transfer. Pursuant to Section
4.9 of the LLC Agreement, no Founding Firm will be permitted to so
acquire Common Interests if such acquisition would result in the
Founding Firm holding Excess Interests.
Pursuant to Section 3.3(a) of the Members Agreement, in the event
that NYSE Amex intends to transfer any Class A Common Interests (other
than by a Public Offering or a transfer to a Permitted Transferee),
NYSE Amex shall deliver a written notice to the Founding Firms
disclosing the amount of Class A Common Interests proposed to be
transferred and the identity of the prospective transferee, which
transferee shall be an NYSE Amex Qualified Transferee.
Pursuant to Section 3.3(b) of the Members Agreement, each Founding
Firm may elect to offer to purchase (each such Founding Firm, an
``Offering Founding Firm''), by written notice to NYSE Amex, its pro
rata portion of the Class A Common Interests proposed to be so
transferred. If the Founding Firms have not elected to fully purchase
all of the Interests proposed to be transferred, NYSE Amex shall
provide written notice to all Offering Founding Firms specifying the
number of remaining Class A Common Interests, and each Offering
Founding Firm may elect to purchase such remaining Class A Common
Interests by written notice to NYSE Amex; provided that if the Offering
Founding Firms collectively elect to purchase more than the remaining
number of Class A Common Interests, each Offering Founding Firm shall
be entitled to purchase its pro rata portion thereof (with such pro
rata portion determined solely by reference to the Offering Founding
Firms' respective percentage of Common Interests). The Founding Firms'
right to purchase Class A Common Interests pursuant to this provision
shall be contingent on the purchase by one or more Founding Firms of
all of the Class A Common Interests proposed to be transferred by NYSE
Amex. The Offering Founding Firms shall collectively determine the
proposed price and such other terms and conditions of the proposed
transfer. If NYSE Amex rejects the offer(s) of the Founding Firm(s),
NYSE Amex may transfer such Class A Common Interests to the prospective
transferee identified
[[Page 18606]]
by NYSE Amex in its notice at a price greater than the price offered by
the Offering Founding Firms and on other terms and conditions no more
favorable to the transferee(s) thereof than the terms offered by the
Founding Firms. In the event that the Founding Firms elect not to make
an offer, NYSE Amex may transfer such Class A Common Interests to the
prospective transferee identified by NYSE Amex at a price and on other
terms and conditions as determined by NYSE Amex.
Pursuant to Section 3.3(c) of the Members Agreement, prior to, and
subject to the completion by NYSE Amex of a transfer of Class A Common
Interests that would result in NYSE Amex and its affiliates, in the
aggregate, ceasing to own at least an agreed percent of the Aggregate
Class A Allocation (such transfer a ``Complete Transfer'') (other than
pursuant to Section 3.3(d) of the Members Agreement described below),
the Members and NYSE Euronext shall, acting reasonably and in good
faith, consider and implement any applicable and necessary amendments
to the Members Agreement and the LLC Agreement. Until such time as NYSE
Amex has completed a Complete Transfer, NYSE Euronext shall provide to
or procure services for the Company materially similar to those
provided by NYSE Group pursuant to the NYSE Euronext Agreement and on
the pricing terms and other terms provided in the NYSE Euronext
Agreement. Upon a Complete Transfer, at NYSE Euronext's discretion, the
NYSE Euronext Agreement may be terminated or assigned and the NYSE Amex
Qualified Transferee shall agree to provide to or procure services for
the Company or NYSE Euronext shall agree to continue to provide such
services pursuant to such terms. NYSE Amex shall reasonably compensate
the Company to the extent the NYSE Amex Qualified Transferee agrees to
provide or procure services on pricing terms less favorable to the
Company or on other terms which are materially more disadvantageous to
the Company than those provided for by the NYSE Euronext Agreement.
NYSE Amex shall continue to provide services or compensate the Company
as described above for a period of time equal to the lesser of (x) four
years from the time of such transfer and (y) the minimum time
necessary, at the time of such transfer, for all Founding Firms to
transfer their Class B Common Interests in accordance with the
limitations of Section 3.2(a) of the Members Agreement, assuming such
Founding Firms transfer the maximum amount of Class B Common Interests
permitted thereunder as quickly as permitted thereunder. Following such
period, to the extent not previously terminated or assigned, the NYSE
Euronext Agreement shall terminate.
Section 3.3(d) of the Members Agreement provides that, in the event
of a Complete Transfer by NYSE Amex to one of its affiliates, such
transferee shall be deemed to be NYSE Amex for all purposes under the
Members Agreement and the LLC Agreement and be subject to the same
rights and obligations as NYSE Amex thereunder, except in respect to
NYSE Amex's rights and obligations as the SRO of the Options Exchange,
which rights and obligations shall remain with NYSE Amex irrespective
of any such Complete Transfer.
Section 3.4 of the Members Agreement provides for a ``call option''
exercisable by NYSE Amex. Specifically, the Members grant NYSE Amex,
the right and the option to require the Members (other than NYSE Amex)
(and a transferee of a Member or a transferee of a transferee)
collectively to transfer to NYSE Amex any or all of the aggregate Class
B Common Interests held by all Members (other than NYSE Amex) (and such
transferees) at a price equal to the pro rata portion of the fair
market value (over the twelve-calendar-month period ended at the end of
the immediately preceding month) represented by such Class B Common
Interests (such right, the ``Call Option''). NYSE Amex shall have the
right, but not the obligation, to exercise the Call Option, in whole or
in part, in its sole discretion at any time on or after the tenth
anniversary of the effective date of the LLC Agreement. Each Member
(other than NYSE Amex) (and each such transferee, if any) shall tender
to NYSE Amex such person's pro rata portion of the Class B Common
Interests NYSE Amex desires to purchase and NYSE Amex shall pay to each
such Member (other than NYSE Amex) (and transferee) the purchase price.
