Notice2022-19264
In the Matter of the Application of 24X National Exchange LLC for Registration as a National Securities Exchange; Order Instituting Proceedings To Determine Whether To Grant or Deny an Application for Registration as a National Securities Exchange Under Section 6 of the Securities Exchange Act of 1934
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
September 7, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 172 (Wednesday, September 7, 2022)</title>
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[Federal Register Volume 87, Number 172 (Wednesday, September 7, 2022)]
[Notices]
[Pages 54736-54746]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-19264]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95651; File No. 10-239]
In the Matter of the Application of 24X National Exchange LLC for
Registration as a National Securities Exchange; Order Instituting
Proceedings To Determine Whether To Grant or Deny an Application for
Registration as a National Securities Exchange Under Section 6 of the
Securities Exchange Act of 1934
September 1, 2022.
I. Introduction
On March 25, 2022, 24X National Exchange LLC (``24X'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') a Form 1 application under the Securities Exchange Act
of 1934 (``Act''), seeking registration as a national securities
exchange under Section 6 of the Act.\1\ Notice of the application was
published for comment in the Federal Register on June 6, 2022.\2\ The
Commission received three comments on the application.\3\ As discussed
further below, the commenters stated that 24X's application does not
include sufficient information about several aspects of its proposed
operation.\4\ One commenter stated that the application ``does not meet
the legal and administrative requirements'' under the Act.\5\ Another
commenter questioned whether ``24X has the necessary structure and
checks in place to protect investors and ensure a fair and orderly
market'' and stated that certain elements of 24X's proposal were not
sufficiently described and that additional information was required to
evaluate the proposal.\6\ This commenter stated that 24X ``contemplates
trading concepts that have not been tested within the U.S. equities
markets'' and that the application raises a number of questions
``including how its new exchange will interact with the current trading
ecosystem.'' \7\ Another commenter stated that the 24X Form 1 should
not be approved because the regulatory infrastructure necessary to
support its proposed trading system does not yet exist.\8\
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\1\ 15 U.S.C. 78f.
\2\ See Securities Exchange Act Release No. 95007 (May 31,
2022), 87 FR 34333 (``Notice'').
\3\ See letters from Brian Hyndman, President and Chief
Executive Officer, Blue Ocean ATS, LLC, dated July 21, 2022 (``Blue
Ocean Letter''); Eun Ah Choi, Senior Vice President, The Nasdaq
Stock Market LLC, dated July 21, 2022 (``Nasdaq Letter''); and Hope
Jarkowski, General Counsel, NYSE Group, dated July 29, 2022 (``NYSE
Letter'') to Vanessa A. Countryman, Secretary, Commission. The
public comment file for 24X's Form 1 application (File No. 10-239)
is available on the Commission's website at: <a href="https://www.sec.gov/comments/10-239/10-239.htm">https://www.sec.gov/comments/10-239/10-239.htm</a>.
\4\ See Blue Ocean Letter at 2-6, Nasdaq Letter at 2-5 and NYSE
Letter at 2-4.
\5\ See Blue Ocean Letter at 6.
\6\ See Nasdaq Letter at 5.
\7\ Id.
\8\ See NYSE Letter at 4.
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Section 19(a)(1) of the Act \9\ requires the Commission, within
ninety days of the date of publication of notice of an application for
registration as a national securities exchange, or such longer period
as to which the applicant consents, to, by order, grant such
registration \10\ or institute proceedings to determine whether such
registration should be denied.\11\ This order is instituting
proceedings under Section 19(a)(1)(B) of the Act \12\ to determine
whether 24X's application for registration as a national securities
exchange should be granted or denied, and provides notice of the
grounds for denial under consideration by the Commission, as set forth
below.
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\9\ 15 U.S.C. 78s(a)(1).
\10\ 15 U.S.C. 78s(a)(1)(A).
\11\ 15 U.S.C. 78a(a)(1)(B).
\12\ 15 U.S.C. 78s(a)(1)(B).
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[[Page 54737]]
II. Description of 24X's Proposed Trading System
According to 24X's Form 1, 24X proposes to operate a fully
automated electronic trading platform for the trading of listed NMS
stocks pursuant to unlisted trading privileges (``UTP'').\13\ 24X would
not maintain a physical trading floor.\14\ Liquidity would be derived
from quotes as well as orders to buy and orders to sell submitted to
24X electronically by exchange members \15\ from remote locations.\16\
The Exchange proposes to operate an electronic limit order book with a
continuous matching function. Orders resting on the book would be
ranked in price/time priority.\17\ 24X proposes to accept market
orders, limit orders and pegged orders with various modifiers and time-
in-force instructions.\18\ Orders may be submitted in round lots, mixed
lots or odd-lots.\19\ One novel feature of 24X's proposal is that it
proposes to allow the unit of trading of an order to be 1/1,000th of a
share.\20\ 24X proposes to report executions to the appropriate
consolidated transaction reporting system ``to the extent required by
the Act and the rules and regulations thereunder.'' \21\
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\13\ See Exhibit E of 24X's Form 1 at 1, 4.
\14\ Id. at 1.
\15\ 24X proposes to have one class of membership open to
registered broker-dealers. See proposed 24X Rule 2.3 (stating that,
``any registered broker or dealer that is and remains a member of a
national securities association registered under Section 15A(a) of
the Act or a member of another national securities exchange
registered under Section 6(a) of the Act shall be eligible to be,
and to remain, a Member.'').
\16\ See Exhibit E of 24X's Form 1 at 1.
\17\ Proposed 24X Rule 11.8(a).
\18\ Proposed 24X Rule 11.7. See also Exhibit B-1 of 24X's Form
1.
\19\ Proposed 24X Rule 11.6(q). See also Exhibit E-1 of 24X's
Form 1 at 4.
\20\ Proposed 24X Rule 11.6(q).
\21\ Proposed 24X Rule 11.11(a); see also Exhibit E to 24X Form
1 at 10 (stating that 24X intends to join the CTA and Nasdaq UTP
Plans).
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24X proposes a retail order program.\22\ Pursuant to this program,
retail orders \23\ submitted by retail organization members \24\ would
be eligible to receive price improvement from retail market makers.\25\
Pursuant to proposed 24X Rule 11.21(d)(2), retail market makers would
be required to provide continuous two-sided quotes of at least 100
shares during ``Regular Trading Hours.'' \26\
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\22\ Proposed 24X Rules 11.17-11.21.
\23\ See proposed 24X Rule 11.17(a)(2) for the proposed
definition of ``retail order.''
\24\ See proposed 24X Rule 11.17(a)(1) for the proposed
definition of ``retail organization member.''
\25\ See proposed 24X Rule 11.18 for the proposed registration
requirements for retail market makers.
\26\ The term ``Regular Trading Hours'' is not defined in the
proposed 24X rule book. See Exhibit B-1 to the 24X Form 1.
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As discussed further below, one novel feature of 24X's proposed
trading rules is that 24X proposes to allow trading in NMS stocks 24
hours a day, 7 days per week, 365 days a year.\27\ 24X has proposed
specific rules to govern trading during regular trading hours \28\ as
well as trading outside of regular trading hours.\29\
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\27\ See proposed 24X Rule 11.1 (describing the hours of trading
and trading days for 24X).
\28\ Regulation NMS Rule 600(b)(77) defines ``regular trading
hours'' as ``the time between 9:30 a.m. and 4:00 p.m. Eastern Time .
. .'' As described further below, 24X proposes to define four
different trading sessions. See proposed 24X Rules 1.5(b), defining
the ``24X Market Session''; 1.5(k) defining the ``Core Market
Session''; 1.5(v) defining the ``Post-market Session''; and 1.5(w)
defining the ``Pre-Market Session.''
\29\ See e.g., proposed 24X Rule 11.16 (describing what orders
are eligible for execution outside of regular trading hours).
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III. Proceedings To Determine Whether To Grant or Deny the Application
and Grounds for Potential Denial Under Consideration
As required by Section 19(a)(1)(B) of the Act,\30\ the Commission
is hereby providing notice of grounds for denial under consideration,
as set forth below. Institution of such proceedings is appropriate at
this time in view of the issues raised by the application. Institution
of proceedings does not indicate that the Commission has reached any
conclusions with respect to any of the issues involved.
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\30\ 15 U.S.C. 78s(a)(1)(B).
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Under Section 19(a)(1) of the Act, the Commission shall grant an
application for registration as a national securities exchange if the
Commission finds that the requirements of the Act and the rules and
regulations thereunder with respect to the applicant are satisfied. The
Commission shall deny such application for registration if it does not
make such a finding.\31\ Under Section 6(b) of the Act, an exchange
shall not be registered as a national securities exchange unless the
Commission determines that it has satisfied the relevant requirements
of the Act.\32\ In particular, Section 6(b)(1) of the Act requires that
the Commission find that an exchange is so organized and has the
capacity to carry out the purposes of the Act.\33\ In addition, under
Section 6(b)(3) of the Act, the Commission must find that the rules of
the exchange assure a fair representation of its members in the
selection of its directors and administration of its affairs and
provide that one or more directors shall be representative of issuers
and investors and not be associated with a member of the exchange,
broker or dealer.\34\ Section 6(b)(5) of the Act requires that the
rules of the exchange be designed, among other things, to prevent
fraudulent and manipulative acts and practices, 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.\35\ Finally, under Section
6(b)(8) of the Act, the Commission must find that the rules of the
exchange do not impose any burden on competition that is not necessary
or appropriate in furtherance of the purposes of Act.\36\
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\31\ 15 U.S.C. 78s(a)(1).
