Notice2021-26337
Self-Regulatory Organizations; MEMX LLC; Order Granting Accelerated Approval of a Proposed Rule Change To Amend the Corporate Documents of the Exchange's Parent Company
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
December 6, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 86 Issue 231 (Monday, December 6, 2021)</title>
</head>
<body><pre>
[Federal Register Volume 86, Number 231 (Monday, December 6, 2021)]
[Notices]
[Pages 69111-69113]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-26337]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93683; File No. SR-MEMX-2021-15]
Self-Regulatory Organizations; MEMX LLC; Order Granting
Accelerated Approval of a Proposed Rule Change To Amend the Corporate
Documents of the Exchange's Parent Company
November 30, 2021.
On October 22, 2021, MEMX LLC (``MEMX'' or ``Exchange'') filed with
the Securities and Exchange Commission (``Commission''), pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\
and Rule 19b-4 thereunder,\2\ a proposed rule change to amend and
restate the limited liability company agreement of MEMX Holdings LLC
(``Holdco''), the parent company of the Exchange. The proposed rule
change was published for comment in the Federal Register on November 3,
2021.\3\ The Commission received no comment letters regarding the
proposed rule change. This order approves the proposed rule change on
an accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 93452 (October 28,
2021), 86 FR 60683 (``Notice'').
---------------------------------------------------------------------------
I. Summary of the Proposed Rule Change \4\
---------------------------------------------------------------------------
\4\ A full description of the proposed rule change is provided
in the Notice.
---------------------------------------------------------------------------
The Exchange filed a proposed rule change to reflect certain
changes to the Fifth Amended and Restated Limited Liability Company
Agreement of Holdco that resulted in the restatement of that agreement
as the Sixth Amended and Restated Limited Liability Company Agreement
of Holdco (``Sixth Amended Holdco LLC Agreement''). Specifically, the
Sixth Amended Holdco LLC Agreement reflects the following substantive
amendments: (1) The creation of the Class C Units \5\ and the Common
Units \6\ in connection with the
[[Page 69112]]
sale by Holdco of Class C Units to certain LLC Members \7\ in a capital
raise transaction (``Transaction''); (2) provisions that address
certain LLC Members' BHCA \8\ considerations, particularly in light of
recent amendments to BHCA regulations, to facilitate their continued
compliance with requirements and restrictions under the BHCA regarding
investments in nonbanking companies; \9\ and (3) Holdco governance
changes in connection with the Transaction.\10\ The Exchange expects
the Transaction to close shortly after this proposed rule change is
approved. The Exchange represents that none of the proposed changes
will affect the governance of the Exchange.\11\
---------------------------------------------------------------------------
\5\ As proposed, ``Class C Units'' means Class C-1 Units and
Class C-2 Units; the term ``Class C-1 Units'' means the Units having
the privileges, preference, duties, liabilities, obligations and
rights specified with respect to ``Class C-1 Units'' in the Sixth
Amended Holdco LLC Agreement; and the term ``Class C-2 Units'' means
the Units having the privileges, preference, duties, liabilities,
obligations and rights specified with respect to ``Class C-2 Units''
in the Sixth Amended Holdco LLC Agreement.
\6\ As proposed, the term ``Common Units'' means the Units
having the privileges, preference, duties, liabilities, obligations
and rights specified with respect to ``Common Units'' in the Sixth
Amended Holdco LLC Agreement. Common Units are divided into the
Voting Common Units and the Nonvoting Common Units.
\7\ A ``LLC Member'' is a person (i.e., an individual or entity)
that owns one or more Units and is admitted as a limited liability
company member of Holdco.
\8\ ``BHCA'' refers to the United States Bank Holding Company
Act of 1956, as amended and the rules and regulations thereunder.
Certain LLC Members are subject to requirements and restrictions
under the BHCA, including recent amendments to BHCA regulations
regarding the determination of control over investments in
nonbanking companies that became effective on September 30, 2020.