Subject to Section 4.9 of the LLC Agreement, which governs ownership
limitations, NYSE Amex may assign to one of its affiliates the right to
purchase Class B Common Interests pursuant to the Call Option. Upon the
acquisition of any Class B Common Interests by an affiliate pursuant to
such an assignment, such Class B Common Interests will instead become
Class A Common Interests in accordance with Section 11.2 of the LLC
Agreement.
Redemption of Interests
Section 11.5(a) of the LLC Agreement provides that the Company may,
by Majority Vote of the Board, redeem any or all of the Preferred
Interests at any time; provided that only such funds as are available
in the Redemption Reserve may be used to fund any such redemption. The
``Redemption Reserve'' is an independent cash reserve established by
the Board as of the effective date of the LLC Agreement and which will
be designated for the sole purpose of funding any redemptions of (i)
Preferred Interests (at any time, by Majority Vote of the Board) or
(ii) Class B Common Interests, and shall not be used for any other
purpose. The amount of the Redemption Reserve will be agreed upon by
the Members and will be increased to the extent of any amount accrued
and unpaid on the unpaid Priority Claim.
With respect to the Class B Common Interests, Section 11.5(b) of
the LLC Agreement provides that the Company shall have the right, by
Majority Vote of the Board, to redeem any or all of a Member's Class B
Common Interests, at a redemption price equal to the lower of (x) the
balance of that Member's capital account (subject to certain
adjustments) with respect to the Class B Common Interests so redeemed
and (y) the pro rata portion of fair market value (over the twelve-
calendar-month period ended at the end of the immediately preceding
month) represented by such Class B Common Interests:
(i) If that Member fails to make a Regulatory Capital Contribution
on or before the payment date identified in the relevant written notice
and fails to timely cure such non-payment;
(ii) If that Member directly or indirectly acquires a controlling
interest in or becomes the direct or indirect beneficial owner of a
controlling interest in, grants a controlling interest to or becomes
directly or indirectly beneficially owned by, or comes under common
control with, a Specified Entity (for purposes hereof, ``controlling
interest'' means greater than fifty percent (50%) of the voting equity
of the applicable entity) and, in the event such Member becomes
directly or indirectly beneficially owned by or comes under common
control with a Specified Entity, has not cured such event within a
specified time period;
(iii) If such Member makes a Permitted Transfer to a Specified
Entity; or
(iv) Pursuant to Section 2.1(i) of the Members Agreement (as
described below).
In connection with the Plan, Section 2.1(i) of the Members
Agreement provides that the Company also has the right, by Majority
Vote of the Board, to redeem on the same terms as above any
[[Page 18607]]
or all of the Class B Common Interests of a Founding Firm that, as of a
quarterly determination date, (i) has failed to satisfy a minimum
volume threshold during the preceding 12-month period or (ii) has (A)
failed to satisfy a minimum volume threshold during the preceding
three-month period and (B) entered into an agreement or economic
arrangement with (i) a Specified Entity or (ii) an affiliate of NYSE
Amex that is a U.S. securities option exchange (or facility thereof) or
U.S. alternative trading system on which securities option contracts
are executed (an ``Affiliate Exchange'') under which such Founding Firm
receives equity (whether provided through a primary issuance or a
secondary sale) or equity-like consideration in exchange for market
making or the provision of liquidity, order flow or volume (except
under any volume-based fee discount or rebate program or any program or
arrangement open to market participants generally) in any contract that
competes with a contract that is then listed for trading by the Options
Exchange or that is contemplated by the then current business plan of
the Company to be listed for trading by the Options Exchange within
ninety (90) days following the date on which such Founding Firm has
entered into the agreement with the Specified Entity or an Affiliate
Exchange, subject to certain exceptions.
The Redemption Reserve shall not be used to fund any purchase of
Class B Common Interests pursuant to Section 11.5(b) of the LLC
Agreement or Section 2.1(i) of the Members Agreement.
Section 11.5(c) of the LLC Agreement provides that in the event a
Founding Firm (A) determines that (x) a Member has become a Sanctioned
Person and (y) regulatory or other requirements necessitate such
Member's withdrawal as a Member if such Founding Firm were to remain a
Member and (B) provides notice of such determination to the Company,
the Company may redeem all Common Interests owned by the Sanctioned
Person by Supermajority Vote of the Board (excluding the vote of the
affected Member), at a redemption price equal to the lower of (I) the
balance of the Member's capital account (subject to certain
adjustments) and (II) the fair market value of the Sanctioned Person's
Common Interests; provided that if the Company fails to redeem the
Sanctioned Member's Common Interests, such Founding Firm shall have the
right to put its Common Interests to the Company at a price equal to
one dollar ($1).
Section 11.5(f) of the LLC Agreement provides that all redemptions
of Class B Common Interests by the Company pursuant to Section 11.5 of
the LLC Agreement shall be subject to applicable restrictions contained
in the Delaware LLC Act and in the Company's debt financing agreements,
and if any such restrictions prohibit the redemption of Class B Common
Interests pursuant to Section 11.5 of the LLC Agreement which the
Company is otherwise entitled or required to make, the time periods
provided in Section 11.5(e) of the LLC Agreement will be suspended, and
the Company may make such redemptions as soon as any applicable
restrictions allow; provided that the price at which such redemption is
made shall be fixed as of the date such redemption would have occurred
had there not existed any restrictions on such redemption. Furthermore,
nothing shall require the Company to segregate or set aside any funds
or other property for the purpose of making any payment or distribution
pursuant to Section 11.5 of the LLC Agreement. The right of any Member
or beneficiary thereof to receive any payment or distribution under
those provisions will be an unsecured claim against the general assets
of the Company. Notwithstanding anything to the contrary in the LLC
Agreement, if the application of the restrictions in Section 11.5(f)
described in this paragraph prohibits the redemption of the Class B
Common Interests of a Sanctioned Person, the Company must redeem such
Class B Common Interests by providing the Sanctioned Person a
promissory note, the terms of which will be determined by the Majority
Vote of disinterested directors, in a principal amount equal to the
lower of (I) the balance of that Member's capital account (subject to
certain adjustments) and (II) the fair market value of the Sanctioned
Person's Common Interests, in each case, determined as of the date the
Company determines to redeem the Sanctioned Person's Common Interests,
payable at such time as any applicable restrictions allow, and the
Company shall become the owner of such Class B Common Interests upon
tender of the promissory note.