\32\ 15 U.S.C. 78f.
\33\ 15 U.S.C. 78f(b)(1).
\34\ 15 U.S.C. 78f(b)(3).
\35\ 15 U.S.C. 78f(b)(5).
\36\ 15 U.S.C. 78f(b)(8).
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The Commission is particularly interested in commenters' views as
to whether 24X has provided sufficient information in its Form 1 to
support a finding that the proposal is consistent with the requirements
of the Act and the rules and regulations thereunder.\37\
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\37\ 15 U.S.C. 78s(a)(1). See also NYSE Letter at 2 (``the
application falls short in providing sufficient information upon
which to assess how such innovations could function consistent
either with the Act . . .''); Nasdaq Letter at 2; and Blue Ocean
Letter at 2.
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In addition, the Commission is particularly interested in
commenters' views as to whether the proposed rules relating to the
corporate structure of 24X, as described in more detail below, would
ensure that 24X is so organized and has the capacity to carry out the
purposes of the Act and assure a fair representation of its members in
the selection of its directors and administration of its affairs.
The Commission also is particularly interested in commenters' views
as to whether 24X's proposed rules that would extensively expand the
hours of trading in NMS stocks, as described in more detail below, are
designed 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 mechanisms of a
free
[[Page 54738]]
and open market and a national market system, and in general protect
investors and the public interest.
Further, the Commission is particularly interested in commenters'
views as to whether 24X's proposed rules to allow orders to be
submitted in fractional shares are designed to 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 mechanisms of a
free and open market and a national market system.
Additionally, the Commission is particularly interested in
commenters' views as to whether 24X's proposal to locate a ``mirrored''
primary platform in London would result in 24X being so organized and
have the capacity to be able to carry out the purposes of the Act and
whether 24X's rules relating to the mirrored platform are designed to
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, and to remove impediments to
and perfect the mechanisms of a free and open market and a national
market system.
A. Corporate Governance
1. 24X
24X is wholly-owned by its direct parent company, 24X US Holdings
LLC (``US Holdings''), which in turn is wholly-owned by 24X Bermuda
Holdings LLC (``Bermuda Holdings'').\38\ 24X is a Delaware limited
liability company whose sole member is US Holdings.\39\ The proposed
business and affairs of 24X will be managed under the direction of a
Board that is proposed to have at a minimum six Directors once 24X
commences operations as a national securities exchange.\40\ As
proposed, the 24X Board would consist of
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\38\ See Exhibits A and C of 24X's Form 1.
\39\ See Exhibit A-2 of 24X's Form 1 at 1.
\40\ See Exhibit A-2 of 24X's Form 1 at 6.
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<bullet> one Director who is the Chief Executive Officer of the
Company;
<bullet> at minimum three ``Independent Directors'' \41\; and
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\41\ ``Independent Directors'' are proposed to be defined as a
``Director who has no material relationship with the Company or any
affiliate of the Company, or any Exchange Member or any affiliate of
any such Exchange Member; provided, however, that an individual who
otherwise qualifies as an Independent Director shall not be
disqualified from serving in such capacity solely because such
Director is a Director of the Company or an affiliate thereof.'' See
Exhibit A-2 of 24X's Form 1 at 2.
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<bullet> the number of ``Membership Representative Directors'' \42\
which shall be at least twenty percent of the Board, provided that if
twenty percent of the Directors then serving on the Board is not a
whole number, such minimum number of ``Representative Directors'' \43\
shall be rounded up to the next whole number.
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\42\ ``Member Representative Director'' is proposed to be
defined as a Director ``who has been elected or appointed to the
Board from time to time in accordance with this Agreement after
having been nominated by the Member Nominating Committee. A Member
Representative Director must be an officer, director, employee, or
agent of an Exchange Member.'' See Exhibit A-2 of 24X's Form 1 at 3.
\43\ ``Representative Directors'' are not defined in the Limited
Liability Company Agreement of 24X National Exchange LLC (``24X LLC
Agreement'').
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The 24X LLC Agreement also provides for ``Public Directors'' \44\
although none are proposed to serve on the 24X Board.
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\44\ See Exhibit A-2 of 24X's Form 1 at 7. ``Public Directors''
are not defined in the 24X LLC Agreement.
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The proposed Nominating Committee of 24X would nominate candidates
for election to the 24X Board.\45\ For positions on the 24X Board
requiring persons who qualify as Member Representative Directors, the
proposed Nominating Committee would nominate only those persons whose
names have been approved and submitted by the ``Member Nominating
Committee.'' \46\ Nominees to the 24X Board from both the proposed
Nominating Committee and the proposed Member Nominating Committee would
be elected on an annual basis by vote of U.S. Holdings.\47\
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\45\ See Exhibit A-2 of 24X's Form 1 at 9. According to the
proposed Nominating Committee Charter, the Nominating Committee
shall consist of at least three members, or such greater number as
determined by the Board, each of whom shall be an ``Independent
Director,'' as such term is proposed to be defined in the Limited
Liability Company Agreement of the Exchange. See Exhibit J-4 of
24X's Form 1 at 1.
\46\ The ``Member Nominating Committee'' is defined to mean
``the Member Nominating Committee elected pursuant to [the 24X
Limited Liability Company Agreement].'' See Exhibit A-2 of 24X's
Form 1 at 1. According to the Member Nominating Committee Charter,
the Member Nominating Committee shall consist of at least three
members, or such greater number as determined by the Board, two of
whom shall be a Member Representative Director and one of whom shall
be an `Independent Director,' as such term is defined in the Limited
Liability Company Agreement of the Exchange.'' See Exhibit J-3 of
24X's Form 1 at 1.
\47\ See Exhibit A-2 of 24X's Form 1 at 9.
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In the past, the Commission has stated that ensuring that at least
20% of an exchange's governing board is comprised of directors that are
chosen and elected by the exchange's members helps to ensure the fair
representation of members in the selection of directors and the
administration of an exchange as required by Section 6(b)(3) of the
Act.\48\ The Commission has stated that this requirement helps to
ensure that members have a voice in an exchange's self-regulatory
program, and that an exchange is administered in a way that is
equitable to all those who trade on its market or through its
facilities.\49\ The Commission also has stated that a process whereby
exchange members can directly nominate candidates for directors for an
exchange board via a petition process also helps to ensure the fair
representation of members, consistent with Section 6(b)(3) of the
Act.\50\
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\48\ Securities Exchange Act Release No. 88806 (May 4, 2020), 85
FR 27451 (May 8, 2020) (File No. 10-237) (order granting
registration of MEMX LLC) (``MEMX Order'') at 27452. See also 15
U.S.C. 78f(b)(3).
\49\ See, e.g., MEMX Order, supra note 48 at 27452; Securities
Exchange Act Release Nos. 85828 (May 10, 2019), 84 FR 21841 (May 15,
2019) (File No. 10-234) (order granting registration of Long Term
Stock Exchange, Inc.) (``LTSE Order'') at 21843; 79543 (December 13,
2016), 81 FR 92901, 92903 (December 20, 2016) (File No. 10-227)
(order granting registration of MIAX PEARL, LLC) (``MIAX PEARL
Order'') at 92903. See also Securities Exchange Act Release Nos.
68341 (December 3, 2012), 77 FR 73065, 73067 (December 7, 2012)
(File No. 10-207) (order granting the registration of Miami
International Securities Exchange, LLC); 58375 (August 18, 2008), 73
FR 49498, 49501 (August 21, 2008) (File No. 10-182) (order granting
the registration of BATS Exchange, Inc.); and 53128 (January 13,
2006), 71 FR 3550, 3553 (January 23, 2006) (File No. 10-131)
(granting the exchange registration of Nasdaq Stock Market, Inc.)
(``Nasdaq Order'').
\50\ See e.g., MEMX Order, supra note 48, at 27452; LTSE Order,
supra note 49, at 21843; and MIAX PEARL Order, supra note 49, at
92903.
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The Commission is considering whether the overall composition of
the 24X Board, including the specific categories of Directors as
defined in the 24X LLC Agreement, would enable 24X to be so organized
and have the capacity to carry out the purposes of the Act consistent
with Section 6(b)(1) of the Act \51\. As proposed, there are categories
of Directors that are not defined in the 24X LLC Agreement.\52\ In
addition, the Commission is considering whether the 24X Board
composition fulfills the statutory requirement that one or more
directors on the 24X Board is representative of issuers and investors
and not associated with a member of the exchange, broker or dealer.\53\
The Commission also is considering whether
[[Page 54739]]
the proposed process for nominating candidates for the Member
Representative Directors positions on the 24X Board is consistent with
the Section 6(b)(3) of the Act in light of the fact that 24X does not
propose a process that would permit 24X Members to directly nominate
such Member Representative Directors for election to the 24X Board.\54\
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\51\ 15 U.S.C. 78f(b)(1).
\52\ See supra notes 43 and 44.
\53\ 15 U.S.C. 78f(b)(3). The Commission has approved in the
past an exchange board composition that requires that the number of
``Non-Industry Directors'' equal or exceed the number of ``Industry
Directors'' and directors that represent the exchange's members.