See Notice, supra note 3, 86 FR at 60684.
\9\ See id.
\10\ The Sixth Amended Holdco LLC Agreement also reflects
various clarifying, updating, conforming, and other non-substantive
amendments. For example, the Exchange proposes to delete provisions
and language that are now obsolete due to the passage of time or the
occurrence of certain events.
\11\ See id. at 60684. Under the current Holdco LLC Agreement,
LLC Members do not have any voting or management rights, except in
certain very limited circumstances; the authority to manage and
control the business and affairs of Holdco is vested in the Holdco
Board. In connection with the Transaction, three LLC Members that do
not currently have the right to nominate a director (``Director'')
to the Holdco Board--Citicorp North America, Inc., UBS Americas
Inc., and Wells Fargo Central Pacific Holdings, Inc.--will receive
the right to nominate a Director, thereby increasing the size of the
Holdco Board from 11 to 14 Directors.
---------------------------------------------------------------------------
Currently there are two classes of Units: \12\ Class A Units, which
are divided into the Class A-1 Units and the Class A-2 Units; \13\ and
Class B Units. The Exchange proposes to create two new classes Units:
Class C Units and Common Units, each of which is divided into a voting
series and a non-voting series. Holdco will sell Class C Units pursuant
to the Transaction and will use the proceeds from the sale for general
corporate expenses, including support of the operations and regulation
of the Exchange. Class C Units are convertible into Common Units,\14\
and generally will have the same rights and obligations as Class A
Units. While each LLC Member's proportionate ownership of Holdco will
change because of the Transaction, no LLC Member will own, directly or
indirectly, Units constituting more than 20% of any class of Units or
will otherwise exceed any ownership or voting limitation applicable to
the LLC Members set forth in the current Holdco LLC Agreement after
giving effect to the Transaction.\15\
---------------------------------------------------------------------------
\12\ A ``Unit'' is a unit representing a fractional part of the
membership interests of the members of Holdco.
\13\ The Exchange proposes to re-characterize Class A-1 Units
and Class A-2 Units as separate ``series'' rather than ``classes''
of Units. The Exchange represents that the Holdco Board asserts that
this is appropriate because such Units have identical privileges,
preference, duties, liabilities, obligations, and rights under the
Sixth Amended Holdco LLC Agreement, and the only difference between
such Units is the original purchase price paid by the applicable LLC
Members. See id. at 60683, n.10.
\14\ Common Units will be issuable only in connection with an
investment in Holdco or upon optional or mandatory conversion of
Class C Units. No Common Units will be sold in connection with the
Transaction, and none are currently issued and outstanding. In the
event of a conversion to Common Units, Class C-1 Units will be
converted into Voting Common Units, and Class C-2 Units will be
converted into Nonvoting Common Units. The Exchange states that this
conversion structure is designed to keep the same voting construct
in place with respect to the Common Units that are issued upon the
conversion of any Class C Units in a manner consistent with BHCA
considerations. See id., 86 FR at 60685.
\15\ See Section 3.5 of the Sixth Amended Holdco LLC Agreement.
See also Notice, supra note 3, 86 FR at 60684.
---------------------------------------------------------------------------
The Exchange also proposes a number of changes to facilitate
certain LLC Members' continued compliance, particularly in light of
recent amendments to the BHCA regulations, with requirements and
restrictions under the BHCA regarding investments in nonbanking
companies. For example, the Exchange proposes to divide the existing
series of Class A Units into voting and non-voting series in a manner
consistent with the proposed voting structure of the Class C Units and
the Common Units and prescribe certain matters on which such series are
entitled to vote.\16\ The Exchange also proposes to allow LLC Members
to specify a maximum voting percentage for Voting Class A and Class C-1
Units.\17\
---------------------------------------------------------------------------
\16\ The Exchange states that the sole purpose of these changes
is to facilitate certain LLC Members' continued compliance with
requirements and restrictions under the BHCA regarding investments
in nonbanking companies. See Notice, supra note 3, 86 FR at 60684.