In the event the Company elects not to exercise its option to
redeem all or any portion of the Class B Common Interests under Section
11.5(b) of the LLC Agreement as discussed above, NYSE Amex shall have
the right, but not the obligation, within thirty (30) days of the event
triggering such right, to require the applicable Founding Firm to
transfer any or all of such unredeemed Class B Common Interests to NYSE
Amex at a price equal to the pro rata portion of fair market value
(over the twelve-calendar-month period ended at the end of the
immediately preceding calendar month) represented by such Class B
Common Interests. NYSE Amex may assign to an affiliate the right to
purchase Class B Common Interests pursuant to this paragraph.
Section 11.6 of the LLC Agreement provides the requirements for an
initial public offering of the Company's securities, whether primary or
secondary, pursuant to a registration statement filed under the
Securities Act of 1933, as amended (the ``Securities Act''). At any
time upon the determination of the Board that an initial public
offering is in the best interests of the Company and the Members, and
upon approval by a Supermajority Vote of the Board if such initial
public offering does not constitute a Qualified Public Offering
(defined as giving rise to at least $175,000,000 in gross proceeds and
resulting in an implied valuation for the equity securities of the
Company as a whole that will be no less than $550,000,000), subject to
applicable law and receipt of applicable regulatory approvals, either
(a) the Company shall be required to contribute all or a specified
portion of the assets of the Company to a corporation newly formed
under the laws of the State of Delaware (the ``New Company''), or (b)
the Members shall be required to contribute their Interests to the New
Company, in each case in exchange for shares of the New Company's stock
having substantially the same equity interests and voting rights as the
Interests being contributed (the ``New Company Shares''), and the
Company shall cause the New Company to file and use its best efforts to
have declared effective a registration statement under the Securities
Act for an initial public offering, and to cause the New Company and
its officers and employees to use their best efforts to market the New
Company Shares, subject to all applicable Securities Act restrictions.
To the extent required by the underwriters managing a registered public
offering of the New Company Shares, each Member agrees to complete and
execute all customary questionnaires and similar documents so required
under the terms of such underwriting agreements. Upon the consummation
of an initial public offering, certain specified portions of the LLC
Agreement and such other provisions as the Board may determine,
including the LLC Agreement in its entirety, shall terminate
automatically
[[Page 18608]]
and be of no further force and effect. Notwithstanding anything to the
contrary in the LLC Agreement, as a condition to an initial public
offering, the Company or any successor thereto shall enter into a
registration rights agreement, upon commercially reasonable terms, with
any Member requesting such agreement with respect to the registration
of its equity securities with customary terms and conditions and in
form and substance reasonably satisfactory to the Board and such
Member; provided that such registration rights agreement shall include
(i) demand registration rights that apply (A) equally to all Members,
(B) only after an initial public offering, and (C) subject to customary
minimum thresholds and (ii) piggyback registration rights for all
Members on a pro rata basis in proportion with their relative common
equity interests.
Certain Regulatory and Compliance Matters
As provided in Section 8.1(m) of the LLC Agreement, (A) the Board
in carrying out its duties and without limitation on its other
obligations under applicable law or otherwise and (B) each director, in
carrying out his or her duties and without limitation on his or her
other obligations under applicable law or otherwise (but subject to the
waiver of fiduciary duties otherwise provided for in the LLC
Agreement), shall be obligated to (x) comply with the Federal
securities laws and the rules and regulations promulgated thereunder
and (y) cooperate with NYSE Amex pursuant to its regulatory authority
and the provisions of the LLC Agreement and with the SEC. Furthermore,
each director must take into consideration whether his or her actions
would cause the Options Exchange or the Company to engage in conduct
that fosters and does not interfere with NYSE Amex's or the Company's
ability to carry out their respective responsibilities under the Act
and to prevent fraudulent and manipulative acts and practices, promote
just and equitable principles of trade, foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general,
protect investors and the public interest.
As further provided in Section 8.1(m) of the LLC Agreement, NYSE
Amex must receive notice of planned or proposed changes to the Company
(but not to include changes relating solely to non-market matters) or
the Options Exchange and NYSE Amex must not object affirmatively to
such changes prior to implementation, not inconsistent with the LLC
Agreement. NYSE Amex, in the performance of its obligations as the SRO
for the Options Exchange, shall following receipt of such notice and
without undue delay, notify the Company whether or not it has any
objection to such a change based on the potential for such change to
give rise to a Regulatory Deficiency (as defined below). In the event
that NYSE Amex, in its sole discretion, determines that such planned or
proposed changes to the Company or the Options Exchange could cause a
Regulatory Deficiency if implemented, NYSE Amex may direct the Company
to, and the Company shall, modify the planned or proposed changes as
necessary to ensure that it does not cause a Regulatory Deficiency. In
the event that NYSE Amex, in its sole discretion, determines that a
Regulatory Deficiency exists or is planned, NYSE Amex may direct the
Company to, and the Company shall, undertake such modifications to the
Company (other than as to non-market matters) as are necessary or
appropriate to eliminate or prevent the Regulatory Deficiency and allow
NYSE Amex to perform and fulfill its regulatory responsibilities under
the Act.
A ``Regulatory Deficiency'' is defined in the LLC Agreement as the
operation of the Options Exchange or the Company (in connection with
matters other than non-market matters) in a manner that is not
consistent with any Regulatory Matters Provision, the rules of NYSE
Amex, as amended from time to time, or the Federal securities laws and
the rules and regulations promulgated thereunder, applicable to the
Exchange or NYSE Amex options trading permit holders, or that otherwise
impedes NYSE Amex's ability to regulate the Options Exchange or NYSE
Amex options trading permit holders or to fulfill its obligations under
the Act as a SRO.