With respect to this compositional requirement, the Commission
stated that this requirement supports an exchange's ability to
protect the public interest. See e.g., MEMX Order, supra note 48, at
27452; LTSE Order, supra note 49, at 21843; MIAX PEARL Order, supra
note 49, at 92903.
\54\ See LTSE Order, supra note 49, at 21843 (stating that,
among other things, the means by which member representatives will
be chosen will help ensure fair representation of members in
selection of directors and administration of LTSE, and is therefore
consistent with Section 6(b)(3) of the Act).
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2. US Holdings, Bermuda Holdings and Regulation of 24X
US Holdings is a Delaware limited liability company whose sole
member is Bermuda Holdings.\55\ As proposed, U.S. Holdings would be
managed by, and all decisions on behalf of US Holdings would be made
by, Bermuda Holdings.\56\ Generally, the members of Bermuda Holdings
include holders of ``Preferred Units'' \57\ (which are further divided
into ``Series A Units'' and ``Series Seed Units''),\58\ ``Common
Units'' \59\ and ``Non-Voting Units''.\60\ Members with voting rights,
or ``Voting Units,'' include Common Units and Preferred Units except
Series Seed-2 Units, which are a sub-category of Series Seed Units.\61\
Each Voting Unit shall have one vote.\62\
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\55\ See Exhibit C-12 and C-13 of 24X's Form 1 at 1.
\56\ See Exhibit C-13 of 24X's Form 1 at 2. Bermuda Holdings is
a limited liability company formed under the laws of Bermuda. See
Exhibit C-1 and C-2 of 24X's Form 1 at 1.
\57\ ``Preferred Units'' are defined to mean ``Series A Units
and the Series Seed Units.'' See Exhibit C-2 of 24X's Form 1 at 7.
\58\ See Exhibit C-2 of 24X's Form 1.
\59\ ``Common Units'' are defined to mean ``[u]nits of common
membership interests of the Company, or any other ownership
interests of the Company into which such units are reclassified,
reconstituted or exchanged.'' See Exhibit C-2 of 24X's Form 1 at 5.
\60\ ``Non-voting Units'' are defined to mean ``units of non-
voting membership interests of the Company, or any other ownership
interests of the Company into which such units are reclassified,
reconstituted or exchanged. See Exhibit C-2 of 24X's Form 1 at 7.
\61\ See Exhibit C-2 of 24X's Form 1 at 11.
\62\ Id.
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If 24X's application for registration as a national securities
exchange is granted, 24X would have all of the attendant regulatory
obligations of a national securities exchange under the Act. In
particular, 24X would be responsible for the operation and regulation
of its exchange and the regulation of its members. Therefore, the
Commission is considering whether US Holdings' and Bermuda Holdings'
activities with respect to the operation of 24X are consistent with,
and do not interfere with, 24X's self-regulatory obligations.\63\ In
making this determination previously, the Commission has considered
whether the governing documents of an exchange's parent company are
designed to facilitate the ability of the exchange to fulfill its
regulatory obligations and their impact on Commission oversight of the
exchange.\64\ For the reasons discussed below, the Commission is
considering whether US Holdings and Bermuda Holdings are organized in
such a way as to enable 24X to fulfill its statutory obligations as a
national securities exchange under Section 6(b) of the Act.\65\
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\63\ See 15 U.S.C. 78f(b)(1). See also Nasdaq Order, supra note
49, at 3552.
\64\ See e.g., MEMX Order, supra note 48, at 27453; LTSE Order,
supra note 49, at 21843; MIAX Pearl Order, supra note 49, at 73069;
and Nasdaq Order, supra note 49, at 3552.
\65\ 15 U.S.C. 78f(b).
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Ownership Structure: Voting and Ownership Concentration Limits. The
Commission is considering whether the corporate documents of 24X's
holding companies, which are US Holdings and Bermuda Holdings, contain
ownership and voting provisions that are designed to prevent the
holding companies, or any party to the holding companies, from
exercising undue control over the operation of 24X, and to ensure that
24X and the Commission are able to carry out their regulatory
obligations under the Act.\66\
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\66\ In some cases, an exchange applicant has been owned by more
than one holding company. For purposes of this discussion regarding
24X, the Commission shall refer to ``holding companies'' when
referring to an entity or entities that own an exchange.
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For example, among other things, the Commission has approved
applications for registration as a national securities exchange where
the governing documents of the holding companies of the exchange
provide that for so long as the holding companies shall control,
directly or indirectly, the exchange, no person, either alone or
together with its related persons will be permitted to beneficially
own, directly or indirectly, of record or beneficially, more than 40%
of the holding company.\67\ The Commission stated that such ownership
concentration provisions are consistent with the Act because they are
designed to prevent any party holding an interest in the holding
companies from exercising undue control over the operation of the
exchange and to ensure that the exchange and the Commission are able to
carry out their regulatory obligations under the Act.\68\ The
Commission has approved provisions setting ownership limitations for
all national securities exchanges.\69\
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\67\ See e.g., MEMX Order, supra note 48, at 27453; LTSE Order,
supra note 49, at 21844; and MIAX Pearl Order, supra note 49, at
92905. See also MEMX Holdings LLC Agreement, Article III, Section
3.5(a)(1); LTSE Group Inc. Certificate, Article IX, subparagraph
(A)(2)(b)(i)(A); Miami Holdings Certificate, Article NINTH
(b)(i)(A). The Commission also has approved registration where a
related provision also requires the exchange to redeem any voting
interest that was sold, transferred or otherwise disposed of that
was above the ownership concentration limitation. See e.g., MEMX
Order, supra note 48 at 27453; LTSE Order, supra note 49, at 21844;
and MIAX Pearl Order, supra note 49, at 92905. See also MEMX
Holdings LLC Agreement, Article III, Section 3.7(c); LTSE Group Inc.
Certificate, Article IX, subparagraph (a)(2)(e); Miami Holdings
Certificate, Article Ninth (e).
\68\ See e.g., MEMX Order, supra note 48, at 27455; LTSE Order,
supra note 49, at 21845; and MIAX PEARL Order, supra note 49, at
92906.
\69\ See, e.g., Securities Exchange Act Release Nos. 76998
(January 29, 2016), 81 FR 6066, 6070-71 (February 4, 2016) (File No.
10-221) (order granting the exchange registration of ISE Mercury,
LLC); 70050 (July 26, 2013), 78 FR 46622, 46627 (August 1, 2013)
(File No. 10-209) (order granting the exchange registration of Topaz
Exchange LLC (nka ISE Gemini, LLC); 68341 (December 3, 2012), 77 FR
73065, 73070 (December 7, 2012) (File No. 10-207) (order granting
the exchange registration of Miami International Securities Exchange
LLC); 58375 (August 18, 2008), 73 FR 49498, 49500 (August 21, 2008)
(File No. 10-182) (order granting the exchange registration of BATS
Exchange, Inc.) (``BATS Order''). See also supra notes 67-68;
Securities Exchange Act Release Nos. 62158 (May 24, 2010), 75 FR
30082 (May 28, 2010) (CBOE-2008-88) (CBOE Demutualization Approval
Order); 53963 (June 8, 2006), 71 FR 34660 (June 15, 2006) (SR-NSX-
2006-03) (NSX Demutualization Order); 51149 (February 8, 2005), 70
FR 7531 (February 14, 2005) (SR-CHX-2004-26) (CHX Demutualization
Order); and 49098 (January 16, 2004), 69 FR 3974 (January 27, 2004)
(SR-Phlx-2003-73) (Phlx Demutualization Order).
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The Commission also has approved more restrictive conditions for
broker-dealer members of an exchange applicant; specifically, the
Commission has approved requirements for holding companies of exchanges
that prohibit a broker-dealer member of the exchange from beneficially
owning, directly or indirectly, either alone or together with their
related persons, more than 20% of voting interest in the exchange
applicant.\70\ The Commission stated that such ownership limitations on
broker-dealer members of an exchange applicant are appropriate because
they are designed to address the conflicts of interest that might
result from a member of a national securities exchange owning
[[Page 54740]]
interests in the exchange.\71\ The Commission also has previously
stated that a 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.\72\ The Commission stated
that such 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.\73\ The Commission has approved
provisions setting membership ownership limitations for all national
securities exchanges.\74\
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\70\ See e.g., MEMX Order, supra note 48, at 27453; LTSE Order,
supra note 49, at 21844; and MIAX Pearl Order, supra note 49, at
92905. See also MEMX Holdings LLC Agreement, Article III, Section
3.5(a)(2); LTSE Group Inc. Certificate, Article IX, subparagraph
(A)(2)(b)(i)(B); Miami Holdings Certificate, Article NINTH
(b)(i)(B).
\71\ See MEMX Order, supra note 48, at 27455; LTSE Order, supra
note 49, at 21845; and MIAX PEARL Order, supra note 49, at 92906.
\72\ Id. The Commission has further stated that a 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. Id.
\73\ See MEMX Order, supra note 48, at 27456; LTSE Order, supra
note 49, at 21845; and MIAX PEARL Order, supra note 49, at 92906.
\74\ See supra notes 69-73.