\17\ The Exchange represents that the proposed amendments to the
current Holdco LLC Agreement are simply an expansion of existing
provisions allowing LLC Members to specify a maximum voting
percentage and are designed to facilitate certain LLC Members'
compliance with the BHCA. See id. at 60692.
---------------------------------------------------------------------------
Additionally, the Exchange proposes a number of Holdco governance
changes in connection with the Transaction. For example, the Exchange
proposes to amend the definition of Supermajority Board Vote, which
currently refers to the affirmative vote of at least 77% of the votes
of all Directors then entitled to vote on the matter under
consideration and who have not recused themselves, whether or not
present at the applicable meeting of the Board,\18\ and the current
definition also provides that if the affirmative vote threshold results
in the necessity of the affirmative vote of all such Directors with
respect to such matter, that an affirmative vote of all but one of such
Directors shall instead be required.\19\ Instead, the Exchange proposes
that, if the affirmative vote threshold results in the necessity of the
affirmative vote of eight Directors or fewer, an affirmative vote of
all but two such Directors shall be required with respect to such
matter.\20\ The Exchange also proposes to allow a meeting of the LLC
Members to be called by the Class C Members holding, in the aggregate,
at least 20% of the aggregate then-outstanding Class C Units, and to
include a reference to Class C Units in the provision governing quorum
for the transaction of business by the LLC Members. Further, the
Exchange proposes that the dissolution and winding up of the affairs of
Holdco be approved by holders of the various series of Units in
addition to the approval of the Holdco Board by Supermajority Board
Vote.
---------------------------------------------------------------------------
\18\ This aspect of the definition is not changing.
\19\ MEMX states that this provision is intended to cover
situations where a large number of Directors are recused from voting
on a matter or the size of the Board is such that a Board vote would
require unanimity and instead allows a matter to be approved so long
as all but one Director is in favor of a particular voting matter.
See id. at 60690.
\20\ According to the Exchange, the proposed change will ensure
that a more consistent voting structure is maintained even if
several Directors are recused from voting on a particular matter.
See id.
---------------------------------------------------------------------------
II. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
exchange.\21\ In particular, the Commission finds that the proposed
rule change is consistent with Section 6(b)(1) of the Act,\22\ which
requires that a national securities exchange be so organized as to have
the capacity to be able to carry out the purposes of the Act and to
comply with the provisions of the Act, the rules and regulations
[[Page 69113]]
thereunder, and the rules of the exchange.
---------------------------------------------------------------------------
\21\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\22\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------
The Commission believes that the proposed updates and clarifying
changes reflected in the Sixth Amended Holdco LLC Agreement will not
materially alter Holdco's governance with respect to the Exchange or
adversely impact governance of the Exchange itself \23\ and will
continue to enable the Exchange to be organized to have the capacity to
carry out the purposes of the Act and to comply with the provisions of
the Act, the rules and regulations thereunder, and the rules of the
Exchange.
---------------------------------------------------------------------------
\23\ The protections against any particular Holdco shareholder
exerting undue influence over the affairs of Holdco--and indirectly
the affairs of the Exchange--remain in place. See supra note 15 and
accompanying text. See also note 11 and accompanying text.
