Notice2021-28108
Self-Regulatory Organizations; Nasdaq BX, Inc.; Order Approving Proposed Rule Changes Regarding the Transfer of Ownership of Nasdaq BX Equities LLC and the Merger of Nasdaq BX Equities LLC With and Into the Exchange
Primary source
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Published
December 28, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 246 (Tuesday, December 28, 2021)</title>
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[Federal Register Volume 86, Number 246 (Tuesday, December 28, 2021)]
[Notices]
[Pages 73831-73833]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-28108]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93848; File Nos. SR-BX-2021-050; SR-BX-2021-051]
Self-Regulatory Organizations; Nasdaq BX, Inc.; Order Approving
Proposed Rule Changes Regarding the Transfer of Ownership of Nasdaq BX
Equities LLC and the Merger of Nasdaq BX Equities LLC With and Into the
Exchange
December 21, 2021.
I. Introduction
On October 22, 2021, Nasdaq BX, Inc. (``BX'' 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 regarding the
transfer of Nasdaq, Inc.'s (``Nasdaq HoldCo'') entire ownership
interest in Nasdaq BX Equities LLC (``BX Equities'') to the Exchange
(``Transfer Proposal''). The Transfer Proposal was published for
comment in the Federal Register on November 9, 2021.\3\ Also on October
22, 2021, the Exchange filed with the Commission, pursuant to Section
19(b)(1) of the Act \4\ and Rule 19b-4 thereunder,\5\ a proposed rule
change regarding the merger of BX Equities with and into the Exchange
(``Merger Proposal''). The Merger Proposal was published for comment in
the Federal Register on November 9, 2021.\6\ The Commission received no
comment letters on the proposed rule changes. This order approves the
proposed rule changes.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 93514 (November 3,
2021), 86 FR 62229 (``Transfer Notice'').
\4\ 15 U.S.C. 78s(b)(1).
\5\ 17 CFR 240.19b-4.
\6\ See Securities Exchange Act Release No. 93513 (November 3,
2021), 86 FR 62222 (``Merger Notice'').
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II. Description of the Proposals
The Exchange proposes, through the Transfer Proposal and the Merger
Proposal, a two-step process that will first allow the Exchange to
become the 100% direct owner and sole LLC member of BX Equities, and
subsequently allow the merger of BX Equities with and into the Exchange
(``Transactions'').
A. Transfer Proposal
BX Equities was acquired by Nasdaq HoldCo in 2008, and was
established as a facility of and controlled subsidiary
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owned and operated by the Exchange for the listing and trading of cash
equity securities.\7\ Currently, Nasdaq HoldCo \8\ directly owns 100%
of the Exchange, and the Exchange and Nasdaq HoldCo are the only owners
and LLC members of BX Equities--the Exchange directly owns 53.21% of BX
Equities and Nasdaq HoldCo directly owns the remaining 46.79% of BX
Equities.\9\ BX Equities is currently governed by, among other things,
the Nasdaq BX Equities LLC Fifth Amended and Restated Operating
Agreement (``Operating Agreement''), which provides that management of
BX Equities is vested in the Exchange.\10\ Nasdaq HoldCo has no direct
management role in the operation of BX Equities, with the exception of
its limited role as tax matters member \11\ and its limited rights with
regard to capital contributions in and dissolution of BX Equities.\12\
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\7\ See Transfer Notice, supra note 3, at 62229.
\8\ Nasdaq HoldCo was formerly known as NASDAQ OMX Group, Inc.
See id. at 62229 n.5. The Transactions will have no effect on Nasdaq
HoldCo's direct ownership of the Exchange. See id. at 62229; Merger
Notice, supra note 6, at 62222.
\9\ See Transfer Notice, supra note 3, at 62229-30. Nasdaq
HoldCo previously remained an LLC member of BX Equities to avoid
certain adverse tax consequences that would be associated with
contributing its ownership interest to the Exchange, but according
to the Exchange, these tax considerations have since expired. See
id. at 62230 n.7. See also Securities Exchange Act Release No. 59154
(December 23, 2008), 73 FR 80468, 80469-70 n.20 (December 31, 2008).