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In addition, the Commission has previously approved voting
limitations in the corporate documents of the holding companies of
exchanges that provide that no person, alone or together with its
related persons, may, directly, indirectly, or pursuant to any
agreement, vote or cause the voting of voting interest in the exchange,
or give any consent or proxy with respect to voting units in the
exchange representing more than 20% of the voting power of the
exchange.\75\ Similar to the ownership concentration limits, the
Commission stated that such voting concentration limits are a way 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 through the
exercise of voting power.\76\ The Commission has approved provisions
setting voting limitations for all national securities exchanges.\77\
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\75\ See e.g., MEMX Order, supra note 48, at 27454; LTSE Order,
supra note 49, at 21844; MIAX Pearl Order, supra note 49, at 92905.
See also MEMX Holdings LLC Agreement, Article III, Section
3.5(a)(iii); LTSEG Certificate, Article IX, subparagraph
(A)(2)(b)(i)(C); Miami Holdings Certificate, Article NINTH
(b)(i)(C). Such provisions also applied to any voting agreement,
plan, or other arrangement, where the effect of such agreement,
plan, or other arrangement would be to enable any person, either
alone or together with its related persons, to vote, possess the
right to vote, or cause the voting of voting interest in the
exchange that would represent more than 20% of the voting power of
the then issued and outstanding voting interest in the exchange. See
MEMX Holdings LLC Agreement, Article III, Section 3.5(a)(iii); LTSEG
Certificate, Article IX, subparagraph (A)(2)(b)(i)(C).
\76\ See MEMX Order, supra note 48, at 27456; LTSE Order, supra
note 49, at 21845; and MIAX PEARL Order, supra note 49, at 92906.
The Commission also has approved the ability of an exchange to waive
the ownership and voting concentration limits under certain
circumstances. See e.g., MEMX Order, supra note 48, at 27454; LTSE
Order, supra note 49, at 21844; and MIAX PEARL Order, supra note 49,
at 92905 MEMX Holdings LLC Agreement, Article III, Section
3.5(b)(ii); LTSEG Certificate, Article IX, subparagraph
(A)(2)(b)(ii)(B); Miami Holdings Certificate, Article NINTH
(b)(ii)(B).
\77\ See supra notes 69, 75-76 .
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The Commission is considering whether the Limited Liability Company
Agreement of 24X US Holdings LLC and the Amended and Restated Limited
Liability Company Agreement of 24X Bermuda Holdings LLC, as proposed,
contain provisions that help ensure that 24X is so organized and has
capacity to carry out the purposes of Section 6(b)(1) of the Act. As
proposed, there are no ownership or voting concentration limits in
either the Limited Liability Company Agreement of 24X US Holdings LLC
or in the Amended and Restated Limited Liability Company Agreement of
24X Bermuda Holdings LLC. \78\ Therefore, the Commission is considering
whether 24X is so organized and has capacity to carry out the purposes
of Section 6(b)(1) of the Act without undue influence by US Holdings
and Bermuda Holdings. Further, the Commission is considering whether
24X retains a sufficient degree of independence to effectively carry
out its regulatory obligations under the Act. Similarly, because 24X
does not propose to include any ownership or voting limitations on 24X
members that might have or acquire an ownership interest in US Holdings
and Bermuda Holdings, the Commission is considering whether the Limited
Liability Company Agreement of 24X US Holdings LLC and the Amended and
Restated Limited Liability Company Agreement of 24X Bermuda Holdings
LLC contain mechanisms to ensure that should a member of 24X own Voting
Units, such ownership would not interfere with 24X's ability to be so
organized and have the capacity to carry out the purposes of Section
6(b)(1) of the Act without undue influence by such member.
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\78\ As proposed, Schedule A to the Amended and Restated Limited
Liability Company Agreement of 24X Bermuda Holdings LLC indicates
two members, Dmitri Galinov and Point72 Ventures Investments, LLC,
own 44.76% and 20.09%, respectively, of Bermuda Holdings. See
Schedule A to Exhibit C-2 of 24X's Form 1. However, Exhibit K of
24X's Form 1 also indicates that Dmitri Galinov and Point72 Ventures
Investments, LLC own 35.58% and 15.97% of Bermuda Holdings,
respectively.
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Regulatory Independence of 24X and Oversight of 24X. In order to be
granted registration as a national securities exchange, 24X must be
able to carry out its regulatory responsibilities under, and operate in
a manner consistent with, the Act. This requires 24X to have the
ability to carry out its regulatory function independently, and to be
organized and operate in a fashion consistent with, the Act,
particularly with Section 6(b)(1) of the Act, which requires, in part,
an exchange to be so organized and have the capacity to carry out the
purposes of the Act.\79\ Although neither US Holdings nor Bermuda
Holdings would themselves carry out 24X's regulatory functions or be
directly overseen by the Commission, as direct and indirect owners of
24X, the activities and actions of US Holdings and Bermuda Holdings
with respect to the operation of 24X must be consistent with, and must
not interfere with, 24X's regulatory obligations as a national
securities exchange. Therefore, the Commission is considering whether
the corporate documents of US Holdings and Bermuda Holdings contain
provisions that are designed to help maintain the independence of the
regulatory function of 24X and oversight of 24X by the Commission.
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\79\ 15 U.S.C. 78f(b)(1).
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The Commission has granted the registration of national securities
exchanges that have holding company structures.\80\ As part of the
Commission's analysis of a holding company structure proposed by an
exchange, the Commission has considered and approved provisions in the
exchange's holding companies' corporate documents that are designed to
help ensure that the holding companies of an exchange will enable the
exchange to operate in a way that facilitates the exchange's ability to
carry out its regulatory function independently, and to be organized
and operate in a fashion that is consistent with the Act, particularly
with Section 6(b)(1) of the Act, which requires, in part, an exchange
to be so organized and have the capacity to carry out the purposes of
the Act.\81\ Such provisions generally address: \82\
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\80\ See e.g., supra note 69.
\81\ 15 U.S.C. 78f(b)(1).
\82\ The Commission has approved provisions addressing
regulatory independence for all exchanges. See, e.g., Securities
Exchange Act Release Nos. 76998 (January 29, 2016), 81 FR 6066,
6071-72 (February 4, 2016) (File No. 10-221) (order granting the
exchange registration of ISE Mercury, LLC); 70050 (July 26, 2013),
78 FR 46622, 46627-29 (August 1, 2013) (File No. 10-209) (order
granting the exchange registration of Topaz Exchange LLC (nka ISE
Gemini, LLC); 68341 (December 3, 2012), 77 FR 73065, 73070-71
(December 7, 2012) (File No. 10-207) (order granting the exchange
registration of Miami International Securities Exchange LLC); 58375
(August 18, 2008), 73 FR 49498, 49498-99(August 21, 2008) (File No.
10-182) (order granting the exchange registration of BATS Exchange,
Inc.) (``BATS Order''). See also infra notes 83-91; Securities
Exchange Act Release Nos. 62158 (May 24, 2010), 75 FR 30082 (May 28,
2010) (CBOE-2008-88) (CBOE Demutualization Approval Order); 53963
(June 8, 2006), 71 FR 34660 (June 15, 2006) (SR-NSX-2006-03) (NSX
Demutualization Order); 51149 (February 8, 2005).
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[[Page 54741]]
Giving Due Regard to a National Securities Exchange's Self-
Regulatory Obligations. A commitment that requires the directors,
officers, employees and agents of exchange holding companies to give
due regard to the preservation of the independence of the self-
regulatory function of the exchange and its obligations to investors
and the general public.\83\
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\83\ See e.g., MEMX Order, supra note 48, at 27456; LTSE Order,
supra note 49, at 21845; and MIAX Pearl Order, supra note 49, at
92906. See also MEMX Holdings LLC Agreement, Article III, Section
3.5(a)(iii); LTSE Group Inc. Bylaws, Article X, Section 10.1; Miami
Holdings Bylaws, Article VII, Section 1.
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Compliance with Federal Securities Laws. A provision that requires
exchange holding companies and their officers, directors, employees,
and agents to comply with the federal securities laws and the rules and
regulations promulgated thereunder and agree to cooperate with the
Commission and the exchange in respect of the Commission's oversight
responsibilities.\84\
---------------------------------------------------------------------------
\84\ See e.g., MEMX Order, supra note 48, at 27456; LTSE Order,
supra note 49, at 21845-21856; and MIAX Pearl Order, supra note 49,
at 92906. See also MEMX Holdings LLC Agreement, Article XI, Section
11.3(h); LTSE Group Inc. Bylaws, Article X, Section 10.4; Miami
Holdings Bylaws, Article VII, Section 4. The holding companies also
must take reasonable steps necessary to cause its officers,
directors, employees and agents to so cooperate. Id.
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Submission of Jurisdiction. A provision that requires exchange
holding companies and their officers, directors, employees, and agents
to submit to the jurisdiction of the U.S. federal courts, the
Commission, and the exchange, for purposes of any suit, action or
proceeding arising out of, or relating to, the exchange's
activities.\85\
---------------------------------------------------------------------------
\85\ See e.g., MEMX Order, supra note 48, at 27456; LTSE Order,
supra note 49, at 21846; and MIAX Pearl Order, supra note 49, at
92906. See also MEMX Holdings LLC Agreement, Article XV, Section
15.12(b); LTSE Group Inc. Bylaws, Article X, Section 10.5; Miami
Holdings Bylaws, Article VII, Section 5.