Section 8.1(n) of the LLC Agreement states that NYSE Euronext has
developed corporate compliance policies that govern the conduct of its
employees, officers, and directors and the employees, officers, and
directors of its affiliates. The Board will adopt these policies on the
effective date of the LLC Agreement, but these policies shall not apply
to directors, alternate directors or observers to the Board appointed
by a Founding Firm except as described in Sections 8.1(n)(ii) and
8.1(n)(iii) of the LLC Agreement (as described below). These policies
(except for their application to directors, alternate directors or
observers to the Board appointed by a Founding Firm) may be revised
from time to time by NYSE Euronext, provided that the personal trading
policy referred to in Section 8.1(n)(ii) of the LLC Agreement, as it
applies to directors, alternate directors and observers to the Board
appointed by a Founding Firm, may only apply to stock and other
securities issued by NYSE Euronext and its affiliates. Any such revised
policies will be promptly provided to the Company. Subject to
applicable law, all employees, officers, and directors (other than
directors, alternate directors and observers to the Board appointed by
a Founding Firm) of the Company or its affiliates will be expected to
comply with these policies, except as described in Sections 8.1(n)(ii)
and 8.1(n)(iii) of the LLC Agreement. Section 8.1(n)(ii) of the LLC
Agreement provides that the personal trading policy of NYSE Euronext,
including any modifications or revisions thereto, shall apply to
directors, alternate directors, and observers to the Board appointed by
the Founding Firms solely in their personal capacities and not in such
a director's capacity as an employee of any Founding Firm. Section
8.1(n)(iii) of the LLC Agreement provides for a representation by NYSE
Euronext that it has obtained a waiver by the audit committee of the
board of directors of NYSE Euronext exempting the directors, alternate
directors and observers to the Board appointed by the Founding Firms
from all of its corporate compliance policies (other than its personal
trading policy, as and to the extent described in Section 8.1(n)(ii)).
Section 8.1(o) of the LLC Agreement provides that NYSE Euronext or
one of its affiliates has the right to conduct audits of all operations
of the Company. The NYSE Euronext internal audit group will have access
to all records and employees of the Company and will determine which
audits to conduct and the timetable for such work. Any such audit will
be considered in a manner consistent with the NYSE Euronext audit group
charter, which mandates the independent role of the group and which is
approved by the NYSE Euronext Audit Committee. If the Company engages
an external party to conduct an audit, the NYSE Euronext audit group
will have the right to review with the external party the nature and
extent of the work and any resulting report and supporting written work
product. NYSE Euronext will bear all of the costs and expenses incurred
by the Company and its representatives related
[[Page 18609]]
to the exercise of its rights pursuant to this paragraph.
Pursuant to Section 11.8(a) of the LLC Agreement, beginning after
SEC approval of the LLC Agreement, the Company shall provide the SEC
with written notice ten (10) days prior to the closing date of any
acquisition of an Interest by a person or entity that results in a
Member's ownership of Common Interests, alone or together with any
affiliate, meeting or crossing the threshold level of five percent (5%)
or the successive five percent (5%) ownership levels of ten percent
(10%) and fifteen percent (15%) of the aggregate Common Interests.
Section 11.8(b) of the LLC Agreement establishes certain
requirements regarding direct ownership of the Company. Beginning after
SEC approval of the LLC Agreement, no person or entity that is not a
Member as of the effective date of the LLC Agreement, either alone or
together with its affiliates, at any time, may directly own Common
Interests that would result in such person or entity having ownership
of Common Interests representing more than the 19.9% Maximum Percentage
or any successive five percent (5%) ownership threshold (i.e., 24.9%,
29.9%, etc) (the ``Concentration Limitation''). The Concentration
Limitation shall apply to each person or entity (other than NYSE Amex
alone or together with its affiliates, as applicable) unless and until:
(A) Such person or entity has delivered to the Board a notice in
writing, not less than forty-five (45) days (or such shorter period as
the Board shall expressly consent to) prior to the acquisition of any
Common Interests that would cause such person or entity (either alone
or together with its affiliates) to exceed the Concentration
Limitation, of such person or entity's intention to acquire such Common
Interests; (B) such notice has been filed with, and approved by, the
SEC under Section 19(b) of the Act and has become effective thereunder;
and (C) the Board has not determined to oppose such person or entity's
acquisition of such Common Interests.
Pursuant to Section 11.8(b)(iii) of the LLC Agreement, the Board
shall oppose an ownership of Common Interests by a person or entity if
the Board shall have determined, in its sole discretion, that (A) such
ownership of Common Interests by the person or entity, either alone or
together with its affiliates, will impair the ability of the Company
and the Board to carry out their functions and responsibilities,
including but not limited to, under the Act, or is otherwise not in the
best interests of the Company; (B) such ownership of Common Interests
by the person or entity, either alone or together with its affiliates,
will impair the ability of the SEC to enforce the Act; (C) the person
or entity or its affiliates are subject to any applicable ``statutory
disqualification'' (within the meaning of Section 3(a)(39) of the Act);
or (D) if such Common Interests would result in the person or entity
(alone or together with its affiliates) having an ownership interest of
more than twenty percent (20%) of the aggregate Common Interests and
the person or entity or one of its affiliates is either a ``member'' or
``member organization'' of NYSE Amex (as defined in the rules of NYSE
Amex, as such rules may be in effect from time to time). In making a
determination pursuant to clause (C) of the preceding paragraph, the
Board may impose such conditions and restrictions on the person or
entity and its affiliates owning any Common Interests as the Board may
in its sole discretion deem necessary, appropriate or desirable in
furtherance of the objectives of the Act and the governance of the
Company.
Section 11.8(c) of the LLC Agreement establishes certain
requirements regarding NYSE Amex's ownership of the Company. Beginning
after SEC approval of the LLC Agreement, the aggregate percentage of
Common Interests held by NYSE Amex and its affiliates, as applicable,
shall not decline below fifteen percent (15%) unless and until: (A)
NYSE Amex has delivered to the Board a notice in writing, not less than
forty-five (45) days (or such shorter period as the Board shall
expressly consent to) prior to the transfer of any Common Interests
that would result in such a decline, of NYSE Amex's intention to
transfer such Common Interests; and (B) such notice has been filed
with, and approved by, the SEC under Section 19(b) of the Act and has
become effective thereunder.