\10\ See Transfer Notice, supra note 3, at 62230.
\11\ See definitions of ``Capital Account'' and ``Tax Amount''
in Section 1.1, and Sections 10.9 and 12.6 of the Operating
Agreement.
\12\ See Sections 7.4 and 11.1 of the Operating Agreement. See
also Transfer Notice, supra note 3, at 62230.
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As proposed, Nasdaq HoldCo will transfer its entire ownership
interest in BX Equities to the Exchange, which will result in the
Exchange becoming the 100% direct owner and sole LLC member of BX
Equities.\13\ The Exchange represents that the Transfer Proposal merely
seeks to simplify the corporate structure of BX Equities, that the
Exchange will operate in a substantially similar manner following the
transfer as it currently operates (with the addition of the Exchange's
role as the tax matters member of BX Equities), and that the transfer
will have no impact on how the Exchange operates its equities
market.\14\
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\13\ Section 8.1 of the Operating Agreement states that the
Exchange must obtain Commission approval for transfers of ownership
interest in BX Equities. According to the Exchange, upon Commission
approval of the Transfer Proposal, the Exchange and Nasdaq HoldCo
will enter into a contribution and assignment agreement
(``Contribution Agreement'') pursuant to which Nasdaq HoldCo will
transfer its entire 46.79% ownership interest in BX Equities, and
all of its other rights and obligations arising thereunder, to the
Exchange, resulting in the Exchange directly owning 100% of BX
Equities. See Transfer Notice, supra note 3, at 62230.
\14\ See id.
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The Exchange proposes to amend the Operating Agreement to reflect
the transfer. In particular, the Exchange proposes to add a description
of the Contribution Agreement,\15\ remove references to Nasdaq HoldCo
as an LLC member of BX Equities,\16\ replace references to Nasdaq
HoldCo with references to the Exchange to reflect that Nasdaq HoldCo
will no longer be the tax matters member of BX Equities; \17\ provide
that Nasdaq HoldCo will no longer have limited rights with respect to
capital contributions in BX Equities \18\ and the dissolution of BX
Equities; \19\ and delete a provision relating to the books, records,
premises, officers, directors, agents, and employees of Nasdaq
HoldCo.\20\
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\15\ See proposed changes to the Recitals section of the
Operating Agreement.
\16\ See proposed changes to the introductory paragraphs,
Sections 1.1 and 7.2, and Schedules 1 and 2 of the Operating
Agreement.
\17\ See proposed changes to the definitions of ``Capital
Account'' and ``Tax Amount'' in Section 1.1, and Sections 10.9 and
12.6 of the Operating Agreement.
\18\ See proposed changes to Section 7.4 of the Operating
Agreement.
\19\ See proposed changes to Section 11.1 of the Operating
Agreement.
\20\ See proposed changes to Section 18.6 of the Operating
Agreement.
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B. Merger Proposal
Following the transfer of ownership interest in BX Equities as
described above, the Exchange proposes to merge BX Equities with and
into the Exchange.\21\ As a result, BX Equities will be eliminated, the
Exchange will be the surviving entity, and the Exchange will directly
operate its equities market.\22\
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\21\ See Merger Notice, supra note 6, at 62222-23. The Exchange
anticipates that the merger will occur immediately after the
transfer. See id. at 62223.
\22\ See id. at 62222-23.
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Currently, the Exchange has delegated certain responsibilities to
BX Equities to operate the Exchange's equities market under a
Delegation Agreement.\23\ The delegation is limited to the Exchange's
equities market functions and does not include other functions not
specifically mentioned in the limited delegation.\24\ Pursuant to the
Delegation Agreement, the Exchange retains ultimate responsibility for
its equities market, including the responsibility to ensure the
fulfillment of statutory and self-regulatory obligations under the
Act.\25\ In connection with the proposed merger, the Exchange proposes
to terminate the delegation of functions to BX Equities and delete the
Delegation Agreement from its rules. With the termination of the
Delegation Agreement, all of the functions previously delegated to BX
Equities will be performed by the Exchange, and the Exchange will
directly operate its equities market.\26\ The Exchange will continue to
bear responsibility over its equities market of ensuring the
fulfillment of its statutory and self-regulatory obligations.\27\
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\23\ See id. at 62222.