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Books and Records of a National Securities Exchange Reflecting
Confidential Information. A provision that requires all books and
records of an exchange reflecting confidential information pertaining
to the self-regulatory function of the exchange to be retained in
confidence by the exchange and its personnel, directors, officers,
employees, and agents, and will not be used by the exchange for any
non-regulatory purposes and shall not be made available to any person
other than to personnel of the Commission, or to other personnel under
specified conditions.\86\ Similar provisions regarding the treatment of
confidential information pertaining to the self-regulatory function of
the exchange apply to the holding companies of an exchange, including
the directors, officers, employees, and agents of the holding
companies.\87\
---------------------------------------------------------------------------
\86\ See e.g., MEMX Order, supra note 48, at 27456; LTSE Order,
supra note 49, at 21846; and MIAX Pearl Order, supra note 49, at
92906. See also Second Amended and Restated Limited Liability
Company Agreement of MEMX LLC, Article XIII, Section 13.1; LTSE,
Inc. Bylaws, Article XI, Section 11.4; MIAX Pearl Bylaws, Article X,
Section 10.4.
\87\ See e.g., MEMX Order, supra note 48, at 27456; LTSE Order,
supra note 49, at 21846; and MIAX Pearl Order, supra note 49, at
92906. See also MEMX Holdings LLC Agreement, Article XII, Section
12.2(c); LTSE Group Inc. Bylaws, Article X, Section 10.2; Miami
Holdings Bylaws, Article VII, Section 2.
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Books and Records of the Holding Companies. A provision that
requires the books and records of exchange holding companies to be
maintained in the United States and, to the extent they are related to
the operation or administration of the exchange, the holding companies'
books and records will be subject at all times to inspection and
copying by the Commission and the exchange,\88\ and to the extent they
are related to the operation or administration of the exchange, the
books, records, premises, officers, directors, employees, and agents of
the holding companies will be deemed to be the books, records,
premises, officers, directors, employees, and agents of exchange, for
purposes of, and subject to oversight pursuant to, the Act.\89\
---------------------------------------------------------------------------
\88\ See e.g., MEMX Order, supra note 48 at 27456; LTSE Order,
supra note 49, at 21846; and MIAX Pearl Order, supra note 49, at
92906-92907. See also MEMX Holdings LLC Agreement, Article XII,
Section 12.2(a) and (b); LTSE Group Inc. Bylaws, Article X, Section
10.3; Miami Holdings Bylaws, Article VII, Section 3.
\89\ See e.g., MEMX Order, supra note 48, at 27456; LTSE Order,
supra note 49, at 21846; and MIAX Pearl Order, supra note 49, at
92907. See also MEMX Holdings LLC Agreement, Article XII, Section
12.2(b); LTSE Group Inc. Bylaws, Article X, Section 10.3; Miami
Holdings Bylaws, Article VII, Section 3.
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Consent to Provisions by Holding Company Officers, Directors,
Employees and Agents. A provision that requires exchange holding
companies to take reasonable steps necessary to cause its officers,
directors, employees, and agents, prior to accepting a position with
the holding companies to consent in writing to the applicability of the
provisions discussed above, with respect to their activities related to
the exchange.\90\
---------------------------------------------------------------------------
\90\ See e.g., MEMX Order, supra note 48, at 27456-27457; LTSE
Order, supra note 49, at 21846; and MIAX Pearl Order, supra note 49,
at 92907. See also MEMX Holdings LLC Agreement, Article XIII,
Section 8.18(b); LTSE Group Inc. Bylaws, Article X, Section 10.6;
Miami Holdings Bylaws, Article VII, Section 6.
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Changes to Holding Company Constituting Documents to be Filed with
the Commission. A provision that requires exchange holding companies'
corporate documents to provide that so long as the holding companies
control the exchange, any changes to the holding companies'
constituting documents must be submitted to the exchange governing
board for approval, and, if such change is required to be filed with
the Commission pursuant to Section 19(b) of the Act and the rules and
regulations thereunder, such change shall not be effective until filed
with and effective by operation of law, or filed with and approved by
the Commission.\91\
---------------------------------------------------------------------------
\91\ See e.g., MEMX Order, supra note 48, at 27457; LTSE Order,
supra note 49, at 21846; and MIAX Pearl Order, supra note 49, at
92907. See also MEMX Holdings LLC Agreement, Article XV, Section
15.9(a); LTSEG Certificate, Article IX, Section (A)1 and LTSEG
Bylaws, Article IX; Miami Holdings Certificate, Article VIII and
Miami Holdings By-Laws, Article XII, Section 1. This requirement is
critical as it helps to ensure Commission oversight and approval, as
appropriate, for any changes to an exchange holding company
corporate documents.
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The Commission is considering whether US Holdings and Bermuda
Holdings are proposed to be organized in a way that would help maintain
the independence of the regulatory function of 24X and foster the
oversight of the exchange by the Commission. 24X has not adopted any of
these provisions in the Amended and Restated Limited Liability Company
Agreement of 24X Bermuda Holdings LLC.\92\ Therefore, the Commission is
considering whether the structure of 24X and its parent companies, US
Holdings and Bermuda Holdings, help to ensure the independence of 24X's
regulatory function. Further, the Commission is considering whether the
structure of 24X and its parent companies helps to ensure that 24X can
carry out its regulatory responsibilities under, and operate in a
manner consistent with, the Act. Specifically, the Commission is
considering whether the proposed structure is consistent with Section
6(b)(1), which requires, in part, that an exchange to be so organized
and have
[[Page 54742]]
the capacity to carry out the purposes of the Act.\93\
---------------------------------------------------------------------------
\92\ See Amended and Restated Limited Liability Company
Agreement of 24X Bermuda Holdings LLC and the Limited Liability
Company Agreement of 24X US Holdings LLC.
\93\ 15 U.S.C. 78f(b)(1).
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B. 24X Trading Sessions
24X proposes to offer significantly expanded trading outside of
regular trading hours for NMS stocks by operating a national securities
exchange 24 hours a day, seven days a week, 365 days a year, including
holidays.\94\ 24X proposes to offer four trading sessions--a ``Core
Market Session'' that corresponds with regular trading hours of 9:30
a.m. to 4:00 p.m. Eastern time; a ``Post-Market Session'' that would
run from 4:00 p.m. to 8:00 p.m. Eastern time on each U.S. business day;
a ``Pre-Market Session'' that would run from 4:00 a.m. to 9:30 a.m.
Eastern time on each U.S. business day; and a ``24X Market Session''
that would run from 8:00 p.m. to 4:00 a.m. Eastern time on each U.S.
business day, and any time that falls on weekends and holidays.\95\
While several exchanges offer a pre-market trading session starting as
early as 4:00 a.m. Eastern time on each U.S. business day,\96\ and most
exchanges offer a post-close trading session until 8:00 p.m. Eastern
time on each business day,\97\ the Commission has not previously
considered the potential issues arising from an exchange application
that expands the trading hours for continuous trading as 24X proposes.
---------------------------------------------------------------------------
\94\ Proposed 24X Rule 11.1.
\95\ Proposed 24X Rule 11.1(a).
\96\ See, e.g., NYSE Arca, Inc., Cboe EDGX Exchange, Inc. and
The Nasdaq Stock Market LLC.
\97\ See, e.g., NYSE Arca, Inc., NYSE American LLC, NYSE
Chicago, Inc., NYSE National, Inc., Cboe BZX Exchange, Inc., Cboe
BYX Exchange, Inc., Cboe EDGA Exchange, Inc., Cboe EDGX Exchange,
Inc., and The Nasdaq Stock Market LLC.
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1. Exchange Trading Hours
24X refers to the proposed Core Market Session, Pre-Market Session
and Post-Market Session collectively in its proposed rules as
``Exchange Trading Hours.'' \98\ 24X proposes to permit orders to be
entered, canceled, modified, executed on or routed away from the
Exchange during Exchange Trading Hours.\99\ Orders outstanding at
7:59:59 p.m. Eastern Time each business day would be automatically
cancelled.\100\ 24X proposes to permit trading in fractional shares in
round lots, odd lots, or mixed lots.\101\ Market Orders \102\ and
pegged orders \103\ would be accepted only during the Core Market
Session, while limit orders would be accepted during Exchange Trading
Hours and the 24X Market Session, as discussed below.\104\
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\98\ Proposed 24X Rule 11.1(a)(1).
\99\ Proposed 24X Rule 11.1(b).
\100\ Proposed 24X Rule 11.1(d).
\101\ See Proposed 24X Rule 11.6(q) and Exhibit E of 24X's Form
1 at 4.
\102\ Proposed 24X Rule 11.7(a)(4).
\103\ Proposed 24X Rule 11.7(c)(4).
\104\ Proposed 24X Rule 11.7(b)(6).
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2. 24X Market Session
24X proposes to apply some, but not all, of its rules that would
apply during Exchange Trading Hours to trading that would occur during
the 24X Market Session.\105\ For example, market orders \106\ and
pegged orders \107\ would be prohibited from the 24X Market Session.
Limit orders,\108\ which would be allowed during the 24X Market
Session, would be required to have one of the following time-in-force
(``TIF'') instructions: immediate or cancel (``IOC''),\109\ fill-or-
kill (``FOK'') \110\ or Day+.\111\ In addition, the proposed rules
would permit orders to be entered, canceled, modified or executed on
the Exchange, but not routed away, during the 24X Market Session.\112\
While the proposed rules would impose continuous two-sided quoting
obligation on retail market makers during ``Regular Trading Hours,''
\113\ the proposed rules would establish no analogous market making
obligation during the 24X Market Session.