Section 11.8(d) of the LLC Agreement establishes certain
requirements regarding indirect ownership of the Company. Except as
described in the last sentence of this paragraph, a ``Controlling
Person'' (defined as a person or entity that, alone or together with
any affiliate, owns a Controlling Interest in a Member, where a
``Controlling Interest'' means the direct or indirect ownership of 25%
or more of the total voting power of that Member by any person or
entity, alone or together with any affiliate) will be required to
execute, and the relevant Member shall take such action as is necessary
to ensure that each of its Controlling Persons executes, an amendment
to the LLC Agreement upon establishing a Controlling Interest in any
Member that, alone or together with any affiliate, holds an ownership
interest in the Company equal to or greater than 20% of the aggregate
Common Interests. In such an amendment, the Controlling Person must
agree (A) to become a party to the LLC Agreement and (B) to abide by
all the provisions of the LLC Agreement relating to regulatory matters.
Notwithstanding the foregoing, a person or entity will not be required
to execute an amendment to the LLC Agreement pursuant to Section
11.8(d) of the LLC Agreement if the person or entity does not, directly
or indirectly, hold any interest in a Member.
Beginning after SEC approval of the LLC Agreement, any amendment to
the LLC Agreement executed pursuant to Section 11.8(d) of the LLC
Agreement is subject to the rule filing process pursuant to Section 19
of the Act. The non-economic rights and privileges, including all
voting rights, of the Member in which a Controlling Interest is held
under the LLC Agreement and the Act will be suspended until such time
as the amendment executed pursuant to Section 11.8(d) of the LLC
Agreement has become effective pursuant to Section 19 of the Act or the
Controlling Person no longer holds a Controlling Interest in the
Member.
Section 13.2(c) of the LLC Agreement requires the books and records
of the Company to be subject at all times to inspection and copying by
the SEC and NYSE Amex at no additional charge to the SEC or NYSE Amex.
The books, records, premises, officers, directors, agents and employees
of the Company shall be deemed the books, records, premises, officers,
directors, agents and employees of NYSE Amex for purposes of and
subject to oversight pursuant to the Act. To the extent related to the
Company's business, the books, records, premises, officers, directors,
agents and employees of each Member will be deemed the books, records,
premises, officers, directors, agents and employees of NYSE Amex for
purposes of and subject to oversight pursuant to the Act.
Section 16.1 of the LLC Agreement provides requirements regarding
regulatory approvals and compliance. Section 16.1(a) provides that so
long as the Options Exchange is a facility of NYSE Amex, in the event
that NYSE Amex, in its sole discretion, determines that any action,
transaction or aspect of an action or transaction, is necessary or
appropriate for, or interferes with, the performance or fulfillment of
NYSE Amex's regulatory functions, its responsibilities under the Act or
as specifically required by the SEC, NYSE Amex shall have the sole and
exclusive authority to direct that any such
[[Page 18610]]
required, necessary or appropriate action, as it may determine in its
sole discretion, be taken or transaction be undertaken by or on behalf
of the Company without regard to the vote, act or failure to vote or
act by any other party in any capacity.\18\
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\18\ Nothing contained in the LLC Agreement or the Members
Agreement limits the ability of NYSE Amex, in its capacity as an
SRO, (i) to take any action or to direct the taking of any action
that it determines is necessary or appropriate for the performance
or fulfillment of its obligations as an SRO or (ii) to direct that
an action that it determines interferes with the performance or
fulfillment of its obligations as an SRO not be taken.
---------------------------------------------------------------------------
Pursuant to Section 16.1(b) of the LLC Agreement, the Company will
use commercially reasonable efforts to obtain such regulatory
approval(s) as may be necessary for the Company to engage in its
business on such schedule as shall be reasonably determined by the
Board to be in the best interests of the Company. The Founding Firms
will agree to cooperate with the Company as reasonable and necessary to
obtain and maintain all regulatory approvals.
Section 16.1(d) of the LLC Agreement provides that the Company,
NYSE Euronext, NYSE Group, each Member, and the officers, directors,
agents, and employees of the Company, NYSE Euronext, NYSE Group and
each Member irrevocably submit to the jurisdiction of the U.S. Federal
courts, the SEC and NYSE Amex (in its capacity as an SRO) for purposes
of any suit, action or proceeding pursuant to U.S. Federal securities
laws, and the rules and regulations promulgated thereunder, arising out
of, or relating to, activities of the Company and agree to waive, and
not to assert by way of motion, as a defense or otherwise in any such
suit, action or proceeding, any claims that they are not personally
subject to the jurisdiction of the SEC, that the suit, action or
proceeding is an inconvenient forum or that the venue of the suit,
action or proceeding is improper, or that the subject matter thereof
may not be enforced in or by such courts or agency.
Section 16.1(e) of the LLC Agreement provides that the Company,
NYSE Euronext, NYSE Group, each Member, and the officers, directors,
agents, and employees of the Company, NYSE Euronext, NYSE Group and
each Member agree to comply with the Federal securities laws and the
rules and regulations promulgated thereunder and to cooperate with NYSE
Amex pursuant to its regulatory authority and the provisions of the LLC
Agreement and with the SEC; and to engage in conduct that fosters and
does not interfere with the Company's and NYSE Amex's ability to
prevent fraudulent and manipulative acts and practices; to promote just
and equitable principles of trade; to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in, securities; to remove impediments to and perfect the mechanisms of
a free and open market and a national market system; and, in general,
to protect investors and the public interest.