\24\ See id. at 62223.
\25\ See id.
\26\ See id.
\27\ See id.
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As described above, BX Equities is also currently governed by the
Operating Agreement, which provides that management of BX Equities is
vested in the Exchange.\28\ In connection with the proposed merger and
the proposed termination of the Delegation Agreement, BX Equities will
no longer be operating the Exchange's equities market and the Operating
Agreement will become obsolete.\29\ Accordingly, the Exchange proposes
to delete the Operating Agreement from its rules.
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\28\ The Exchange also states that BX Equities can only act
through the action of the Exchange and the Exchange's officers and
directors, because there is no separate BX Equities board of
directors and all BX Equities officers are officers of the Exchange.
See id.
\29\ See id.
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Finally, the Exchange proposes to make conforming changes to its
rules to reflect the proposed merger and the proposed deletion of the
Delegation Agreement and Operating Agreement. In particular, the
Exchange proposes to delete General 2, Section 8, which relates to the
Delegation Agreement and the staff, books, records, premises, officers,
employees, and agents of BX Equities. The Exchange also proposes to
amend Equity 1, Section 1 to remove references to the Operating
Agreement, Delegation Agreement, and BX Equities.
III. Discussion and Commission Findings
The Commission finds that the proposed rule changes are consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange.\30\ In
particular, the Commission finds that the proposed rule changes are
consistent with Section 6(b)(1) of the Act,\31\ which requires that a
national securities exchange be so organized and have the capacity to
be able to carry out the purposes of the Act
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and to comply, and to enforce compliance by its members and persons
associated with its members, with the provisions of the Act, the rules
and regulations thereunder, and the rules of the exchange. The
Commission also finds that the proposed rule changes are consistent
with Section 6(b)(5) of the Act,\32\ which requires, among other
things, that the rules of a national securities exchange be designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to remove impediments to and perfect
the mechanism 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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\30\ In approving the proposed rule changes, the Commission has
considered the proposed rules' impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\31\ 15 U.S.C. 78f(b)(1).
\32\ 15 U.S.C. 78f(b)(5).
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As described above, the proposed rule changes will allow (i) the
transfer of Nasdaq HoldCo's ownership interest in BX Equities to the
Exchange, and (ii) the merger of BX Equities with and into the
Exchange. The proposed transfer will have no impact on how the Exchange
operates its equities market and, as described above, the Exchange
anticipates that the merger will occur immediately after the transfer.
Following the merger, the Exchange will directly operate its equities
market and perform the functions that were previously delegated to BX
Equities. Moreover, the Exchange will continue to have ultimate
responsibility over its equities market, including the responsibility
to ensure the fulfillment of its statutory and self-regulatory
obligations under the Act.\33\ Because the proposed rule changes will
allow the Exchange to directly operate its equities market (rather than
through a subsidiary) and the Exchange will continue to have ultimate
regulatory responsibility over its equities market, the Commission
believes that the proposed rule changes are consistent with the Act and
will not impair the ability of the Commission or the Exchange to
discharge their respective responsibilities under the Act. The
Commission also believes that the Exchange's proposals to amend the
Operating Agreement in connection with the transfer, and to
subsequently remove the Delegation Agreement and the amended Operating
Agreement and make conforming changes to its rules in connection with
the merger, are consistent with the Act and will allow the Exchange's
rulebook to reflect the Transactions.
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\33\ The Exchange states that its independent regulatory
oversight committee (``ROC'') will continue to oversee the
Exchange's regulatory and self-regulatory organization
responsibilities with regard to both its equities and options
markets, and the Exchange's regulatory department will continue to
carry out its regulatory functions with respect to both markets
under the oversight of the ROC. See Merger Notice, supra note 6, at
62224.
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\34\ that the proposed rule changes (SR-BX-2021-050; SR-BX-2021-
051) be, and hereby are, approved.
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\34\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
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\35\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-28108 Filed 12-27-21; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on December 28, 2021.
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