---------------------------------------------------------------------------
\105\ See, e.g., Proposed 24X Rule 11.16.
\106\ Proposed 24X Rules 11.7(a)(5) and 11.16(b)(1).
\107\ Proposed 24X Rules 11.7(c)(5) and 11.16(b)(2).
\108\ Proposed 24X Rule 11.7(b)(7).
\109\ Proposed 24X Rule 11.6(o)(1). IOC is defined as an
instruction the User may attach to an order stating the order is to
be executed in whole or in part as soon as such order is received.
The portion not executed immediately on the Exchange or another
trading center (pursuant to proposed Rule 11.10) is treated as
cancelled and is not posted to the 24X Book.
\110\ Proposed 24X Rule 11.6(o)(3). FOK is defined as an
instruction the User may attach to an order stating that the order
is to be executed in its entirety as soon as it is received and, if
not so executed, cancelled. An order with a FOK instruction is not
eligible for routing away pursuant to proposed Rule 11.10.
\111\ Proposed 24X Rule 11.6(o)(4). Day+ is defined as an
instruction the User may attach to an order stating that an order to
buy or sell is designated for execution starting with the beginning
of the 24X Market Session and, if not executed, expires at the end
of the Post-Market Session.
\112\ Proposed 24X Rules 11.1(c) and 11.10.
\113\ See supra note 26.
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While 24X proposes to join the CTA/CQ and UTP Plans, the 24X
proposal does not address how real-time consolidated dissemination of
quotation information and transaction reporting could be available
during the 24X Market Session because currently, the CTA/CQ and UTP
Plans do not operate during the times that cover the proposed 24X
Market Session. One commenter stated that the exclusive SIPs do not
operate during the 24X Market Session and that therefore the national
best bid or offer (``NBBO'') would not be disseminated.\114\ This
commenter asked the Commission to ``consider the potential risks
related to the lack of transparency, including the risk to investors
associated with trading during the 24X Trading Session, without a real-
time NBBO and if 24X's proprietary feeds are the only displayed
liquidity.'' \115\ Another commenter stated that it was unclear how 24X
could offer after-hours trading in the absence of real time reporting
or operation of the securities information processors (``SIPs'') and
that such trading would likely be inconsistent with Regulation NMS Rule
601.\116\
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\114\ See Nasdaq Letter at 2.
\115\ See Nasdaq Letter at 2. This commenter also stated that it
did ``not believe that the Application has adequately explained how
24X's new exchange will interact with, and be integrated into, the
national market system.''
\116\ See NYSE Letter at 3.
---------------------------------------------------------------------------
The proposed 24X Market Session rules relating to risk and
volatility moderators would also differ from those applicable during
Exchange Trading Hours. While 24X would participate in the Plan to
Address Extraordinary Market Volatility (``LULD Plan'') \117\ during
the Core Market Session,\118\ the LULD Plan currently is not effective
during the times that 24X proposes to operate the 24X Market Session.
Consequently, during the 24X Market Session, 24X proposes that the
Reference Price of a given security would be defined as either the last
sale price prior to the start of the 24X Market Session or the primary
market's most recent closing price when opening on a quote.\119\ Under
24X's proposal, five minutes after the start of the 24X Market Session,
the Reference Price would be required to be updated every 30 seconds to
reflect the average price of the security over the last preceding five
minute period of the 24X Market Session, but only if the new Reference
Price would be at least 1% above or below the existing Reference
Price.\120\ 24X also proposes to include certain price bands during the
24X Market Session (``24X Price Band(s)''). Under the proposal, the 24X
Price Bands are calculated for a given security by multiplying the
Reference Price by an applicable Percentage Parameter, which is then
added to the Reference Price to calculate the Upper 24X Price Band and
[[Page 54743]]
subtracted from the Reference Price to calculate the Lower 24X Price
Band.\121\ If an order entered during the 24X Market Session falls
outside of the 24X Price Bands, 24X proposes to identify three distinct
Members that have at least 100 shares in the relevant security priced
at the applicable end of the 24X Price Bands and consult with these
Members as to whether the 24X Price Bands should be adjusted.\122\ In
the event that 24X is unable to find such Members, or 24X and the
Members determine that the 24X Price Bands should not change, the order
that triggered the review will be represented at the Upper 24X Price
Band or Lower 24X Price Band, as appropriate.\123\ One commenter
expressed concern with the proposed 24X volatility monitors, stating
that it is not clear how well the mechanism would work, especially
during periods of extreme market volatility or material newsworthy
events.\124\ Commenters also raised concerns about how 24X would
implement regulatory trading halts and pauses.\125\
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\117\ See Securities Exchange Act Release No. 85623 (April 11,
2019), 84 FR 16086 (April 17, 2019) (Order Approving the Eighteenth
Amendment to the National Market System Plan to Address
Extraordinary Market Volatility).
\118\ Proposed 24X Rule 11.15(e)(2).
\119\ Proposed 24X Rules 11.14(c)(3) and 11.15(f).
\120\ Id.
\121\ Proposed 24X Rule 11.15(f).
\122\ Id.
\123\ Id.
\124\ See Blue Ocean Letter at 4. The commenter also stated that
24X's proposal is silent on the actual mechanics for initiating and
ending trading halts and does not explain how clearance and
settlement of trades made before or during a halt would occur. See
id. Further, the commenter states that no explanation is given as to
how corporate actions would be treated. See id., at 5.
\125\ See Blue Ocean Letter at 4 and Nasdaq Letter at 4 (``the
Application does not sufficiently explain how 24X will coordinate
with primary listing exchanges to implement regulatory trading halts
and pauses during the entirety of the 24X Trading Session'').
---------------------------------------------------------------------------
24X's proposal to provide for continuous trading on an exchange
outside of regular trading hours raises a number of issues, many of
which have been considered previously in the context of pre-market and
post-market trading sessions. In particular, these include the need for
heightened disclosures and consolidated last sale and quotation
information in the after-hours market, as well as the associated
increased trading risks of after-hours trading, including, among other
things, greater price volatility, reduced liquidity, wider spreads, and
fewer investor protections, have been raised before.\126\ As other
exchanges have proposed expanded trading hours to include pre-market
and post-market sessions, the Commission has approved such expansion
where certain safeguards were implemented to mitigate these
concerns.\127\ Such safeguards include, among other things, specific
disclosures to investors of heightened risks of after-hours
trading,\128\ establishing risk and volatility moderators and a
corresponding expansion of the operational hours of the SIPs,\129\ to
help ensure the availability of consolidated last sale and quotation
information.
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\126\ See, e.g., Special Study: Electronic Communication
Networks and Afterhours Trading, Division of Market Regulation,
Commission (June 2000), <a href="https://www.sec.gov/news/studies/ecnafter.htm">https://www.sec.gov/news/studies/ecnafter.htm</a>; Investor Bulletin: After-Hours Trading, Office of
Investor Education and Advocacy, Commission (May 2011), <a href="https://www.sec.gov/files/afterhourtrading.pdf">https://www.sec.gov/files/afterhourtrading.pdf</a>; and Investor Publications,
Commission, After-Hours Trading: Understanding the Risks (Nov. 8,
2008), <a href="https://www.sec.gov/reportspubs/investor-publications/investorpubsafterhourshtm.html">https://www.sec.gov/reportspubs/investor-publications/investorpubsafterhourshtm.html</a>. Investor Bulletin: Extended Hours
Trading (June 6, 2022) Extended-Hours Trading: Investor Bulletin
[verbar] <a href="http://Ivestor.gov">Ivestor.gov</a>. Staff reports, Investor Bulletins, and other
staff documents (including those cited herein) represent the views
of Commission staff and are not a rule, regulation, or statement of
the Commission. The Commission has neither approved nor disapproved
the content of these documents and, like all staff statements, they
have no legal force or effect, do not alter or amend applicable law,
and create no new or additional obligations for any person. The
Commission has expressed no view regarding the analysis, findings,
or conclusions contained herein.
\127\ See, e.g., Securities and Exchange Act Nos. 77607 (April
13, 2016) 81 FR 23032 (April 19, 2016) (Order Approving Proposed
Rule Change, as Modified by Amendment No. 1 Thereto, To Adopt an
Early Trading Session and Three New Time-In-Force Instructions), at
23034; 42003 (October 13, 1999) 64 FR 56554 (October 20, 1999)
(Notice of Filing and Order Granting Accelerated Approval of
Proposed Rule Change and Amendment No. 1 by National Association of
Securities Dealers, Inc. Relating to the Extension of Certain Nasdaq
Services and Facilities Until 6:30 p.m. Eastern Time); 42004
(October 13, 1999) 64 FR 56548 (October 20,1999) (Notice of Filing
of Proposed Rule Change and Amendment Nos. 1 and 2 and Order
Granting Accelerated Approval of Proposed Rules Change and Amendment
Nos. 1 and 2 by the Chicago Stock Exchange Relating to the
Implementation of an Extended Hours Trading Session).
\128\ See, e.g., FINRA Rule 2265, Investors Exchange Rule 3.290,
Nasdaq Section 20.
\129\ The SIPs, which collect, consolidate and disseminate
consolidated data, including the NBBO, in the equity market are
currently governed by (1) the Consolidated Tape Association Plan
(``CTA Plan''), (2) the Consolidated Quotation Plan (``CQ Plan''),
and (3) the Joint Self-Regulatory Organization Plan Governing the
Collection, Consolidation, and Dissemination of Quotation and
Transaction Information for Nasdaq-Listed Securities Traded on
Exchanges on an Unlisted Trading Privileges Basis (``UTP Plan'').