Section 16.1(f) of the LLC Agreement provides that the Company,
NYSE Euronext, NYSE Group and each Member shall take such action as is
necessary to ensure that the officers, directors, agents, and employees
of the Company, NYSE Euronext, NYSE Group and such Member who are
involved in the activities of the Company or the Options Exchange, with
respect to their activities relating to the Company or the Options
Exchange, consent in writing to the application to them of Section
13.2(c) of the LLC Agreement relating to inspection of books and
records for purposes of oversight pursuant to the Act; Section 16.1(d)
of the LLC Agreement relating to submission to the jurisdiction of the
U.S. Federal courts, the SEC and NYSE Amex (in its capacity as an SRO)
and waiver of certain legal claims; Section 16.1(e) of the LLC
Agreement relating to the matters described in the immediately
preceding paragraph; the last sentence of Section 8.1(d)(iv) of the LLC
Agreement and Section 8.1(m)(i) of the LLC Agreement relating to each
director's compliance with Federal securities laws and the rules and
regulations thereunder and cooperation with NYSE Amex pursuant to its
regulatory authority and with the SEC; Section 8.1(m)(ii) of the LLC
Agreement relating to NYSE Amex's authority and responsibility to
eliminate or prevent Regulatory Deficiencies; Section 14.1(i) of the
LLC Agreement relating to the prompt return of certain confidential
information to the other Members who disclosed it; as applicable, with
respect to their activities relating to the Company upon the
dissolution or termination of the Company; and Section 14.1(j) of the
LLC Agreement relating to the confidentiality of all Confidential
Information (as defined below) pertaining to the self-regulatory
function of NYSE Amex.
Volume-Based Equity Plan \19\
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\19\ It is the Exchange's view that the Plan does not constitute
a proposed rule change within the meaning of Section 19(b)(1) of the
Act and Rule 19b-4 thereunder.
---------------------------------------------------------------------------
Pursuant to Section 2.1 of the Members Agreement, for an initial
period of five (5) years and three (3) months, each Founding Firm will
have to satisfy certain minimum volume requirements. Under the Plan,
for each measurement period, the Company will issue Annual Incentive
Shares. Each Founding Firm will be entitled to receive, for no
additional consideration, a portion of the Annual Incentive Shares such
that it dilutes, maintains or increases its equity interest in the
Company (relative to the other Founding Firms) based on the degree to
which the Founding Firm has failed to achieve, achieved or exceeded its
``Individual Target'' during the measurement period. A Founding Firm's
Individual Target will be its pro rata portion of an aggregate Founding
Firm target contribution to the annual volume of the Options Exchange.
This pro rata calculation will be performed once, based on the Founding
Firm's holdings of Class B Common Interests relative to the other
Founding Firms at the time the Company is formed and will not change as
a Founding Firm's equity holdings fluctuate as a result of the Plan.
The Plan will not affect the equity holdings of NYSE Amex and the Plan
will not increase or decrease the aggregate equity interest of the
Founding Firms relative to NYSE Amex.
The Annual Incentive Shares not allocated to one or more Founding
Firms by virtue of each such Founding Firm failing to achieve its
respective Individual Target will be either partially or fully
reallocated among those Founding Firms that exceed their respective
Individual Targets.
The Company will not allocate Annual Incentive Shares to a Founding
Firm if such allocation would result in the Founding Firm holding
Common Interests in excess of the 19.9% Maximum Percentage or the
Alternate Maximum Percentage. Rather, the Company will allocate such
Annual Incentive Shares at the direction of the affected Founding Firm
or, if the Founding Firm is prohibited from directing the allocation of
these Annual Incentive Shares, at the direction of a Supermajority Vote
of the Board.
Pursuant to Section 2.2 of the Members Agreement, Annual Incentive
Shares that are not allocated (or reallocated) as described above will
be included in a pool of undistributed Annual Incentive Shares. The
Board will, in its discretion, determine whether and how to dispose of
this pool of undistributed Annual Incentive Shares; provided that (i)
NYSE Amex will work in good faith with Founding
[[Page 18611]]
Firms that achieve their respective Individual Targets in determining
whether and how to distribute this pool and (ii) the Company will be
obligated to dispose of this pool within eighteen (18) months unless
otherwise agreed by a Supermajority Vote of the Board.
Confidentiality
Article XIV of the LLC Agreement contains provisions for the
protection of ``Confidential Information,'' which is defined in Section
14.1(a) of the LLC Agreement as any confidential information (i)
relating to the Company or any Member, or the business, financial
structure, financial position or financial results, clients or affairs
of the Company or any Member or (ii) that is provided to any Member or
the Company or their representatives or to which the Company or any
Member or their representatives has access as a result of the LLC
Agreement, activities conducted pursuant to or in connection with the
LLC Agreement or activities conducted by the Company or on behalf of
the Company that is either (x) marked as confidential, (y) the
disclosing party informs the receiving party at or prior to the time of
disclosure is confidential or (z) should be reasonably understood by
the receiving party to be confidential. Certain exceptions are provided
for information that is otherwise publicly available; was previously
known to the receiving party; was received by the receiving party from
a source lawfully having possession of such information and the right
to disclose it; is released or disclosed to the public by the
disclosing party; or is independently developed by the receiving party.
When the Company or any Member or its representative directly or
indirectly receives Confidential Information, or access to it, from
another person or entity, Section 14.1(b) of the LLC Agreement requires
that the receiving party will not directly or indirectly (i) disclose
any of the Confidential Information to any third party except as
specifically permitted by the LLC Agreement or (ii) use any of the
Confidential Information for any purpose except as specifically
permitted by the LLC Agreement or otherwise required to conduct the
activities contemplated by the LLC Agreement.
Section 14.1(c) of the LLC Agreement requires the party receiving
Confidential Information to take all reasonable precautions and
actions, which must be at least the same precautions and actions as the
receiving party takes to prevent the disclosure of its own comparable
confidential information, to prevent the disclosure to third parties of
the Confidential Information of the disclosing party, or any part of
it, and to ensure that the receiving party's representatives comply
with Article XIV of the LLC Agreement.