---------------------------------------------------------------------------
In particular, the Sixth Amended Holdco LLC Agreement does not
amend Section 3.5 (Limitations on Ownership), which imposes an
ownership limit of ``twenty percent (20%) of any class of Units'' and a
voting limit of ``twenty percent (20%) of the voting power of the then
issued and outstanding Units.'' \24\ Though Holdco will have two new
classes of shares and some LLC Members will make additional investments
as part of the Transaction, the 20% ownership limit will apply to those
new series, and the 20% voting limit will continue to apply to all
issued and outstanding Units collectively. These limitations are
designed to address the conflicts of interests that might result from a
broker-dealer member of a national securities exchange owning interests
in an entity that controls that exchange.\25\ The Commission believes
that these requirements are designed to minimize the potential that a
person or entity can improperly interfere with or restrict the ability
of the Exchange to effectively carry out its regulatory oversight
responsibilities under the Act. In addition, other provisions that
recognize the unique and important regulatory nature of MEMX as a
national securities exchange and self-regulatory organization under the
Act similarly will not be substantively altered by the proposed
amendments, including but not limited to Sections 15.12 (Submission to
Jurisdiction), 15.9 (Amendments), 12.2 (Inspection Rights; Books and
Records), and 8.18 (Governance of Company Subsidiaries; Certain
Agreements Related to the Exchange Board). Rather, the proposed
amendments accommodate the Transaction, facilitate LLC Members'
continued compliance with requirements and restrictions under the BHCA
regarding investments in nonbanking companies (i.e., Holdco), and make
non-substantive changes that do not alter the important protections
that Holdco has adopted to protect MEMX's regulatory independence and
ability to operate in a manner consistent with the Act as a registered
a national securities exchange.
---------------------------------------------------------------------------
\24\ Section 3.5(a)(ii) provides that ``[n]o Exchange Member,
either alone or together with its Related Persons, may own, directly
or indirectly, of record or beneficially, Units constituting more
than twenty percent (20%) of any class of Units'' and Section
2.5(a)(iii) provides that ``[n]o Person, either alone or together
with its Related Persons, at any time may, directly, indirectly or
pursuant to any voting trust, agreement, plan or other arrangement,
vote or cause the voting of Units or give any consent or proxy with
respect to Units representing more than twenty percent (20%) of the
voting power of the then issued and outstanding Units. . . .''
\25\ As the Commission has previously explained, an exchange
member's ownership interest in an entity that controls an exchange
could become so large as to cast doubt on whether the exchange may
fairly and objectively exercise its self-regulatory responsibilities
with respect to such member. An exchange member that is a
controlling shareholder of an exchange could seek to exercise that
controlling influence by directing the exchange to refrain from, or
the exchange may hesitate to, diligently monitor and conduct
surveillance of the member's conduct or diligently enforce the
exchange's rules and the federal securities laws with respect to
conduct by the member that violates such provisions. See, e.g.,
Securities Exchange Act Release No. 88806 (May 4, 2020), 85 FR 27451
(May 8, 2020) (In the Matter of the Application of MEMX LLC for
Registration as a National Securities Exchange).
---------------------------------------------------------------------------
III. Accelerated Approval of the Proposed Rule Change
The Commission finds good cause to approve the proposed rule change
prior to the thirtieth day after the date of publication of notice in
the Federal Register.\26\ The Exchange states that approval of the
proposed rule change on an accelerated basis will facilitate certain
LLC Members' continued compliance with requirements and restrictions
under the BHCA regarding investments in nonbanking companies. As
discussed above, because the proposed changes do not impact Holdco's
ownership of the Exchange, alter LLC Members' ownership and voting
limits, or otherwise alter any existing provision that would adversely
impact the Exchange, the Commission finds good cause, pursuant to
Section 19(b)(2) of the Act,\27\ to approve the proposed rule change on
an accelerated basis.
---------------------------------------------------------------------------
\26\ The 21-day comment period for this proposed rule change
expired on November 24, 2021 (see Notice, supra note 3, 86 FR at
60693) and no comments were received.
\27\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\28\ that the proposed rule change (SR-MEMX-2021-15), be, and
hereby is, approved on an accelerated basis.
---------------------------------------------------------------------------
\28\ Id.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
---------------------------------------------------------------------------
\29\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-26337 Filed 12-3-21; 8:45 am]
BILLING CODE 8011-01-P
</pre></body>
</html>Indexed from Federal Register on December 6, 2021.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.