---------------------------------------------------------------------------
The Commission is considering whether the 24X proposal to operate
as an exchange that permits continuous trading is consistent with
Section 6(b)(5) of the Act, which requires, among other things, that
the rules of an exchange be designed 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 mechanisms of a free and open market and a national market
system, and in general protect investors and the public interest,
particularly given the lack of transparency during the 24X Market
Session. Specifically, the SIPs currently do not operate during the
hours the 24X Market Session is proposed to occur and therefore
quotation and last sale information, including the calculation of an
NBBO, would not be available during the 24X Market Session. The
Commission is evaluating whether the absence of consolidated market
information during the 24X Market Session is consistent with Section
6(b)(5) of the Act.\130\ The Commission is considering whether 24X's
proposed investor disclosures,\131\ which mirror those made available
by other exchanges,\132\ are sufficient to highlight the what appear to
be unique risks associated with continuous trading during the 24X
Market Session. Specifically, the Commission is evaluating whether
these disclosures, currently used for exchange pre-market and post-
market trading sessions, sufficiently inform investors of the greater
potential risks associated with the significantly expanded after-hours
trading that 24X proposes for its 24X Market Session.
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\130\ One commenter states that 24X has not sufficiently
analyzed how the Exchange would comply with certain Commission rules
and interact with other exchanges when the SIPs are not operating.
See Nasdaq Letter at 2. The commenter ``encouraged'' the Commission
to consider the potential risks resulting from the absence of a
real-time NBBO. See id. Further, the commenter states that the 24X
proposal would not allow for technical changes that typically take
place during pauses in the trading day. See id., at 3.
\131\ Proposed 24X Rule 3.21.
\132\ See supra note 128.
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Next, the Commission is considering whether the rules proposed by
24X to address certain risks associated with trading during the 24X
Market Session are consistent with the Act. First, certain mechanisms
that address volatility in individual symbols and the equities market
as a whole are not available during the after-hours sessions.\133\ The
Commission is considering whether the 24X proposed risk and volatility
moderators are consistent with Section 6(b)(5) of the Act. Second, 24X
proposes to impose on its members certain requirements governing risk
management controls and supervisory procedures \134\ that are
[[Page 54744]]
similar to requirements imposed by other exchanges.\135\ The Commission
is evaluating whether such proposed risk management controls and
supervisory procedures, which appear to be based on requirements that
were established for the current trading hours and environment are
sufficient during the 24X Market Session or whether additional
mechanisms would be needed. The Commission is also considering how the
relevant clearing agencies for equities, the National Securities
Clearing Corporation (``NSCC'') and the Depository Trust Company, would
address any potential credit, market, and liquidity risks associated
with trades submitted by the Exchange when the markets, banks, Fedwire,
and any providers of settlement services are closed for business.\136\
The Commission is considering whether the 24X proposal would permit
risk to be managed in a manner consistent with the requirements of
Section 6(b)(5) of the Act that an exchange's rules be designed 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 mechanisms of a free
and open market and a national market system, and, in general protect
investors and the public interest.
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\133\ Specifically, Limit Up--Limit Down trading pauses and
market wide circuit breakers are unavailable during after-hours
trading.
\134\ See Proposed 24X Rule 11.10(g). The Market Access Rule,
Rule 15c3-5, referred to in proposed 24X Rule 11.10(g), requires
broker-dealers with market access to, among other things, establish,
document, and maintain a system of risk management controls and
supervisory procedures reasonably designed to manage financial,
regulatory, and other risks of this business activity. 17 CFR
240.15c3-5.
\135\ See, e.g., Cboe Rule 5.36(f); CboeEDGX Rules 21.9(f);
Nasdaq Rule 4757(b); Nasdaq BX Rule 4758(c); MEMX Rule 11.11(g).
\136\ Three commenters raised concerns relating to 24X's ability
to clear and settle trades after-hours. See Nasdaq Letter at 3
(stating that US equities clearance and settlement does not operate
on a 24/7 basis); NYSE Letter at 2-4 (stating that 24X does not
describe any procedures or process for NSCC to clear trades during
the 24X market session); and Blue Ocean Letter at 4 (stating that
24X has not addressed the daily settlement of trades with NSCC when
NSCC and its constituent members are typically closed). One
commenter also questioned whether 24X would be able to clear trades
on a continuous net settlement system as proposed under its Rule
11.2 because NSCC is not open for business on weekends. Id.
---------------------------------------------------------------------------
Further, the Commission is considering other issues raised by
commenters about 24X's proposal to substantially extend exchange
trading hours. Commenters raise concerns about whether 24X's proposal
is consistent with the requirements of Section 6(b)(5) of the Act that
an exchange's rules be designed 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 mechanisms of a free and open market and a national market
system, and, in general protect investors and the public interest.
Specifically, commenters raised concerns about the effect of 24X's
proposal on market-wide surveillance.\137\ These commenters stated that
the 24X proposal does not sufficiently detail how 24X will coordinate
with primary listing exchanges to surveil securities during the 24X
Market Session or how market surveillance will work generally.\138\
---------------------------------------------------------------------------
\137\ See Nasdaq Letter at 4-5. See also Blue Ocean Letter at 5-
6.
\138\ See id. One commenter states that 24X's proposal would be
the first occurrence of a national securities exchange that utilizes
unlisted trading privileges to operate outside the trading hours of
the primary listing exchange. See Nasdaq Letter at 3.
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In addition, commenters stated that 24X has not sufficiently
explained how 24X will comply with relevant Commission rules in light
of 24X's novel features.\139\ Specifically, one commenter states that
the 24X proposal does not explain how 24X intends to comply with
Regulation NMS Rules 602, 603, 610 and 611 and Regulation SHO
generally.\140\ The commenter also stated that the 24X's proposed
routing relationship with Instinet is not adequately described,
especially in light of the 24X Market session when other exchanges are
closed.\141\
---------------------------------------------------------------------------
\139\ See Nasdaq Letter at 3. See also Blue Ocean Letter at 3
and 5.
\140\ See Blue Ocean Letter at 3 and 5.
\141\ See Blue Ocean Letter at 3 (stating that it is
``critical'' for the Commission and other market participants to be
able to understand and evaluate how routing of orders will be
administered when other markets are closed).
---------------------------------------------------------------------------
A commenter stated that listed companies often release material
information outside of core market hours and that primary listing
exchanges typically require companies to notify their primary listing
exchanges prior to the release of such information to allow the
exchange to determine whether a trading halt is necessary.\142\ The
commenter suggested the Commission consider the effect the 24X Market
Session would have on the disclosure of material information and the
volatility in securities outside of core hours trading hours when
material information is released.\143\
---------------------------------------------------------------------------
\142\ See Nasdaq Letter at 4.
\143\ See id.
---------------------------------------------------------------------------
A commenter stated that the 24X proposal does not address how 24X
will handle the elimination of natural trading pauses when corporate
actions, such as stock splits, dividends, mergers and SPAC combinations
typically occur at the end of the trading day.\144\ The commenter also
stated that the 24X proposal does not adequately explain how 24X will
pause trading to allow for critical exchange, industry, and systems
tests that are typically performed when the exchange is not
operating.\145\
---------------------------------------------------------------------------
\144\ See id. Specifically, the commenter referenced corporate
actions including stock splits, dividends, and mergers that
typically take effect at the end of the trading day.
\145\ See id. Specifically, the commenter references tests such
as general customer testing, disaster recovery tests, industry-wide
business continuity tests.
---------------------------------------------------------------------------
1. Fractional Shares
24X proposes to permit orders to be submitted in round lots, mixed
lots or odd-lots. Orders are proposed to be submitted in as small as 1/
1,000th of a share.\146\ 24X's proposal does not describe how trading
in fractional shares would occur. Trading in fractional shares on an
exchange raises issues relating to trade reporting,\147\ custody,
clearance \148\ and settlement, and quote display. The Commission is
considering whether 24X's proposal to accept orders and offer trading
in fractional shares in units as small as 1/1,000th of a share is
designed to 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, to protect investors and the public interest,
consistent with Section 6(b)(5) of the Act.
---------------------------------------------------------------------------
\146\ See supra note 101.
\147\ See Nasdaq Letter at 3. (``the SIPs do not currently allow
for the reporting of fractional shares'').
\148\ See Nasdaq Letter at 3 and NYSE Letter at 3.
---------------------------------------------------------------------------
Three commenters raised concerns over 24X's proposal to allow for
trading in fractional shares. Three commenters stated that 24X's
proposal does not sufficiently explain how trading in fractional shares
would function.\149\ One commenter stated that it is unclear from 24X's
proposal how trading in fractional shares will comply with certain
relevant
[[Page 54745]]
Commission rules.\150\ Two commenters also stated that the 24X proposal
has not adequately described how fractional share trading would operate
in connection with the SIPs,\151\ or how fractional shares would clear,
settle, and route to other markets that do not allow fractional share
trading.\152\ One commenter stated that because 24X's proposed rules
require all transactions to be cleared using a continuous net
settlement system, and because NSCC is not available for either after-
hours trading or trading in fractional shares, 24X will not be able to
provide after-hours trading and trading in fractional shares while also
complying with its own rules regarding clearing and settlement.\153\
Therefore, the commenter states that if 24X were approved as a national
securities exchange, it would immediately be in violation of Section
19(g) of the Act.\154\
---------------------------------------------------------------------------
\149\ See Blue Ocean Letter at 3. See also NYSE Letter at 2 and
Nasdaq Letter at 3. The commenters state that important information
including minimum trade size and how fractional trading would
interact with other Exchanges is not addressed.