Notwithstanding the foregoing, Section 14.1(e) of the LLC Agreement
provides that a receiving party or its affiliates may provide the
Confidential Information to those third parties who have a legitimate
``need to know'' if specifically permitted by the LLC Agreement. Other
exceptions to non-disclosure requirements are provided in the case of
(i) information that is required to be filed with any governmental
authority or SRO, (ii) information that is requested by a governmental
authority or SRO having regulatory authority over the receiving party
or its affiliates or (iii) a determination by the receiving party in
its sole discretion that it is necessary or appropriate to provide such
Confidential Information to a governmental authority or SRO. Additional
exceptions are provided for information (a) required by an auditor for
the purpose of an audit, (b) necessary in connection with any tax
return, (c) provided to a lender, professional adviser, vendor or
service provider for a bona fide business purpose (subject to customary
restrictions on further disclosure or use), (d) provided to a third
party to which the receiving party sells or offers to sell its Interest
or any part thereof (if the third party has agreed in writing to be
bound by confidentiality obligations at least as protective of the
disclosing party as the provisions of Article XIV of the LLC
Agreement), or (e) reasonably necessary in connection with the
enforcement or defense of any rights or remedies under the LLC
Agreement or arising out of the transactions contemplated thereby or
the related transaction documents.
Section 14.1(i) of the LLC Agreement provides that the
confidentiality obligations in Article XIV of the LLC Agreement will be
effective from the effective date of said agreement and will continue
to apply (A) with respect to the Company, after dissolution or
termination of the Company pursuant to Article XII of the LLC Agreement
for a period of three (3) years, (B) with respect to any Member, for a
period of three (3) years after the date on which such Member ceases to
be a Member of the Company and (C) with respect to NYSE Euronext, for a
period of three (3) years after the date on which NYSE Amex ceases to
be a Member of the Company. Section 14.1(i) also contains requirements,
with exceptions, for the prompt return of Confidential Information to
the disclosing party upon written request, or the prompt destruction
(with prior written consent) of such Confidential Information by the
party that received it, upon the effective date of dissolution or
termination of the Company.
Pursuant to Section 14.1(j) of the LLC Agreement, all Confidential
Information pertaining to the self-regulatory function of NYSE Amex
(including but not limited to disciplinary matters, trading data or
information about trading practices and audit information) contained in
the books and records of the Company shall: (i) Not be made available
to any persons or entities other than to those officers, directors,
employees and agents of the Company that have a reasonable need to know
the contents thereof; (ii) be retained in confidence by the Company and
its officers, directors, employees and agents; and (iii) not be used
for any non-regulatory purposes. This provision shall not limit a
Founding Firm's ability to use its own trading data.
Section 14.1(k) of the LLC Agreement states that nothing in the LLC
Agreement shall be interpreted to limit or impede the rights of the SEC
or NYSE Amex to access and examine confidential information of the
Company pursuant to U.S. Federal securities laws and the rules and
regulations promulgated thereunder, or, subject to the notice
requirements of Section 14.1 of the LLC Agreement, to limit or impede
the ability of a member of the Board, Member, officer, director, agent
or employee of a Member or of the Company to disclose confidential
information of the Company to the SEC or NYSE Amex.
Amendment
Unless the contrary is otherwise specifically stated in the LLC
Agreement, the LLC Agreement and the Members Agreement may be amended
by Supermajority Vote of the Board; provided, that: (i) Section
8.1(d)(ii) of the LLC Agreement relating to the designation of
directors by Founding Firms and Article XIV of the LLC Agreement
relating to confidentiality may not be materially amended, Section 13.8
of the LLC Agreement relating to restrictions on foreign operations and
Section 3.1 of the Members Agreement relating to the transfer of
Interests may not be amended, without the prior written consent of each
Member; (ii) any amendment that would have a disproportionate, material
and adverse effect on the rights of one or more Members (other than
amendments of the type described in clause (iii) below) shall require
such Member's prior written consent; (iii) any amendment
[[Page 18612]]
that would have a material adverse effect on the rights of the Members
of a class of Interests (irrespective of whether such amendment has a
material adverse effect on the rights of NYSE Amex) shall require the
prior written consent of Members (other than NYSE Amex) representing
two thirds (\2/3\) of the Interests held by such Members; (iv) any
amendment that would impose a new and material obligation or liability
applicable by its terms to any Member or materially increase any
existing material obligation or liability of any Member shall require
the prior written consent of such Member and (v) any matter specified
in the LLC Agreement as subject to agreement by the Members may be
modified by Supermajority Vote of the Board if so agreed by the
Members, provided that this clause (v) does not apply to the matters
addressed in clause (i) above and the application of this clause (v)
shall nevertheless be subject to the application of clauses (ii), (iii)
and (iv) above. Notwithstanding any of the foregoing, for so long as
the Company operates a facility of NYSE Amex or a successor of NYSE
Amex that is an SRO, any proposed amendment or repeal of any provision
of the LLC Agreement or Members Agreement shall be submitted to the
board of directors of NYSE Amex and, if such amendment or repeal is
required under Section 19 of the Act and the rules promulgated
thereunder, to be filed with, or filed with and approved by, the SEC
before such amendment or repeal may be effective, then such amendment
or repeal shall not be effective until filed with, or filed with and
approved by, the SEC, as the case may be.
Redactions to the Members Agreement
Certain information in the Members Agreement has been redacted in
order to preserve the confidentiality of commercially sensitive
information. The redacted provisions are limited to (i) numerical
dollar amounts and percentage thresholds, (ii) commercially sensitive
terms and provisions related to the calculation of ``Fair Market
Value'' and (iii) certain competitive information.
Regulation
NYSE Regulation, Inc. (``NYSE Regulation''), an indirect wholly-
owned subsidiary of NYSE Euronext, and the Exchange entered into a
regulatory services agreement (an ``RSA'') dated October 1, 2008
pursuant to which NYSE Regulation performs all of the Exchange's
regulatory functions on the Exchange's behalf. However, certain of
these member and market regulatory functions, which include
surveillance, examination, investigation and related disciplinary
functions, are performed by FINRA pursuant to a June 14, 2010 RSA among
FINRA, NYSE Group, Inc., New York Stock Exchange LLC, NYSE Regulation,
NYSE Arca, Inc. and the Exchange. FINRA and the Exchange have also
entered into an allocation agreement pursuant to Section 17(d)(1) of
the Act, and Rule 17d-2 thereunder, whereby FINRA assumed regulatory
responsibility for specified rules that are common to FINRA and the
Exchange and for common members. Because the Options Exchange is a
facility of the Exchange, FINRA performs the applicable regulatory
functions and responsibilities with respect to activity on or through
the Options Exchange, including both general regulatory functions, as
noted above, and targeted regulatory reviews as applicable.
Pursuant to the RSA between NYSE Regulation and the Exchange, NYSE
Regulation exercises oversight, on behalf of the Exchange, of FINRA's
performance of the regulatory functions performed by FINRA as described
above. NYSE Regulation also has responsibilities with respect to the
Options Exchange for rule interpretation, regulatory policy and
participation in rule development. NYSE Regulation periodically reports
on regulatory matters to the board of directors of the Exchange, which
has appointed a Chief Regulatory Officer (``CRO'') who is also the
Chief Executive Officer of NYSE Regulation. The Exchange does not have
a regulatory oversight committee of the board, but the CRO is also an
officer of the Exchange, and in that capacity is charged with reporting
on regulatory matters to the Exchange board. Notwithstanding the
foregoing, the Exchange will still retain ultimate legal responsibility
for the performance of all of its regulatory obligations as an SRO,
including with respect to the Options Exchange, as well as the ability
to take action as required to meet that responsibility.
The board of directors of the Exchange currently consists of five
(5) directors, a majority of whom are required to be individuals
domiciled in the U.S. who are classified as independent members of the
NYSE Euronext board of directors. At least twenty percent of the
Exchange's directors (currently one individual) must be ``non-
affiliated'' directors who are not members of the NYSE Euronext board
of directors and need not be independent under the independence
requirements of NYSE Euronext. Any required non-affiliated directors of
the Exchange are nominated and elected through a process designed to
ensure fair representation of members of the Exchange on the Exchange's
board. The Exchange does not have any committees of its board that
perform functions relating to audit, governance and compensation.
Instead, such functions are performed for the Exchange by related
committees of the NYSE Euronext board of directors that are comprised
solely of NYSE Euronext directors who meet the independence
requirements of NYSE Euronext.
Decisions on the listing of options that will trade on the Options
Exchange will be made by the business side at the Exchange in
accordance with the Exchange's rules. The business side will also
continue to be responsible for new product development, participation
in rule development, strategic analysis, administering Exchange
programs, business development and client outreach.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6(b) \20\ of the Act,\21\ in general, and furthers the
objectives of Section 6(b)(1) \22\ of the Act, which requires a
national securities exchange to be so organized and have the capacity
to carry out the purposes of the Act and to comply, and to enforce
compliance by its members and persons associated with its members, with
the provisions of the Act. The proposed rule change does not modify the
Option Exchange's trading or compliance rules and preserves the
existing mechanisms for ensuring the Exchange's compliance with the
Act. The structure of the proposed joint venture maintains NYSE Amex's
regulatory control over the Options Exchange and includes provisions
specifically designed to ensure the independence of its self-regulatory
function and to ensure that any regulatory determinations by NYSE Amex,
as SRO, are controlling with respect to the actions and decisions of
the Options Exchange.
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\20\ 15 U.S.C. 78f(b).
\21\ 15 U.S.C. 78.
\22\ 15 U.S.C. 78f(b)(1).
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Additionally, the LLC Agreement requires the Company, its Members
and its directors to comply with the Federal securities laws and the
rules and regulations promulgated thereunder and to engage in conduct
that fosters and does not interfere with the Exchange's or the
Company's ability to carry out its respective responsibilities under
the Act.
The Exchange believes the proposed rule change is also consistent
with, and
[[Page 18613]]
furthers the objectives of Section 6(b)(5) \23\ of the Act, in that it
preserves all of NYSE Amex's existing rules and mechanisms to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in facilitating transactions in securities, to
remove impediments to and perfect the mechanisms of a free and open
market and a national market system and, in general, to protect
investors and the public interest.
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\23\ 15 U.S.C. 78f(b)(5).
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Furthermore, by establishing a new corporate structure for the
Company that includes new owners and a new governance structure, the
Exchange believes the proposed rule change will increases [sic] the
breadth of representation in the governance of the Options Exchange to
include buy side, principal trading and sell side representatives. The
increased representation of different market constituencies in the
governance of the Options Exchange will foster cooperation and
coordination with persons engaged in facilitating transactions in
securities, will contribute to the identification of opportunities for
innovation and will enhance competition.
Finally, the Exchange believes that the proposed rule change
accomplishes the goals of Section 6(b) of the Act by improving the
quality and depth of the listed options market. Specifically, with the
approval of this proposed rule change, Members will have an incentive,
through equity ownership, to offer an options market that provides
products, services and fees that are competitive with those of other
options markets. Moreover, given the substantial options experience and
resources of the Members, the approval of this proposed rule change
will provide the opportunity for enhanced liquidity and price discovery
for the Options Exchange, thereby creating the opportunity for better-
priced executions for options investors. A more competitive marketplace
within the Options Exchange will also foster increased competition
across all options markets with concomitant benefits to all U.S.
options investors.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File Number SR-NYSEAmex-2011-18 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEAmex-2011-18. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for Web site
viewing and printing in the Commission's Public Reference Room, 100 F
Street, NE., Washington, DC 20549, on official business days between
the hours of 10 a.m. and 3 p.m. Copies of the filing will also be
available for inspection and copying at the Exchange's principal
office. All comments received will be posted without change; the
Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
publicly available. All submissions should refer to File Number SR-
NYSEAmex-2011-18 and should be submitted on or before April 25, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-7935 Filed 4-1-11; 8:45 am]
BILLING CODE 8011-01-P