\150\ See Nasdaq Letter at 3. The commenter specifically states
that 24X has not explained how fractional share trading is
consistent with Rules 602, 603, 610, and 611 of Regulation NMS.
\151\ See id. The commenter stated that 24X has not analyzed the
potential costs of technical enhancements to the exclusive SIPs. See
also NYSE Letter at 2-4 (stating that 24X is silent on whether it
intends to report to the SIP in fractional quantities or if it would
round to a whole share. Further, the commenter states that certain
studies have found that rounding up fractional shares to a whole can
distort reported market volumes).
\152\ See Nasdaq Letter at 3.
\153\ See NYSE Letter at 2-3.
\154\ Id. This commenter also states that it is unclear how
fractional share quotations would be incorporated into any potential
odd-lot quotation reporting, should odd-lot quotations reporting be
expanded in the future.
---------------------------------------------------------------------------
C. Sufficiency of Exhibits--Regulatory Funding
1. Exhibit I
To help ensure that 24X has and would continue to have adequate
funding to be able to meet its responsibilities under the Act, 24X
represents that, if the Commission approves 24X's application for
registration as a national securities exchange, US Holdings, as the
controlling owner of the membership interests in the Exchange, would
allocate sufficient assets to 24X to enable 24X's operation.\155\
Specifically, 24X represents that the US Holdings will make a cash
contribution to 24X of $5,000,000, ``in addition to any previously-
provided in-kind contributions, such as legal, regulatory, and
infrastructure-related services.'' \156\ 24X also represents that such
cash and in-kind contributions from the US Holdings will be adequate to
operate 24X, including the regulation of the Exchange, and that 24X and
the US Holdings have entered into an agreement that requires the US
Holdings to provide adequate funding for the Exchange's operations,
including the regulation of the Exchange.\157\ 24X represents this
agreement provides that (1) the Exchange shall receive all fees,
including regulatory fees and trading fees, payable by the Exchange's
members, as well as any funds received from any applicable market data
fees and tape revenue, and (2) US Holdings will provide the Exchange
with cash, cash equivalents, securities or other sufficiently liquid
instruments sufficient to help ensure that the Exchange's financial
resources (calculated as assets in excess of liabilities) remain
greater than $5 million.\158\
---------------------------------------------------------------------------
\155\ See Exhibit I of 24X's Form 1.
\156\ Id.
\157\ Id.
\158\ Id.
---------------------------------------------------------------------------
Further, any revenues received by the Exchange from fees derived
from its regulatory function or regulatory fines will not be used for
non-regulatory purposes or distributed to the US Holdings, but rather,
shall be applied to fund the legal and regulatory operations of the
Exchange (including surveillance and enforcement activities), or, as
the case may be, shall be used to pay restitution and disgorgement of
funds intended for customers (except in the event of liquidation of the
Exchange, which case US Holdings will be entitled to the distribution
of the remaining assets of the Exchange).\159\
---------------------------------------------------------------------------
\159\ See Proposed 24X Rule 15.2.
---------------------------------------------------------------------------
The Commission is considering whether 24X has satisfied the
requirements to file certain exhibits included in 24X's Form 1. In its
Form 1 application, 24X states that it is not filing audited financial
statements for itself as the applicant, as required under Exhibit I,
because ``24X National Exchange LLC has been formed but has not
commenced operations and does not yet have audited financial statements
for any fiscal year.'' \160\ Further, in the Exhibit I, 24X represents
that US Holdings ``shall make prior to the launch of the Exchange,
through its U.S. bank account, a cash contribution to the Exchange of
$5 million, in addition to any previously provided in-kind
contributions, such as legal, regulatory, and infrastructure-related
services.'' \161\ However, as discussed further below, 24X has not
explained or otherwise shown how the financial statements filed for the
US Holdings under Exhibit D reflect that US Holdings has or will have
sufficient funds to provide 24X with such cash contributions.
---------------------------------------------------------------------------
\160\ See Exhibit I of 24X's Form 1.
\161\ Id.
---------------------------------------------------------------------------
2. Exhibit D
Exhibit D requires that the applicant file unconsolidated financial
statements for each subsidiary or affiliate for the latest fiscal year.
Such financial statements must include a balance sheet and income
statement ``with such footnotes and other disclosures as are necessary
to avoid rendering the financial statements misleading.'' In the US
Holdings balance sheet filed under Exhibit D, total assets are reported
as negative $439.\162\ It is unclear as to what this number signifies,
as assets generally cannot be below $0. Further, this negative $439 is
not reflected in the financial statements of other subsidiaries. The
financial statements filed by 24X do not include accompanying footnotes
or disclosures that explain these discrepancies. Moreover, while in
Exhibit I 24X states that US Holdings ``shall make prior to the launch
of the Exchange, through its U.S. bank account, a cash contribution to
the Exchange of $5 million, in addition to any previously provided in-
kind contributions, such as legal, regulatory, and infrastructure-
related services,'' \163\ the Commission is considering whether the
financial statements filed for US Holdings under Exhibit D show US
Holdings has the financial resources to make a $5 million U.S. Dollar
cash infusion, as 24X states, such that the Exchange would be organized
and have the capacity to carry out the purposes of the Act, including
the ability to enforce compliance by its members, and persons
associated with its members, with the federal securities laws and rules
thereunder and the rules of the exchange.
---------------------------------------------------------------------------
\162\ See Exhibit D of 24X's Form 1.
\163\ See Exhibit I of 24X's Form 1.
---------------------------------------------------------------------------
In addition, the Commission is considering whether the financial
statements for the US Holdings filed under Exhibit D for the Form 1
show that US Holdings would be able to provide the financial support
that 24X describes in its Form 1. In its Form 1 application, 24X states
that it is not filing audited financial statements for itself as
applicant, as required under Exhibit I, because ``24X National Exchange
LLC has been formed but has not commenced operations and does not yet
have audited financial statements for any fiscal year.'' \164\
Moreover, 24X further states that, ``[i]f the Commission approves the
Exchange's Form 1 Application for Registration as a national securities
exchange, 24X US
[[Page 54746]]
Holdings LLC (``Parent''), as the controlling owner of the membership
interests in the Exchange, will allocate sufficient assets to the
Exchange to enable its operation.'' \165\ Given the applicant's stated
reliance on US Holdings for sufficient financial support to enable its
operation, the Commission is considering whether the unaudited
financial statements filed for the applicant's parent, US Holdings,
show that the Exchange would be organized and have the capacity to
carry out the purposes of the Act, including the ability to enforce
compliance by its members, and persons associated with its members,
with the federal securities laws and rules thereunder and the rules of
the exchange.
---------------------------------------------------------------------------
\164\ Id.
\165\ Id.
---------------------------------------------------------------------------
D. Location of Exchange Trading Platform
24X proposes to locate its primary trading platform in the Equinix
data center located in New York (``NY4''). 24X also proposes to locate
a ``mirrored'' primary platform in London (``LD4'').\166\ 24X did not
describe how the LD4 platform would operate along with the platform in
NY4. The Commission is considering whether the proposal is consistent
with the requirements under Section 6(b)(1) of the Act, which among
other things, requires the exchange to be so organized and have the
capacity to be able 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 provisions of the Act. The Commission also is
considering whether the proposal is consistent with Section 6(b)(5) of
the Act, which requires the rules of the exchange to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged with 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.
---------------------------------------------------------------------------
\166\ See Exhibit E-1 of 24X's Form 1 at 1.
---------------------------------------------------------------------------
One commenter expressed concern over this aspect of 24X's
proposal.\167\ The commenter stated that no other U.S. exchange
operates a mirrored primary U.S. trading platform outside of the United
States and stated that 24X does not explain this structure in its
proposal.\168\ Further, the commenter stated that the Commission should
consider the proposed structure's jurisdictional and operational
implications and whether such a structure ``would open the door to
foreign markets to operate mirrored markets within the United States.''
\169\
---------------------------------------------------------------------------
\167\ See Nasdaq Letter at 4.
\168\ Id.
\169\ Id.
---------------------------------------------------------------------------
IV. Request for Written Comment
The Commission requests that interested persons provide written
views and data with respect to 24X's Form 1 and the questions included
above or other relevant issues. Comments may be submitted by any of the
following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#7e0c0b121b531d1113131b100a0d3e0d1b1d50191108"><span class="__cf_email__" data-cfemail="5725223b327a34383a3a323923241724323479303821">[email protected]</span></a>. Please include
File Number 10-239 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number 10-239. This file number
should be included on the subject line if email 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 website (<a href="http://www.sec.gov/rules/other.shtml">http://www.sec.gov/rules/other.shtml</a>).
Copies of the submission, all subsequent amendments, all written
statements with respect to 24X's Form 1 filed with the Commission, and
all written communications relating to the application 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 website 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 10:00 a.m. and 3:00 p.m. 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 10-239 and should be submitted
on or before September 28, 2022.
By the Commission.
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-19264 Filed 9-6-22; 8:45 am]
BILLING CODE 8011-01-P
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